Social Cooperatives in Sweden: etudes in entrepreneurship
”...if the economist is to understand the behaviour of firms, he
must make some assumptions on why they do what they do.”
Co-operatives that deal with rehabilitation and employment of those excluded from the
labour market due to mental illness or other functional impairments emerged in Sweden in
the course of the last decade. At the moment, there are about 70 functioning social worker
co-operatives for former mental patients and functionally handicapped throughout
Sweden, producing a broad range of goods and services, such as the running of a
personnel restaurant in a medium-sized company, renovation of window woodwork,
cleaning, industrial assembly, etc. The number of members is estimated at about 900 .
Limited economic scope of activity and unglamorous fields of operation notwithstanding,
social cooperatives pose a considerable theoretical challenge. In an important sense, they
provide an illustration of entrepreneurship stripped to its essentials. In this case
innovation, a central element of entrepreneurship (cf Schumpeter, 1954), manifests itself
primarily not in the design of new products and services, but through ingenuous ways of
assembling and utilizing available resources to form enterprises- from unlikely elements,
and against all institutional odds.
A number of central issues are highlighted by the cases described below, such as:
* Professor of Business Administration, Södertörns högskola, Box 4101, 141 04 Huddinge. The research on
which the study is based is financed by Östersjöstiftelsen, the Baltic Sea Foundation.
a) the adoption of an incorporation form as a matter of active choice between different
combinations of legal components.
b) the pooling and conversion of social entitlements into economically utilizable resources
c) local embeddedness and partnerships as a vehicle for converting social capital into
A broader view on entrepreneurship
A firm is primarily a combination of resources, or, more precisely, of the inputs that can
be extracted from those resources (Penrose, 1959/1995). Identifying these possibilities,
and (re)combining them in new configurations is the central function of the entrepreneur
(cf Schumpeter, 1954. Such enterpreneurial function may emerge and be exercised in any
field of human activity. Agreement on the phenomenon‟s universal character
notwithstanding, research is nonetheless predominantly focuses on one corner of this field,
namely, successful business endeavours, and more often than not- on single-handed
accomplishment of a lone-hero, preferably in glamorous branches. The individualistic
emphasis has been toned down somewhat in recent years, but still colours popular images
of entrepreneurship, as well as much of the cases recruited by researchers. Conversely,
despite increasing public attention to processes of self-organizing, the forging of local
partnerships, and local governance, such phenomena are relatively seldom viewed from an
explicitly entrepreneurial perspective.
Inasmuch traditional entrepreneurial stereotypes address narrow ranges of actors annd
resources., broadening the view would presuppose broadening these categories, and
acknowledging that (a) entrepreneurial action may be carried out by either individuals or
by collectivities, i. e. groups that act in concert (Hirschman, 1980, 1984; Stryjan, 1999;
1994); (b) resources engaged may be purely economic/financial (i. e. freely alienable or
convertible) or socially embedded The field in its entirety is outlined in diagr 1, below.
The view advocated in this paper is that the study of entrepreneurship‟s seemingly
„peripheral‟ manifestations, i.e. less ‟obvious‟ corners of the field could improve our
understanding of the phenomenon, and of its societal import. Needless to say, this view
does not disvalidate nor dismiss established „core‟ manifestations of entrepreneurship.
1 Information from Eva Laurelii, Kooperativ Konsult, Gothenburg, February 1999.
INDIVIDUAL Social Economic
Whereas “classical” entrepreneurial research models concentrate on the upper-right corner
of the field, any of the activities mapped in the diagram above could, in principle, be
analysed as entrepreneurial activities. The choice of whether to do so or not is a matter of
expediency, not of principle. As a matter of common sense, we may conclude that
applying entrepreneurial models to the upper right corner of our diagram: the actions of
individuals that combine purely social resources to achieve own social ends, will hardly
generate new insights. Entrepreneurial perspectives become increasingly fruitful as we
move towards the lower-right quarter: to cases of collective action, and-even more so- in
exploring the interface at which social resources shade into-or are converted into
economic ones. Organizations that operate on this interface, such as voluntary
organizations and social movements, traditionally mobilized voluntary labour, community
goodwill, and the rent-free use of in natura resources (premises, etc). In this respect, their
way of operation approaches Penrose‟s dictum that it is the service derived from a
resource, rather than the resource itself that count in constituting an enterprise, even closer
than do conventional enterprises. Similar practices are also evident in the operations of
networks and industrial districts. Such practices are difficult to quantify and access by
traditional economic and accounting tools, and were commonly ignored by traditional
research. Some recent changes, in societal values, as well as in the field of theory, change
Changing values: pecuniary values can today be attached, for better or worse, to ever-
broader range of services and social activities in general (by researchers and
participants alike). Consequently, a growing range of social enterprising
activities becomes accessible to conventional business analysis.
Theory development: there is a growing acceptance, among economists and scholars of
business administration, of the notion of enterprises whose focus is on non-
material products, or on the production and marketing of identity.
Resources and the institutional context
Social entrepreneurship involves (a) mobilization of socially-embedded resources, and
devising ways of deriving services from these. Resourcewise, the entrepreneur‟s field of
action is defined by existing societal distributions of entitlements (cf Sen, 1980), and the
available (in the sense of not being prohibited) modes of extraction in a given society.
Whether a resource that an individual is entitled to is alienable (i. e. may be contributed or
traded by their holder) or not, and what conversion rules or limitations apply, would vary
from one context to another. The complex, ambiguous and culture-dependent character of
such rule regimes is put in relief at the interface between social entrepreneurship and
Yet another set of property-rights and entitlement packages is defined, in advanced
welfare societies, by the institutions of the welfare state. While the entitlements involved
are economic in their nature (either immediately, in the case of transfer payments, or
indirectly-when disbursed as publicly financed transfer services), the rules that regulate
transfer and (eventual) exchange differ from those that apply either in the economy or in
civil society. Social cooperatives, discussed in this paper, provide a highly illustratve
example of the issues involved.
A closer examination of the relationship between exclusion and unemployment in
the Swedish model can help to clarify some of the features of the field that social
cooperatives attemt to establish in, the nature of their achievement, and the fact that this
field of social action has not previously been claimed by other organisations.
The mature Swedish Model's best-known aspect is that of a universal and
comprehensive Welfare State, with a broad array of welfare services, administered and
produced by the public sector (Stryjan 1994). Underlying this model is a basically
corporatist division of tasks among the organised societal sectors. In the employment
field, this division of responsibilities acknowledged the role of two, and only two parts:
government, as a facilitator of job creation, and the "business community" (näringslivet),
as an actual creator of jobs (Stryjan and Wijkström 1998). The individuals‟ role, in this
system is, primarily, „to stand at the labour-market‟s disposal‟ (as formulated in the
statutory requirements for unemployment benefits); definitely not to set about creating
their own job. Primarily, the Welfare State it is responsible for facilitating (re)integration
in the labour market for those (implicitly) deemed employable. As a dispenser of welfare,
it is also to take care of those still left out; a task met by an array of institutionalised tools,
ranging from hospitalisation to sick-leave or early retirement. Unlike unemployment
insurance benefits, such inability benefits are contingent on their recipient not attempting
to engage in an economic activity, and are withdrawn at extremely low threshold earnings.
According to early-pension rules in power until recently, pensions would be reduced by 25
% once earnings exceed a minimum amount that lies well below 25 % of the pension.
Reporting a small income may thus result in an immediate income loss. While
guaranteeing subsistence, these measures inadvertently institutionalise the exclusion of
those who were not deemed employable, and penalise attempts at creating one‟s own
income, or re-entering the labour market. It could thus be said that the system assumes a
double role in the field of employment both enshrining "having a job" as a keystone of
individual identity and excluding some categories from ever attaining this desired status.
Social cooperatives can be seen as a strategy to circumvent this trap. Put simply,
the participants core aim is to create an enterprise whose prime product is the
bestowement of employee status on its members. Economic performance is a boundary
condition (albeit a highly important one), rather than a goal. The task of assessing social
cooperatives economic performance is made difficult by the fact that the resources they
draw together and recombine, such as (non-pecuniary) welfare entitlements, voluntary
inputs, personal contacts, and rights to use resources held or financed by other parties are
resources that are difficult to capture and define in financial terms. In a manner of
speaking, the institutional setup is rendering invisible these enterprises‟ economic
performance, in the same manner that the exclusion of their founders and users from the
ranks of the employable has rendered those largely invisible. The exact organisational
solutions adopted as well as the financing forms vary greatly from case to case, and (given
the highly decentralized nature of the Swedish Welfare State) from one municipality to
another. Some of the basic features of these organisations are discussed below.
Association form, risk-taking and taxation:
the choice of an incorporation form
An incorporation form is deliberately assumed, rather than awarded. Since co-operatives
do not exist as a distinct category of legal subject in Sweden, the broad label
„cooperative‟, as applied to social co-operatives, normally spans- and obscures- a
considerable variety of incorporation form. A social enterprise‟s legal incorporation form
is, in fact, the outcome of an active choice between a number of alternatives, each of these
being a distinct package of rights and responsibilities.
Three legal incorporation forms are commonly resorted to by organisations within
the Swedish third sector: (1) foundation (stiftelse) (2) ideell (or non-profit) association,
and (3) economic association (Stryjan and Wijkström 1996). Generally, co-operatives
incorporate under one of the two association forms, most commonly as economic
associations. It would be possible to incorporate a co-operative as a joint-stock company
and, theoretically, even as a foundation, though these alternatives are rarely resorted to.
An association is created when a number of individuals (or legal entities), in
organised forms and for a set period of time or until further notice, co-operate towards a
common objective (Hemström 1992). The Swedish legal notion of an association has a
stronger collectivistic emphasis than other legal traditions (Cf. Boli, 1991 ; 1992). There is
no common legal definition of an association in Swedish law (Mallmén 1989)., and it is
necessary to distinguish further between two categories: the economic and the ideell
(roughly voluntary) association.
2 A strategy often pursued by employee-owned companies; see Stryjan (1989). At least one social
cooperative has, in fact, initially intended to incorporate as a joint-stock company.
The Law on Economic Associations defines an economic association as a joint
endeavour of natural and/or legal persons-members with the aim of promoting the
economic interest of the members through economic activity in which the members
participate as consumers, suppliers, providers of their own labour, service recipients, or in
any other similar way The Rochdale principles of open membership, one member-one
vote democracy, limited return on invested capital, and dividend by members' patronage
were assimilated into the law (Rodhe 1988).
The term ideell förening could roughly be translated as private non-profit
association (Hemström 1972:252). Generally speaking, an association that does not meet
the twin criteria of (a) business activity; (b) purpose of economically benefiting its
members, is automatically regarded as ideell association This association form is not
regulated in existing law. In actual legal practice, however, legislation on economic
associations is applied as a default norm for all associations. Thus, for instance, the "one
member one vote rule" would be assumed to apply for an ideell association unless there is
evidence/explicit provision to the contrary in the association's records or bylaws.
The two forms of association are suitable, in principle for co-operative
organisations. However, only the economic association form provides the protection of a
limited liability provision This makes it a natural choice for any co-operative with
sizeable economic activity. The economic association form does not in any way enforce a
non-profit constraint, nor does it impede commercial "for-profit" operation. In fact, it
explicitly endorses it ; an association that fails to specify the "economic interests" that it is
intended to promote may even be denied registration. Some of the central features of the
three forms are summarised in the table below (table 1):
Foundation Economic Ideell association
Legal definition Yes Yes No
Minimum Capital Yes No No
3 Law 1987:667 om ekonomiska föreningar, abbreviated as FL
4 The Swedish system treats both trade unions and associations of employers as ideell associations (Bäck
5 Ideell associations are covered only conditionally. If the association engages in purely commercial
operations, board members may be personally liable for the association's debts.
Members None Required Required
Articles/Charter Yes Yes Yes
Democratic No Mandatory Encouraged
Registration Necessary Necessary Optional
commercial No Yes No6
Profit aim No Yes No
for Yes No Yes
As the table above illustrates, the legal system neatly separates between social objectives
and economic risk-taking (and, thus, enterprising). Co-operatives are seen as fully-fledged
business actors, entitled to take business-risks - but, generally, they are not considered as
serving the general interest. Ideell associations, on the other hand, are expected to refrain
from entrepreneurial activity. In practice, this means that in a case of bankruptcy that is
caused by unsuccessful business operations, incorporation may be retroactively revoked,
and the members of the board would find themselves personally liable.
Taxation exemptions, whenever awarded, are activity-specific. An association may
thus be entitled to tax exemptions (from corporate profit tax and property tax) on activities
that are judged as salient to its core activity, and be fully taxed on activities that are judged
(often retroactively) as purely entrepreneurial. Indeed, until the last decade, this rule
system effectively precluded the formation of social enterprises, and channelled the
resourcefulness of organisations within the sector (with the exception of the most affluent
ones) into economically "low-risk" fields, such as political action, or the articulation of
group demands and interests. This solution is hardly available to social cooperative. The
combination of high vulnerability with the necessity to engage in business operations,
creates a strong pressure towards the (formally for-profit) economic association form.
The co-operatives in the group produce a broad range of products and services.
Handicraft is consciously avoided by most co-operatives . Work is normally organised in
work-groups supported by tutors. Typically, a co-operative would consist of 1-2 tutors
(handledare), and 5-6 users per tutor. Considerable deviations from this standard exist,
though: the ratio may be as low as 1:12, and as high as 1:3, depending on the orientation
and the type of activity. At least one co-operative (Vildrosen in Växjö), manages its
activity without any tutors whatsoever.
In keeping with the Swedish legislation on associations (see above), the co-
operative's economy, recruitment and internal affairs are managed by an elected board.
The "one member-one vote" rule applies. Tutors may not be elected to the board, but they
are often appointed to management positions. In at least one case, a double governance
structure was created, with a co-operative of users commissioning the services of a worker
co-operative of tutors.
The forms of initial recruitment vary from case to case, depending on whether the
co-operative emerged spontaneously or on an external initiative. A considerable portion of
the members are former mental patients. However, the tendency has increasingly been
towards recruitment on the basis of life-situation rather than medical diagnosis. Once
established, co-operatives generally take in new members by vote, usually after a trial
period. In many of the cases, tutors are expected to apply for membership.
The turnover of the enterprises' commercial operations varies considerably, from
about 150 000 ECU, for the most entrepreneurially oriented, to a few thousand, for those
whose chief emphasis is on providing a social context.
Definition and comparison of economic performance encounter a number of
technical problems : an enterprise can be seen as a nexus of contracts and transactions.
Transactions that are carried out through this nexus can be said to be „included‟ in the
enterprise. Conversely, transactions that bypass the nexus (e. g. providing the enterprise
with rent-free premises, rather than reimbursing its rental costs) would, obviously, not be
included in the enterprise‟s balance sheet. Sales revenues and material costs are two posts
that are handled in a conventional business manner by all social co-operatives. But other
major components in the enterprise's "resource package"; such as members'
7 Among the motives given were the fact that the added value was low and the wish to distance oneself from
income/wages, tutors' wages, disposition of surplus, and premise rental are included in
some cases, and omitted in others . The considerable local variation in the way such
boundary lines are drawn foils any effort at providing any aggregate, or comparative
economic statistics over the population of social co-operatives.
Fig 1: The fully-fledged firm
maintenance, social Users‟ Wages
insurance Payroll tax
Grant for tutors‟ FIRM Tutors‟ wages
Grant for premise
rental Premise rental
Most social co-operatives aspire to remunerate their members' work with regular wages.
However, only a minority does attain this goal. Existing regulations inhibit direct
conversion of individual transfer payments (such as sick pay, retirement, etc) into wage
supplements payable to members via the enterprise. In most cases, members' income has
thus to be provided for by income guarantee payments which bypass the co-operative.
Existing rules preclude the payment of part-time wages as well; a members' personal
income may actually decrease due to the threshold effects that the rather inflexible rules
typical occupational therapy activities.
8 No information is available on investments in production equipment.
generate . The economic thresholds that this rule regime sets are insurmountable for any
but the best performing enterprises.
In a large portion of the cases, tutors are municipal employees, on municipal
payroll. Tutors may also be self-employed through a worker co-operative that directly
contracts the municipality. In the cases where tutors are employed by the co-operative, the
municipality reimburses between 50 % and 100 % of the expense, the balance being
covered either by the co-operative's surplus or by funding from other public bodies.
Fig 2: the minimalist firm
Business Joint consumption
OR block grants per Disability
placement pensions etc
Municipal Tutors‟ wages
Contribution Free premises
by owner or
Premises are normally rent-free, which is to say that rent is paid directly to the landlord by
the local authority. In one of the cases studied, premises were contributed by a private
company In another case (Vildrosen, Växjö), the municipality covers only a part of the
rental ; the balance is covered by revenues generated by the co-operative. Other cost-
sharing arrangements (be they permanent or project-based) exist.
As the presentation above illustrates, both the co-operatives‟ economic results and
the financial support they receive are largely a matter of definition. For the time being,
there is no institutionalised standard model for financing the operation, nor for defining its
10 The company is Marks Pelle Vävare in Borås, whose canteen is run by the Gryningen co-operative.
component parts. Existing co-operatives are run on an ad-hoc basis, and mobilise support
in different forms and from various sources.
Support for a co-operative may be explicit - as reimbursement of expenses - or
implicit, as transfer of rights, rather than of funds. Explicit support would be awarded for
expenses directly borne by the co-operative. Thus, a co-operative that does pay wages may
be eligible for wage-supplement funds from the labour market authorities. Similarly, co-
operatives that do pay rent for their premises are likely to receive reimbursement,
primarily from municipal authorities, for all or part of the expense they incur. The same
applies to tutors' salaries. Incoming support (or corresponding fee for rehabilitation
services) would naturally be reflected in the enterprise‟s turnover.
Implicit support is rendered if the expense is directly shouldered by another actor
(e.g placing the tutors on the municipal payroll, or providing premises free of charge).
Such support wholly bypasses the co-operative transaction nexus and leaves no trace in
the cooperative‟s balance sheet, which indirectly diminishes the operation's visible
economic scope. In fact, the balance-sheets of two cooperatives that provide exactly the
same volume of identical services, may greatly differ, depending on the way expenditures
are handled. A prospective donor's choice between different forms of support may be
swayed by taxation considerations .
Naturally, the definition of economic results is contingent on the way the co-
operative's expenses and sources of income are defined. In the existing rule-system, a path
of lesser resistance is often chosen: members receive no wages, and the surplus generated
is either spent on common undertakings, for investments or (within strict limits) as an
income-supplement. Since the enterprises discussed here are, as a rule, labour-intensive,
the "shadow wages" received (in the form of subsistence grants directly awarded / paid by
the authorities) distort information on economic performance, and make comparisons to
other enterprises- or even within the population difficult to conduct.
Tapping social capital: relations with local community
11 For example, donations in natura are de-facto tax deductible for (profitable) firms, but not for
individuals. Pecuniary donations are not tax-deductible, while sponsoring is, etc. The arithmetic becomes
even more complex where VAT and payroll taxes are involved. For authorities, a budgetary allocation for
wages is by 33 % higher than for a pension of the same amount, etc.
The social co-operatives' interaction with the local community and varies from case to
case. Available descriptions indicate, however, that most co-operatives concentrate on
services to the local population or to other SMEs in the immediate surroundings. On the
whole, commercial activity is not aimed at large corporations, and hardly at all towards
the public sector. Whether deliberately or by default, activities tend to aim for generating a
tighter social enmeshment for the co-operative and its members, such as running a
workplace canteen, a cafeteria in an industrial park, etc. Relations to customers are, in this
case, clearly personalised, and contribute to create social links between the co-operative
and its social environment. Inverting the perspective, we may also conclude that the social
capital generated in these relationships can, in turn, be converted into conventional
revenues, or be instrumental in the pursuit of (economic) capital. The pattern of
transformations can be schematically mapped as follows:
Into Economic capital Social capital
Social capital Trust: Partnerships, Reproduction
credit assessment, Networking, recruitment,
contractor loyalties common values, culture
Economic capital Venturing, Redistribution (e.g
investment Sponsoring, targeted
Projektet arbetskooperativ in Norrtälje (which recently evolved into a cluster of co-
operatives) provides one of the most interesting examples of such strategies : one of the
project's groups, servicepoolen (SP), offers auxiliary services (cleaning, reparations,
building maintenance, etc) to farmers, house owners and small firms in the small town and
vicinity. Servicepoolen originally consisted of three teams, with an (employed) team
leader each. The three team tutors are tradesmen and former small entrepreneurs that had
to quit the labour market for health reasons. Apart from the obvious resource of trade
skills, the tutors provide the cooperative with a vital contact network linking it to the
surrounding community, and to would-be competitors.
12 e. g. second-hand bookstore, car washing, dog-kennel.
13 This information is based on own interviews, information from Bosse Blideman, then at KUR, and
documentation (in draft) prepared by Biometri Ek. För.
A customer survey shows that most customers learned about servicepoolen
primarily through personal contacts ; all but two (of 22) respondents found quality good or
very good; and would contract SP again, on similar occasions. In about one third of the
cases, the job in question would have not been done at all, had Servicepoolen not been
available. It is difficult to determine whether these statements prove the co-operative's
competitive advantage or demonstrate community support. Keeping in mind the reserved
attitude to charity in Swedish society, this ambiguity may well be intentional, and
deliberately maintained by all parts in the relationship.
Intangible resources and invisible products?
A concluding remark
Though all social cooperatives do trade some output in market relations, their
principal output is symbolical in its character. Their chief performance consists of
transforming their members, and bestowing on them a status that has been denied them by
society. That of having a job, an enterprise to run and even of acting employers to their co-
workers and tutors. Economic performance sets the boundary conditions of this operation,
rather than determines its ends. Established methods encounter conceptual difficulties in
assessing such enterprises‟ product.
Do symbolical transformations of this type matter economically? Economists have
lately come to terms with the notion of commercial companies whose core activity is the
production and marketing of identity. Within the field of welfare, the provision of
occupational placements for the functionally handicapped is, in fact, already accepted as a
valid business idea- provided that the service is being provided by a third party.
Resistance to the idea of having the same service produced by the users themselves seems
rather a matter of ingrained perceptions, than of the rules of economics. Seen in this light
the economic impact of social cooperatives would be difficult to dismiss
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