Cooperation, Contract Law and Economic Performance

Abstract

Economists have traditionally been suspicious of cooperation, regarding it as a species of collusion against the public interest. They are even more doubtful of the merits of institutional support for collective action, which they see as restricting competition and reducing economic welfare. In this respect, the views of Adam Smith are echoed in theories of our own time, of which Hayek’s theory of spontaneous order has been particularly important. This is all in sharp contrast, however, to evidence of the competitive performance of economic systems which emerged in the postwar period to challenge the preeminent position of the Anglo-American economies. These systems, which include those of Germany, Japan and northern Italy, have developed systems of cooperation within and between firms which are supported by dense networks of institutions. Markets are regulated by commonly agreed rules, norms and standards. The result, in many cases, has been high rates of process and product innovation, high product quality, improved design and flexibility in meeting the changing requirements of consumers. The prolonged success of overtly cooperative productive systems appears to cast doubt on the negative attitude of economists to this form of economic organisation, and invites a reconsideration of the economic nature of cooperation. This is particularly important at the present time, because the pressure of ‘globalisation’ is leading many in the countries concerned to question the effectiveness of those institutional mechanisms through which cooperation was encouraged. Nor is there any shortage of those prepared to defend the so-called Anglo-American model and to argue for its superior survival value.