Values and Structure Matter:  Understanding Cooperation in Emilia-Romagna

Italy ranks among the top ten most cooperative countries overall and boasts the largest number of worker-owned co-ops in the world, over 54,000, employing over 1.2 million people. One particular region of Italy, Emilia-Romagna, has the highest concentration of cooperatives, with over 8,000 worker, consumer, housing, producer and other cooperatives. In this region, nearly two out of every three citizens are members of at least one of these cooperatives, two-thirds of which are worker-owned.

A worker-owner in one of Emilia-Romagna’s manufacturing cooperatives.

Employee-owned firms in Emilia-Romagna are mostly small, comprised of 10 to 15 workers, but are highly networked and produce products as diverse as precision jet engine parts, artisanal foods, and cutting edge industrial materials. These cooperatives have their own trade associations, research and development organizations, and legal and banking support businesses. With a population only about three times that of Maine, Emilia-Romagna has roughly 90,000 manufacturing enterprises of all types, making it an extremely entrepreneurial region. Social cooperatives provide a wide range of services to the elderly and differently abled, taking on a role played more often by governments in many other European countries.

With only 7% of Italy’s population, Emilia-Romagna generates 9% of its GDP, 12% of its exports, a startling 30% of its patents, and household wealth is 30% higher than the Italian average. In short, Emilia-Romagna is one of the most prosperous, entrepreneurial and equitable regions in all of Europe.

Emilia-Romagna is wonderful, but how did it come about? Myriad factors played significant roles in the development of the cooperative economy in the region:

History:  Many historical factors facilitated the growth of cooperatives and cooperation in Emilia-Romagna. Early merchants used loan circles as a means of finance, so that one merchant’s economic viability was a concern of all. Water management for agriculture in the Po River valley developed cooperatively, and the nature of regional sharecropping in the 19th Century linked peasants and landowners (mostly residents, not absentee) in a particularly mutualistic way. And manufacturing developed relatively slowly in the region, allowing for less disruptive adaptation and modernization of craft methods of production.

A favorable political and cultural climate: In the early 20th Century, revolutionary ferment positioned cooperatives squarely as political and social organizations. By the middle of the 20th Century, Italy facilitated political experimentation through more decentralized, regional governments, and the region chose policies favorable to the development of a cooperative economy.

A culture of cooperative entrepreneurship: Emilia-Romagna’s relatively close proximity to the heart of Europe both required and facilitated a highly entrepreneurial spirit. As noted above, this entrepreneurship entails highly networked small firms that permit both complex production processes and nimble responses to economic challenges and change. These networks are often in the configuration of “lead” and “satellite” firms, creating multiple business clusters that lower costs, increase productivity, and discourage outsourcing. Individual firms rely strongly on reputation: for quality, for reliability, and for flexibility. Of course, Principle Six (cooperatives help other cooperatives) operates powerfully in the region.  Beyond economics, most cooperatives are deeply embedded in the social fabric of their communities.

Formal institutional framework: Numerous formal measures both recognize and assist cooperatives in Emilia-Romagna (and to a significant degree, the rest of Italy). At the national level, Article 45 of the Italian constitution specifically identifies cooperatives and their rights. Cooperatives in Emilia-Romagna enjoy tax advantages and laws favorable to the formation of research and production consortia. Cooperatives are required to reinvest a substantial portion of their economic surplus (rather than distributing all profits to members), fostering a strong orientation toward future production that looks well beyond next quarter’s profit-and-loss. If a cooperative wishes to dissolve, its reserves must be used to support other cooperatives or community development funds, and cooperatives cannot be taken over by investor-owned firms.

While understanding these historical and structural aspects of Emilia-Romagna’s cooperative economy are important, what is less well understood, and crucial to their success, is the role of three core, underlying cultural values: stewardship, agency and transparency.  

Cooperatives enable and promote these values at the same time that the values give rise to cooperative structures and practices.

In Emilia-Romagna, the role of owner-members in co-op enterprises is considered to be one of stewardship, safeguarding a community resource for the benefit of multiple stakeholders including, crucially, future generations. One of the strongest expressions of stewardship is the fact that Italian cooperatives routinely set aside the majority of company profits in “indivisible reserves,” i.e. assets that can never be paid out to individuals and can only be used for furthering the development of the enterprise, or invested in another cooperative endeavor. The practice of contributing to indivisible reserves predates government tax incentives to do so by nearly half a century, and continues unabated despite recent reductions in those incentives. More broadly, cooperative members take on responsibilities as solemn trustees, and wield their influence for the greater good as much as for their own prosperity.

The fact that co-op members can wield influence is due to the second core value, agency. Co-op members contribute to, debate, and vote on the business’s annual budget. They also vote for the Board of Directors, which takes a very active role in representing member needs and interests. Meetings to review strategy are held much more frequently than annually. Members have rights of influence to go along with their stewardship responsibilities.

A third value, transparency and clarity, makes those rights effective. Company financials are posted publicly for members to review, and members receive extensive help understanding those statements. This value is also expressed in Italian law.

These three values contribute to individual co-ops’ success and their application among co-ops, combined with their orientation toward entrepreneurship, innovation and manufacturing-toward “building things”-really creates a cooperative system that produces both prosperity and equity, while safeguarding autonomy and independence. The success of Italian cooperatives shows a way to truly express American values of entrepreneurship and opportunity. It would require, however, setting aside the notion that focusing exclusively on individual and short-term benefits is either a desirable or laudable way to build a business or an economy.