The Marcora Law - Multiplying the employees’ stakes
Italy’s Marcora Law (law 49/85) allows redundant workers to use their accumulated unemployment benefit to capitalise a buyout co-operative. It thus forms part of the welfare bridge from unemployment to self-employment.
A summary of the Marcora Law’s provisions
- FONCOOPER, a fund for the general promotion of co-operatives
- CFI, a revolving loan fund invested in phoenix co-operatives
- employees’ investment matched threefold
- maximum of three years’ unemployment benefit can be capitalised
- corporate investors permitted up to 25%, providing networking support
- specialist monitoring and advisory body established
- €40m invested
- 89 businesses and 3,100 jobs saved (by end 1992)
- 10% failure rate of co-ops
- 5% of capital and jobs lost through failures
The institutional set-up
The Marcora Law was passed on 27 February 1985, and provided state backing for two funds to support co-operatives. The first, FONCOOPER, is a general fund for the promotion and development of all types of cooperatives. The second, the Compagnia Finanziaria Industriale (CFI), is a special fund to help save companies in crisis. It invests only in new co-operatives set up by employees who have been laid off when companies close or downsize. CFI was capitalised by the state, and is managed on an ad hoc basis by the co-operative federations.
CFI invested in the share capital of phoenix cooperatives, up to three times what the employees invest, up to a maximum limit of three years' unemployment benefit. In return for this capital input, the employees lost their right to unemployment benefit during that period, should the cooperative fail. At the end of the period, the employees could buy the shares at face value from the fund, or they could be sold externally. The law also introduced the innovation that other outside shareholders – cooperatives, private companies or public bodies – could also contribute up to 25% of the cooperative's share capital. Up to this point, private enterprises had not been able to invest in cooperatives in this way in Italy.
Encouraging risktaking and adequate capitalisation
The effects of the Marcora Law were as follows:
- It helped workers save their jobs by taking the entrepreneurial risks themselves.
- It incentivised employees to contribute capital, because the amount of outside financing was directly related to the workers' own shareholdings. This was important because it created cooperatives which were adequately capitalised, and many cooperatives are undercapitalised. The average employee shareholding in cooperatives supported by CFI was €5,500, and in cases is as high as €15,000, which meant the cooperatives were strong, had a good relationship with their banks and could grow faster.
- Thirdly, the link between the external capitalisation and unemployment benefit meant that there was a powerful incentive to make sure the enterprise worked; it also meant that workers were unlikely to start a co operative which was likely to fail.
About a quarter of CFI-financed cooperatives have some corporate shareholding. In some cases this is a public body or a local financial organisation, and this helps the local community get involved. In other cases, it is other cooperatives which see such a shareholding as offering the potential for synergy and ways of moving forward with greater solidarity. Or it may be a private company that is seeking the benefit of organisational or industrial synergy. In general the involvement of noncooperative shareholders has been beneficial, as it has brought in useful experience, prevented mistakes being made, and has stopped the cooperatives from becoming isolated. On the other hand there have been cases where outside shareholders have tried to take advantage of the inexperience of the cooperative members, and have tried to divide them up.
CFI feels that overall the Marcora Law worked very well. By 30th June 1992 it had invested €40 million in 89 cooperatives. These cooperatives employed more than 3,100 workers, 80% of whom were members. Their turnover exceeded €230 million. There were of course failures, and in 1992 nine cooperatives, 10% of the total, were in liquidation. However these were the smaller co operatives, and represented only about 5% of the capital and 5% of the jobs. Furthermore, this loss was compensated by asset and employment growth within the successful cooperatives. This experience shows that the availability of capital is a necessary condition for setting up new cooperatives, but is not sufficient on its own – other types of support are also necessary.
The benefits of a specialist institution
One decisive factor in this success was that the state aid was made available in the form of equity, not grant, and has been administered by a specialist institution. This meant firstly that the cooperatives had a partner who took an active interest in their performance, and who could bring its contacts and experience to assist the coop. Secondly, the dividend paid on the investments (about 15%) was returned to the movement, to help promote the growth of new cooperatives. CFI's monitoring, training and support was very similar to that provided by the Caja Laboral Popular in Mondragón.
The provisions of the Marcora Law were originally limited to an experimental period, but its success was such that parliament extended it for a further two years. However CFI was aware of the danger of becoming reliant on public financing, and actually refused additional public funding of €30 million because the government wanted it to act too hastily; it preferred to forego the extra money rather than invest in unsound cooperatives and bring the mechanism into disrepute.
This experimental law was instituted to provide an option for people who were made redundant, but its value went beyond that. First, it is important that among the workers there is a nucleus that is prepared to become entrepreneurs. Secondly, the Marcora Law provided the means to surmount some of the traditional obstacles that new cooperatives face: it provides incentives that help coops succeed. The Marcora Law provides a very good example for panEuropean legislation.
Source: Alberto Zevi, Compagnia Finanziaria Industriale (CFI) at the Strategies for Democratic Employee Ownership conference organised by Industrial Common Ownership Movement (ICOM) in London on 13-14 November 1992. Report by Toby Johnson. ISBN 1 870018 09 5
Text also quoted in Insolvency, Employee Rights & Employee Buyouts. A Strategy for Restructuring by Anthony Jensen, Ithaca Consultancy for the Common Cause Foundation, available at: http://www.efesonline.org/LIBRARY/2006/Insolvency,%20Employee%20Rights%20&%20Employee%20Buyouts.pdf
Description on Confcooperative site: http://www.confcooperative.it/CD%20Finanziamenti/capitolo%20VI.swf