Pathways to Legitimacy Among Consumer Loan Providers in New York City,1914-1934

Abstract

In this paper, I study the early development of two organizational forms: credit unions and Morris Plan banks which, in the early twentieth century became socially acceptable money-lenders. Three forms of legitimacycognitive, moral, and pragmaticare important in understanding their evolution and social integration. Cognitive legitimacy corresponds to what is usually considered by organizational ecologists to be legitimacy as 'taken-for-grantedness'. Organizations have moral legitimacy in so far as they have the moral approval of most members of society. Pragmatic legitimacy 'rests on the self-interested calculations of an organization's most immediate audiences' (Suchman 1995). The analysis goes beyond previous work in two ways. First, new mechanisms of legitimation are introduced into models of organizational founding and growth. Second, organizations are assumed to be able to deliberately influence their legitimacy by their actions. Empirical tests combine quantitative analyses of founding and growth rates with a qualitative analysis of historical material. In addition to density-dependent processes of legitimation, the organizations are found to act in a social-movement-like manner, thereby enhancing their moral legitimacy. This increases their founding and growth rates, and gives them a competitive advantage over earlier forms of money-lending that lacked moral legitimacy. I also find evidence that pragmatic legitimacy is spread via social networks.