Category Archives: Neoclassical economics

Cooperation defying economic theory

2011-03-08 Tuesday
How come a non-profit, state regulated public service media company can outperform every private counterpart in all respects, also in reaching an overwhelming share of the viewers? It’s not even an isolated Scandinavian phenomenon, we have BBC in Britain as another role model. Thus it should not be a mystery. But with respect to strict neoclassical economics it is.

We remember from our school books how the perfect society was formed, did we just let the invisible hand guide the egoistic economic man (within us all) act solely to maximize his personal gain. In such a society no cooperative or any other non-profit enterprise could compete with companies driven by the force that private profit creates. Still there are in our country lots of such competitive organizations built on idealistic grounds. It seems that the theory is in fact – quiet bad!

To start where work is really free of charge: estimates have been done that about 300 thousand man-years of work is performed in Sweden, completely without pay, in charity work, sports clubs and in many other activities (incidentally this figure roughly equals the number of unemployed). Then there is a large consumer cooperative, called Coop (formerly Konsum) which is a major actor in retail trade of everyday commodities. There is an interesting political component here. Konsum is somewhat despised in some bourgeoisie circles, who prefer the largest private alternative ICA.

ICA is a franchise organization, with the shop managers taking care of the (sometimes quite large) profits. Still ICA has not been able, through many decades, to oust Konsum from the market. It seems that the absence of a demand for profit creates enough economic margin for Coop to survive. So in every Swedish community there usually is an ICA-shop on one side of the main street, and a Coop-store on the other. Often ICA and Coop have engaged their own architects, responsible for designing a number of stores, so when you travel by car and pass all these small cities you have perfect déjà-vu experiences.

All this is by no means socialism! Sweden has a much more privatized economy than France, among others. We have for instance probably the most privatized railway system in the world, with almost 30 different companies driving trains to and fro on the rails. Together with neglected maintenance the railway system thus has deteriorated. But that is a sad story in its own, which people here rather not think about.