News — Washington, DC—Conversions of organizations—whether from public to private, nonprofit to for-profit, or cooperative or mutual to stock corporation—occurred in numerous U.S. sectors during the late twentieth century, including health care, agriculture, social services, banking, insurance, electricity, and water utilities. Mutual conversions to stock corporations in the savings and loan field exemplify these shifts in business practices.
From the late 1800s through the late 1960s, local, community-based banking via mutual savings and loan associations were cornerstones of mortgage finance in the United States. These cooperative or mutual savings and loan associations (SLAs) brought many benefits to society, including expanding access to resources, fostering small stakeholder economies, and promoting community and self-governance.
During the late 1960s and 1970s, the resurgence of the market and institutional changes, such as deregulation, enabled SLAs to reorient themselves and convert from mutual to stock corporations. While these conversions often entailed a shift from local, publicly oriented, or community-based missions to concerns about commercialization, new funding sources, and the market, SLAs actually varied significantly in their responses.
Why was it that, in some locations, SLAs eagerly embraced the market, pivoted from Main Street to Wall Street, and converted to corporate enterprise, while in others they remained wedded to traditional community-based mutual ownership forms?
In their new study, “Embracing Market Liberalism? Community Structure, Embeddedness, and Mutual Savings and Loan Conversions to Stock Corporations,” appearing in the February 2023 issue of , authors , Reed College; , Princeton University; and , University of Illinois at Urbana-Champaign, investigate this question by adding communities and local associations to economic sociology’s toolkit for understanding the social foundations of firms and markets. Specifically, the authors examine the “embeddedness” of SLAs within communities—that is how much SLAs through their normal operating routines focus managers’ attention, transactions, and interactions in their day-to-day work within a circumscribed area defined by firms’ home communities—and whether embeddedness mediated the decision of an SLA to convert.
To assess the effects of embeddedness and community on conversions, the authors assembled a multilevel panel dataset that covered the full population of 3,764 mutual SLAs in the United States from 1976 to 1988, along with information on their surrounding communities and associations’ business activities in those communities. They began their analysis in 1977, the year after Congress lifted its moratorium on conversions, and ended in 1988, the year that marked the end of the 1980s conversion wave.
The authors then related this data on conversions to (1) county-level census data on market conditions and community characteristics in SLAs’ headquarter counties from 1970 to 1990; (2) firm-level Home Mortgage Disclosure Act data on the profile of SLA lending across counties; and (3) data on the prevalence of mutuals and prior conversions in the industry from 1975 to 1990.
The authors found that the varying responses of SLAs to the option of whether to convert to a stock corporation indeed rested in part on its embeddedness in local communities. SLA managers “were more likely to abandon mutual ownership for corporate enterprise as SLAs became less focused on local residential mortgage lending, and where their communities experienced social disorganization and diminished density of working- or cross-class membership organizations… Solidaristic, stable, and homogenous local communities and working- and cross-class associations were social infrastructures that tied managers to traditional communities, insulating them from peers’ turn to Wall Street, and sustaining mutual organization in the face of marketization.”
Furthermore, they found that conversions also depended on elite detachment and civic reorganization within communities, as local elites used “upwardly oriented” associations as spaces to reorient from Main Street to Wall Street. They conclude that “as elites become less deeply connected to their local communities or as communities become more fractured along class or race lines, they also become more receptive to the call of the market and its for-profit forms, and less inclined to support mutual or public enterprise.”
The authors have shown how the late twentieth century financialization of American society is not only a story about deregulation and macro-level political-institutional dynamics. It is also a story about how community-level dynamics of elite disconnection, class and ethno-racial fracture, and civic reorganization eroded the organizational foundations of the previously community-based, depositor-owned system of mortgage finance.
Through this research, the authors have contributed to organizational scholarship on institutional change and how organizations manage contexts characterized by multiple, competing logics or institutional complexity. Knowledge of how contextual factors impact organizations’ decisions “is vital for understanding when and how new logics find traction to ‘take up’… In the end,” note the authors, “understanding how organizations negotiate their environments means situating them not just in institutional fields, but also in their concrete, often local communities.”
For more information and for a copy of the study, contact [email protected].
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