Opinion of the European Economic and Social Committee on ‘Cooperatives and restructuring’ (own-initiative opinion)
Date: 2012-04-25
Institutions: European Economic and Social Committee
Subjects: cooperative, corporate finance, credit union, economic cycle, economic reform, industrial restructuring, job creation, market economy, sustainable development








C_2012191EN.01002401.xml










29.6.2012   


EN


Official Journal of the European Union


C 191/24





Opinion of the European Economic and Social Committee on ‘Cooperatives and restructuring’ (own-initiative opinion)
2012/C 191/05
Rapporteur: Ms ZVOLSKÁ

Co-rapporteur: Mr OLSSON

On 14 July 2011, the European Economic and Social Committee, acting under Article 29(2) of its Rules of Procedure, decided to draw up an own-initiative opinion on

Cooperatives and restructuring.
The Consultative Commission on Industrial Change, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 12 April 2012. The rapporteur was Ms ZVOLSKÁ and the co-rapporteur was Mr OLSSON.
At its 480th plenary session, held on 25 and 26 April 2012 (meeting of 25 April), the European Economic and Social Committee adopted the following opinion by 148 votes with 1 abstention.
1.   Conclusions and recommendations







1.1


By their very nature and the business model they provide, cooperatives are contributing to the EU 2020 strategy. They are managing change in an economically efficient and socially responsible way. They are contributing to social and territorial cohesion. They are organising new and innovative business models to increase competitiveness. All this should be highlighted in 2012, the International Year of Cooperatives.










1.2


With the notable exception of some sectors cooperatives represent a limited part of the European economy. However data reported in this opinion show that in times of crisis cooperatives are more resilient and stable than other forms of enterprise as well as they develop new entrepreneurial initiatives. This can be attributed to the specificity of the cooperative enterprises: their long term approach, their strong territorial roots, their promotion of members' interests, and their focus on cooperation among themselves. The manifested cooperative excellence is important to disseminate and develop in national and EU policies.










1.3


Diversity of enterprise is recognised by the Treaty and the specificities of the cooperative model have been recently acknowledged by the European Court of Justice (Judgement of the Court (First Chamber) of 8 September 2011 – Joined Cases C-78/08 to C-80/08) which legitimises targeted policies.





Recommendations for EU policies







1.4


Cooperatives should therefore be taken into account in all EU policies contributing to smart, sustainable and inclusive growth as well as in the relevant flagship initiatives of the EU2020 strategy. A level playing field between cooperatives and other forms of enterprises must be ensured whilst preserving the aims and working methods of cooperatives.










1.5


In order to high-light the particular cooperative experience in restructuring cooperative enterprises should take part in the aims and actions of EU industrial policy including the specific Flagship Initiative.










1.6


The EU Commission and the EIB/EIF should ensure that EU level financial mechanisms – including the SME financing action plan suggested in the Single Market Act – must be accessible by the cooperative enterprises and should make a special effort together with the cooperative banking sector to see that this is the case also identifying specific instruments. The intermediation role of EIB financial instruments for smaller cooperative banks should also be made easier in particular through simplified administrative requirements.










1.7


New rules on public procurements and state aid (Almunia package) should come into force as soon as possible. These rules and their implementation in the Member States should be simplified and incorporate specific measures in order to improve opportunities for social cooperatives that employ persons with disabilities or other disadvantaged groups. They should also cover the experience of cooperatives managing properties that have been confiscated from illegal activities (cf Italian case of mafia property).










1.8


Measures to facilitate the transfer of businesses to employees should be introduced following the EESC proposal of a framework facilitating Employee Financial Participation. Worker cooperatives/worker buy-outs should be supported by a specific EU budget line that also includes financial instruments.










1.9


The programmes and funds that are established for the upcoming EU budgeting period 2014-2020 have to become important instruments for supporting cooperatives, in particular the Structural Funds. When defining operational programmes, priorities and measures should focus on providing support for sustainable enterprise development and responsible restructuring and include measures such as business transfers to employees, social cooperatives, local development and social innovation using global grants and other financial instruments.










1.10


The EESC asks that a simplified regulation on the European Cooperative Society be adopted during 2012. This should be supplemented by an update of how cooperatives principles are implemented in national laws.










1.11


The EESC urges Eurofound (European Foundation for the improvement of living and working conditions), and particularly its European Monitoring Centre on Changes to collaborate with the cooperative sector, to examine in detail the role played by cooperatives in restructuring.










1.12


The upcoming EU research programme Horizon 2020 should also include specific references to study factors behind the resilience during the crises.










1.13


By their objectives and governance model, cooperatives are a natural stakeholder in the social business initiative recently launched by the EU Commission. The key actions proposed should therefore also target the cooperative sector. One urgent issue is to take into account the cooperatives experience on tailor made financial instruments also in the recent proposal for European Social Entrepreneurship Funds.





Recommendations for Member States policies







1.14


In line with ILO Recommendation 193/2002 on the Promotion of Cooperatives Member States should create an enabling environment for the recognition and the development of cooperatives in all fields and sectors and adopt a comprehensive policy to support the cooperative business model. In particular, they should foster education and training on cooperatives for both students and workers, improve statistics to identify and make the cooperative sector more visible, to modernise legislation on cooperatives, introduce appropriate financial tools, and recognise the cooperatives' role in the national social dialogue. They should study the possibility to introduce in their legislation the indivisible reserves or ‘asset lock’ regime for cooperatives, which already exists in a substantial part of the EU member states, and has proved to be an important development tool.










1.15


The EESC recommends national ESCs to adopt opinions within the framework of the International Year of Cooperatives.





Recommendations to Cooperatives







1.16


Cooperatives should make themselves more visible and reinforce mutual learning both inside and outside the cooperative movement. Inside, they should focus on ‘cooperation among cooperatives’. They should draft guidelines and actively disseminate good practices with particular attention to the management of change. Outside, they should engage themselves in partnership with other private businesses, public authorities and other actors.










1.17



Cooperative Social Responsibility (CSR the cooperative way) reports should be a major instrument for visibility and promotion. The cooperative sector should also establish rules for good governance and strict internal auditing in order to avoid abuse of the cooperative form.




2.   Introduction







2.1


The object of this opinion is to highlight how cooperative enterprises, because of their particular business model, anticipate and manage change in industry and services in the current crisis, the impact on employment being particular severe, as pointed out by recent ILO reports. It is aimed at raising awareness on the role of cooperatives as a form of enterprise that brings in new perspectives of social innovation and contributes to the sustainable generation and distribution of wealth.










2.2


The cooperative business model is people-centred. The cooperative enterprise has been defined by the International Cooperative Alliance (ICA), and recognised by various international institutions (UN, ILO, EU) as ‘an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations, through a jointly owned and democratically controlled enterprise’.










2.2.1


The opinion should also feed into the current CCMI work on restructuring (1).










2.3


The cooperative identity is enhanced by the values of democracy, equality, equity, solidarity, transparency and social responsibility. ICA has established seven principles for cooperatives to follow: ‘voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information; cooperation among cooperatives and concern for community’.










2.4


The cooperative business model is fully in line with the values of the EU Treaty and the aims of Europe 2020 strategy. By pursuing both economic and social objectives cooperatives are an indispensable part of the ‘social market economy’.










2.5


Cooperatives have a long-term objective of achieving economic and social sustainability through empowering people, anticipating changes, optimising the use of resources. Their profits are not used to maximise the remuneration of capital but to distribute benefits towards sustainable investment.










2.6


Being people-centred and controlled by members, the cooperative enterprise has strong local roots. This is not in contradiction with its capacity to operate in national and international markets.










2.7


The flexibility and the creativity of the cooperative method permitted cooperatives to operate in all sectors of the economy, traditional as well as new ones.










2.8


In Europe there are 160 000 cooperative enterprises owned by 123 million members, providing jobs for 5.4 million people.










2.9


The cooperative enterprise form is not well-known either among citizens in general or in the private business and public administration sectors. In some countries ‘cooperative’ even has a bad connotation particularly in Central and Eastern Europe countries. Cooperatives are not recognised as fully-fledged enterprises in the same way as conventional companies. In some Member States the obstacles for cooperatives development have become worse over the last years (e.g. Poland where an attempt of new cooperative legislation tried to reduce the autonomy and independence of cooperatives and Italy where fiscal advantages to compensate for the societal role of cooperatives have been strongly reduced).










2.10


Access to venture capital and credit on the regular capital market is difficult for cooperatives.










2.11


There is not always a level playing field as the specific features of cooperatives are not taken into account in national and European legislation and programmes to support business.




3.   Business restructuring challenges in Europe







3.1


We are witnessing a large-scale restructuring as a consequence of the crisis in the European economy. Socially responsible restructuring strategies are essential in order to avoid additional enterprise closures and failures, preserve and create employment and organise social welfare by boosting competitiveness and local development.










3.2


The European Commission considers that restructuring involves a wider conception of enterprise innovation which should be ‘part of a long-term vision of the development and direction of the European economy in order to ensure that the changes really are a way of strengthening its competitiveness’, including organisational and social patterns, so as to ensure sustainable territorial development. For this purpose, the Commission considers innovation as ‘generated not only through research and technology, but also through new marketing and management solutions’.










3.3


The Commission has observed that ‘companies which are able to handle restructuring in a socially responsible manner are often those with better track records in terms of market competitiveness and resilience’ (2).










3.3.1


The Commission has also expressed the wish that responsible restructuring should include the involvement and participation of the workers (3). The EU-level social partners have established the principles of a ‘socially intelligent’ restructuring in a joint text laying emphasis on the importance of creating and saving jobs.










3.4


The Commission wants to facilitate conditions for the transfer of businesses to employees:






—


‘Employees have a particular interest in the sustainability of their enterprises and often have a good understanding of the business in which they work. However they often lack the appropriate financial means and support to take over and manage an enterprise. Careful and gradual preparation of transfers to employees organised in the form of a workers' cooperatives can improve survival rates’ (4). ‘If no family successor can be found a transfer to employees ensures a large degree of continuity of the business’. However ‘only a few Member States encourage such transfers by providing special income tax relief (…)’ (5).














3.5


The Commission has invited Member States to develop a framework for business transfers to employees based on best practices to avoid closure. As for example the single payment in Spain (pago unico) and Legge Marcora in Italy, which allow unemployment benefits to finance new cooperative start-ups.




4.   The specificity of the cooperative economy: resistance and new developments also in times of crisis







4.1


Cooperative enterprises are displaying a stronger resilience in time of crisis compared to conventional enterprises. This particularly applies to cooperative banks, worker cooperatives in industry and services, social cooperatives, and cooperatives formed by SMEs. Also the cooperative business model is emerging in new sectors (energy, liberal professions etc.). Restructuring has opened up an additional space for cooperatives to contribute towards a genuine pluralism of the economy and, in particular, of enterprises when looking for more sustainable models of production and consumption.










4.2


According to the ILO report ‘Resilience of the Cooperative Business Model in Times of Crisis’ financial cooperatives remain financially sound; consumer cooperatives are reporting increased turnover; worker cooperatives are seeing growth as people choose the cooperative form of enterprise in order to respond to new economic realities.










4.3


This is particularly shown in the banking sector. No cooperative bank has yet failed in the EU. Data from the European Association of Cooperative Banks shows that they have a market share of about 20 % of deposits. They finance around 29 % of SMEs in Europe. They have increased their market share steadily over the last few years. In the UK the Cooperative Banks have quadrupled their market share from 1.2 % in 2009 to 5 % in 2010. In Italy the BCC – Banche di credito cooperativo system, increased its deposits in the last five years by 49 %, loans by 60 % and employment by 17 % (while in the rest of the Italian banking sector the employment decreased by 5 %). In Cyprus the Cooperative Credit Institutions, according to the Authority for the supervision and development of cooperative societies, increased their market share during 2011 (from 35 to 38 % in deposits, from 27 to 29 % in loans) confirming that Cypriots consider the Cooperative Credit Institutions as a safe harbour in time of crisis.










4.4


The International Monetary Fund (‘Redesigning the Contours of the Future Financial System’, IMF staff position note – 16 August, 2010 SPN/10/10) underlines the essential role of cooperative banks: ‘Smaller, cooperative banks or mutual institutions may also thrive. These banks, less reliant on shareholders' expectations, were generally able to avoid many of the mistakes made by larger private sector institutions. Though not always considered the most efficient, vibrant, or innovative institutions, in many countries they dependably and safely supply the small and medium-sized enterprises and many households with their credit needs’.










4.5


CECOP – the European confederation of workers and social cooperatives and other employee-owned enterprises in industries and services – has since 2009 observed the effects of the crisis on the enterprises within its network. Cooperatives in countries with a stronger level of cooperative implantation and experience (France, Italy, Spain), seem to be more resilient in weathering the crisis than conventional enterprises active in the same sectors and the same territories.










4.6


Different kind of social cooperatives play an important role in the restructuring process and have been major instigators of social innovation. Work integration cooperatives employ many people that have been laid off and could not come back to the normal employment market. In some countries social cooperatives are major employers of disabled people (e.g. Bulgaria, Czech Republic, Poland, Italy …). Cooperatives providing social services are active in the restructuring of the public sector. A specific new phenomenon are the Italian cooperatives that manage the ‘confiscated properties from illegal activities’.










4.7


In a sector seriously hit by the crises, housing cooperatives are proving much more resilient than the private sector, measured by new housing production. They are also more strongly committed to reducing greenhouse emissions by increasing energy efficiency. This role is particularly important in some EU countries where, for example in the Czech Republic and Poland, large cooperative renovation projects are implemented, often financed by the European Regional Development Fund.










4.8


A rapid overview of some European countries shows the relative superior performances of cooperative enterprises when it comes to growth, employment, survival rates, start-ups (see in particular: Zevi A., Zanotti A., Soulage F. and Zelaia A. (2011), ‘Beyond the crisis: Cooperatives, Work, Finance’, Cecop Publications, Brussels 2011).










4.8.1


In 2009 in the UK cooperatives turnover grew by 10 % whilst the UK economy contracted by 4.9 %. In 2010 the cooperative sector continued growing by 4.4 % compared with a growth rate for the British economy as a whole of 1.9 %. The number of cooperatives in the UK is increasing steadily, with a 9 % increase in 2010. There is cooperative growth in all sectors of the economy.










4.8.2


In Germany, the cooperative sector is expanding, particularly in the field of energy, SMEs and health care. Over the last three years there is an extraordinary growth in new cooperatives: 370 in 2011, 289 in 2010, 241 in 2009 (Genossenshaften in Deutschland from DZ-Bank). According to DGRV Geschäftsbericht 2010, based on figures from Creditreform-Datenbank, in 2010 only 0.1 % of the insolvencies concerned cooperative enterprises, the lowest figure among any enterprise form. However, it has also been affirmed that joining a cooperative reduces very much the failure risk of the individual member enterprises.










4.8.3


In France the survival rate of worker cooperatives after three years is 74 % compared with the national average of 66 %. 329 enterprises were converted into worker cooperatives between 2000 and 2009. More than 250 of them have survived. The figures for 2010 confirmed the upward trend seen during the last three years in particular. More than 50 new conversions took place (CG SCOP Annual report 2010).










4.8.4


In Italy employment in cooperatives grew by 3 % in 2010 against a back drop in total private employment of 1 %. The crisis in welfare means that the number of social cooperatives has grown fast. Most new cooperatives are start-ups but approximately one in four are ‘spin offs’ promoted by other cooperatives. Cooperatives have a longer life expectancy. One third of the cooperatives created in 1970-89 are still alive as against one quarter of other enterprises. Mortality is lower; 4 % of cooperatives closed down between 2006 and 2009 compared with more than 6 % of other companies. Bankruptcy was the most dramatic cause for closure, affecting 2‰ of cooperatives in 2009 compared with 6‰ for other enterprises. Employment in cooperatives measured by type of labour contracts is less precarious. 6 % of newly recruited workers have temporary work contracts as against 11 % in other enterprises. Training was provided to 40 % of the staff in cooperatives, compared with the national average of 26 %.










4.8.5


In the case of Spain, which has been particularly hit by the crisis, job reduction in 2008 and 2009 was 4.5 % in the cooperative sector compared with 8 % in conventional enterprises. However, in 2010 worker cooperatives increased their number of jobs by 0.2 % while total employment decreased in conventional enterprises by 3.2 %.










4.8.6


In some countries we find similar situation as described above. For instance, in Sweden the number of cooperative start-ups has been proportionately higher than other start-ups. The mortality rate of cooperatives is lower than for conventional enterprises. Also, the cooperatives in Cyprus show growth. The government underlines their contribution to the economic and social improvement of the society is of vital importance.




5.   How cooperatives manage change







5.1


The specific cooperative governance model, based on joint ownership, democratic participation and members' control, as well as the ability of cooperatives to rely on their own financial resources and support networks, explain why cooperatives are more flexible and innovative in managing restructuring over time, as well as in creating new business.










5.2


A long-term view is a basic feature of a cooperative enterprise. The crisis has strengthened the long-term approach to achieve economic and social sustainability for their members. A cooperative enterprise will sacrifice return on capital in order to maintain employment and investments.










5.3


Another basic feature of their governance is that cooperatives are rooted in the territory in which they operate. Unlike the private sector, they do not delocalise, this is not incompatible with globalisation.










5.4


Because of their local roots the role of cooperatives is becoming ever more important by promoting local sustainable development, creating new jobs and thereby pursuing general interest. As restructuring takes place at local level the experience of cooperatives is important to draw upon when solutions are to be found. In rural areas they maintain economic and social activities, thereby also reducing migration.










5.5


Their territorial anchorage and their focus on members' (households or small enterprises) interests explain why cooperative banks have fared well during the financial crisis. Cooperative banks also have a very strong focus on sustainable and socially responsible financing. The effects of their conduct have been reinforced by customers switching their deposits and loans from private banks to cooperative banks.










5.6


Cooperatives safeguard employment through a model of internal mobility combined with job security. Worker and social cooperatives prefer to adjust their salary levels or the number of hours worked, rather than cut jobs. Whenever possible they have internalised activities that they had previously out-sourced. Job security has been reinforced by sharing available jobs between enterprises within the same cooperative network or group. The model of creating security for workers during the transition process is backed up by vocational training, as cooperatives focus on human resource development.










5.7


Cooperatives have for a long time developed various kinds of modalities by which they cooperate among themselves in a permanent way, both through representative organisations at all levels and through entrepreneurial combinations such as groups, consortia and secondary cooperatives. Over the last few years and decades, we can observe a strong consolidation of this trend, with a proven positive correlation between the growth of cooperatives and the development of the institutions that connect them to one another.










5.8


The potential of representative organisations is well illustrated by the Italian example. Italy is characterised by the existence of several cooperative intersectoral associations. All types of cooperatives (worker, consumer, agricultural, etc.) are members of one of these associations. This pattern has facilitated the establishment of common economic structures between sectors, which are factors of great importance. Thanks to the possibilities of transferring human and financial resources, as well as experiences, from one sector to the other, many cooperative enterprises and sectors are able to cope with even the most difficult times.










5.9


Groups, consortia and secondary cooperatives allow individual enterprises to remain small while taking advantage of economies of scale. Italy is a good example of consortia in the construction and service sectors and in the area of social cooperatives, which substantially contribute to the development of small as well as new cooperatives. Small consortia of social cooperatives can also be found in other countries such as Sweden. Important cooperative groups can be found in other sectors such as agriculture, manufacturing, banking and distribution in various other EU countries such as France, Germany, Spain, and the Netherlands, among others.










5.10


The Spanish Mondragon group is an outstanding example of how individual cooperative enterprises can organise themselves on a voluntary basis into a large scale entrepreneurial group comprising industry, agriculture, distribution, finance, R&D and higher-level education. A striking aspect of Mondragon is the capacity to maintain employment in globalised industrial sectors, and to engage in a continuous restructuring of products, processes and after sale services, through their industrial platforms across the world and an innovation triangle comprising the group's industrial enterprises, university and R&D centres.










5.11


SMEs can also organise themselves in cooperatives, following the same logic of increasing their business scales. This experience has, for example, been very successful in Germany where cooperatives of small enterprises are important, in such trades as bakery, butchery, etc.










5.12


New phenomena are emerging to respond to the needs of certain groups. The cooperatives formed by medical doctors in Germany which were mentioned earlier is such an example. In Italy in particular, the younger generation of highly specialised professionals is starting to use the cooperative enterprise model to exploit market opportunities. Thereby they combine self-employment with a collective entrepreneurial form. A recently approved Italian law on the professions, which was part of the overall package of economic reforms, supports these initiatives.










5.13


So-called ‘Activity and Employment Cooperatives’ have been created in France and, to a lesser extent, Belgium and Sweden. They enable the unemployed to become self-employed, organising not only their commercial activities but also their vocational training and social security within a cooperative enterprise.










5.14


Cooperatives can normally not obtain great quantities of capital from their members and have no easy access to capital markets. Cooperatives have developed their own financing mechanisms. Cooperative shares are usually non-transferable and profits are not used to remunerate capital, but are normally re-invested in the enterprise under the form of reserves, which reflects their long-term strategy: it is the interest of their members to avoid excessive risk and to allocate investments in activities directly serving theirs needs.










5.15


In some EU countries, such as France, Spain and Italy, these reserves are indivisible, namely they cannot be distributed among members even in case of liquidation, but must be used for the development of the cooperative movement. Indivisible reserves have proven to be a strong deterrent against demutualisation.










5.16


Legal provisions have been introduced in some countries to allow outside parties to provide venture capital, both with and without voting rights, in cooperatives (e.g. ‘socio sovventore’ in the Italian Law 59/1992). Special institutions have been set up for this purpose (e.g. in Italy the Cooperative Development Funds (Fondi mutualistici) and Cooperazione Finanza Impresa (CFI), in France IDES and in Spain the investment structures of the Mondragon Corporation This has also enabled cooperatives to improve their dialogue with other financial institutions.





Brussels, 25 April 2012.


The President of the European Economic and Social Committee

Staffan NILSSON




(1)  COM(2012) 7. Restructuring and anticipation of change: what lessons from recent experience?


(2)  COM(2005) 120. Restructuring and employment - anticipating and accompanying restructuring in order to develop employment: the role of the European Union.


(3)  COM(2001) 366. Promoting a European framework for Corporate Social Responsibility.


(4)  COM(2004) 18. On the promotion of cooperative societies in Europe.


(5)  COM(2006) 117. Implementing the Lisbon Community Programme for Growth and Jobs: Transfer of Businesses - Continuity through a new beginning.