The purpose of this dissertation is to challenge the predominant theories of the firm in economics by demonstrating that the firm can only be properly understood if the importance of cooperation based on trust and loyalty, and the ability of the firm to achieve that cooperation by influencing the social foundations of behaviour, is appreciated.

Chapter 1 demonstrates that neglecting this ‘social nature’ of the firm renders the predominant theories incomplete and incompatible, with contract-based theories clinging to a rigid model of behaviour and competence-based theories failing to develop the social foundations of knowledge. The second chapter constructs a theory of the firm that rectifies these shortcomings by maintaining that the firm fulfils its purpose of developing and applying productive knowledge by achieving cooperation, which, along with the dual function of achieving coordination, involves a combination of organisational structures and organisational culture. In Chapter 3, this theory reveals that, contrary to deterministic views on organisation and economic development, a range of organisational forms are possible for any given technology or culture, and that organisation in fact shapes technology and culture.

In Chapter 4, the dissertation shows that, contrary to the predominant theories of the firm, cooperative firms may have an inherent advantage in achieving cooperation based on trust and loyalty, and in maintaining that cooperation while also achieving the coordination required for advanced technologies. Although this ability may be suppressed by the prevailing institutional environment, the case of Mondragón, discussed in Chapter 5, demonstrates that it can be activated by innovations such as cooperative groups and ‘second-tier coops’. Although Mondragón’s success has been attributed to the uniquely cooperative traits of Basque culture (as opposed to its structural innovations), Chapter 6 demonstrates through primary and secondary research that Mondragón has in fact been used as model across the globe.