Do co-ops make better businesses?
The first comprehensive study to compare the efficiency of employee-owned firms and conventional businesses has found, perhaps surprisingly, that traditionally-run companies could often be more efficient if they operated more like co-operatives.
Economists from the University’s Business School, together with Panthéon-Assas Paris-II University and Spain’s Mondragon University, also found that employee-owned firms in Europe are often larger than conventional businesses and at least as productive.
The research team, led by Professor of Economics Virginie Pérotin, looked at 7,000 French companies, including around 500 workers’ co-operatives, from 10 different industries in manufacturing, construction and services. They compared productivity, company size, investment and growth at the businesses during a period of moderate growth (1987-1990) and a period that included the 1990s recession (1989-1996).
Employee-owned companies differ from conventional businesses in a variety of ways. Typically, staff elect senior management and vote at AGMs, and receive the profits that are not re-invested in the company. They normally have a say in how the business operates, by proposing ways to improve production or being involved in strategic decisions.
Professor Pérotin said: “In the UK, employee-owned firms such as John Lewis are making political as well as business headlines. But, the success of John Lewis aside, there’s generally a widespread view that because workers’ co-operatives are managed by employees, they must be generally small, messy affairs that cannot possibly compete with ‘real’ businesses.
“In many ways, what we found goes against the image most people have of workers’ cooperatives. In some industries, co-operatives are larger, on average, than conventional companies, and in all the industries we studied they invest at least as much. Cooperatives also preserved jobs better during the 1990s recession.
“Employee-owned firms are at least as productive as conventional businesses. In fact, in several industries we studied conventional firms could increase their effectiveness if they did things the cooperative way. For example, workers’ co-operatives have less supervisors and managers than other businesses of the same size. In employee-owned companies, people don’t just work hard, but are also interested in improving the way the business works – ultimately, it’s their company.”
Productivity, capital and labour in labour managed and conventional firms is written by Fathi Fakhfakh of ERMES at Panthéon-Assas Paris II University, Virginie Pérotin of Leeds University Business School and Monica Gago of Mondragon University.
For more details contact V.Perotin@lubs.leeds.ac.uk