The concept of the enterprise in economic science and its limits. For a reformulation of the concept. Recognition of its multiple forms, existing and possible.
1. The first problem that a theory of the cooperative phenomenon must address is the lack of a scientific concept of the cooperative enterprise. Such a concept would enable us to understand:
its specific ways of being and behaving;
its economic objectives;
its operations, organization and dynamics;
its conditions of equilibrium; and
the criteria that guide decision-making.
When we speak of a cooperative enterprise, or a cooperative society, we are referring to a unit of management or coordination, that is to say, an individual cooperative organization formed directly by members in order to carry out particular economic activities by means of association (e.g., work, acquisition of goods and services, marketing of products). The principles and methods of cooperation are made real in such an organization which also offers members opportunities to join and participate in the cooperative movement. These “elementary cells” or “base cooperatives” sometimes gather in consortia or secondary cooperatives, that is, associations of cooperatives. This can take different forms; a cooperative consortium may coordinate activities of its member enterprises or societies or even constitute itself as an expanded unit of organization and coordination that can act with greater efficiency than its member enterprises. In this last case, the consortium itself can also be considered a cooperative economic unit.
The way “cooperative enterprise” or “cooperative society” has been conceptualized by the cooperative movement is actually more doctrinaire than economic theory. On the one hand, it specifically underscores the objectives of mutualism and reciprocity, the values and organizing principles of cooperation, and the harmonization of capital and labor that distinguish this form from other types of enterprise. On the other, as a concept it suffers from insufficient analytical and theoretical rigor, which becomes apparent as soon as one tries to use it to understand the operations and the economic dynamic of a concrete cooperative enterprise or project.
In order to function as an element of economic theory, a concept of cooperative enterprise must be grounded in a scientific concept of the firm, or the “economic unit” in general. But the concept of the enterprise or firm, as it is used in the field of economics – where it was developed by abstracting from the dominant models of enterprise in society – is generic and incomplete, this being the cause of many of the difficulties we face in trying to understand what makes cooperatives different, as special types of economic enterprise.1
In economics, the firm is defined as the basic unit of organization in the economic system, which, through a particular combination of capital and labor, affords and guarantees to its owners unitary management of a combination of economic activities – production, acquisition, sales and consumption of goods and services – for the purpose of making a profit.
Formally speaking, this concept is sufficiently broad to include the various types of associative or cooperative enterprises, but already in its formulation and still more when economic theory considers the logic of the rational behavior of firms as such, we can see that the model of enterprise in mind is very different from the cooperative one.
In effect, when mainstream economic science defines the firm it establishes a nexus between three elements: capital as the determinant factor in an economic organization, the employers as owners of capital, from which they derive their management authority, and profits as the net increment of capital.
This nexus is simply not present in cooperative enterprises or other associative forms of enterprise. To define these forms, then, in terms of economic theory, the concept of the enterprise that we use must not only be sufficiently broad, formally speaking, but must explicitly include the variety of possible nexuses between the elements that make up the enterprise, and the various logics of rational behavior which flow from them. The aforementioned “capital-employer-profit” nexus would, in regards to this new concept, be one of the nexuses among other equally possible nexuses, that defining the capitalist enterprise. The first step then would be to formulate a concept of the enterprise that allows us to understand, with rigor and depth, the plurality of existing and possible forms. An enterprise is a complex reality, always comprising a combination of economic, technical, social, juridical, political and cultural elements, which together form a structured totality. In any enterprise one or more people participate, playing distinct roles, each contributing to the operation of the whole. Various activities are carried out, articulated through a particular form of organization, and dedicated to specific goals. The goals of the enterprise themselves are often multiple and tiered; for example, on one level the goal may be to obtain economic benefits for members, for organizers and leaders, for the surrounding community, or for society as a whole; while on another it may be to produce particular goods and services and control a share of the market; or, on other levels, to develop technological innovations, perfect the labor power of its members, influence society politically, culturally, etc. In addition to the shared or general goals of the enterprise, each participant in the enterprise seeks to achieve their own goals, which can run a wide gamut depending on their interests and roles.
To meet each type of objective and fulfill each function enterprises adopt an organized structure of activities particular to that enterprise and the means used to accomplish them, through which they are deployed. This is what makes it possible to distinguish different types or levels of organization in the enterprise, including: economic organization (or operations), a juridical institution, an organizational tree of functions and hierarchies, technical systems, labor relations, and distinct mechanisms for social integration and conflict resolution.
We can describe the enterprise as a unit made up of multiple units or elements (social, economic, juridical, technological, cultural). The enterprise is a social microcosm, an organization of people, activities, and things, rationally interconnected through economic, technological, and institutional relations.
The mere fact that all of these elements are organized in the enterprise in a particular form does not mean there are no internal conflicts or tensions. In fact, there are and they can become quite intense. Moreover, each economic unit or organization maintains ongoing relations with third parties (other enterprises, the public, customers, the State, etc.) and with society as a whole, through which it is influenced and shaped; again, it is a complex interaction.
2. The multiplicity of enterprise types is reflected in each and every one of their aspects. Enterprises differ not only in their principal objectives but also in the articulation of the multiple particular objectives that coexist in them. Enterprises differ in their modes of economic organization and operation; their technological characteristics; their labor relations; their functional and hierarchical structures; their modes of management and coordination; and the ways in which they relate to other enterprises, the market, public power, and society as a whole.
The differences that enterprises exhibit as economic, social, cultural, juridical, and technological units are interwoven, in the sense that characteristics that distinguish enterprises on one level (for example on the economic level) correspond to other characteristics on different levels (i.e., of their juridical structure, management structure, the character of their conflicts, etc.). This general observation, however, does not relieve us of the obligation to identify the different threads and structures at each organizational level.
Now, of all the dimensions and aspects of the enterprise it is the economic that occupies the central position or most important place, given that the principal motive for organizing enterprises is to carry out economic activities: production, distribution and consumption. Securing economic benefits, on behalf of the entrepreneurs, the participants, third parties, or society as a whole, presents itself as the enterprise’s primary objective in conformity with which the other activities and operations – technological, juridical, social, etc. – are articulated, taking particular rational forms (in the sense that they respond to some specific rationality, as we shall see later on). If the economic is central to the development and functioning of enterprises in this way, it is logical to expect that most of the important differences between the various types of enterprises will also be economic, and that those differences will influence and shape the other aspects and dimensions.2
From the foregoing we conclude that in all enterprises, whatever type or form they adopt, we can find both elements and aspects they share and another set of features in which they differ. The scientific conception of the enterprise that we seek includes this understanding of the common features shared by all enterprises as well as their differences. So, let us examine this more closely.
In very general terms and considering the issue schematically we can identify the following common elements of all enterprises:
a) They are organizations (of subjects, forces, activities, knowledge, objects, etc.) that operate as integrated units, pursuing specific ends or objectives of interest to the organization as such and, to one degree or another, to all of its members. This implies that in every enterprise there is some form or system of authority and management (for decision-making as well as implementation) and some differentiation of roles and division of labor.
b) Their objective is the acquisition of economic benefits and the rational use of the appropriate means to that end. In other words, as organizations, enterprises of any type always seek economic benefits and gains, in addition to any other objectives sought by their members. Certainly, the benefits and gains the enterprises seek may differ, as can the ways in which they are distributed. Moreover, all enterprises operate according to a particular rationality or operational logic, that is, they organize the available resources in a way that enables them to achieve the greatest benefits. The rationalities and operational logic of enterprises can also be differentiated.
c) They comprise a set of factors or elements that contribute in some way to the economic operations and the generation of benefits sought, and a set of relations by which those factors are connected economically, institutionally, and technologically, which together make up a complex business organization.
d) They carry out the fundamental economic activities of production, circulation, and consumption. Of course these activities should be understood in a broad sense:
Production: includes the combination and organization of the factors and their operation in the creation of economic goods and services;
Circulation: encompasses all the movements or flows of economic goods, the assignment of resources and factors, and the distribution of goods, values, and benefits received among the various people and groups, both within and outside the enterprise.
Consumption: refers to consumption of resources and inputs as well as consumption of the goods and services produced, and consists in their utilization according to the satisfaction of needs, aspirations and desires of the economic subjects.
By taking into account these four constitutive aspects shared by all enterprises we can recognize as enterprises organizations and social units that are not always seen as “businesses” in the conventional sense of the term, and are often overlooked by the conventional discipline of economics. For example, a family unit or a particular community can be a true enterprise or economic unit when the four aspects highlighted are present. Still, recognition of the multiplicity and plurality of business forms requires us to pay attention to their differences as well as their similarities.
We said that the differences between enterprises can be located on different levels and in different aspects. What concerns us here is going to the root of the question, identifying the elements that most profoundly distinguish enterprises in terms of their structures, rationalities, objectives, modes of operation, and behaviors. To that end we use four criteria to distinguish them; each one constituting an approach to understanding the principle types of enterprise. The criteria have implications for the structures, modes of operation, and operational logics of the different types of enterprise, but only when considered together do they enable us to identify with exactitude the particular rationalities involved.
The first criterion has to do with the identity of the organizing subject in an enterprise. Which category or factor becomes the organizing subject determines how the economic objectives of the enterprise are conceived and defined and has relevant implications for its structure, mode of functioning and operational logic. This is the essential criterion of the organization of categories or factors, which shall be a focus of this book.
A second criterion has to do with the nexuses between the subjects of economic activity, within the enterprise and between the enterprise and other parties. These connections are established based on the flow of economic goods and services and determine the modes and degrees of integration and conflict in enterprises, their systems of allocation and distribution of contributions, compensation and benefits, and the modes of articulation connecting production, distribution, consumption, and other activities. We refer to this essential criterion as economic relations.
The third criterion is based on the relations that connect the subjects of economic activity to each other (the organizers and the organized) and to the means of production and the enterprise itself. These relations are basically of two types: relations of domination (based on ownership and control over the factors and means of production), and relations that are constitutive of association or the social organization that sustains economic activity. We refer to this third criterion as institutional relations.
A fourth criterion is technological relations which refers to the ways technology connects the different factors, functions and activities involved in the operations of an enterprise and influences its scale, technology, productivity, etc.
The analysis of the cooperative phenomenon in this book will focus on the first and third of the four distinguishing criteria described above. This will enable us to understand characteristics of central and decisive importance in cooperative and self-managed enterprises, in the context of a broader comprehension of the plurality of business forms. This does not mean that the other two criteria will not figure in our discussion; we will refer to them at different points in response to particular problems of analysis. Let’s begin with the question of the subject, undoubtedly the most important.
In order to define in theoretical terms the distinct organizing subject in a given enterprise – and in so doing begin to enrich the concept of the enterprise – we should begin by identifying the set of constitutive factors that are at work in any economic unit.
In economics texts we find frequent reference to two economic factors: capital and labor. And yet, if we look closely at any actually existing enterprise we can identify six main factors:
a) Labor power, by which we mean a group of people endowed with the physical and intellectual capacities necessary for the completion of a series of labor activities, and who participate directly in the production process (in the broader sense of the term we established earlier);
b) Technology, a particular body of knowledge and information related to, and objectified in, processes and systems of production, marketing, work organization, etc.
c) The means of labor or means of production, that is, the physical settings, installations, instruments, machinery, raw materials and other inputs necessary for the accomplishment of the technical and economic operations of the enterprise.
d) The finance factor, normally comprising a certain quantity of money (or available credit) that permits one to obtain the other factors and establish relations of exchange on the market. This can also involve other modes of payment or acquisition of the necessary resources;
e) Management, or the managerial and administrative factor, that is, a system of coordination and unified control over the enterprise’s economic functions and activities;
f) Community, or the “C Factor,” an element of integration and cohesion that shows up in the voluntary collaboration and cooperation among the members of the enterprise and facilitates their collective action.3
These six principal economic factors are empirically given elements of an enterprise and can be identified through observation and descriptive analysis. Even though these factors tend to present themselves in economic life as “things,” as objective elements, or – as economics has it, “factors” – in fact all of them are human realities. At the root of each economic factor we find individuals or groups of people who are more or less directly associated with social groups and forces: workers, technicians and specialists, proprietors, managers, financial backers, work groups or communities, etc.
It is of highest importance to underline the subjective and personalized character of the different economic factors, whether individual or social. This is one of those points where we must step back from conventional economic theory which tends to consider economic phenomena and elements as facts that are always quantifiable, reified. Precisely because we are dealing with human and social realities, not simple factors or things, the proper understanding of these elements requires something more than simple observation of the operations of an enterprise. Though they can be observed in any enterprise, it is only possible to recognize them for what they are on the basis of the broad historical experience in which various forms of enterprise emerged. The reason for this is simple: in order to identify them as true economic factors we must recognize them as necessary subjects, with their own consistency, relative autonomy, particular interests, specific rights, etc. In other words, in order for these elements to be recognizable they must have gained some degree of autonomy from capital (which, in a capitalist economy, subsumes, subordinates, and instrumentalizes the other factors for its own benefit).
Capital and Labor
When economists speak of capital and labor they are employing economic categories that have referents in empirical reality, but not referring to empirically given elements. As categories, capital and labor can integrate into themselves, one way or another, all of the other factors described above without becoming identical to any of them. In this way, we can distinguish “categories” from “factors” as concepts with different degrees of abstraction. Let us examine these concepts more closely.
Each of the factors can present itself in the form of capital or labor, and to some extent capital and labor can each represent and measure the other factors. Capital is a general form into which all the factors can be subsumed. Thus, technology becomes capital to the extent that it has a financial equivalent and has been acquired in the market, becoming part of the equity of the enterprise. Likewise, labor, buildings, equipment, machines, and raw materials can all be capital. Labor power too can be capital to the extent that it has been purchased and represents a cost to the enterprise.
The financial assets of an enterprise, whether owned by the enterprise or borrowed from others, are also capital, as are the factors of management and administration. Even the factor of social integration at work in an enterprise (the C factor) forms part of its equity, and can be valued and counted as such. When organizing and directing an enterprise, a capitalist considers all the factors and resources at their disposal to be quantities of capital to be combined in proportions that assure the reproduction and growth of the initial capital invested.
Labor is another general form capable of representing all the other economic factors. Technology is realized labor, the product of transformative human activity combined with knowledge and information produced and acquired through human effort. The means of production, themselves products of social labor, are accumulated labor. Money and finance in general are the equivalents of labor time, and administration and management are both forms of labor. The element of community and social integration, the C factor, also forms part of social labor and is its result. From the standpoint of workers, all of the economic factors and resources can be seen as products of social labor, quantities of labor realized over time. We shall see later how this plays out concretely in worker enterprises.
Capital and labor are thus general economic categories that can subsume and assimilate the other economic factors and elements, and, under certain conditions, even subsume each other. Nonetheless, they are not the same; we are dealing here with two forms that can take on any economic content, but they present themselves as such for different subjects of economic action – capitalists and workers – in economic units that are also different.
As general economic categories, capital and labor are connected to their respective economic factors, capital to the finance factor, labor to labor power. In reality, they are factors converted into categories which thus become universal. How does this happen? Through a complex historical process involving an evolution that is as much theoretical as practical, the point of departure being self-consciousness, the conquest of autonomy by the subjects that personify the factors, which is made material in the creation of particular types of enterprises.
3. The economic categories are created through a process of autonomization and universalization of particular economic factors and subjects. From this fact we can see the possibility of other economic categories; not just capital and labor but other economic factors can also become categories. To make sense of this we need to deepen our understanding of the relationship between factors and categories, and the process of transformation of the former into the latter. The concept that enables us to do this is the economic organization, which we should take care to distinguish from the “technical combination of factors,” on the one hand, and the “administrative coordination and management” of the enterprise, on the other. It is a different idea.
We are well aware that the economic factors that make up an enterprise don’t act separately but are always technically combined in certain proportions and quantities. Economists have used various terms to define the different proportions of these combinations: the production function, the technology function, technical relations of production, the organic composition of capital, etc.4 The different combinations imply different intensities of use of each factor, and consequently, also different degrees of productivity. Thus we find enterprises in which there is especially intensive use of labor power, or technology, or management, or materials, financing, or the “C factor.” Enterprises are also distinguished at this level of analysis by their size (micro-enterprises, small and medium-sized enterprises, large enterprises, etc.) and their degree of technological complexity (e.g., production by artisans, industrial firms, post-industrial enterprises, etc.). All of this together constitutes the fourth criterion which we use to differentiate among enterprises: their technological relations. Still, it is not this concept of economic organization that interests us when distinguishing between factors and categories.
Nor do we understand by economic organization the management activity (coordination and control) exercised by the administrative or management factor, which is a necessary factor in any enterprise. This administrative or management function – the execution of the different functions of the enterprise and the planning and directing of its economic operations – only takes place once the enterprise has already been economically organized in the sense in which we understand that term. That is, the various factors have not only been combined technically and directed administratively (managed) in the enterprise, but, first and foremost, have been organized economically.
The economic factors are not only technical elements but also subjective realities; each factor is a concrete contribution by subjects hoping that their contribution will be adequately remunerated and recompensed, and seeking in the enterprise the achievement of their primary objectives. Because the factors are first dispersed in the market, they must be gathered together as parts of the enterprise, under definite economic conditions, and treated in a way that is acceptable to those who contribute them. Underlying all of this is the economic organization of factors, the fundamental aspect – and the most complex – in all business activity. Economic organization is the center of the creative energy of the enterprise.5
The economic organization of factors implies the integration of the different subjects that contribute factors and personify them in a unit of management that operates rationally in pursuit of the general objectives of the enterprise. It supposes that all of the factors are functionally integrated in the pursuit of those general objectives and to some degree consciously share or accept them on the basis of their own particular interests. In order to achieve this integration it is necessary for the objectives and interests of the different subjects to be welcomed into the enterprise in some way, even if they are subordinated to the general objectives. The particular objectives must also be realized to some extent (at least enough to convince the subjects who contribute the factors in question to continue participating in and working for the enterprise).
If, then, we find the factors organized in the economic unit in this way it is because someone organized them and keeps them organized. And this “someone” who organizes them can only be one of the determinate subjects standing behind the six factors we have identified as elements of the enterprise. Were this not the case we would have to say that there is a seventh factor which plays this role.
We see that in every enterprise one of the six factors (or more precisely, the subjects that personify them) takes on the role of organizer, with the others playing the role of organized factors. The organizing factor is the one that sets the general objectives of the enterprise – which are naturally its particular objectives – and integrates the objectives and interests of the other factors in a subordinate role.
When one factor becomes the organizing factor its interests become the general objectives of the enterprise and the remuneration it receives for its activity takes the form of gains or profits which are variable, depending on the results of the business operations. When factors are subordinated, that is, made functional for business objectives that are not their own, the remuneration they receive is fixed, being established through a contract of some kind (in the form of a wage, interest rate, rent, royalties, honoraria, etc., according to the factor).
The difference between these situations – autonomy or subordination – is decisive and has a deep significance that deserves precise terminology. We have reserved the term “economic factor” for the general elements of which the enterprise is formed, which contribute to the product and are necessarily productive, and the term “economic category” for the economic factor that plays the organizing role.
We already mentioned Capital and Labor, economic categories based on the factors of finance and labor power in their roles as organizing factors of an enterprise. However, any of the six factors in an enterprise can play the role of organizing category.
Thus we may see a capitalist enterprise, in which the subject(s) who contribute the financial factor buy or lease machinery, hire managers or labor power, engineers and technicians, social workers and psychologists. This is a particular case or type of enterprise in which finance is the organizing category.
A labor enterprise (or workers enterprise), in which the subjects who contribute labor power, obtain in the market or by other means the other necessary factors, which they pay for out of the revenues of the enterprise, constitutes another case and type of enterprise.
An enterprise organized by the economic category corresponding to the material means of production is different from a capitalist enterprise, even though it may seem the same. In this case, it is the owners of the specific materials who organize and control the enterprise. We are dealing here with enterprises that operate with the same logic as feudal economic units, in which the organizing role is played by the subjects who possess the principal material means of production: the Land. The rationality of enterprises based on real estate properties is similar, focused on maximizing rents.
An enterprise can also be formed by people who have invented or have exclusive control over a technological process of high productivity and quality and decide to apply their knowledge and information autonomously, instead of selling it at a fixed price. By forming an enterprise for which they borrow money, buy equipment, hire workers, etc. they create what we can call a Technological enterprise.
There are also Administrative enterprises, in which the factor of administration or management – personified by a group with the power of coordination and management (such as the State or a State apparatus) – organizes economic units under its own responsibility, one way or another subordinating and integrating into itself the other factors.
Finally, the “C Factor,” too, can play the role of organizing category. This is the case when the Community constitutes itself as an economic unit, obtaining the requisite factors from its members. We can speak, in these cases, of a Community or communitarian enterprise.6
The broadening of the concept of the enterprise that we have proposed and the specific consideration of the different economic categories which can play the organizing role in enterprises of different types – production, finance, commerce, etc. – offers us a point of departure for identifying, in terms of economic theory, the different types of cooperative enterprise.7 More precisely, our broadened concept of the enterprise allows us to identify the particular essence, structure and logic of various types of enterprise in accordance with the criterion of the economic category around which and by which they are organized: Capital, Labor, Land (material means of production), Technology, State (the power of public administration), Community. The expressions “cooperative enterprise” and “self-managed enterprise” include more than one of these types, and from this point of view remain relatively indeterminate. Giving them a more precise definition is the task of the next chapter.
Translated by Matt Noyes
Header image by Jeff Warren and Caroline Woolard. CC BY-SA 3.0
- 1The Spanish term is “empresa.” I use “firm” where the author is referring to the economic unit commonly described in microeconomics and “enterprise” where he is describing the more fundamental concept that encompasses a broader range of business types. - MN
- 2In highlighting the economic dimension of the enterprise in this way we are not, of course, referring only to the question of costs, revenues, and profits. The dominant monetarist and capitalist vision of the economy has produced this cramped conception that identifies as economic only that which has a monetary expression or equivalent, that is, only that which can be measured in units of money and made the object of market exchanges. If the economic dimension were actually so narrowly defined, one would have to question its centrality even in firms involved in production, commerce or finance.
- 3In the first version of this book we had not yet become aware of the presence and importance of this “C Factor” in enterprises. Of course, we had already recognized that cooperation and social integration characterize cooperative enterprises, but we had not yet conceptualized it as a true economic factor that makes its own contribution to production (having a particular productivity apart from those of the other factors), whose presence in an enterprise is indispensable for its functioning and operations. As we shall see further on, recognition of the “C Factor” leads to an important deepening of our understanding of the cooperative phenomenon and the forms of enterprise that make it up. We should also note that since the writing of the present edition we have significantly broadened and deepened our understanding of economic factors and categories. Nonetheless, as it did not seem necessary to incorporate those elaborations in this book, we direct the reader to the first section of volume three of Economía de Solidaridad y Mercado Democrático [Solidarity Economy and Democratic Markets] Programa de Economía del Trabajo, Academia de Humanismo Cristiano, 1984. [For more in English on the C Factor, see Unit 1 of How to Create a Solidarity Enterprise https://geo.coop/articles/how-create-solidarity-enterprise - MN]
- 4In Marx, the organic composition of capital is the ratio of constant capital (the value of the means of production and materials) to variable capital (the value of the labor-power employed). - MN
- 5We find in J. Schumpeter an important precedent to our concept of economic organization: the idea of the entrepreneurial function as something different from management and administration, which does not however constitute a separate economic factor, different from them. As is well known, he recognizes innovation as a function which increases the productivity of factors and is, as such, “business creating.” In our concept, which specifically identifies the activity of economic organization, the term is understood more broadly that in Schumpeter. [See The Theory of Economic Development, 1934. -MN]
- 6There can be overlap between communitarian enterprises and the Commons. See Orozco-Quintero, A., & Davidson-Hunt, I. (2009). Community-based enterprises and the commons: The case of San Juan Nuevo Parangaricutiro, Mexico. International Journal of the Commons, 4(1), 8–35. DOI: http://doi.org/10.18352/ijc.138 - MN
- 7Of course, in economics it is understood that the constitutive factors of an enterprise might be factors other than capital or labor. The fact that other factors can play the role of organizing factor in economic units has been explicitly recognized in the writings of various authors, especially when they address the empirical fact that, in order to occupy leading roles in large modern enterprises, the factors of technology and management have had to wrest a degree of independence from capital. The extension of this recognition to other economic categories, and especially its theoretical elaboration which leads to a reformulation of the concept of enterprise capable of accounting for the specific features of other forms of enterprise (beginning with the distinction between “factor” and “category”) is something that we have not yet encountered in the literature of economics and cooperative organization.
Luis Razeto Migliaro, Matt Noyes (2022). Cooperative Enterprise and Market Economy: Chapter 1. Grassroots Economic Organizing (GEO). https://geo.coop/articles/cooperative-enterprise-and-market-economy-chapter-1