Cooperatives and the business cycle: The Israeli case

JOURNAL OF COMPARATIVE ECONOMICS 16, 70 l-7 15 ( 1992)

Cooperatives and the Business Cycle: The Israeli Case’

RAYMOND RUSSELL AND ROBERT HANNEMAN

University of Call$ornia, Riverside, California 92521

Received August 2 1, 1992

Russell, Raymond, and Hanneman, Robert-Cooperatives and the Business Cycle: The Israeli Case

This paper uses data from Israel to explore the impact ofchanging economic conditions on the formation and dissolution of worker cooperatives. We find only mixed support for the widely held notion that cooperative formations conform to a countercyclical pattern. Foundings of Israeli worker cooperatives appear to respond countercyclically to GDP growth, but procyclically to unemployment. There is stronger evidence for countercyclicality in the dissolutions of these cooperatives, as they at least appear quite resistant to economic downturns. In general, we find that the dynamics of this population are driven less by economic conditions than by political and institutional factors. J. Camp. Econom., December 1992, 16(4), pp. 701-7 15. University of California, Riverside, California 9252 1. o 1992 Academic press, inc.

Journal of Economic Literature Classification Number: PI 3.

1. INTRODUCTION

Producer cooperatives have often been said to develop in a countercyclical pattern, with higher formation rates in bad times than in good. Shirom ( 1972), for example, discerns such a pattern in the history of U.S. coopera-

’ Research for this article was carried out with the help ofa grant from the United States-Israel Educational Foundation. We thank Amnon Bar-On of Israel’s Cooperative Center for making available to us much of the data on which this article is based. We have received valuable assistance in this research from Asaf Darr, Neal Hickman, Vered Mirmovich, and Patricia Hanneman. We have also benefited from the comments and encouragement of Avner Ben-Ner, John Bonin, Raphael Bar-El, Josef Brada, Michael Conte, Yehuda Don, Derek Jones, Nava Kahana, Virginie Perotin, Jeffrey Pliskin, Menachem Rosner, Steve Smith, Udo Staber, Jan Svejnar, and Avi Weiss.

701 0147-5967192 $5.00 Copyright 0 1992 by Academic Press, Inc. All rights ofreproductmn in any form reserved.

702 RUSSELL AND HANNEMAN

tives and attributes it to the formation of cooperatives by unemployed workers. For Buchanan (1978) it is the effect of economic stagnation on wages that accounts for this pattern, as workers develop aspirations for industrial democracy in response to the failure of their wages to rise. Ben-Ner (1988a,b) notes that nationwide recessions as well as declines in individual industries also increase cooperative birth rates by facilitating the transforma- tion of conventionally owned firms into worker-owned firms. He also argues that there are two contradictory relationships between the state of the economy and the formation of cooperatives: a response to short-term changes that is countercyclical and a procyclical response to long-term economic growth.

While theoretical arguments that account for the countercyclical nature of cooperative formations are well developed, empirical research on these ques- tions has lagged far behind, and what little has been done has not been supportive of these ideas. In a reanalysis of Shirom’s conclusions regarding past United States producer cooperatives, Conte and Jones ( 1985) found that confirmation of the countercyclical hypothesis depended on the inclu- sion of Depression-era self-help cooperatives (Jones and Schneider, 1984) that the authors were uncertain about classifying as cooperatives. Without those cases, unemployment rates had a statistically insignificant but apparently negative effect on cooperative formations. The authors also could find no support for Buchanan’s arguments regarding a countercyclical response to trends in economic growth. A recent study by Staber ( 1989) on the formation of 204 worker cooperatives in Atlantic Canada between 1943 and 1987 also reported a statistically insignificant and apparently negative effect of recent recessions on cooperative founding rates.

This paper attempts to shed light on these ideas with data on a population of worker cooperatives that is, in relative terms, one of the largest concentra- tions of such organizations in the world: Israel’s workers’ production, transportation, and service societies. The most prominent of these organizations within Israel are the two large bus cooperatives Egged and Dan, which together provide most of the country’s regularly scheduled passenger transportation: but there have been many hundreds of others, in a wide range of industries (see Table I), of which about 75 or 80 remain alive today.

An early effort to test the relationship between economic conditions and the formation of Israeli worker cooperatives was reported by Don (1968). Don confined his attention to production cooperatives and had complete data only for the years 1950- 1963. Over this period, Don found unemployment to have a procyclical, negative correlation with annual counts of new cooperatives, rather than the predicted countercyclical effect. Don also noted that among these Israeli cooperatives, the number of new immigrants played a much more important role than the number of unemployed workers in stimulating formations of new cooperatives.

COOPERATIVES AND THE BUSINESS CYCLE 703

In this study, it is our intention to update and extend Don’s earlier work in a number of ways. We test the effects of economic conditions on Israeli worker cooperatives over a longer time period and with a broader range of measures of the state of the economy. We also test the effects of these variables with data on all three sectors of this population, including cooperatives in transportation and in services, rather than confining our attention to production cooperatives alone.

2. DATA AND MEASURES

Data for this study were obtained from Israel’s Cooperative Center, which has represented the Israeli production, service, and transportation cooperatives in their dealings with governments and trade unions since 1928 (Rus- sell, 199 1). Since the mid- 1940s the Cooperative Center has maintained records on the formation and later fate of these organizations. While the earliest founding dates on those records go back to the 1920s the analyses of formations here are limited to cooperatives formed in 195 1 or later, as the state of Israel was not established until 1948 and the full set of economic statistics required for this study is available only from 195 1. Of the 797 cooperatives for which the Center had at least some information, we therefore discarded a total of 448 cooperatives founded outside of our period, and another 30 cooperatives with missing dates of formation. Another 13 cases were lost due to incomplete records on the date of dissolution, leaving us with a sample of 306 cooperative founded over the period 195 1- 1988. In our analyses of dissolutions during this period, we include data on organizations formed prior to 195 1, raising the sample for that portion of the analysis to 575 (see Table 1).

Because our data were obtained from the Cooperative Center, rather than the Registrar of Cooperatives as in Don’s study, our data differ from Don’s in a few minor ways. Both Don’s data and ours exclude cooperatives formed by Israeli Arabs, which have their own organizations, but Don’s figures include the small number of Jewish workers’ cooperatives that are not affiliated with the Cooperative Center, such as those affiliated with religious organizations. When we compare Don’s figures on the formation of production cooperatives for the years 195 1 to 1963 to our own data, we find that Don’s totals tend to exceed our totals by about 20%. We believe that these differences can largely be accounted for by the minor differences in our populations and by the small number of cases that were lost due to missing data, and therefore we do not think that they have introduced any systematic biases into our samples.

Our analysis begins immediately after the formations of these organizations reached their all-time peak in 1950, as shown in Fig. 1. Just 2 years


TABLE 1

FORMATIONS, DISSOLUTIONS, AND TOTAL POPULATION OF ISRAELI WORKER COOPERATIVES, 195 1 TO 1988”

Industry Population

in 1951 Total Total

formations dissolutions Population

in 1988

Transport 26 20 36 10 Passenger transport 9 4 9 4 Motor freight 17 16 27 6

Services 67 88 130 25 Restaurants/hotels 10 7 14 3 Cultural activities 9 17 22 4 Other services 48 64 94 18

Production 217 163 340 40 Baking 46 28 70 4 Wood 18 22 32 8 Printing/paper 16 14 22 8 Electrical 28 19 40 7 Building 39 31 61 9 Textiles 29 25 53 I Food processing 24 15 36 3 Other manufacturing 17 9 26 0

Industry unknown 36 35 69 2 All cooperatives 346 306 575 77

’ Source: Cooperative Center.

later, formations of worker cooperatives in Israel had rapidly tapered off, and the total population entered a steady decline as dissolutions outnumbered new foundings in almost every year thereafter.

Measures of the business cycle variables of interest here were taken from the Statistical Abstract of Israel 1990. Unemployment rates for the total labor force have been published regularly since 1955, but daily averages of the number of unemployed seeking assistance from adult labor exchanges are given in this volume for every year from 1960 on; by consulting the previous volumes of this same reference, it is possible to complete this time series back to 1949. Over the period from 195 1 to 1988, the daily average of registered unemployment ranges from a low of 744 in 1972 to a high of 20,800 in 1988, with a mean value of 7649 and a standard deviation of 5728.

To capture levels of economic activity we use per capita Gross Domestic Product, with GDP measured in constant 1986 prices. This variable ranges from a low of 28 12 NIS in 1953 to a high of lo,75 I NIS in 1988. Change in GDP is measured as the rise (or fall) in GDP from the previous year to the current one, expressed as a percentage of the previous year’s GDP. Because the GDP time series begins in 1950, the change in GDP figure is available


FommUona or DboMbns popu-

150 --so0

140

199

120

110

1W

w

90

70

so

50

40

30

20

10

0

1950 1955 19SO 19S5 1970 1975 1950 1065

FIG. 1. Changes in population of Israeli worker cooperatives by year, 1950 to 1989 (excluding cases with missing data on dates of formation or dissolution): (0) formations, (+) dissolutions, and (0) population.

beginning only in 195 1. The average annual change in per capita GDP from 195 1 through 1988 is 3.75%, with a standard deviation of 4.35%.

3. ECONOMIC CONDITIONS AND COOPERATIVE FORMATIONS

In Table 2, we present estimates of the effects of economic conditions and of immigration on formations of new cooperatives over the period 195 l- 1988. We use Poisson regression, rather than conventional multiple regression, because these annual birth counts do not conform to the normal distri- bution that is required by more conventional regression techniques (King, 1988). In the four models (I-IV) tested in Table 2, the dependent variable in all cases is the natural logarithm of the number of worker cooperatives formed in each year; the models differ only in the mix of independent variables that they use, as explained in detail below.

The first column of Table 2 shows the response of annual totals of cooperative births to numbers of unemployed workers, to annual changes in per capita GDP, and to annual totals of new immigrants. As in Don (1968), we find that there is nothing countercyclical about the response of Israeli worker cooperatives to unemployment, as this variable has no significant effect in

TABL

E 2

s:

EFFE

CTS O

FECO

NOMI

CCON

DITI

ONSO

NTHE

FORM

AT~O

NOFI

SRAE

LIWOR

KERC

OOPE

RATI

VES,

19

51-I

988”

m

I II

III

IV

B El

astic

ity

B El

astic

ity

B El

astic

ity

B El

astic

ity

Inte

rcep

t 1.

469*

4.

715*

18

2.10

5*

139.

381

(.132

) (.3

87)

(21.

108)

(1

02.3

92)

Unem

ploy

ed

(1,0

00)

-.014

-.0

84

-.105

* -.4

50*

-.091

* ~.

848*

-.0

95*

-.861

* (0

12)

(.020

) (.0

20)

(022

) h

GDP

per

capi

ta (

%)

-.038

* -.2

43*

-.063

* -.2

76*

~.05

8*

-.552

* -.0

59*

-.547

* z

(019

) (.0

17)

(.016

) (.0

17)

z GD

P pe

r cap

ita (

1,00

0)

-.361

* -

1.36

3*

-.089

p.

857

P r (.0

42)

(.210

) >

Tim

e -.0

91*

-.852

* -

,069

-.6

31

(.Oll)

(.053

) 3

Imm

igra

nts

(I ,0

00)

.019

* .1

27*

,011

s .0

49*

.009

* .0

88*

.010

* .0

98*

F C.

001)

(.O

Ol)

(.cw

(.0

02)

z log

Like

lihoo

d -1

51.4

8 -1

00.1

6 -9

9.39

-9

9.30

3

NOW

. * In

dica

tes

stat

istica

lly s

igni

fican

t at

the

5% le

vel.

Stan

dard

er

rors

in

pare

nthe

ses.

u T

he m

odel

s (I

thro

ugh

IV)

fit a

re e

xpon

entia

l Po

isson

reg

ress

ions

, he

nce

exp(B

) m

ay b

e int

erpr

eted

as

mul

tiplie

rs

of t

he e

xpec

ted

num

bers

of

fo

rmat

ions

(or

, in

Table

4, d

issol

utio

ns)

in a y

ear.

An a

ltern

ative

est

imat

e of

the

mag

nitud

e of

effe

cts

is sh

own

as th

e el

astic

ity.

This

quan

tity

expr

esse

s the

ex

pect

ed n

umbe

r of

form

atio

ns

or d

issol

utio

ns

resu

lting

from

a u

nit c

hang

e in

each

inde

pend

ent

varia

ble w

hen

all o

ther

s ar

e he

ld co

nsta

nt a

t the

ir sa

mpl

e m

ean

valu

es. A

fre

quen

tly

used

alte

rnat

ive

to th

e ex

pone

ntial

Po

isson

mod

el is

the

nega

tive

binom

ial,

which

par

amet

erize

s th

e va

rianc

e of

the

coun

t to

all

ow f

or o

verd

isper

sion

resu

lting

from

with

in-ob

serv

ation

au

toco

rrelat

ion

(con

tagio

n)

and

othe

r un

mea

sure

d co

varia

tes.

Neg

ative

bino

mial

m

odel

s fo

r th

e co

unts

of f

orm

atio

ns

and

diss

olut

ions

we

re c

alcu

late

d, b

ut i

n no

cas

e sho

wed

stat

istica

lly s

igni

fican

t ov

erdis

pers

ion

para

met

ers.

The

dire

ctio

ns

and

relat

ive m

agni

tude

s of

coe

fficie

nts

were

ver

y sim

ilar

acro

ss th

ese a

ltern

ative

m

odel

s. T

he o

bser

vatio

ns u

sed

here

are

dra

wn f

rom

a tim

e se

ries.

Thi

s ra

ised

the

poss

ibilit

y of

ser

ially

corre

lated

erro

r, wh

ich i

s no

t m

odele

d in

the

resu

lts. S

epar

ate

anal

yses

, not

rep

orte

d he

re, f

it fir

st-o

rder

au

tore

gres

sive

mod

els

to

In (f

orm

atio

ns

or d

issol

utio

ns)

using

iter

ative

Coc

hran

e-Or

cutt

proc

edur

es (

SHAZ

AM

6.2)

. Mod

est

seria

l cor

relat

ion

of e

rrors

was

foun

d. H

owev

er,

the

signs

and

mag

nitu

des

of c

oeffi

cient

s do

not

app

ear

to b

e bia

sed

by th

e ab

senc

e of

an

expl

icit

AR(

1) er

ror

proc

ess

in th

e Po

isson

mod

els.

Sta

ndar

d er

rors

m

ay b

e so

mew

hat

unde

rest

imat

ed,

and

henc

e sig

nific

ance

le

vels

som

ewha

t inf

lated

in

Tabl

es 3

and

4.


this model. Annual changes in per capita GDP do show a statistically significant countercyclical effect, but the effect estimated for this variable is rather small. With an elasticity of -0.243, this means that the Israeli per capita GDP must fall by more than 4 percentage points for a single additional worker cooperative to be formed.

Efforts to measure the effects of long-term trends in per capita GDP are reflected in the second and fourth columns of Table 2. The effects attributed to GDP in these models can be interpreted as effects of long-term trends, because the measure of annual changes in GDP is also included in these same regressions. Since, in multiple regression, the effects estimated for each independent variable are net of the effects of all the others, the effects estimated for GDP in these models are the effects of a measure of per capita GDP from which annual fluctuations have been removed, leaving only the long-term trend.

In the second column of Table 2, the long-term trend in per capita GDP appears to be having a statistically significant negative and therefore countercyclical effect on cooperative births, the direct opposite of the procyclical effect predicted by Ben-Ner (1988b). But because the Israeli GDP has risen fairly consistently over time, we are concerned that the effects of per capita GDP observed in this specification might be contaminated by a number of unmeasured covariates of time, such as political and ideological changes in Israeli society that might have had the effect of discouraging additional cooperative births. It is for this reason that we introduce a control for year or “Time” in the third and fourth columns of Table 2. We see there that the passage of time has indeed had a negative effect on birth rates of worker cooperatives in Israel. When this effect is controlled, the long-term rise in per capita GDP no longer has any significant effect on cooperative formations.

Like Don (1968) we also find that immigration significantly stimulates the formation of Israeli worker cooperatives. Estimates of the effects of immigration weaken as controls for long-term trends in GDP and the passage of time are introduced, but remain statistically significant in all four specifications. These results support conclusions reached elsewhere that in the Israeli context, job creation for new immigrants, rather than for unemployed workers, has been the most important motivation driving the formation of worker cooperatives (Russell, 1991).

In Table 3, we attempt to gain some additional insight into the negative effect of time on the formation of Israeli worker cooperatives by adding a dummy variable for the years following the electoral victory of the Likud bloc in 1977. Since the prestate period, the cooperatives of the Cooperative Center have been an integral part of a broader labor Zionist movement that also includes the kibbutzim, the Histadrut, and the Labor party and its allies. The Likud victory over Labor in 1977 not only symbolized the political and

TABL

E 3

EFFE

CTS

OF L

IKUD

GO

VERN

MENT

S ON

TH

E FO

RMAT

ION

OF I

SRAE

LI

WOR

KER

COOP

ERAT

IVES

, 19

5 I -

198

8”

Inter

cept

Unem

ploye

d (1

,000)

A GD

P pe

r ca

pita

(%)

GDP

per

capit

a ( 1

,000)

Time

Immi

gran

ts (I

,000)

Likud

(1

978-

88)

log L

ikelih

ood

I

B El

astic

ity

1.64

3*

(.135

) .02

3 ,09

5 (.0

13)

-.052

* -.2

07*

(.017

)

.017

* .0

72*

(.OOl

) -2

.737*

-.1

11*

(.420

) -1

02.65

II

B El

astic

ity

3.74

8*

(.500

) -.0

63*

-.234

* (.0

24)

-.064

* -.2

37*

(.017

) -.2

38*

-.810

* (.0

56)

.013

* .0

51*

(.ool)

-1

.542*

-.0

58*

(.486

) -9

3.60

III

B El

astic

ity

122.

854*

(2

9.179

) -.0

54*

-.408

* (.0

23)

-.061

* -.4

56*

(.016

)

-.061

* -.4

56*

(015

) .0

12*

.096

* (.0

02)

- 1.

440*

-.0

03*

(.501

) -9

4.17

IV

B El

astic

ity

114.

470

E

(108

.091)

Ii

-.063

* -.2

14*

F (.0

25)

-.064

* 22

(.0

17)

-.217

* tl

-.223

-.7

05

9 (.2

09)

-.004

-.0

13

3

(.056

) iii

.012

* .0

45*

22

(.@w

-1

.531*

-.0

54*

(.510

) -9

3.59

Note.

*

Indica

tes

statis

ticall

y sig

nifica

nt at

the

5%

level.

St

anda

rd

errors

in

pare

nthes

es,

y See

foo

tnote

to Ta

ble

2.


cultural decline of this movement, but also deprived it of some powerful patronage.

Two things are especially noteworthy about the results shown in Table 3. First, as expected, the Likud years from 1978 to 1988 are indeed associated with a statistically significant decline in the foundings of new cooperatives in all four models. But second, the negative effect of time in our third model persists, even when the effect of the succession of Likud governments after 1977 has been controlled. This documents that the decline of the Israeli cooperative movement began much earlier than 1977, and cannot be attributed to the Likud victory alone.

Taken together, Tables 2 and 3 suggest that the formation of worker cooperatives in Israel is not primarily a countercyclical response to economic conditions, but is instead strongly driven by political, institutional, and cultural influences. Our tests of the effects of economic conditions on Israeli worker cooperatives have disclosed a pattern of only weak and mixed effects. For example, while there is evidence here that formations of these cooperatives respond countercyclically to annual changes in GDP, the later models in each table suggest that they respond procyclically to unemployment.

In analyses not shown here, we retested these models within each of the three major sectors, production, transportation, and services, of the Israeli worker cooperative population, and with a number of alternative forms of the independent variables. The effects of the independent variables appear to be the same within each sector as they are for the worker cooperative population as a whole, with the exception that the annual percent change in per capita GDP has no significant effects within the transportation or service sectors. As in Don (1968), we also investigated whether lagged forms of the immigration, unemployment, and change in GDP variables would improve our fit or increase our explanatory power, and found that they did not. Only in the case of immigration did we find that the previous year’s measure performed almost as well as the current year’s figure in predicting cooperative births. Unlike Don, we also did not find that a measure of immigration from Europe and America outperformed total immigration in predicting cooperative births.

Because the results shown here have, for the most part, been damaging to the countercyclical interpretation of cooperative formations, we also performed several additional analyses designed to determine whether alternative formulations of the independent variables would yield results that are more consistent with this theory. As one such step, we examined whether the use of the percentage of workers unemployed, rather than the total number of unemployed workers, would alter these results in any way. The literature suggests that it is the actual number of unemployed workers, not the unemployment rate, that leads most directly to the creation of new cooperatives, but we acknowledge that the percent of the labor force that is unemployed


may be a better measure of the cyclical state of an economy. Official data on the size of the Israeli labor force are not available for years before 1955. For the years 1955-1988, we reestimated the models shown in Table 2 using both the number unemployed and the unemployment rate, and obtained results very similar to those shown in Table 2.

As a final step in this analysis, we also considered the question ofwhether a discontinuous measure of the state of the Israeli economy might do better than our continuous variables in testing for the hypothesized countercyclicality of cooperative births. By combining data presented in Fisher (1988) with our own data on unemployment and GDP growth, we created a dummy variable called “Recession” that took on a value of 1 for the years 1956- 1957, 1965- 1967, 1980- 198 1, and 1988, and 0 in all other years. Substitut- ing this variable for unemployment and annual percent change in GDP in Table 3 produced no improvement in fit, and the recession measure had significant effects only in the presence of the per capita GDP. Most impor- tantly, this recession measure appeared to be having a negative or procyclical effect on cooperative births, further undermining the countercyclical interpretation of worker cooperatives.

4. EFFECTS OF ECONOMIC CONDITIONS ON DISSOLUTIONS

Having explored the impact of economic conditions on the formation of Israeli worker cooperatives, we next considered the impact of these variables on the dissolution of these firms. A substantial economic literature asserts that labor-managed workplaces are less interested in profits than they are in providing job security for their members (Domar, 1966; Miyazaki and Neary, 1983; Bonin, 1984; Kahana and Nitzan, 1989). Previous empirical research (Tannenbaum, Cook, and Lohman, 1984) has suggested that, as a result of such differences in their goals, labor-managed workplaces withstand economic downturns more effectively than do conventional capitalist firms, hanging on stubbornly through years of hardship and sustaining losses if necessary rather than closing their doors.

Before proceeding to an analysis of figures on the dissolutions of cooperatives affiliated with the Cooperative Center, we need to give some consideration to the accuracy of these data. Don (1968) expressed concern that the Registrar of Cooperatives might not be receiving timely notice of the closure of many Israeli worker cooperatives. We share Don’s concern, but can offer two reasons for believing that the dates of dissolution we obtained from the Cooperative Center are reasonably accurate. The first is that, like Don, we always took as the date of dissolution the date when the failure or bankruptcy of a cooperative was first announced, not the date when it was finally removed from the cooperative rolls. The second consideration is that the Coop- erative Center is required by law to keep in contact with its member coopera-


tives. It must certify the results of their elections and conduct regular audits of their books. This means that a cooperative is unlikely to be closed for too long without the Center getting wind of this fact. In the end, however, we must acknowledge that these considerations do not completely eliminate the possibility that systematic delays in the reporting of cooperative dissolutions may be influencing our results.

In Table 4, we present the results of an analysis parallel to that described in Table 2, but including one additional independent variable. We expected that the number of dissolutions within this population in any given year would also be affected by the total number of cooperatives alive in that year and therefore at risk. As anticipated, the number of worker cooperatives at risk has a significantly positive effect on annual counts of dissolutions in all four specifications.

Table 4 indicates that deaths of Israeli worker cooperatives show a significantly countercyclical response to unemployment. Death counts are lower in years of high unemployment than in years when unemployment is low. The response to GDP growth is also countercyclical, as death counts increase when the economy is growing and decrease when it is not.

We must note that this set of findings is sensitive to the form in which the independent variables are entered into the regression. As in the previous section, we tested additional versions of these models for the period 1955- 1988, comparing the effects of our two alternative measures of unemployment. Over this shorter time period, the effect of the number of unemployed workers remains negative, although it loses statistical significance. The percent of the labor force that is unemployed, on the other hand, shows a significantly positive effect on dissolutions. We are thus dealing here with another set of mixed effects, rather than a consistently countercyclical response to economic change.

In the second model in Table 4, the long-term rise in per capita GDP appears initially to have a procyclical effect, as death rates tend to fall as GDP grows. When a control for the passage of time is included, however, the effect for GDP loses statistical significance, as shown in the last model.

Time itself appears in Table 4 to be having a favorable impact on Israeli worker cooperatives, as the third model indicates that annual counts of dissolutions decline over time, even after the declining numbers of cooperatives at risk has been taken into account. Immigration also appears once again to be helpful to the Israeli population of worker cooperatives, as immigration is associated with statistically significant reductions in cooperative dissolutions in three out of four of these models.

As in the analysis of cooperative births, we also tested these models within each of the three major economic sectors. The effects estimated for each variable were generally similar in sign to the results reported in Table 4, but the coefficients rarely attained statistical significance. Of the effects reported

TABL

E4

EFFH

JS

OF E

CONO

MIC

COND

ITIO

NS O

N TH

E DI

SSO

LUTI

ON

OF IS

RAEL

I WOR

KER

COOP

ERAT

IVES

, 195

I-19

88”

I II

III IV

Inte

rcep

t

Unem

ploy

ed

( 1,0

00)

A GD

P pe

r ca

pita

(%

)

GDP

per c

apita

(1,

000)

Tim

e

Imm

igra

nts

( 1,0

00)

At r

isk

log L

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for unemployment and GDP growth, for example, only the effect of GDP change was significant within any of these sectors, in transportation, and this was true only when either GDP or time was also controlled. We also reran the four models in Table 4 using our dummy variable for recession in place of the measures of unemployment and percent change in per capita GDP. In this case, the coefficients were consistently positive, suggesting that the presence of a recession was increasing death counts, but these effects were not statistically significant in any model. We also tested versions of these models that included the dummy variable for Likud governments, but in this case this variable had no significant effects.’

5. CONCLUSIONS

We have tested theories of the countercyclical nature of worker cooperatives in numerous ways. In general, the results have not been supportive. Formations of worker cooperatives in Israel respond not countercyclically, but procyclically, to the number of workers unemployed and to unemployment rates. The response of dissolutions to unemployment, on the other hand, can be described as either countercyclical or procyclical, depending on which of these two measures one chooses to use. Both formations and dissolutions of these cooperatives appear to respond countercyclically to GDP growth as the theory predicts, but we could confirm these results within individual sectors only for production cooperatives in the case of the effect on formations, and only within transportation for its effect on dissolutions. Ben-Ner’s ( 1988b) suggestion that long-term changes in GDP have different effects than short-term changes proved difficult to apply here, because in practice we have been unable to isolate an effect of long-term GDP growth that can be clearly differentiated from the effects of the mere passage of time.

For those who have previously found the countercyclical interpretation of worker cooperatives attractive, we see three possible reactions as justifiable on the basis of these results. The first is to say that the widely held impression that worker cooperatives are countercyclical phenomena must be rejected as being of little value in this context, either because the theory is incorrect or because Israel is an exceptional case.

A second possible response would be to retain the notion that worker cooperatives are formed through countercyclical processes, but to interpret it more liberally than we have done here. Most broadly, for example, Ben- Ner’s (1988b) analysis can be viewed as an argument that worker cooperatives are formed at many times and for many reasons, by unemployed

’ In future analyses, we will further explore the effects of economic conditions on cooperative dissolutions by examining the effects of conditions in the year of formation on the later survival of cooperatives formed in each year.


workers when times are tough, and by workers who want more say on their jobs when times are good. Adding these processes together may only be to say that worker cooperatives are formed both in bad times and in good.

A third possibility, and the most challenging one, would be to develop further the notion that worker cooperatives are prone to countercyclical behavior by reformulating it, and specifying it more explicitly as applying to some cooperatives but not others, or only to certain times and places, certain measures of the business cycle, etc. In Ben-Net+ (1988b) theory, for example, countercyclical patterns of formation are explicitly associated only with cooperatives that are created as transformations of preexisting conventional firms. In that case it may be unsurprising that countercyclical patterns are not consistently reproduced here, as very few if any of these Israeli organizations are “transformational” cooperatives. Most were started as brand new ventures, and it may be this circumstance that explains the failure of this population to conform to Ben-Net+ model.

Whichever of these reactions readers will find preferable, all should leave room in their theories of cooperative formation for the political and institutional processes that have clearly been at work here. We see the imprint of such processes most readily in the effect of the displacement of Labor by Likud, but their influence can also be seen in the effects documented here for immigration and for the passage of time. The Israeli worker cooperative movement was created by Jewish immigrants to Palestine in the 1920s. In the 1930s and 1940s members of bus cooperatives along with kibbutzniks were hailed as heroes in the struggle of independence. In the first years after 1948, new immigrants to Israel encountered a state that was unique both in its desire to provide them with jobs and in its preference for collective or cooperatively owned means of achieving this aim. By 1960, however, cooperatives were failing in large numbers, and the popular press had declared the bankruptcy of the Israeli worker cooperative movement (Viteles, 1968, p. 348). Thus, the period under study here opened when both the prestige and the patronage enjoyed by the Israeli worker cooperative movement were at their highest peak, and it closed at a time when they were mired at all-time lows. We believe that these considerations can do far more than the business cycle to explain both the rise and the fall of this population of firms.

REFERENCES

Ben-Ner, Avner, “Comparative Empirical Observations on Worker-Owned and Capitalist Firms.” Internat. J. Ind. Organ. 6, 1:7-31, Mar. 1988a.

Ben-Ner, Avner, “The Life Cycle of Worker-Owned Firms in Market Economies: A Theoretical Analysis.” J. Econom. Behav. Organ. 10, 3:287-3 13, Oct. 1988b.

Bonin, John P., “Membership and Employment in an Egalitarian Cooperative.” Economica 51, 203:295-305, Aug. 1984.


Buchanan, Robert T., “The Economic Conditions for Industrial Democracy.” Econom. Anal. Workers’Munage. 12:291-301, 1978.

Central Bureau of Statistics, Statistical Abstract of Israel 1990. Jerusalem: Central Bureau of Statistics, 1990.

Conte, Michael A., and Jones, Derek, “In Search of a Theory of Formation for U.S. Producer Cooperatives: Tests of Alternative Hypotheses.” In Barbara D. Dennis, Ed., Proceedings of the Thirty-Seventh Annual Meeting, pp. 377-384. Madison, WI: Industrial Relations Research Association, 1985.

Daniel, Abraham, Cooperatives in Israel: Success and Failure. Tel Aviv: Sifriat Poalim 1989. [In Hebrew]

Domar, Evsey D., “The Soviet Collective Farm as a Producer Cooperative.” Amer. Econom. Rev. 56, 4~734-757, Sept. 1966.

Don, Yehuda, “Development of Production Co-operatives in Israel: A Statistical Analysis.” In Yehuda Don and Yair Levi, Eds., Public und Co-operative Economy in Israel, pp. 43-72. Liege: International Centre of Research and Information on Public and Co-operative Economy (CIRIEC), 1968.

Fisher, Jeffrey M., “Cyclical Indicators of the Israeli Economy.” Econom. Rev. (Jerusalem) 61:100-131, Feb. 1988.

Jones, Derek C., and Schneider, Donald J., “Self-Help Production Cooperatives: Government- Administered Cooperatives During the Depression.” In Robert Jackal1 and Henry M. Levin, Eds., Worker Cooperatives in America, pp. 57-84. Berkeley: Univ. of California Press, 1984.

Kahana, Nava, and Nitzan, Shmuel, “More on Alternative Objectives of Labor-Managed Firms.” J. Comp. Econom. 13,4:527-538, Dec. 1989.

King, Gary, “Statistical Models for Political Science Event Counts: Bias in Conventional Proce- dures and Evidence for the Exponential Poisson Regression Model.” Amer. J. Polit. Sci. 32, 3:838-863, Aug. 1988.

Miyazaki, Hajime, and Neary, Hugh M., “The Illyrian Firm Revisited.” Bell J. Econom. 14, 1:259-270, Spring 1983.

Russell, Raymond, “The Role of Support Organizations in the Development of Cooperatives in Israel,” Econom. Ind. Democracy 12, 3:385-404, Aug. 199 1.

Shirom, Arie, “The Industrial Relations Systems of Industrial Cooperatives in the United States, 1880-1935.” Labor Hist. 13, 4:533-551, Fall 1972.

Staber, Udo, “Organizational Foundings in the Cooperative Sector of Atlantic Canada: An Ecological Perspective.” Organ. Stud. 10, 3:38 l-403, 1989.

Tannenbaum, Arnold S., Cook, H., and Lohmann, J., The Relationship ofEmployee Ownership to the Technological Adaptiveness and Performance of Companies. Ann Arbor, MI: Insti- tute for Social Research, University of Michigan, 1984.

Viteles, Harry, Workers’ Producers Transportation and Service Co-operatives (A History of the Cooperative Movement in Israel, Book Five). London: Valentine-Mitchell, 1968.

Cooperatives and the business cycle: The Israeli case

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