Producer co-operatives and economic efficiency: Evidence from the nineteenth-century cotton textile industry

The relative efficiency of producer co-operatives is investigated through an examination of the financial performance of a group of cotton spinning firms that emerged from the spread of co-operative ideals after the mid-nineteenth century. Reflecting such influences these firms adopted two particularly important aspects of democratic governance: use of low denomination partly paid shares to encourage wide share ownership among local working class operatives, and the use of a one shareholder one vote rule at company meetings. Prior literature, much of which predicts the failure of producer co-operatives due to incentive problems, has not specifically examined these aspects of democratic control. Moreover because the case study utilises samples of stock market quoted companies, there is an opportunity to quantify the financial performance effects of these governance mechanisms. The case study therefore offers a unique insight and important contribution to the wider literature. The results show that both aspects of democratic governance contributed to the economic success of the companies that adopted them, enabling them to satisfy the high demand for cash dividends that characterised investor requirements. However, the cyclical nature of the cotton industry and the stock market booms and slumps that resulted led to redistributions of wealth through time that in the long run undermined the co-operative project.