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Surviving the crisis: Worker cooperatives in Romania

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Surviving the crisis: Worker cooperatives in Romania

Mihaela LambruFaculty of Sociology and Social Work, University of Bucharest, Romania

Claudia PetrescuThe Research Institute for Quality of Life, Romanian Academy, Romania

AbstractThe aim of this article is to provide structured information on the profile, trends, and challenges of worker cooperatives in Romania. Its main purpose is to help refine the current explanatory framework for worker cooperatives in post-communist countries in the light of empirical evidence drawn from research conducted in Romania. Building on the literature and empirical research, it identifies and highlights some of the present issues and challenges facing Romanian worker cooperatives. Our analysis has shown that many of the elements that are considered key to the successful development of worker cooperatives on the basis of international good practice are missing in Romania. While some enabling elements are impossible to replicate, there are others that might be improved and could help worker cooperatives develop further: a shift away from policies that discriminate against cooperatives in terms of access to credits and the development of governmental programs that could open the public market more to these entities; a better organization of type II cooperatives and of the services they offer to their members; better public image and communication strategies, and greater investment to enhance the advocacy skills of these organizations.

KeywordsCooperative organization crisis, path-dependence, post-transitional economies, social economy, worker cooperatives

Corresponding authors:Mihaela Lambru, Faculty of Sociology and Social Work, University of Bucharest, Schitu Magureanu, no. 9, 010181, Bucharest, Romania Email: [email protected]

Claudia Petrescu, The Research Institute for Quality of Life, Romanian Academy, Calea 13 Septembrie, no. 13, 050718, Bucharest, Romania. Email: [email protected]; [email protected]

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Introduction

Recent years have seen decision makers, researchers, and the general public worldwide take more interest in cooperative organizations as a potential viable alternative in the midst of the crisis facing capitalist enterprises and the concomitant welfare crisis. Cooperative organizations are expected to provide innovative and sustainable solutions to chronic problems or to more recent ones triggered by the current economic downturn. Unemployment, the welfare crisis, housing problems, health insurance, renewable energy, and sustainable production and consumption are just a few areas where cooperatives may offer solutions.

Studies conducted in different countries and comparative research on cooperatives have indi-cated that these organizations are influenced by the institutional setting in which they operate to the point that it determines their nature and the role they play in the society (Borzaga and Spear, 2004; Borzaga and Tortia, 2007; Defourny et al., 1999; Defourny and Nyssens, 2012; Nyssens, 2006; Restakis, 2010; Zamagni and Zamagni, 2010). They are given social and economic significance based on the political culture in which they develop and on the more or less biased support they get from national and regional public policies. These public policies, as tools that different govern-ments use in their attempt to respond to various social, economic, cultural, and environmental challenges, are strongly dependent on key theoretical paradigms that prevail at a given time. Hence, the market fundamentalism that has shaped economic policies worldwide since the 1980s has intensely promoted a dichotomous state–market model where the state plays an increasingly small part in public service provision and market exchanges are limited to profit-driven economic activi-ties (Hansmann, 1996; Jackson, 2009; Rodrik, 2011; Stiglitz, 2009). This model—mostly pro-moted in Anglo-Saxon countries—has pervaded former communist countries since 1990, leading to harsh decisions related to privatization, public service provision, and welfare systems.

In the early 1990s, Central and Eastern Europe were governed by a neoliberal vision of the envis-aged economic and social changes, with an emphasis on the strategy known as ‘shock therapy’, strongly advocated by Western governments and international financial institutions. The ‘shock therapy’ was centered on the idea that macroeconomic stability could be achieved through the rapid privatization of state-owned enterprises and the redesign of budget priorities. In Romania, much like in every other Central and Eastern European country, cooperative organizations were treated almost as nonexistent in this ‘capitalism by design’ (Stark and Bruszt, 1998). To a certain extent, coopera-tive organizations in general and worker cooperatives in particular became invisible to decision makers and the general public. After 1989, Romania shifted away from ‘state and cooperative’ ownership—the only option during the communist regime (as laid down in the Constitution)—toward a system where private ownership and capitalist organizations prevailed, with cooperative enterprises being left out of the public debates; this marked the period of transition.

The aim of this article is to provide structured information on the profile, trends, and challenges of worker cooperatives in Romania. Its main purpose is to add relevance to the current explanatory framework on worker cooperatives in post-communist countries in the light of empirical evidence drawn from research. It consists of three parts. First, it looks at key elements of the historical con-text and legislative changes that have affected worker cooperatives in Romania over the last 70 years, from the beginning of the communist era to date. This article’s approach to worker coop-eratives emphasizes the importance of understanding pre-transitional social processes and the path-dependence effect on the present and future of these entities. That implies that policy choices at a given time generate long-term effects with regard to possible policy options (Mahoney, 2000; Skocpol and Pierson, 2002; Stark and Bruszt, 1998).

The second part presents the profile and dynamics of worker cooperatives in Romania over the last 10 years by using the quantitative and qualitative data collected during a comprehensive


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research on social economy organizations, including cooperatives (Lambru and Petrescu, 2012, 2013). An important element that helped cooperatives in general and worker cooperatives in par-ticular to gain more interest from decision makers and public opinion in Central and Eastern Europe was the social economy concept. As a long-standing European concept, social economy—with its theoretical framework—has greatly contributed in the past decades to the promotion of innovative organizational models involving the state and the market and featuring both social and economic objectives. Social economy, an umbrella concept covering various organizations—cooperatives, associations, mutual societies—places social objectives at the very core of its mission and practice, pursuing at the same time business objectives while generating some economic value through ser-vice provision and with active participation in the production and sale of goods and services (Defourny, 2001; Defourny and Nyssens, 2006; Evers et al., 2004).

The third part of the article casts a critical eye over the issues and challenges facing worker cooperatives in today’s Romania. In a complex study aimed at analyzing the crises that marked cooperatives during the 20th century, MacPherson (2011) talks about two types of crises. The first type comprises crises ‘that are sudden and dramatic’ like big economic crashes, natural disasters, crises caused by dramatic leadership changes or dreadful management decisions. Although dra-matic and highly visible through media exposure, especially in recent years, these crises have pushed the cooperative sector into looking for solutions. The second type consists of long-lasting structural crises like ideological ones or those stemming from the impact of globalization and enhanced competition among capitalist organizations. Following on MacPherson’s analytical model, our article explores the various types of crises that have taken a toll on worker cooperatives in Romania, both those with lasting structural consequences and those that are context-related. Also, banking on international literature that identifies success elements for the development of worker cooperatives, we critically examine the conditions that cause Romanian worker coopera-tives to fail or succeed as free and autonomous economic agents within the present national eco-nomic and policy context (Borzaga and Defourny, 2001; Clamp and Alhamis, 2010; Corcoran and Wilson, 2010; Whyte and Whyte, 1991).

As for theories that provide useful input for the study of cooperatives, we point out the different approaches that underlie the explanatory frameworks. Traditional economic theory—focusing spe-cifically on the study of capitalist organizations whose main goal is to generate profit—mainly highlights the limitations and challenges engendered by co-op management and governance. Hence, the capacity of cooperative organizations to develop is analyzed based on their efficiency, which is influenced by their alleged lesser ability to minimize costs, implement optimal mixes of monetary incentives, pursue adequate financial and production objectives, deal with the costs incurred by their participatory governance model, and define their members’ ownership rights (Menard, 2004; Williamson, 1985; Zeuli, 2004). However, this approach overlooks the specific features and potential of cooperative organizations. Moreover, it has been superseded by institu-tional approaches and the latest institutional or behavioral economics which lay emphasis on the specificities of cooperative organizations. Profit maximization is not the ultimate and only bench-mark against which we can evaluate the capacity of an organization to survive and pursue effi-ciency. Lack of rigid hierarchical management structures, risk sharing among all members, or member control over co-op activities are factors that may render these organizations efficient (Bauwens, 2013; Hansmann, 1996; Menard, 2004). As compared to private companies, coopera-tives are hybrid alternative business entities mainly due to their democratic governance mecha-nisms (Coase, 1937; Williamson, 1985).

Another important ‘theoretical lens’ for understanding and analyzing cooperative organizations is social economy. The social economy approach underlines the different characteristics of co-op organizations that make them desirable and effective in a social development process:




the social–economic duality of their activities, their democratic governance, risk sharing among members, and member control over co-op activities. This type of organization is too business-ori-ented to be included in the not-for-profit sector and too socially oriented to be viewed as a profit-driven business (Borzaga et al., 2009; Levi and Davis, 2008). Therefore, cooperatives are considered to be economic agents that help to reduce market dysfunctions (Harvey, 2003; Novkovic, 2006): some of them operate in places and lines of work that are less profitable to other players, while others manage to handle dysfunctions through their capacity to adjust transaction costs to needs (Borzaga and Spear, 2004). In the places where they are active, they create jobs for marginalized people with difficult access to the mainstream labor market (Harvey, 2003; Novkovic, 2006).

From the perspective of social economy or third-sector theories, cooperatives represent organi-zations created through the voluntary participation of the individuals holding and controlling them and who share the benefits derived from using or owning services or goods (Altman, 2010). Co-op members are considered owners and users of cooperative services and goods since they contribute to the share capital while also being the beneficiaries of co-op undertakings. The control over cooperative operations by members, as share capital contributors actively involved in co-op gov-ernance, is based on the principle of ‘one person, one vote’ (Zamagni and Zamagni, 2010). Cooperatives may deliver benefits in the form of financial incentives based on a profit-sharing plan, better working conditions (in the case of worker cooperatives), lower prices for services and goods (for example, in the case of consumer or housing cooperatives), higher quality and greater variety of goods and services for their members (for example in the case of consumer and market-ing cooperatives), and enhanced product marketing capacity and access to additional markets (for example, in the case of agricultural or marketing cooperatives).

As collective organizations, cooperatives are considered an alternative to bureaucratic govern-ance models. Alternative institutions ‘may be defined in terms of their members’ resolve to build organizations which are parallel to, but outside of, established institutions and which fulfill social needs without recourse to bureaucratic authority’ (Rothschild-Whitt, 1979: 510). Due to their dem-ocratic governance, cooperatives differentiate themselves from bureaucratic organizations in terms of authority, the (fewer) rules to be observed by members, social control (based on aspects pertain-ing to morality and personality), (much closer) social relations, human resource policies (founded on personal, informal relationships), social stratification (equality), and division of labor (not always clearly defined) (Rothschild-Whitt, 1979).

Methodology

This article draws on the findings of the extensive research on Romanian cooperatives carried out between 2010 and 2013. It aims at providing relevant information about the profile, structure, dynamics, opportunities, and challenges this sector encounters in Romania. The research was funded by the European Social Fund and Romanian Government through the program ‘Prometheus—social economy development through knowledge, education and training at European standards’. The study on Romanian cooperatives features an exploratory component highlighting the profile, dynamics and trends, and a confirmatory component that identifies the social economy characteristics of the Romanian entities. To this end and in order to allow for data triangulation, multiple research methods were used: secondary data analysis of the financial data deriving from the National Institute of Statistics (NIS) database—REGIS—which comprises fiscal information about all types of private organizations and the databases of national cooperative unions on lines of business, members and employees; a questionnaire-based survey of a repre-sentative sample of cooperatives; and semi-structured interviews with co-op managers, public administration representatives, representatives of the Board of Directors and members themselves.




The information collected through questionnaires applied to 1095 cooperatives, of which 491 were worker cooperatives, with a sampling error of ±2%, and the qualitative analysis of 38 semi- structured interviews with representatives of the Board of Directors, management, and government officials has nurtured the analysis of the trends, challenges, and opportunities faced by worker cooperatives.

History and legislation

In Romania, the communist regime (1948–1989) brought about a massive change in all societal domains. At the economic level, it translated into forced industrialization that was mainly carried out by means of nationalization and prioritization of certain industries (automotive, steel, chemical industries) as well as by the massive forced collectivization of agriculture and the rural popula-tions. The main business actors were state-owned industrial enterprises and cooperatives, which fell into four major categories—worker, consumer, credit cooperatives, and agricultural coopera-tives—whose work was coordinated by the state that also set resource requirements, production, or export plans. While being part of the centralized economy, cooperatives were considered private businesses because they were set up based on the freely expressed consent of members who could hold property rights according to the law although they actually had no say with regard to their rights or joint assets (Cace et al., 2010; Petrescu, 2011). In fact, cooperatives were not accountable to their members but to the state and the communist party. The communist regime took a toll on the cooperative movement in Romania due to state interference in its endeavors through imposed and mandatory programs and plans, forced nationalization of some co-op assets (production facilities, facilities intended for cultural and social activities, fixed funds), massive spoliation of gained ben-efits, and attempts to gradually annihilate their autonomy and restrict their international undertak-ings. During the communist years, as a consequence of the measures abusively imposed by the state (nationalization, collectivization), cooperatives developed in terms of volume and types of economic activities, assets, members, and employees. The fact that an important number of people became cooperative members was mainly due to the economic advantages that they could gain by doing so and due to the lack of employment alternatives.

Co-op structure and functioning were influenced by communist ideology which viewed co-op property as a special type of collective property and a form of transition to state property. Cooperatives were part of the centralized and planned economic system and were politically con-trolled, playing a major role in reaching the socio-economic objective of full employment targeted by the political regime. While in the aftermath of the Second World War economic conditions were tough, cooperatives benefited from a preferential allocation and distribution of industrial products, raw materials, and funding, as well as from tax incentives, guarantee reductions, and simplified procurement procedures.

As regards the organization and operation of worker cooperatives in Romania, their central union played a leading role. The central union (UCECOM—Central Worker Cooperative Union) was established in accordance with relevant legislation and all worker cooperatives had to join this central structure that controlled and coordinated their entire work and whose directives were bind-ing for all co-op organizations across the country.

The transition from the communist to capitalist regime implied changes in the way the national economic system was organized. Old state-run enterprises were privatized and took on different business forms; agricultural cooperatives were dissolved as the communist cooperativization of agriculture was deemed a tragic event in the history of Romania; and new economic operators emerged, especially small- and medium-sized enterprises (SMEs). Worker cooperatives continued to exist after the fall of communism because, unlike the agricultural cooperatives, their membership




was not built up by force and according to the law and in opposition to state-run enterprises, they were actually private businesses based on cooperative property. Yet they started to play a consider-ably diminished role in the economy (Cace et al., 2010; Crisan, 2010; Cruceru, 2010; Danga, 2003; Petrescu, 2013). Perceived as institutions belonging to the old system cooperative, enterprises have been confronted with the need to find a new identity and to reform the co-op system in order to meet market imperatives. The political class has paid little attention to these ‘remnants of the former regime’, which in the best case scenario have been lumped together with SMEs, but most often have been completely ignored.

The major issues of the cooperative sector in Romania after 1990 were property retrocession to former owners, decreased production capabilities due to lack of markets for certain products, and market economy reforms. The diminished control within the cooperative system is another impor-tant factor that according to co-op representatives, has contributed to the decline of cooperatives. There has also been a significant drop in membership, with a small number of people holding control over co-op assets.

In the years immediately following the fall of communism, the legislative framework did not undergo major changes as the first laws were simply replicas of communist decrees, with incre-mental changes. Romanian legislation regulating the cooperative sector has been amended on sev-eral occasions since 1989. In 1990, two governmental decrees—Governmental Decree 66/1990 on worker cooperatives and Governmental Decree 67/1990 on consumer cooperatives—were passed in order to democratize organizations by allowing free elections for governance structures and eliminate the coordinating role of the state. Several years later, the Law 109/1996 expanded the scope of business for consumer cooperatives and defined consumer cooperatives and worker coop-eratives separately. Also, it is worth mentioning Law 200/2002, the first post-communist law which defined credit cooperatives independently from consumer cooperatives.

The most important legislative benchmark in the evolution of the post-communist cooperative sector in Romania was Law 1/2005—a framework law for the entire cooperative sector (except for credit cooperatives) redefining co-op typology, organization, and functioning. This law defines different types of cooperatives, prescribes legally recognized activities, lays down winding-up rules, and loosens the control exerted by central organizations and federations over cooperatives by prescribing it as a prerogative of the General Assembly of each cooperative. For the first time after communism, the activity of worker cooperatives as stipulated by the aforementioned law is in compliance with the principles of the International Cooperative Alliance (ICA) and the status of private economic agents, and worker cooperatives are given the possibility to run any type of eco-nomic activity. It also professionalizes the management by introducing management contracts con-cluded with non-member professionals.

Worker cooperative sector dynamics and evolution

The study of Romanian worker cooperatives implies an analysis of the dynamics and main trends reported by these organizations in the past 20 years so as to create a comprehensive post- communist picture of this sector. Looking at the social economy sector, which became of interest in Romania after 2007 once European funds started to be available, the 2010 NIS figures indicate that social economy entities hire 2.54% of all employees in Romania and 0.76% of this share is employed in the cooperative system. This represents a drop since 1992, when co-op staff accounted for 4.73% of all employees. Comparing the 2010 financial figures of social economy entities with those of other economic agents in Romania, it was found that 16.4% of economic agents’ gross output for the financial year in question came from social economy organizations, while 4.7% of Romanian social economy entities’ gross output came from the cooperative sector. They




represented 0.41% of economic agents active in Romania, accounting for 0.77% of the total profit reported by the other national economic entities.

If all the economic operators in Romania were considered, during 2009 and 2011, there was a slight drop (of approximately 8%) in the number of active cooperatives—from 1901 to 1766 (Table 1). By comparison, the numbers of other economic agents diminished far more—by 26% in the case of joint stock companies, by 20% in the case of limited liability companies, and by 43% in the case of other types of non-cooperative businesses. We see a decreasing proportion of active cooperatives in the total number of incorporated cooperatives, down from 91% in 2009 to 86% in 2011. For the same period of time, the proportion of the other active economic agents was lower, namely, 20% for stock companies, 29% for limited liability companies, and 8% in the case of other non-cooperative businesses. The analysis of the data related to active economic operators indicates a slight increase in the cooperatives’ share in the total number of economic agents, from 0.35% to 0.41%. This is due to the quite significant drop in the number of economic operators that had to shut down because of the financial crisis.

The cooperative sector counted 2107 cooperatives of all types in 2010 (958 consumer coopera-tives, 857 worker cooperatives, 75 cooperative banks, and 127 agricultural cooperatives). In the Romanian cooperative sector, worker cooperatives were the most resilient during the transition from a planned economy to a market economy. It would be inaccurate to speak of a decrease in the number of Romanian cooperatives during the last 10 years, with the exception of cooperative banks (from 191 units in 2000 to 75 in 2010). Yet things are completely different if we look at the number of employees, which underwent fluctuations and dropped to almost 30% of the initial fig-ure. As far as worker cooperatives are concerned, despite an increase in their total number from 562 in 1989 to 857 in 2010, we witnessed a steep drop in the number of employees (Table 2). Interestingly, while their revenues were increasing, the number of employees was decreasing (Table 2).

The increase in the number of cooperatives is mainly due to the emergence of new organizations following the division of existing ones into new smaller entities specializing in specific services or products. Since the operations of Romanian worker cooperatives are structured on production cent-ers that are separately managed, this division into smaller units was easy to do. The greatest prob-lem is the decrease in the employee headcount over the past 10 years to one-third of its earlier figure. This clearly indicates that co-op activities have contracted but at the same time are becom-ing more efficient as profit figures show. The decrease in co-op activities is due to two sets of fac-tors: on the one hand, to the adjustment to market economy demands, and on the other, to the lack of legislative and institutional support for the work carried out by these entities. The political, economic, and social settings in which cooperatives operate influence their performance and achievement of social and business goals. Unfortunately in Romania, these settings have been anything but enabling for cooperatives, with the political elite systematically ignoring this type of organization. In countries where the state has granted more support, such as Italy or France, coop-eratives have developed their activities and have become one of the major economic and social actors being viewed as a means of containing unemployment.

Statistical and economic information, as well as the analysis of the legal framework developed for the cooperative sector point toward some obvious trends. First, there is a considerable decrease in the number of members. Worker cooperatives have seen their membership drop from 429,778 in 1989 to 58,497 in 2004 (UCECOM, 1994, 2006). The dramatic drop in membership is due to the decreasing activity of worker cooperatives as a result of their adjustment to market economy demands, the population’s negative perception of the cooperative sector, and public policies that fail to support the development of this sector, as well as due to the artificial increase in member count during the communist regime through semi-compulsory membership based on the award of




Table 2. Economic indicators for cooperatives.

Worker cooperatives 2000 2005 2007 2009 2010

Worker cooperatives 800 771 799 788 857% Rural worker cooperatives 0.5% 0.6% 0.9% 0.6% 0.8%Total income (Euro) 88,472,330 169,369,440 184,310,446 168,993,252 166,660,447Total surplus (Euro) 4,163,734 6,491,997 11,585,743 6,793,306 6,553,880Total deficit (Euro) 69,0891 3,056,652 2,771,429 6,047,701 5,342,305% Worker cooperatives in profit 85.0% 73.0% 69.8% 56.6% 56.8%Total employees 78,117 47,457 34,087 25,553 25,109

Source: national Institute of Statistics (nIS), REGIS, data processed by The Research Institute for the Quality of Life (RIQL), 2012.

different benefits. Another reason is the fact that cooperative members were unaware of their rights, which often led to asset alienation. Moreover, we note a decline in the number of coopera-tive employees, with many cooperatives falling within the category of micro-enterprises due to their staff headcount.

Table 1. new and active economic operators in industry, construction, trade, and other services, by legal form of business.

Year new and active economic operators in industry, construction, trade, and other services

Economic operators by legal form of business:

State-run businesses

Joint stock companies

Limited liability companies

Other types of non-cooperative businesses

Cooperatives

2009 Economic operators registered with the Trade Register—total

116 33,686 1,344,379 34,284 2051

Active economic operators—total, of which:

100% 22% 38% 10% 91%

new economic operators 1% 2% 11% 8% 1%2010 Economic operators

registered with the Trade Register—total

106 33,994 1,396,084 34,299 2,038


100% 21% 33% 9% 90%

new economic operators 0% 3% 11% 8% 2%2011 Economic operators

registered with the Trade Register—total

98 34,311 1,461,913 34,314 2,047


100% 20% 29% 8% 86%

new economic operators 0% 2% 12% 8% 1%

Source: national Institute of Statistics (nIS), Statistical Yearbook 2012, data processed by The Research Institute for the Quality of Life (RIQL), 2012.Active economic operators—economic agents declared active during a fiscal year and which submitted a balance sheet after the year-end.new economic operators—economic agents set up during a fiscal year.




The type of activities undertaken by cooperatives has also changed and an important role is now played by real estate transactions. This trend has been very strong in the last few years. As far as worker cooperatives go, the proportion of cooperatives that reports a growing number of transac-tions of this kind has increased from 3.5% in 2000 to 7.5% in 2010. Over the same period, manu-facturing activities (industrial activities) dropped from 60.75% in 2000 to 54.54% in 2010.

With regard to the association of worker cooperatives, in 2010, 56.9% of them were affiliated with the national association UCECOM. Before 2004, all worker cooperatives were affiliated with UCECOM, but once Law 1/2005 came into force, the coordination and control exerted by the national union over cooperative businesses vanished and cooperatives were no longer required to join the union.

Other current trend features are the pronounced local character of cooperative businesses and a decline in export activities. The analysis of the data collected during the quantitative research con-ducted as part of the Prometheus project has revealed that over 92% of worker cooperatives market their products at the local level.

Main issues and challenges for worker cooperatives in Romania

Economic issues and challenges

The collapse of communism and the period of transition that marked Romania in the 1990s brought about a structural change in the system of worker cooperatives that redefined their societal role, reorganized their production of goods and services, redefined the supply of goods and services, changed product marketing, and identified new markets for their goods.

During those years, one of the major issues facing worker cooperatives was the fact that indus-trial enterprises (which had previously been traditional customers of worker cooperatives) stopped placing orders and failed to pay for the products manufactured for them. This situation took its toll on the entire Romanian economy in the early 1990s in the context of falling foreign markets and the government’s lack of economic vision.

The need to spot new product markets and the changes in the consumer behavior of the Romanian population pushed worker cooperatives into altering and upgrading their range of products and services as well as into retooling their production capabilities. These changes are most evident when we look at the main economic activities undertaken by worker cooperatives. In 2010, NIS reports indicated the following main economic activities of worker cooperatives: manufacturing (54.54%), service provision (16.88%), trade (10.52%), and real estate transactions (7.5%). Compared to the year 2000, the proportion of worker cooperatives that deal with service provision, trade, and real estate transactions has increased and the number of those that focus on manufactur-ing has dropped. According to quantitative research data, 33% of worker cooperatives declare that 50% of their revenue comes from manufacturing activities, 30% say that service provision gener-ates over 50% of their revenue, and 21% state that more than half of their revenue comes from the leasing of facilities (real estate transactions).

As economic agents, cooperatives in Romania have managed to survive and even make a profit in areas where they had serious competition from other SMEs, such as in the furniture industry, auto repair business, textile industry, or beauty services. Their competitive edge comes from the fact they own production facilities and machinery. Romanian cooperatives handled market dys-functions by cutting down transaction costs, which led to a reduction or shutdown of activities considered non-productive. Worker cooperatives that specialized in carpet manufacturing, domes-tic furnishings, shoemaking, and ironworking abandoned production and reoriented toward income generation through the leasing of their facilities and properties. Such income became a source of




capital invested in new undertakings or in business reorganization with a view to meeting new market demands (auto repair services, commercial operations).

Worker cooperatives have seen their staff headcount constantly shrink. Between 2000 and 2010, the decrease counted for nearly 70% of the employed workforce (from 78,117 employees to 25,109). Similarly, the average number of employees hired by worker cooperatives diminished from 98 to 29.

Another issue of concern is the lack of a well-defined identity as potential employer. In Romania, decision makers are interested in cooperatives almost exclusively as employers of members of vulnerable groups. This attitude seems to be prevalent, especially from 2007 onward when European Union (EU) funding programs aroused an interest in social economy entities as alternative means of active social inclusion. Before 1989, worker cooperatives were the only employer for persons with disabilities. After 1989, the number of persons with disabili-ties employed by cooperative enterprises has dropped dramatically—from 19,395 in 1989 to 973 in 2004.

It is worth noting that after 2010 we have witnessed the timid emergence of a new generation of cooperatives set up to facilitate the labor market integration of some disadvantaged groups (the Roma, women from rural areas, persons with disabilities). These new types of worker cooperatives are strongly supported by European funds, but without a coherent public policy framework in the area of social economy, it is hard to predict whether they can be economically profitable.

Organizational identity issues

After 1989, worker cooperatives went through an ‘identity crisis’ marked by the transition from ‘state and cooperative’ ownership to a market economy, which moved them away from a well-defined identity toward a residual one mainly caused by the lack of consistency with the ‘spirit of the time’. Under communism, the activity of worker cooperatives was coordinated by the Central Cooperative Union–the UCECOM, a public institution controlling and coordinating the work they undertook. The economic and financial operations of cooperatives were planned and closely moni-tored by this central institution, which also approved their investment plans and secured them access to foreign and domestic markets. The responsibilities of this central institution diminished after the fall of communism, although it managed to preserve coordination and representation roles. UCECOM was no longer a public institution but a type II cooperative (a cooperative struc-ture with membership formed by other cooperatives).

The organizational identity crisis occurred at a time where membership was drastically shrink-ing despite a twofold increase in the number of cooperative enterprises after 1989. According to NIS data, the number of worker cooperatives rose between 1989 and 1998 (from 562 to 1143) though this was followed by a small decline between 1999 and 2004 (from 1073 to 820). After Law 1/2005 came into force, this number increased slightly to 857 in 2010. The increase in absolute numbers was due to the restructuring process in which most of the entities inherited from the com-munist time were divided into smaller ones. Such divisions weakened their production capabilities and drastically affected performance and economic outcomes.

As mentioned before, the economic, financial, legal, political legitimacy transitions have had a dramatic impact on membership size due to significant staff reduction (generally, cooperative employees are also co-op members). Thus, the 429,778 members reported in 1989 dwindled to 58,497 in 2004 (UCECOM, 2006). However, if we look at the number of employees, over 90% of whom are also members in worker cooperatives, we see a steep drop from 78,117 in 2000 to 25,109 in 2010, according to NIS data. This contraction in membership has affected the capital of these entities.




Another challenging aspect for worker cooperatives is how they define themselves from an organizational point of view, since they see themselves as businesses that have to serve only the interests of their members. Research findings show that for 79% of Romanian worker cooperatives the main goal is to obtain economic gains for their members; other major objectives are serving members’ interests (52%), providing services that the community needs (38%), and improving the social status of their members (40%).

Governance, property, and network issues

Governance issues are among the most important problems that the Romanian cooperative sector is confronted with. The first problem facing worker cooperatives is the risk of demutu-alization, resulting from lax legislation and major legal setbacks concerning cooperative own-ership. Under the communist regime, cooperatives were allowed to build their infrastructure and to expand their assets on land provided by the state. This helped them accumulate signifi-cant fixed assets. The application of the law on the retrocession of land and buildings or the reimbursement of former owners (Law 1/2000) has hindered the further accumulation of such capital. Constructed plots of land were reclaimed and some of them regained by former own-ers, hence the ‘impoverished’ number of cooperatives. In other cases, the managing bodies of cooperatives were responsible for alienating real estate assets the moment Law 1/2005 allow-ing for asset division became effective. With the approval of its general assembly, which comprised far fewer members than before 1989, a cooperative’s assets could be divided and alienated under the pretext that capital was needed in order to survive or thrive. While the law does not allow cooperatives to be dissolved and turned into joint stock companies, they were impoverished through legal alienation of assets. Arguably, this extensive asset alienation could be considered to be as harmful as a demutualization process. According to NIS data, in 2010, over 98% of the fixed assets owned by worker cooperatives were tangible assets (buildings, lands, means of production, equipment) and only 1% were financial assets. The worth of these assets increased extensively after 2000 in the midst of a developing real estate market in Romania and with worker cooperatives owning over 95% of their real estate in urban areas, mostly in big cities.

Another challenging aspect is the cooperative organizations’ governance crisis. This crisis stems from the weakened capacity of the central union of worker cooperatives (the network or umbrella organization) to coordinate and control, as well as from poor management in many cases. If, under the communist regime, the cooperative system was centrally coordinated and economically planned, things changed during transition when coordination became weak. The communist type of coordination was based on a systemic hierarchy. The central cooperative union was politically controlled—with its managers holding Secretary of State positions—and allowed to set compulsory organizational and operational rules for all cooperatives. As far as cooperatives were concerned, the central union was the only institution that could run checks, establish liabilities, and sanction the cooperative or whoever was found responsible. The control exerted by cooperative bodies during the communist period meant that cooperatives were not independent from the state.

The coordinating and controlling roles of the worker cooperatives’ central union eventually weakened and were much reduced after the promulgation of Law 1/2005, prescribing that coopera-tives were no longer required to affiliate with national or county unions. The central union’s capac-ity to coordinate cooperative activities extensively eroded once its powers decreased—its decisions are no longer binding, it no longer has its own social security and pension system, it cannot award fiscal benefits to its members anymore, it has lost its political power, and so on. In addition to




abridged control, the union has also lost some of its economic power. After 1989, it lost the pre-rogative to secure business orders and thus became unable to deal with asset insolvability.

Yet, even if its coordinating role has diminished compared to communist times, the worker cooperatives’ central union remains resilient. In 2010, 57% of cooperatives were affiliated with the central union (UCECOM, 2012). The economic power of UCECOM is still relatively considerable as it continues to own the largest amount of assets. With such economic power and experts at its disposal, it can still coordinate the work of affiliated cooperatives, though to a smaller extent. Any dispute arising between worker cooperatives is settled by the Cooperative Arbitration Court, a UCECOM-managed structure.

Public image and communication issues

In addition to the economic and management challenges previously mentioned, worker coopera-tives have huge credibility problems because they are associated with the communist ideology. Irrespective of their nature (consumer, worker, agricultural, credit), cooperatives have been per-ceived as a communist form of organization. This is mostly due to the analogy with agricultural cooperatives which were set up on the forced collectivization of agricultural land during the instal-lation of the communist regime. Faced with these stereotypes ingrained in the collective mindset, in addition to economic and market transitions, worker cooperatives have preferred to maintain a ‘low profile’ within Romanian society and economy.

The interviews with worker cooperative representatives reiterate the belief that these stereo-types have had a long-term negative effect which translates into decision makers’ lack of interest in cooperative needs and concerns as well as into the exclusion of these entities from various grant programs (Cace et al., 2010; Petrescu, 2011). As another consequence of these stereotypes, the cur-riculum of higher education institutions that teach economics no longer features courses on the cooperative system. This has greatly limited the understanding of this type of economic organiza-tion. The same problem has also been reported in other countries and is considered to be a case of neglect of a democratic form of economic institution, a missed opportunity to offer new economics students a lesson in economic democracy (Hill, 2000; Kalmi, 2006)

Perceived as institutions that belong to an obsolete system and qualified by decision makers as ‘remnants of the former regime’, cooperatives have been confronted with the need to find a new identity and to reform the cooperative system in order to meet market economy demands. In the best case scenario, they have been lumped together with SMEs. Most often, however, they have been completely ignored.

In contrast to the other former communist countries (Huncova, 2004; Les and Jeliazkova, 2007), Romania has had legislation in place regulating the activity of worker cooperatives since 1990, even if this law is a mere revision of the communist one, simply leaving out the bits about state support. This law was not amended or adjusted to meet the latest demands of Romanian society until 2005, and it now acts as a common law for the entire cooperative system in Romania, not only for worker cooperatives. The major changes compared to the past relate to the diminished control exerted by central unions in the cooperative system and the removal of state benefits.

A specific and challenging situation of the Romanian legislation regarding cooperatives is the fact that they are regulated in the same way as SMEs. The National Agency for Small- and Medium-Sized Enterprises and Cooperatives is mandated to support different development programs for organizations of this type. Law 346/2004 gave cooperatives access to the state support available to SMEs, while being explicitly listed only as beneficiaries of some programs. This has stirred confu-sion among cooperative representatives who have pointed the finger at discriminatory attitudes affecting the ability of cooperatives to access funding.




Concluding remarks

Worker cooperatives have a long tradition in the Romanian society going back to the 19th century. Communism cut short the natural evolution of these organizations and altered their core character-istics (Les and Jeliazkova, 2007) to make them fit the communist ideology and enable them to be used as instruments of the new political regime. From nationalization to forced incorporation into the state infrastructure, from demutualization to the development of quasi-social market organiza-tions, many tools were used to control them (Hausner and Giza-Poleszczuk, 2008).

As in all Central and Eastern European countries that shifted away from a planned economy toward a market economy after 1989, worker cooperatives in Romania are faced with a series of difficulties due to their distorted functioning during communism: a public image influenced by the former socialist cooperative system in which cooperatives were established top-down, without genuine member participation; lack of management skills adapted to the new economic context; deficient knowledge of the right to associate; and problems related to the legal status of coopera-tives (in particular to property) that still await solving. Moreover, there are issues concerning polit-ical recognition and support through innovative policies.

A helpful typology of cooperative organizations based on their specific features dependent on the political, cultural, and socio-economic context classifies them into four major groups—mutual-ist, sociological, intermediate, and quasi-public (Borzaga and Spear, 2004: 4; Galera, 2004: 18). Based on this typology and research data, we can state that Romanian worker cooperatives have moved away from the quasi-public model that prevailed in communist times toward a mutualist one in which they serve exclusively members’ interests and consider themselves to be private busi-nesses (Crisan, 2010; Cruceru, 2010; Petrescu, 2013). This article has tried to show that overcom-ing the past and the memory of the big ideological and structural crises that marked the onset of communism in Romania has not been an easy task for worker cooperatives. The weaknesses and crises affecting the Romanian worker cooperatives of today can in part be understood only by look-ing into the past and finding ways to strategize the future development of the sector.

Building on success stories, the specialized literature that deals with worker cooperatives has identified elements that contribute to the successful development of these organizations. The analysis of the factors and conditions that have led to the development of successful worker cooperatives in countries like Spain, Italy, or France has brought out the key elements that helped them develop and diversify their work. These successful contextual elements are as fol-lows: sufficient capital accessible to worker cooperatives; technical assistance offered to them in the start-up phase; a mandatory indivisible reserve established by law; the existence of a strong network of federations and consortia; cooperatives’ federative structures offering support; struc-tured information and guidelines; significant industry concentration; a strong sense of solidarity; and inter-cooperation and scale-up, which means reaching a certain quantitative and qualitative level of sectoral development. The analysis has shown that many of the elements that are consid-ered key to the successful development of worker cooperatives on the basis of international good practice are missing in Romania. While some enabling elements are impossible to replicate, there are others that might be improved and could help worker cooperatives develop further: a shift away from policies that discriminate against cooperatives in terms of access to credits and the development of governmental programs that could open the public market more to these enti-ties; a better organization of type II cooperatives and of the services they offer to their members; better public image and communication strategies; and greater investment to enhance the advo-cacy skills of these organizations.

Future research is required in order to better understand the current state of worker cooperatives in Romania as well as in other former communist countries where cooperative organizations have




been much underestimated in the past two decades. This article makes only a preliminary assess-ment of the socio-economic profile of these cooperatives in a ‘post-transitional’ country.

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Author biographies

Mihaela Lambru is Senior Lecturer in Sociology at the University of Bucharest. Her research interest includes third-sector and social economy studies, social services reform, public sector reform in Central and Eastern Europe. Her recent research publications apply neo-institutional theory toward understanding recent evolu-tions of social economy actors as cooperatives, mutual associations, non-governmental organizations (NGOs) with economic activities in Central and Eastern Europe.

Claudia Petrescu is Senior Researcher at The Research Institute for Quality of Life, Romanian Academy. Her research focuses on social economy studies, community development, and social inclusion. Her recent work explored trends and challenges of cooperatives, commons and agricultural associations in post-communist Romania and the role of cooperatives and other social economy actors in local development processes.


Documents

Organization...Mihaela Lambru, Faculty of Sociology and Social Work, University of Bucharest, Schitu Magureanu, no. 9, 010181, Bucharest, Romania Email: [email protected]