Abstract
By general agreement, one of the main obstacles to the growth of producer cooperatives is difficult investment financing, due to inadequate Capitalisation levels and the resulting inability to lodge sufficient collateral with lenders. Moreover, worker-owned firms are considered not very reliable because they suffer from problems of moral hazard and insufficient commitment. Unfortunately, the literature on this issue is not extensive and has weaknesses that are highlighted in the paper. By means of its critical analysis, it is possible to provide evidence that the funding difficulties caused by the particular structure of cooperative firms can be effectively tackled by creating an institutional framework within which cooperatives would be offered a wider range of organizational options comparable to those open to traditional enterprises. Finally, it is proved that the willingness of the members to fund the operations of their cooperative with loan capital may not be enough to mobilize external credit. For member financings to persuade potential providers of funds to place trust in a firm, third-party claims must necessarily qualify as senior debt and be repaid before the claims of the partners are settled.
Highlights
By general agreement, one of the main obstacles to the growth of producer cooperatives is difficult investment financing
One of the main obstacles to the growth of producer cooperatives is difficult investment financing. As this problem stems both from the need to stand up to competition from capitalistic enterprises in the credit market and from an institutional framework tailored to the needs of the latter, the options available to remedy this situation are either changing the organisational structure of cooperative firms or amending a legal framework which plays into the hands of the dominant enterprise and must necessarily put workercontrolled firms at a distinct disadvantage
A temporary conclusion we may draw at this stage is that the funding difficulties caused by the particular structure of cooperative firms can be effectively tackled by enforcing suitable legislative reforms and creating an institutional framework within which cooperatives would be offered a wider range of organisational options comparable to those open to traditional enterprises in capitalistic economies
Summary
One of the main obstacles to the growth of producer cooperatives is difficult investment financing. On the one hand, workercontrolled firms may fail to secure internal member financing in amounts that will help attract sufficient external resources; on the other, they will be unable to launch high-risk business projects since the partners will barely be prepared to venture their jobs and savings on risky deals (Meade 1972; Jay 1980).
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