Catalysts for Cooperation: EU Policies and the Political Economy of Local Development in Countries with Small Firms and Small Farms

Inter-firm cooperation is a way for small firms to overcome some of the disadvantages associated with small size, thereby enhancing their productivity and enabling economic upgrading in economies characterised by high fragmentation in land and business ownership. At a time of growing economic internationalisation, and given the lack of easily available, inward-looking alternative paths to inclusive growth, encouraging small firms to move up the value-added chain has never been more important in fragmented Southern European economies. The challenge is that cooperation among economic actors is often thwarted by intractable collective action problems that are particularly difficult to resolve in institutionally-thin, low-trust settings such as Greece. Despite this difficulty, several examples of stable patterns of intense cooperation among economic actors do, in fact, exist in Greece. Hence, the question arises: Under what conditions can collective action problems be overcome at the local level in Greece and other similar settings, thereby enabling economic actors to acquire specific capabilities that can help them improve their performance? To approach this question, the paper draws on qualitative empirical evidence collected through fieldwork in five areas of Greece where specific types of cooperation among firms in the agri-food and tourism sectors emerged in the last 15-35 years, compared to five otherwise similar (matching) cases where such patterns of cooperation could have had similar benefits, but failed to occur. The findings are also tested against evidence collected in two areas in Southern Italy, to gauge their wider applicability. In total, the paper relies on 86 semi-structured interviews, on documentary evidence, and the local press. The paper uses as a theoretical starting point Elinor Ostrom’s observation that the supply of local cooperative institutions requires a particular set of local-level conditions, and the existence of a facilitative political regime that reduces the costs of resolving collective action problems. The paper then analyses the funding and regulatory instruments of the EU’s Common Agricultural Policy and regional policies from the perspective of their effects on the prospects for collective action at the local level, and argues that particular aspects of those policies provide some of the benefits associated with facilitative political regimes, thereby to an extent thereby mitigating some of the deficiencies of Greek formal institutions. The paper also examines the local-level conditions that need to be in place for the EU’s policies to have beneficial effects on cooperation, with a focus on the importance of locally and internationally embedded leadership for the formation of networks and beneficial informal institutions at the local level. Overall, the paper reconsiders the EU’s longest-standing spending policies from an original angle in order to advance our understanding of how to foster inclusive growth in Southern Europe the day after the crisis.