European economic democracy: a path out of the crisis

A genuinely social Europe must have economic democracy rather than rely only on market mechanisms.

The crisis of purpose in European social democracy is not for want of attempts to propose policy solutions.

On one level, reforms which need to take place at the European level—from a eurozone fiscal union to the expansion of protection for workers—are well acknowledged. On the other, especially in the British discourse, there is exciting ‘new economic thinking’ about democratising institutions, offering ‘universal basic services’ and expanding the ownership and power of workers and communities.

But these suffer from their mutual disconnection. Mooted macroeconomic reforms directed towards the EU level tend to come across as too technical and detached from more rooted questions relating to the economic conditions which dictate our day-to-day lives. Yet proposals for expanding the ‘social’ side of the European project only promise to mitigate the marketisation on which the EU is founded, without challenging the union’s role in consolidating its capitalist dynamics.

Kernel of democracy

A case in point is the situation of co-operatives in Europe, and the attitude of EU institutions towards them. As recently outlined in a paper from the Foundation for European Progressive Studies, co-operatives represent to an extent a kernel of economic democracy, which can be expanded in many socio-economic arenas including the much-needed care sector. They have an established significance in society, albeit frequently overlooked. From a political perspective, co-operatives are potential enablers of new, bottom-up voices and actions, and the co-operative movement is growing in many parts of Europe.

Yet the EU has, to date, paid little or no attention. This is not simply a missed opportunity of a potential wellspring of progressive support—it threatens itself to undermine the development of co-operatives.

Co-operatives face strong obstacles, even when operating only within the structures of national economies. Given its greater scale, these problems are exacerbated within the EU single market. This is even without the additional factor that EU policy and law tend to be built around the starting assumption that they are regulating and facilitating hierarchical and capitalist companies.

This lack of support for the co-operative movement is reflected in neglect of the role of labour and workers as a fundamental asset of the socio-economic system, and in the absence of regulatory reforms which would allow a more ‘horizontal’ and synergistic mode of production to emerge and flourish.

Regulatory framework

Several initiatives could be taken for a start to improve the EU’s regulatory framework.

First, and most basically, information needs to be disseminated about and within the co-operative sector. Very little has been done but projects supported by the European Commission, such as TransfertoCoops, CoopStarter and iCareCoops, are examples of what could be possible with even moderate attention and resources.

Secondly, legal frameworks and funding should be developed for worker buyouts and self-management, in companies forced into bankruptcy or delocalisation.

Thirdly, the legal and regulatory environment for co-operatives needs to be improved. Recognition of the specific legal and management structures of co-operatives, mutuals and similar entities is inadequate, on the EU level and in most European countries. This undermines opportunities for their establishment and expansion. The Study Group on European Cooperative Law has developed model Principles of European Cooperative Law (PECOL)—based on the relevant laws of Finland, France, Germany, Italy, Portugal, Spain and the United Kingdom—which can guide co-operative law reform. EU soft law should be used to provide a framework for the adoption of such principles.

With respect to what the EU has already done, the 2003 European Cooperative Society (SCE) Regulation recognises the nature of co-operative enterprises and outlines rules for their activities beyond national borders. But information is severely lacking about how to set up an SCE, and indeed what it is, with the approximate number in Europe still stuck in double figures. Initiatives to simplify and promote the process could be relatively straightforward and yet go a long way. A corresponding Regulation for a Status for a European Mutual Society should also be implemented.

Financing co-operatives

Fourthly, and perhaps most crucially, the system of financing and funding for co-operatives needs to change. Due to their structure, which is based on democratic equal membership rather than ownership of equity, co-operatives have an inherent disadvantage in raising capital. The EU state-aids regime could address this but it has not done so properly.

With regard to the European structural funds, the EU tends to focus on ‘investor-led models’ rather than member capital or participatory innovation and tends to exclude small entities. This framework should be reassessed to fully accommodate co-operatives and other democratically run elements of the ‘social economy’. Specific EU funds should also be dedicated to making grants and financial instruments available to co-operatives and other democratic enterprises. Relatively small, recent, EU-funded projects, such as ECOOPE and COOPilot, could serve as useful models for more comprehensive action.

The Toia report to the European Parliament in 2013, from its Committee on Industry, Research and Energy, called for a European mechanism, involving the European Investment Bank, to promote the development of co-operatives. This should be adopted and enhanced.

Finally, there are also many possibilities at the national level to expand state support and to vary the tax treatment of enterprises, based on their internal composition and how their revenues are distributed. But EU state-aid rules have the potential to undermine, and at the very least stifle, these initiatives.

Significant difference

Co-operatives are not a panacea and have limitations even with meaningful institutional support. A European-level project to democratise the economy would, for example, equally entail initiatives for worker participation on company boards, the democratisation of ownership of financial capital and lobbying for global regulations on corporate-stock buybacks. The possibilities are endless, not least given the low point at which we are starting, and further action in even a fraction of these areas could make a significant difference.

The unacceptable inequality and poverty across the EU demand real political answers. Shifting the political weight from capital to labour is not only necessary but is the only way to bring back effective democracy into politics and the economy. This requires the political courage to implement reforms which would put social justice at the centre of the future agenda.