Abstract
This paper wishes to problematize the foundations of production governance and offer an analytical perspective on the interrelation between agents’ preferences, strategic choice, and the public sphere (defined by impacts of choices on ‘publics’ who do not have an input in strategic choice, and by contextual conditions). The value is in the idea of preferences being social in nature and in the application both to the internal stakeholders of the organisation and its impacts on people outside. Using the concept of ‘strategic failure’ we suggest that social preferences reflected in deliberative social praxis can reduce false beliefs and increase individual wellbeing. From this approach, the paper offers a taxonomy of production organisations, based on social preferences about two variables: (i) the governance form (i.e. ownership and control rights) (ii) other strategic decisions that characterize the management of a company at a more operational level, once its fundamental legal form has been chosen. Each dimension (governance and strategic decisions processes) is then categorised alongside two basic preferences: towards inclusion or exclusion of ‘publics’ that have no substantial access to decision power about these variables. Our framework explains governance heterogeneity by contrasting exclusive and inclusive social preferences in cooperatives, social enterprises, as well as traditional corporations. A discussion of the evolution of social preferences and organizational forms is addressed through examples and regional experiences.
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Notes
The idea of externalities has been widely acknowledge in economics. As we explain later in the paper, however, our approach differ from market failure, supporting the necessity of develo** complex coordination mechanisms aimed at discovering complex connections through enquiry and deliberation, beyond the price mechanism. This can be justified because external effects may need to be discovered but also, and more crucially, because it is from the choice of processes and praxis that wider social consequences derive. Moreover, deliberative processes originate social outcomes that are at least partially intended and governed, whilst the price mechanism generates externalities, which are not part of the objective function of the decision-maker (at last formally).
According to standard views in economics, the State is viewed as acting for the public interests against market failures or, as the Chicago school suggests, as the maker of regulatory policies which are nonetheless captured by specific industries for their own private interest. These perspectives and debate are reviewed by Chang (1997).
In Sandel’s view, the temptation to decontextualize choice from its context has seduced Rawls (1971) who, whilst seeking a construct for achieving just choices, had to cut bridges with individual identity and experience (Sandel 1982; Quinn et al. 1997). This is however a problematic argument that would deserve a wider debate. In Rawl’s defence, the pre-commitment to the creation of an unbiased normative framework can be considered as a necessary condition for the development of the type of democratic interaction envisaged for example in the pragmatist approach.
Market failure theory has emphasised that in most circumstances individual preferences have external (positive or negative) implications, although these are considered mainly as indirect effects of private action, which can be explained by the perfectibility of market institutions, as for externalities and market power (see also footnote 1).
Building on the limitations of inductive reasoning, Taleb (2007) has recently attributed to rare improbable events, which are not knowledgeable through empiricism, the main reason of contextual uncertainty.
Typically marking internal practices about decisions on incentives, investments, inter-firm coordination, industrial relations, community involvement, environmental and consumer policy.
Academia has also been argued to have a specific policy role in selecting and weighting beliefs. Within economics and business, in particular, the discipline has historically exerted strong influence on economic policies as well as in sha** the nature of businesses and their strategies (Currie et al. 2010; Fleckenstein 1997).
The perspective is different from stakeholder theory, where the inclusion of stakeholder interests is typically presented in the context of win–win situations that emerge spontaneously and despite a conventional governance structure.
In Italy, after 1924, during fascism, and until the end of the war, all civic and economic associations had been forbidden by law, thus putting a halt to the diffusion of cooperatives.
Over the last 30 years, in Italy cooperation entered a clear growing pattern. In 2001 cooperative firms represented 1.2 % of firms counting for about 6 % of the total employment (ISTAT 2008). Using national census data Zamagni (2006) observes that during 1990–2000 the overall occupation grew by 60.1 % within cooperatives, contributing to one-fourth of the overall occupational growth for the decade.
Article 45 states: “The Republic recognises the social function of co-operation of a mutualistic, non-speculative nature. The law promotes and encourages co-operation through appropriate means and ensures its character and purposes through adequate controls…”.
In the Trentino region, where cooperation has a long-standing tradition, national legislation was anticipated by a regional law in 1989.
In 1994, Issan, an international research and policy network on cooperative and social enterprises later named Euricse, was created in collaboration with the cooperatives federation, the representative association for commerce and tourism and the Faculty of Economics at the University of Trento, in the Trentino Region. Membership was later extended to ensure the development of the initiative and gain international visibility. The institutional recognition of cooperative models was strengthened further in 1997 when the Third Sector National Forum was officially instituted at the national level and recognised by the government as representative of the sector’s interests, and in 1999 when sectorial data started to be collected in periodic census by the national statistical institute, ISTAT.
Differently from the UK, in some countries demutualisation is not an option. If it were, as the UK case shows, opportunistic behaviours of members or managers would be incentivised. In fact, because cooperatives accumulate indivisible reserves over time, selling an established cooperative permits members to appropriate all the value accumulated by previous members, placing the continuity of cooperative firms in jeopardy (Tortia 2007).
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Acknowledgments
I am very grateful to the anonymous reviewers of this Journal for their critical analysis and substantive suggestions. During the drafting of this manuscript, I benefited from specific conversations with Ermanno Tortia, Jerry Hallier, Lorenzo Sacconi, Carlo Borzaga, Bruce Cronin, Avner Ben-Ner, Vladislav Valentinov, Rob Branston, David Comerford, David Erdal. My thanks go to the participants in the third ICAPE Conference which was held at the University of Massachusetts Amherst, (Mass.) in November 2011. Ideas in the paper were lately discussed at the first Heterodox Microeconomics Workshop at the University of Greenwich, UK, in June 2013. Special thanks go also to my students in socio-economic development for having stimulated discussion and enquiry on the topic. The responsibility for the contents of the paper remains mine.
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Sacchetti, S. Inclusive and Exclusive Social Preferences: A Deweyan Framework to Explain Governance Heterogeneity. J Bus Ethics 126, 473–485 (2015). https://doi.org/10.1007/s10551-013-1971-0
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DOI: https://doi.org/10.1007/s10551-013-1971-0