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The cooperative economy: A vision for tackling society’s grand challenges 

29 January 2024 • by Katharina Lange in I by IMD Book Club

A new book by Dovev Lavie, Professor at the Department of Management and Technology of Bocconi University, sets out an extraordinary plan to tackle urgent social problems of inequality, wealth concentration, loss...

A new book by Dovev Lavie, Professor at the Department of Management and Technology of Bocconi University, sets out an extraordinary plan to tackle the urgent social problems of inequality, wealth concentration, loss of data privacy, and overconsumption. Here, he tells IMD’s Katharina Lange how it would work.  

As Dovev Lavie says, the economic system in Western societies has produced huge growth and material wealth. But in recent years, especially in the wake of globalization, it has also led to an intense concentration of that wealth and gross economic inequality. Today, around 45% of global wealth resides in the hands of 1% of the population – an imbalance that has become more and more extreme over time. In 2009, according to Oxfam, 380 billionaires held the same wealth as the poorest half of the population. A decade later, just 26 billionaires possess the equivalent wealth. In the United States, three individuals possess more wealth than the poorest half of the population. 

Winners and losers 

The winners in this game are mostly multinational corporations (especially the big tech firms) which are able to capitalize on the current economic system at the expense of other stakeholders as they drive out or acquire their competition using self-preferencing and other techniques. Even though it seems that this benefits consumers in terms of the availability of products and services, eventually consumers lose out as they are left with fewer choices.  

Related to this issue are growing concerns about data privacy. With the emergence of artificial intelligence and other tools used in digital platforms, it seems these systems know us better than we know ourselves and are using algorithms to convince us to purchase things we might not otherwise deem necessary. Ultimately, we are losing freedom of choice as we are driven to produce and consume ever more. The problem is, we cannot afford it. 

Identifying the root cause 

While policymakers and politicians grapple with attempts to implement fairer policies and processes, Lavie argues that their efforts are doomed to fail as they are – unwittingly or otherwise – lopsided to one aspect of human nature: self-interested opportunistic behavior.  

Opportunistic behavior, driven by greed, is “motivating and facilitating” the system. But human nature is not simply opportunistic or selfish. We are also able to behave pro-socially, or cooperatively – the opposite of opportunistically. Pro-social behavior means enhancing the welfare of others at the cost to oneself, which runs counter to the basic assumptions of traditional economic theory and business logic. 

Not all humans act out of material incentives. In fact, what humans fundamentally want is to be happy – and there are many ways to achieve happiness that don’t come at the expense of someone else. Indeed, the reverse may be true: we may derive happiness or fulfillment from putting the interests of others in front of our own. 

Returning to the corporate world, while the profit principle may seem to defeat this argument, Lavie cites many instances where we see the contemporary corporation behaving differently. In Silicon Valley, for example, we see established companies helping startups who will likely compete with them in the future. This seems to run counter to the profit-maximization principle but, Lavie argues, such “pro-social” behavior could be explained by the fact that the established companies received support early on and have a sense of gratitude as a result – they are happy to pay it forward and help others.  

Again, this suggests that not every individual or company is opportunistic in nature, and not all of them would try to increase their wealth at the expense of others.  

Reward the outcome you want: pro-social behavior 

Obviously, not everyone is pro-social; there is a distribution among the population at large. In fact, research in psychology suggests that about 30% of us show high levels of pro-social behavior – i.e., the inclination to help others and behave cooperatively – while about 23% of us are opportunistic. But most of us are conditionally pro-social. This means that, if we observe that others in our environment are behaving pro-socially and not trying to benefit at our expense, we are likely to follow suit. Conversely, if we see that the system is reinforcing opportunistic behavior, we are forced to adapt to the norm and behave similarly. Unfortunately, the current Western economic system shows a preference to maximize profits at the expense of societal values. In other words, because the current system works in favor of those who pursue profit at the expense of societal values, it is not fully aligned with human nature. If we properly align the basic principles underlying the system, we are likely to see a change in behavior.  

“It is not a given that all humans act out of material incentives, such as seeking to increase profitability and utility. In fact, what humans fundamentally want is to be happy.”
- Dovev Lavie, Professor at the Department of Management and Technology of Bocconi University

What we need as a corrective, Lavie argues, is not a hopelessly utopian vision to change human nature, but to correct what the system rewards so that it discourages opportunistic behavior and encourages the pro-social kind.  

A new norm 

As Lavie says, every economic system contains two opposing forces: opportunistic participants on the one hand, and those who want to be socially helpful on the other. The cooperative economy he proposes therefore does not rely on trying to force everyone to behave pro-socially; instead, it is designed to encourage those who are naturally inclined to do so to pursue their natural inclination, to the point where such behavior becomes the new norm – which eventuates in the majority following it.  

In Lavie’s analysis of the current economic system, opportunistic players are overpowering pro-social ones, so pro-social behavior no longer pays off. The solution is to design a system that advantages pro-social players and discourages opportunistic behavior until new norms are established.  

Some principles of the cooperative economy: community and subsidy 

Lavie’s first principle for the cooperative economy is to shift from a global economy to a constellation of community-based economies. Instead of emphasizing the international trade and system efficiency that benefits multinational corporations, we need to shift focus to the community, where we can better promote pro-social behavior. This is because, in a community, individuals share values, cultures, and beliefs. And, because they interact with members of their own “clan”, they are less likely to behave opportunistically towards each other.  

This means that when an individual consumer has a choice when buying a certain product, they are likely to give preference to those who are more local, as opposed to buying it from another community. This enables the building of a much more equitable system of exchange – in essence, it shifts the focus back onto the community.  

Another guiding principle of the cooperative economy is price subsidization. When we look at the efforts of governments to create a more equitable economy, we see that they use taxation – taking from those who have and “redistributing” it among those with less, thus providing subsidies and services to those who cannot afford them.  

The problem here is twofold. On the one hand, it reinforces dependence on the system of those who consume its services. On the other hand, the “haves” are not necessarily happy to subsidize the “have-nots” through their taxes, which is why today we see a lot of tax evasion, especially among international corporations.  

What Lavie suggests here is that the “haves” – those who have higher disposable income – pay more for the same products and services as the “have-nots” in the community. The crucial distinction is that they are not doing so through forced taxation, but rather through disposable income; hence they are knowingly helping to subsidize those within the community who are less well-off and are likely to get a non-financial payoff for doing so in the form of increased self-worth that comes with prosocial behavior. 

Regardless of what you think about Lavie’s conception of the cooperative economy, getting hold of a copy of his book is a great idea. We live in troubled times and merchants of doom and gloom are abound. Lavie believes there are two ways to deal with the problems currently besetting society. One is to ignore them until the system collapses in revolution. The other is to realign the system so that it is more attuned to the pro-social behavior that we are all capable of and thereby establish new norms to live by. As he says, it may be revolutionary in terms of thinking, but not in terms of implementation.  

Experts

Dovev Lavie

Professor at the Department of Management & Technology Department at Bocconi University

Dovev Lavie is a Full Professor at the Department of Management & Technology Department at Bocconi University. Before joining Bocconi University in 2017, he served as an Assistant Professor at the University of Texas at Austin and a Full Professor and Vice Dean for MBA Programs at the Technion. He also held visiting positions at the London Business School, University College London, and BI Norway.

Authors

Katharina Lange

Affiliate Professor of Leadership

Katharina Lange is Affiliate Professor of Leadership at IMD. She specializes in self-leadership and cross-cultural team leadership in times of change. Before joining IMD, Katharina led the Office of Executive Development at Singapore Management University (SMU, where she directed Open Programs such as ALPINE (Asia Leaders Program in Infrastructure) and the J&J Hospital Management Program. She is Co-Program Director of the Leading Customer – Centric Strategies and IMD’s signature Orchestrating Winning Performance (OWP) program.

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