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How to Regulate Cooperatives in the EU?

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How to Regulate Cooperatives in the EU? This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker How to Regulate Cooperatives in the EU? A Theory of Path Dependency Ger J.H. van der Sangen* nies.2 On a smaller scale, cooperatives were used for housing in condominium, for retail shops and for work- ers’ participation.3 1 Introduction The case for the cooperative as a viable business form regained momentum in the EU policy debate with the EU Action Plan 20034 and the introduction of the SCE The cooperative as an economic concept and legal busi- Statute in 2003,5 the outbreak of the financial and eco- ness form goes back to the midst of the nineteenth cen- nomic crisis in 2008 – arguing that cooperatives showed tury. It is widely acknowledged that the 1844 establish- a different attitude towards risks than their investor- ed ‘Rochdale Equitable Pioneers’ was the first consumer owned counterparts in banking and provided a more cooperative, promoted by philanthropist Robert Owen. sustainable business model6 – and with the endorsement Since the founding of the Rochdale Equitable Pioneers, of the cooperative business concept by the United the concept of the cooperative showed endemic develop- Nations and the International Labour Organization in ments in Germany, where banking cooperatives based 2012. The cooperative was considered to also play an on the ideas of Raiffeisen and Schulze-Delitzsch as well important? role in the so-called ‘social economy’ of the as agricultural cooperatives emerged – followed later EU.7 Directed from a different angle, the cooperative with a similar pattern in the Netherlands, while earlier was also considered to have a positive effect on over- in France socialist rooted worker cooperatives as well as coming market failures in the food process chain in agricultural cooperatives developed. By the end of the Europe and in agriculture in general and in the develop- nineteenth century and the beginning of the twentieth ment of regions and the environment as part of the 131 century, the cooperative as a legal business form had Common Agricultural Policy.8 It is in this respect that been addressed by legislators and incorporated in pri- the key question of this article will be addressed: if the vate law by providing statutes on cooperative law. sound development of cooperatives as an alternative Meanwhile, the stock company rapidly rose to the occa- legal business form vis-à-vis investor-owned firms is sion and has dominated the economic and company law considered a policy instrument to enhance societal busi- arena ever since. The cooperative as an economic and ness activities – notably in the field of agriculture and legal construct lost much of its appeal after the Second social economy – it raises the question how cooperatives 1 World War, as was clearly illustrated by Kalmi, who should be regulated to fulfil their function in this demonstrated that the cooperative after the Second respect. In particular, the question should be addressed World War vanished from economic text books as an alternative vis-à-vis the investor-owned firm. Also in legal scholarship, the cooperative has not been able to 2. See Hansmann 1996, focusing on the developments in the US, as well equal the attention for the stock company, privately held as Iliopoulos 2012. For Europe, see Bijman et al. 2012 and Van Bekkum or listed, and different types of partnerships. That is not 2009. 3. Dow 2003. to say that cooperatives did not provide in societal and 4. EU Corporate Governance Action Plan, COM(2003) 284 of 21 May economic needs. On the contrary, strong cooperatives 2003, preceded by the Report of the High Level Group of Company developed in the previous century, notably in agricul- Law Experts on a Modern Regulatory Framework for Company Law in ture and banking including mutual insurance compa- Europe (Winter Report), 4 November 2002, referring to the role of cooperatives. 5. Council Regulation (EC), No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE), OJ L 207/1 of 18 August 2003, accompanied by Council Directive 2003/72/EC of 22 July 2003, supplementing the Statute for a European Cooperative Society with regard to the involvement of employees, OJ L 207 of 18 August 2003. * Dr Ger J.H. van der Sangen is Associate Professor Company Law and See also Communication from the Commission to the Council and the Securities Law at Tilburg Law School, Department Business Law. He was European Parliament, The European Economic and Social Committee part of the research team of the EU-funded project Support for Farmers’ and the Committee of Regions on the promotion of co-operative societ- Cooperatives. He would like to express his gratitude to all the members ies in Europe, COM(2004) 18, Brussels, 23 February 2004. of the research team for sharing their insights and discussions during 6. In this vein, Wyman 2008. conference meetings in Brussels (November 2011 and 2012) and in Hel- 7. <http:// ec. europa. eu/ enterprise/ policies/ sme/ promoting - sinki (June 2012), in particular J. Bijman, C. Gijselinckx, G. Hendrikse, entrepreneurship/ social -economy/>. C. Iliopoulos and K. Poppe. 8. See Bijman et al. 2012, as well as the special issue of: 85 Annals of Pub- 1. Kalmi 2006. lic and Cooperative Economics 4, 2014. doi: 10.5553/DQ/221199812014002004002 DQ December 2014 | No. 4 This article from The Dovenschmidt Quarterly is published by Eleven international publishing and made available to anonieme bezoeker whether there is a case for enhancing national coopera- and Roe.9 They have determined two sources of path tive laws and whether initiatives at EU level are induced dependency linked to sets of legal rules and institutions. and helpful in this respect. The first source of path dependency in their view is In order to answer these questions, the phenomenon of structure driven, for example related to the initial owner- path dependency will be addressed in view of the har- ship structure of companies in a specific jurisdiction monization process of cooperative law in the EU in that had a predominant influence on the type of laws order to get a better insight and understanding of past and norms applied to this type of company. Path and future national and EU law-making with regard to dependency has the effect of hampering innovative cooperatives. The main focus in this article is on busi- future law-making in case the existing rules are ineffi- ness organizational law. Aspects of competition law and cient because of efficiency effects and internal rent- tax law will be touched upon only briefly and where rel- seeking by established users.10 In general, Bebchuk and evant. The question is raised whether and how this leg- Roe claim that as long as those who can block structural islative harmonization process has an impact on co- transformation do not bear the full costs of persistence operators in their efforts at setting up and maintaining or do not capture the full benefits of an efficient move efficient cooperative organizations and whether in this inefficient structures that are already in place might per- respect the SCE Statute is a helpful tool to facilitate the sist contrary to what is expected in a purely Coasian enhancement of national statutes on cooperatives as well world. This is exactly what happened in the stages of as to provide the legal infrastructure to facilitate cross- the development of cooperatives in the EU, which will border cooperation amongst and reorganizations of be demonstrated below. cooperatives in the EU. The second source of path dependency Bebchuk and The key argument presented in this article is that due to Roe identified is rule driven. Existing rules pertain strong tendencies of path dependency a top-down because of efficiency effects and the influence of interest approach of EU law-making was and is not a feasible groups politics. Rules that are efficient depend on exist- option. The cooperative as a multifaceted institution ing patterns of corporate structures and institutions requires a multifaceted approach, taking into account (both formal and informal norms). Confronted with the historical legislative development of distinctive suboptimal rules, incorporators acting rationally would jurisdictions as well as the historical economic develop- opt out by choosing an efficient set of rules, if available ment of cooperative organizations in their specific juris- under the condition that the benefits exceed the switch- diction. However, the existence of path dependency and ing costs. However, this is not what is happening with the lack of regulatory arbitrage as well as regulatory cooperatives in the EU, although the possibility to use 132 competition prevent the market from generating effi- different corporate charters – in competition with cient model statutes for cooperatives taking into account national business forms as well as in competition with the specific needs of cooperatives and their co-opera- business forms, including foreign cooperative charters tors. from other Member States – has been well established and founded in the freedom of movement of Articles 49 and 54 TFEU and the extensive case law of the Europe- 2 Path Dependency an Court of Justice in this respect. Also no significant vertical regulatory arbitrage between domestic coopera- tives statutes and the SCE Statute has been accounted The concept of path dependency has been used in eco- for based on the 25 established SCEs in the European nomics, mathematics, sociology, biology and in histori- Union.11 cal and legal scholarship, notably by law and economic In their analysis of interest groups politics, Bebchuk and scholars. The concept of path dependency goes beyond Roe explain why the inefficient legal rules and institu- the general understanding that ‘history matters’.
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