Blooming Together or Wilting Alone? : Network Externalities and Mondragón and La Lega Co-Operative Networks

Abstract

Abstract This paper examines strategies developed by Mondragn Cooperative Corporation in the Basque Region of Spain, and La Lega cooperative network in Italy, to mitigate disadvantages of the typical cooperative organizational structure and market position but without losing its critical advantages and attractive features. A detailed institutional overview of these most prominent examples of successful worker cooperative clusters is presented. The paper argues that there are network externalities in coop formation and survival, that imply that even if other barriers to entry are overcome and a coop is established it may not survive, not because of intrinsic inefficiencies, but simply because of the lack of other cooperative entry, and to some extent also because of a lack of coordination among coops that do enter the market. The central hypothesis of this paper is that coop leagues can help to internalize these externalities, and its application is to show how this has been accomplished in practice, at least in part. The paper examines recent institutional responses to increasing global competition and requirements to improve access to finance and accelerate the pace of innovation and the improvement of product quality within La Lega and Mondragon. A systematic comparison of these two networks is presented along ten dimensions selected either for their role in the theoretical literature on cooperatives, labor managed and similar firms, or for their prominence in the formal structures of one or both networks; in each case the role of coop networks, whether through consortia or industry, regional or national associations is highlighted. Evidence of convergence between these two most successful, but fully independent, examples of coop clusters is proposed as a method of ge...

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