Thursday, 7 July 2016

Are cooperatives more productive than investor-owned firrms?

An often asked, if not often answered question. Well now there is an article that sets out to answer the question, at least for the case of Portugal.

Natália P. Monteiro and Odd Rune Straume have a new working paper, "Are cooperatives more productive than investor-owned firms? Cross-industry evidence from Portugal".

And the answer is that cooperatives are less productive than investor-owned firms.

The abstract reads:
We analyse empirically whether cooperatives and investor-owned firms differ in terms of productive efficiency. Using rich Portuguese panel data covering a wide range of industries, we apply two different empirical approaches to estimate potential differences in total factor productivity between the two groups of  firms. The results from our benchmark random-effects model show that cooperatives are significantly less productive, on average, than investor-owned firms. This conclusion is to a large extent confirmed by the results from System-GMM estimations. The lower productivity of cooperatives applies to a wide spectrum of industries. In six out of thirteen industries, cooperatives are outperformed by investor-owned firms in all empirical specifications considered, while there is no industry in which cooperatives are consistently found to be the more productive type of firm.
Of course it has been argued that an investor-owned firm is a particular type of producer cooperative; a capital (or lenders’) cooperative.

In their analysis Monteiro and Straume combine all forms of cooperatives but the basic results don't change when they look at particular types of cooperatives within a given industry. That is, productive efficiency of cooperatives versus investor-owned firms is not particularly related to cooperative type.


Brett said...

What about firm size? I'd expect cooperatives to be much smaller than investor-owned firms on average.

Paul Walker said...

I'm sure many cooperatives are small but its not clear what effect size has on efficiency. If getting bigger was always efficiency enhancing why isn't there just one firm producing everything? Also some cooperatives are very large, just think of Fonterra in terms of the NZ economy.

Jim Rose said...

Depends what you mean by a cooperative. There are plenty of worker owned firms in the professions if few see them as cooperatives.

Paul Walker said...

Its not clear to me what happens to partnerships in their data. Worker cooperatives are part of cooperatives and partnerships could be part of that. Their data seems to be divided into two broad categories: Sole Proprietorship and everybody else. They exclude Sole Proprietorship from the analysis and I'm guessing partnerships are not part of that group so must be in analysis but I don't know if they are in cooperatives.

Paul Walker said...


I emailed one of the authors and it turns out that partnerships are a different ownership category in their data and are not part of the definition of cooperatives.