Environment

2.3.1 Membership and formation

To understand what goals professional partnerships and NHOs have, and why, requires an account of who sets these organisations up and why. That is, an account of these organisations' origins in a given social environment.

Institutional economics raises the question of when, when a group of

individuals wish collective to undertake a productive activity ('core process') an organisation emerges rather than a network or a Coaseian market of bilateral contracts (75). However with a few exceptions, above all

Hansmann's work (54), transaction cost theory mostly, indeed deliberately (52), focuses on the formation of corporations. It also begs the most

important question for a study such as this one by presupposing either that organisations are formed by individuals who already relate through a

market or, still more question-begging, that markets are (so to speak) a 'state of nature' from which all other forms of economic organisation are either derivatives or, to speak normatively, degenerations. Historical evidence (e.g. (76,77)) refutes these empirical assumptions.

Instead we assume that NHOs originate 'from below' from individual producers or consumers who believe they through such an organisation they can satisfy certain of their already-existing personal motivations more effectively (or at all) by collaborating (78) This explanation requires a

theory of individual motivation to work. Without accepting every elaboration which Herzberg (79) and Maslow (80) made, the assumption of a hierarchy of motivations ('needs') founded upon the most imperative and 'basic' ones (81) has a basis in psychological theory. In descending order of

imperativeness, motivations relevant to the foundation of professional partnerships and NHOs are to secure:

1) A certain minimum income, whether in kind, in money (55) or a mixture. We assume that individuals (as opposed to certain

organisations) mostly seek a target (82,83) ('satisfice') rather than maximise money income. Simon (84) argued that this applies even to top corporate managers.

2) A safe physical environment for work, minimising the monotony, laboriousness (surveillance and danger of work, and enabling the incidental benefits of social networking and informal relationships (85).

3) Activities and exercising skills which their occupational cultures or disciplines accord high status and value to (86), including working to 'professional' standards of production i.e. quality standards defined a priori in technical or normative 'disciplinary' terms.

4) Such scope as the technology allows for learning and other forms of self-development such as 'enablement' (the opposite of de-skilling) (87) or increasing autonomy and discretion at work (88).

5) Pursuit of pre-existing non-economic (e.g. political or religious values) that the members bring into the organisation when it forms (89,90).

On that assumption, insofar as the goals of a partnership or NHOs came to reflect its members' motivations, those goals would include the above, perhaps even follow the above ranking.

2.3.2 Why non-hierarchical or partnership?

A partnership or a NHO forms when three conditions all hold: other forms of organisations fail to meet the above needs or (in economic terms) maximise their members' welfare compared with other forms of organisation

(91,92,68); collective action is nonetheless necessary to meet these needs;

and none of the individuals who propose to act collectively has the power to subordinate the others within a new hierarchy.

We do not assume that public and commercial bureaucracies oppose the aims listed above. Rather, they cannot satisfy those aims when:

1. No such organisation exists, in the cases of goods or services which are either unprofitable to sell, controversial (e.g. birth control in the 1920s) or of low prestige or desert in the eyes of state or professional interests (93). In healthcare, groups of patients or carers who

nonetheless want such goods or services must then either establish a producer organisation (e.g. Marie Stopes clinics, hospices, HIV/AIDs charities in the 1990s) because they cannot achieve these ends privately (94), or establish a consumer NHO to obtain these services from elsewhere.

2. Working conditions or activities of existing providers fail to meet the needs of those who go on to found a partnership or NHO, perhaps because the founders were in a weak bargaining position. Doctors (for example) may perceive a clash between a prospective employer's and their profession's values (87).

3. A producer did exist but is closing down (95) Its work-force take over the enterprise to 'rescue' their livelihood (96-98) (e.g. Triumph

motorcycles in the 1980s (99)).

Thus on the supply side of an economy the two main patterns of NHO formation are either from takeover of an existing productive enterprise or creation ex nihilo. It is obvious why collective action is necessary for operating a large core process such as a factory production-line, but less obvious what the benefits of working collectively are in professional

activities such as medicine or law which to a large extent are individualised, handicraft activities performed mainly through one-to-one interactions between professional and client. At one extreme an 'atomised' partnership of such professionals might offer no benefit beyond office-sharing (69).

However Hansmann (54,100) proposed that partnerships and NHOs rather than corporations emerge when the costs of contracting between members is higher than those of risk-bearing through trusting each other. Forming or joining an organisation largely removes the transaction costs of allocating (other) costs and income between the members or partners (6). Co-operatives produce greater welfare for their members than other forms of organising by giving their members control over a vertically integrated process of production and jointly exploiting economies of scale which they separately could not (68). By their nature partnerships can emerge only on the supply side of an economy. They allow the partners to share risks and obtain a given income for less effort (101,102). A professional joining an existing partnership gains access to its ready-made reputation for quality of work (103)and avoids having to build up a clientele from scratch. For clients who are in a position of information asymmetry vis-a-vis professionals, exclusionary regulation is one way of establishing a 'brand name' which implicitly signals to clients what quality of service they can expect. However general practice is the medical specialty where this asymmetry is least (6).

On the demand side, consumer NHOs form to obtain goods and services for their members on better terms (of price, information and quality) than otherwise obtainable in a market (104,100,105) or quasi-market. In Britain one instance is when patients or carers set up appeals around cause celebre patients whom the NHS is alleged to have 'let down'. Consumer NHOs also redress information (asymmetries between providers and consumers (100), and increase consumers' collective bargaining power against producers.

Cooperatives which retail direct to consumers either re-sell goods at lower than market prices (newer consumer cooperatives) or sell goods at market prices but afterwards redistribute any profits to their members in proportion to their members' spending with the co-operative ('Rochdale pioneer' or 'patronage' model) (106). Besides credit for purchases, consumer credit unions provide households with a means of managing income fluctuations (107), avoiding the higher interest charges of commercial or of illegal lenders.

The third condition for a partnership or NHO to emerge is that none of the prospective members can compel the others to join as her subordinate employees (i.e. establish a hierarchy). Members and partners make broadly equal inputs, have equal rights to participation in decision-making and gain broadly equal benefits from collaborating. Hence cooperatives or

partnerships emerge in production activities which require little initial plant or equipment (or money-capital to buy them), for instance handicrafts or activities whose main input is knowledge rather than physical materials; or when a group can take over control of a large productive process (factory, laboratory) without having to find the initial capital themselves. Nowadays the most common way in which the start-up condition is met, is by having members pay a standard subscription e.g. a money fee (106) or, in an association of independent producers or of consumers, agree to buy a minimum level of goods or services from the NHO (68).

2.3.3 External dependencies and governance

To operate its core productive process a partnership or NHO needs to obtain externally whichever inputs its own members cannot supply. Together these internal and external inputs have to be sufficient cover all requirements of the core process. Put in financial terms, the partnership or NHO has to break even (68). For this purpose an NHO can besides its members' contributions draw externally upon market sales, private donations or the state, whether as a bureaucratic donor or commissioner in a quasi-market (108). By imposing conditions for supplying resources, donors and commissioners create external, second-order incentives and objectives for the recipient organisation (109). What effects external incentives have upon an NHO depends upon what is measured by the incentive-payer, hence upon what is transparent to the external funders (69). (What is measured is what the incentive in practice attaches to.) Such media of control can be applied and exercised, however, only to the extent that the activity which the external body wishes to influence is transparent (visible) to it. The internal structure of the recipient organisation then has to adapt - if its members allow - to these requirements.

Law and regulation provide the repertoire of property rights and forms of legal personality which are available for creating and structuring an NHO.

(Those available under English law are noted above (ch.1)). Law and

regulation are what essentially differentiate a professional partnership from a cooperative or mutual. A 'full' (rather than 'semi-' (110)) profession has legal or regulatory accountability for quality of practice and restriction of entry, giving members of the profession de facto property rights over the regulated work which enable their members to pursue (within the

regulations) their own preferred modes of practice. These property rights are reflected, as explained below (ch.2s4), in the 'hybrid' organisational structure of a partnership.

Neo-institutionalist theory emphasises that the beliefs which members apply in founding and operating NHOs pre-date that organisation. The new

organisation is socially embedded in a legal and regulatory system, a social 'culture' with particular 'values' and in social, occupational and

organisational networks (111-114). Pinnington and Morris (115) point out that coercive, normative and mimetic pressures to conform with

occupational norms are especially strong in the professions. The putatively purely technical 'discipline' of medicine also establishes a relationship of 'governmentality' between doctor and patient, doctor and managers, and doctor and her professional seniors (116).

2.3.4 Goals

From this complex of individual motivations, resource endowments and the wider, embedding sets of ideologies, laws and other institutions are formed the organisation's goals (objectives). partnerships and NHOs are founded to give governance of the organisation to different interests than control public or commercial bureaucracies, and concomitantly to pursue different goals.

One would therefore expect their substantive goals to differ from those of public and commercial bureaucracies. One would expect the goals of a partnership to be the aggregate of the motivations and interests of its individual members (115) and the same reasoning applies to NHOs.

Consequently one would expect these goals in broad terms to be:

1. To obtain for their members a specified level of livelihood or access to a predefined set of goods or services.

2. The sequence of formation outlined above presupposes that the individuals are closely enough connected, either by geographical and social proximity or, nowadays, through communications media to make it practical for them to collaborate. For this reason, and insofar as an NHO originated from the failure of an earlier enterprise, or its founding members were linked by some prior affiliation (e.g. ethnicity,

residence, local activism), one would expect its goals to include the provision of service or benefit to a local community defined

geographically (89).

NHOs and partnerships undertaking productive activity would also aim to realise:

1. What their members regarded as good working conditions (117).

2. Work activity and its products which their members regarded as being of good technical quality befitting their occupation.

3. Learning and other forms of self-development.

4. Other non-economic values that the members subscribe to (69,118), including workplace democracy for its own sake (97).

Policy changes which are in their own interests and those of like-minded organisations. There is no reason why a single organisation cannot pursue many different goals provided the members believe (perhaps rightly) that all these goals are compatible.

Insofar as consumer cooperatives or mutuals arise in order to obtain unprofitable, controversial or low-status goods or services for their members, they would develop two kinds of goal:

1. Obtaining goods, not by producing the missing goods or services themselves but either by purchasing the service members or reimbursing members when they buy it.

2. Campaign goals of inducing legislators to alter laws or regulations to induce firms producing consumer goods and services to alter their business models and marketing mix in consumers' favour; and to implement consumers' existing legal or contractual rights (e.g. truthful information about products; redress for bad products).

Some analyses (e.g. (68)) assume that partnerships, NHOs or their

members are profit-maximisers but in this context 'profit' is a slippery and ambiguous concept. After the immediate costs of production are paid, possible uses of the residual income include:

1. Payment to members or partners for their own work.

2. Extending the organisation's productive capacity. (One might say 'investment' were that term not so often tied to the idea of increasing profits in sense (4) below.)

3. Contingency funds saved as 'working capital' or to tide the organisation over income or cost fluctuations (69).

4. 'Normal profits' (which labour process theorists (e.g. Braverman (60)) regard as rentier payments) distributed to non-working external shareholders. This is the standard everyday sense of the term 'profit'.

5. Payments to (other) external rentiers (e.g. banks, owners of intellectual property). To producers these payments appear as costs, but to their recipients as profits.

Non-hierarchical organisations and partnerships whose purpose is to

maintain their members' livelihoods attempt to obtain profits in senses (1) (2) and (3), not (4) or (5). Of these, sense (1) is fundamental. Profit-making in senses (2) and (3) is only a means to that end. Because the aim of (1) is members' personal consumption, because aim (2) is technically defined' and because (3) are costs to minimise so far as is prudent, 'obtain' usually means 'satisfice' not 'maximise'. Volunteer organisations have no need for profit-making in sense (1), only 'profits' of types (2) and (3).

Furthermore, whilst purposes (2) and (3) can be funded from operating profits, they can instead be funded by, say, member subscriptions or donations (106). Because the requirements to finance technical

development and (if it cannot be avoided) pay interest and similar charges are determinate, finite costs to a NHO, 'profit'-making in senses (3) and (5) amounts only to a requirement to break even in the long term. Expansion of productive capacity also amounts to a requirement to break even in the long term, except where NHO members regard the expansion of their organisation's activities as an end in itself. If NHO members take a fixed money income, that is 'satisfice' rather than 'maximise' money income, the same applies to 'profit'-making in sense (1). In contrast, whilst a

corporation must also break even if it is to survive, its fundamental aim is to maximise profits in sense (4) above.

This approach towards profits, besides the other social values which partnerships and NHOs tend to have, implies a different competitive strategy than the one a corporation would usually pursue in order to maximise profit. The latter implies that the ideal position for a commercial firm is to be a monopolist. That implies a strategy of maximising market share and removing competitors from the market when possible, either by take-over or 'predatory' competition. If that cannot be done the next best strategy is to create a de facto monopoly through such methods as

branding, 'first mover' advantages and retention of intellectual property. A satisficing organisation, in contrast, has the strategy of securing a large enough market to break even whilst providing a predefined quality of product and a predefined level of income for its members. What matters then is the absolute size of its own market, not market share. Its

competitive strategy is therefore oriented towards obtaining that size of market. That condition met, its strategy towards other organisations can afford to be collaborative and open rather than predatory or even

competitive. The non-economic values which professional partnerships subscribe to 'what they regard as 'high' standards of work are more likely to produce convergence (on those standards) than differentiation as a

marketing strategy.

Having negotiated a set of goals the need arises for a core process which, members think, will achieve them. For a partnership or for an organisation taking over an existing failed corporation or public body, the intended core process is predefined as the work of which the members or partners already do or are credentialised to do respectively. Having selected a core process, it then becomes necessary to allocate and coordinate the work among the people who are going to operate it. Hence these people have to create an organisational structure (even if they do not conceive of it in those terms) which they think will sustain that collaboration (70).