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Sabatini, F., Modena, F, Tortia, E. (2012). Do cooperative enterprises create social trust?

This paper by Fabio Sabatini, Francesca Modena and Ermanno Tortia performs the first empirical investigation into the role of different types of enterprises in the creation of social trust. Drawing on a unique dataset collected through the administration of a questionnaire to a representative sample of the population of the Italian Province of Trento in March 2011, the authors find that cooperatives are the only type of enterprise where the work environment fosters the social trust of workers.

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Introduction

Cooperative enterprises represent a limited, but growing phenomenon in contemporary economies. Since their origins they have been important actors in supporting the most disadvantaged social groups, in guaranteeing involvement and community development, and in complementing public welfare systems. Their socially oriented nature is mainly connected to their not-for-profit entrepreneurial action, to the democratic governance based on the “one member, one vote” rule, and to the concern for the community in which they are located, as established by the seventh International Co-operative Alliance (ICA) principle, introduced in the ICA gathering in Manchester in 1995 (Stikkers, 2009). Most importantly, in recent years these businesses have strengthened resilience to the crisis in most economic systems, by increasing organizational diversity and providing proactive answers to worsening economic conditions. While competitive markets and the public sector are experiencing serious difficulties in most countries, cooperatives are showing more stability and reactivity (Stiglitz 2009). This is mostly because of their reduced reliance on support by financial markets resulting in less involvement in the financial crisis.

Some theoretical works have claimed that the socially oriented nature of cooperatives and their inclusive governance may have relevant effects in terms of social cohesion and growth’s sustainability (Dow, 2003; Stiglitz 2009; Birchall, 2010). Empirical testing of the social effects of cooperative firms is being developed in various directions. The impact of cooperatives on sustainable and stable employment has been analysed in seminal papers by Miyazaki and Neary (1983) and Ben-Ner and Jones (1995) whose claims have found support in various empirical studies (see for example Bonin et al., 1993; Craig and Pencavel, 1992, 1994; Burdìn and Dean 2009). More recent works focus on the social impact of cooperatives in terms of income inequality, public health, employment protection (Ben-Ner et al. 2011; Erdal, 2012; Freundlich and Gago, 2012; Perotin, 2012). Yet, to the best of our knowledge, no result has been presented to date concerning the effects of cooperative firms on the creation and strengthening of social trust, and on the related accumulation of social capital.

This paper contributes to the literature by carrying out the first empirical investigation into the role of different types of enterprise in the creation of social trust. Our research question has important societal and economic implications because the creation and diffusion of trust is connected to the ability of the economy to function properly and to reproduce itself over time. As will be outlined in Section 2, the economics literature identifies trust as one of the pillars of economic development. Classical and neoclassical economists argued that the well-functioning of markets, the resilience of the economic system in times of crisis and, in the long run, the sustainability of growth and development, rely on those institutions (whether formal or informal) that foster the sharing and diffusion of feelings of trust and norms of reciprocity (Smith 1759; Mill 1848; Arrow 1972). More recently, the social capital literature has provided evidence that trust supports growth and development through a number of channels such as, for example, the reduction of transaction costs and the enforcement of contracts (Putnam 1993; Knack and Keefer 1997; Guiso et al. 2008; 2009). A better understanding on how different entrepreneurial models affect the diffusion of trust would thus provide a crucial contribution to the literature and important insights for future research on the role organizational diversity.

Our empirical analysis relies on a unique dataset collected through the administration of a questionnaire to a representative sample of the population of the Italian Province of Trento in March 2011 (see Section 3 for further details). The dependent variable is given by responses to the question: “Thinking about the difference between the day you started your current work and today, how do you think that the work environment has influenced your trust towards others?”. Interviewees were requested to focus exclusively on changes ascribable to the job they currently hold.  

After controlling for sample selection bias, we use ordered probit models to assess the determinants of work environment-driven changes in the social trust of workers. Our results show that cooperative enterprises can create social trust among workers, unlike any other type of enterprise.

More specifically, we find that the status of being employed in a cooperative enterprise increases the probability that work has improved the social trust of workers by 47.5% relative to employment in public enterprises, by 36.9% relative to private enterprises and by 51% relative to self-employment. This finding suggests that the development of cooperative enterprises – and, more generally, of less hierarchical models of governance and of not purely profit maximizing forms of enterprises – may play a crucial role in the diffusion of trust and in the accumulation of social capital. This may contribute to increased resilience of the economic system, especially in times of crisis.

The design of the questionnaire allows us to exclude the existence of reverse causality, since changes occurred in workers’ social trust during their current occupation cannot in any way influence their past choice to accept their current job. However, even if the way the trust question was posed is conceived to make interviewees focus exclusively on changes related to the environment and experience related to their current job, it may have been difficult for them to distinguish the effect of employment in cooperative enterprises from other individual or local characteristics or shocks that may have influenced the outcome variable. For example, intrinsically  motivated individuals may have a higher propensity to trust others and may be more willing to work in organizations characterised by participatory and democratic decision-making processes.

To deal with these issues, we include in the trust equation a wide set of individual and household control variables measuring respondents’ values, beliefs, perceptions, and behaviours. In particular, we control for workers’ intrinsic motivations as a predictor of the propensity to develop trust. In addition, in order to eliminate local-specific heterogeneity, we also run regressions with local fixed effects computed at the level of “local labour systems”.

The outline of the paper is as follows. Section 2 presents the motivation of the study and briefly reviews the related literature. Section 3 describes our data and reports some descriptive statistics. The empirical analysis of the role of different types of enterprise in the creation of social trust is presented and discussed in section 4. Concluding remarks and a brief discussion of implications for future research close the paper.

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Authors

Sabatini, Fabio

I am Researcher in Economics at the Department of Economics and Law of Sapienza University of Rome, where I currently teach Public Economics as Aggregate Professor at the Faculty of Economics. I previously held posts at the Departments of Economics of the Universities of Trento, Siena, Padua, and...

Modena, Francesca

Francesca Modena is Post-doc Research Fellow in Economics at the University of Trento. Her main research interests are Poverty and Development, Household Economics, Well-being and social capital.   Current position • Research Fellow, Department of Economics, University of Trento....

Tortia, Ermanno

Ermanno Tortia is researcher at the University of Trento, Department of Economics. His research is focused on the economics of cooperation, on social enterprises and non-profit organizations, with particular attention paid to labour economics and local development. He has taught Labour Economics at...

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