Markets and Solidarity: Social Cooperatives in Italy’s Emilia-Romagna Region

Hey There. Here's an excerpt from a longer article I just wrote on social cooperatives in Emilia-Romagna. The longer version will be up soon on CLCR's website. I'll put a link up here too for anyone who's interested in getting more details. This is kind of a response to this article about privatizing welfare.

... Matt

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Introduction

Bologna is the capital of Emilia-Romagna, a region in the north-central part of Italy. In many ways this is a remarkable place.

Emilia-Romagna is a region that has successfully combined a dynamic, advanced manufacturing economy with high wages, high standard of living and almost non-existent unemployment. Since the end of World War II, the regional economy has expanded – driven from within by the region’s hundreds of thousands of cooperatives and small firms – to absorb excess employment in agriculture, and to consistently provide decent employment for the region’s citizens, at the same time attracting immigrants from other parts of Italy and beyond. While throughout much of the last century, Italy was a place people left looking for work, Emilia-Romagna was a place people came to for good jobs.

Today, in the face of rising challenges from China and Eastern Europe, Emilia-Romagna continues to thrive. Despite Italy’s stagnant GDP growth, Emilia-Romagna’s economy continues to expand, on par with Europe’s top-performing regions, and even outpacing the United States last quarter.

There are a number of reasons for this region’s success. Chief among them is a unique culture of entrepreneurship, social justice and solidarity and a willingness on the part of the social movements in civil society to embrace the market, contending with their values to define the character of the regional economy.

In Emilia-Romagna there is one business for every ten residents. Owners frequently comment on the role their business plays in “the social development of the local community.” The largest, most globalized and technologically advanced firms in Emilia-Romagna are often cooperatives, owned by their workers. In fact, Emilia-Romagna has one of the strongest cooperative movements in the world: 4,000 cooperatively owned businesses, active in all sectors of the economy.

In what may seem like a contradiction to many, the majority of businesses and cooperatives in Emilia-Romagna are identified with the left politically: mainly the Socialist and Communist Party and their successor, the Left Democrats. And unlike traditional social democracies, that see social services as inherently redistributionist, policymakers, business owners and the labor movement here see providing citizens with the best health care, education and social services as part of the region’s competitive advantage. Social services are not just about redistributing wealth; they are key to producing it.

Social Cooperatives

One of the aspects of development in Emilia-Romagna that has attracted attention lately has been the growth of social cooperatives, and their increasingly important role in providing health care, social services and education. Today, in Bologna alone (Emilia-Romagna’s capital, and a city of just under 400,000) there are 113 social co-ops that employ nearly 5,000 social workers and provide services – daily – to nearly 19,000 people.

Italian law distinguishes between two types of social cooperatives: type A and type B. A type A social cooperative has the same structure as any worker-owned cooperative. In this case, rather than producing a product, they are providing a social service. A social co-op is legally defined by the extent to which the service they provide meets broader social needs.

Type A social cooperatives provide a wide range of services: from home healthcare to the elderly and disabled to physical therapy, from drug rehabilitation to immigrant services, from day care to nursing. These services are most often paid for publicly, and delivered by the social cooperatives. The social co-ops compete in a competitive “social market,” for public contracts.

Type B social cooperatives are a different animal altogether. They are what we might call “social enterprises,” and are often similar to the American idea of a sheltered workshop. Type B social co-ops provide job placement services, helping the disadvantaged (broadly defined) get on their feet, learn skills and start working. While a Type A social co-op might provide treatment for drug addicts, occupational and physical therapy to the disabled or cultural mediation services for immigrants, a Type B social co-op places someone with a job, most often in the social cooperative. Type B social co-ops enjoy some tax advantages, but compete on the market with private firms for customers. I’ve visited Type B social co-ops that operate printing presses, sell stationary and office supplies, clean offices, and even manufacture parts for Alfa-Romeo, the Italian automobile manufacturer.

Often a not-for-profit association will start a Type B cooperative to further advance its mission. For example, in Bologna, Alter Co-op was started by an association that helped Italian political prisoners find jobs as they transitioned out of prison. Because many private firms are loath to hire ex-offenders, this association started their own cleaning and office-supply business – they created their own business to hire the ex-offenders they were working with. All of the Type B social co-ops I’ve visited have been very clear that they are successful because of their ability to compete in the market – they don’t win clients because of their social mission.

In order to be defined as a social co-op, the business has to serve the “disadvantaged” which in Italy range from the physically disabled, to the socially marginalized. In the case of a Type B social co-op, it must be run democratically, one person one vote, and at least 30% of the membership and 30% of the Board of Directors must be disadvantaged. This is essentially a multi-stakeholder model of governance. It’s not uncommon for the Board of a Type B social co-op to include social workers, parents of disadvantaged persons served by the co-op and the disadvantaged persons as well.

Given the region’s history and culture, it shouldn’t be surprising that social co-operatives have taken root here. As Antonio Bria, President of EPTA, a consortium of social co-operatives in Bologna, put it:

In this context, those who worked in social services thought about doing it almost automatically… a social co-op… The success of the social co-op here is because of the consolidated cooperative movement.

Entrepreneurs in Emilia-Romagna have also long known that creating big businesses to achieve economies of scale doesn’t always offer the best competitive edge. Instead, networks of small businesses prefer to cooperate, informally and formally through consortia and other arrangements, to produce world-class products for the global market. This provides scale without sacrificing flexibility, quality and the autonomy of the single firm – which is often owned by one or more skilled workers.

Social co-operatives have followed a similar trend with the construction of consortia, or second-tier cooperatives, made up of the individual social co-ops. This preserves the autonomy of the single co-op, while achieving economies of scale, reducing costs and providing more comprehensive and better quality services.

The Dialectic Between Markets and Solidarity

According to Bria, EPTA’s mission is “to marry efficient management with internal solidarity.” Like most Emilian cooperators, Bria sees profit as a tool. “Making a profit,” he says with conviction, “is profoundly ethical because it only goes to improving services.”

Providing business development services (internal solidarity), particularly to the smaller co-ops, has become more difficult because increasing labor costs have consistently eaten away at their margins, despite increasing revenues. Nonetheless, EPTA provides an important degree of stability and aid to the individual co-ops, especially as they negotiate the ups and downs of the market.

At least two of the co-ops in the consortium have risked bankruptcy at one time. In both cases, it was internal solidarity that helped avert crisis and put the co-ops back on their feet. It is not uncommon for a healthier co-op to take on some of the contracts and personnel of a co-op that might be struggling, averting failure by shifting capacity and work internally. In one rather dramatic case, management in one co-op was cut from 14 to 9, and employment from 300 to 180. To deal with this crisis, the consortium resorted to a market mechanism. The struggling co-op raised its fees, while the other co-ops re-hired the laid-off managers and workers, and lowered their fees to draw clients away from the struggling co-op, allowing that co-op to reorganize and weather the crisis without reducing overall employment in the consortium, or letting social needs go unmet. Other times, the problem might be excess capacity in a particular co-op. In this case, co-ops that can afford to shed some contracts will shift work to those co-ops with excess capacity to serve as a short-term boost.

Bria describes this as an example of the kind of dialectic between the market and solidarity (“economia/solidarieta’”) that it is his job to manage.

Competition from Private Providers

When asked if competition from private providers of social services was a problem, Bria responded calmly, “no.” Currently, there is no competition for the provision of social services from private businesses. And regardless, he says, “our duty is to respond to the mission… if someone else can do it better, fine.” Clearly, Bria is confident that they do it better than anyone else.

The culture of Emilia-Romagna also puts profit-seeking businesses at a competitive disadvantage. Above all else, people expect quality care and services, something that cost-cutting to increase margins would threaten. This is also reflected in a recent regional law regarding competitive bidding to provide social services. By law, price can only one of the factors when a government makes a decision – and it can’t be the most important factor. Greater weight is given – by law – to the quantity and quality of the services offered.

Ultimately, the social co-op’s competitive advantage comes from the fact that the service they provide is fundamentally “relational.” It means “being there.”

According to Bria, it would be a mistake to see the prevalence of social co-ops as the result of deliberate government policy. Policy shifted, in the 1980s, to outsourcing social services – once entirely provided by the state and local governments – to cut costs. The fact that social co-ops emerged as the preferred providers and not, say, profit-seeking corporations, is really due to the efforts of the social workers and the co-ops themselves. Bria sums it up nicely when describing how he got into the social co-op field:

When we started Nuova Sanita’ we invented our own job: providing services to immigrants… we were not responding to a demand from government… It’s always like this. The public actor couldn’t or, perhaps, didn’t want to [meet that need].

The main obstacle facing the social co-ops appears to be public funding available to meet increasing demand for services. This is a contradiction in a society as wealthy as Emilia-Romagna’s. Bria insists, “It’s not that the resources aren’t there, it’s that someone decides not to spend them.”

Conclusion

In the United States, both sides in the debate around privatization tend to be dogmatic and simplistic. The right praises the “free market” and private enterprise as a panacea and demonizes the state as ineffective, inefficient and corrupt. The left, on the other hand, demonizes the private sector and falls back on old statist models based on the New Deal welfare state model. The left refuses to entertain the idea of engaging the market directly. In so doing, it cedes the market to the right.

In both cases, the left and right miss the importance of new, creative approaches that are redefining the role of the state and private sector.

Both Type A and Type B social co-operatives are part of how Emilian society is redefining how social services are provided. In the process they’re turning the debate on privatization on its head. Indeed, the social cooperatives – and the broader cooperative movement – show how civil society and the social movement can further advance their vision by engaging with the market, and competing on that terrain, in addition to the familiar areas of the state and civil society.