European
Governance by
The Emergence
of a new Type of Package Deals
Nils
C. Bandelow/Diana Schumann/Ulrich Widmaier
Ruhr-University
of Bochum (Germany)
European
integration is a fluent process which couples decision-making to power
distribution between the political institutions. In this system it is of prime
concern for the European Commission to find partners in order to accelerate
European integration. Under these circumstances European integration provides grounds for a new type of
governance. The article claims that within the
institutional setting of the EU package deals which involve different policy
domains are increasingly likely to occur between private (firms) and a specific
type of public actors (European Commission). In two sample business sectors – biotechnology and
electrical energy – the emergence of package deals between the Commission and
large firms involving different policy domains can be described as an analogous
form of governance in spite of conspicuous sectoral differences. The following
expositions will show that package deals may have positive effects on the
progress of European policies. Nonetheless, we will evaluate the welfare
effects of package deals between the European Commission and large firms on the
European level. Finally we suppose institutional reforms to keep package deal’s
risks within limits.
Over
the last decades, the dimension for policy-making in the European Community
(EC) has immensely increased. The fact that the European Union yields legally
binding decisions for member states and especially their industry sectors is no
news. But the phenomenon that the European Commission is able to successfully
regulate national industries, although there is no legal basis for any
regulation in the respective policy fields, calls for further attention.
Indeed, there exist many studies which deal with the reasons for the
renunciation of strong legal powers by the Commission and which explain the
relevance of weak forms of vertical governance for the EC's success in
"governing without government". Yet, weak forms of vertical
governance, such as co-operative or bargaining strategies between European
institutions and member states, do not fully explain how the Commission manages
to enforce basic changes of national policy-making in the face of strong
resistance of member states and national interest groups and without any
regulatory competencies. In our study we claim that the institutional setting
of the European integration provides grounds
for the emergence of a new type of package deals, i.e. package deals between
the European Commission and large firms on European level. This type of package
deals allows well known weak vertical governance to coincide with
"hard" horizontal bargaining processes and also allows the Commission
to invalidate the opposition of member states or interest groups.
The following expositions will
show that, above all, two given facts of the institutional setting of the EC
contribute to a probability of package deals: a low level of public control and
a high degree of fragmentation in decision-making processes. Both give large
companies room for political access. However, the emergence of package deals on
European level essentially depends on the resources the partners can trade. The
empirical examples of biotechnology and electrical energy we have chosen make
clear that on both sides, on the side of the Commission and on the side of
large firms, there are resources that are of interest to the respective trading
partner. It will be shown that there are principal goals on both sides
initiating the will to pursue particular interests through package deals. The
examples also demonstrate that despite conspicuous differences in the
biotechnology and energy sector, both sectors give reason to assume that
package deals between public and private actors will increasingly emerge on the
European level.
The fast and uncertain process of
institutional change within the European Union has the effect on political and
economic actors that they have to endeavor to gain influence on policy outcomes
and engage in the formation of new institutions at the same time. Within this
process, each actor aims at both—at maintaining their decision-making power and
at possibly gaining even higher influence (Schumann 1993). Thus the
simultaneousness of policy-making and institutional change resulted in highly
complex politics.
Furthermore, there is evidence
that the decision-making process of the EU is being hampered by so-called
"joint decision traps" (Scharpf 1988). They imply that decisions
cannot be made by simple majorities or by power of hierarchies but are a matter
of negotiations that require unanimity votes or at least qualified majorities
instead. Negotiation systems of such kind are assumed to be an obstacle for
progress in the process of positive integration within the Union because actors
may make use of their veto right.
Consequently, public choice
literature points out that within complex political settings and "joint
decision traps" negotiations and their potential results can be modeled
through the concept of package deals. Package deals can be defined as the
exchange of losses in some issue area with benefits in another, resulting in a
mutual overall gain for the actors involved. The basic idea behind such
arrangements is to establish links between issue areas which are of different
value for each "trading partner". Actors accept losses in fields of
minor importance when they gain profits in others with higher preferential
intensity. In other words, these arrangements allow the "traders" to
express their preferences in different intensities. Normally, such preferences
are ignored by separate decisions under majority rule (Stratmann 1995). Thus,
the main advantage of package deals is to overcome decision blockades. Such
decisions, however, might possibly increase the overall welfare of the group of
actors while at the same time they might decrease the profit of individual
actors. Hence package deals are only likely to occur, if there is a win set
which does not only enlarge the overall profit but also grants a gain for
individual actors (cf. Mueller 1989; Stratmann 1997).
The strategy of package deals is
particularly useful for actors in a pluralistic and competitive environment.
This can be demonstrated by supposing the extreme case: one actor is at the
short end of an n-1:1 vote, so s/he needs to win over at least half of her/his
opponents to get what s/he wants (this is what Shepsle/Weingast 1994, 154 call
"heterogeneity"). This case may often occur in the EU because each
actor has specific interests while natural partners are rare. Therefore, the
only possibility to arrive at positive integration is to combine different
elements or objects which are characterized by different preferential
intensities. The precondition for package deals is that "traders"
have resources their partners desire: each "trader" has to assess the
partner's resources which are more valuable than their own. Empirical studies
have shown that it is often difficult to agree upon joint decisions which
include symmetrical benefits and losses for both partners.
We claim that there exist
conceptual parallels between logrolling politics within the US Congress
(Ferejohn 1986; Shepsle/Weingast 1994; Stratmann 1992) and package deals on the
European level. Although in the majority of cases, logrolling is applied to
analyze the behavior of legislative bodies (see Stein 1980; Sebenius 1983;
Benz/Scharpf/Zintl 1992), we employ the concept of package deals rather to the
decision-making process in the Commission than to the European Council or
Parliament. We assume that the Commission still is the most important actor for
initiating legislation in the EU and that it plays an extensive and significant
role in bargaining processes with organized interests. Whereas in Washington
interest groups gain influence through Congress, in the EU it is the fragmented
structure of the Commission that provides room for interest groups to engage.
We decided to investigate package deals as a specific form of bargaining
between the Commission and big companies because the latter have emerged along
the process of economic integration as important actors in EU policy making.
However, the growing importance of big multi-national companies does not
necessarily diminish the role of European business organizations. Their
significance varies with the type of policy issue (sectorial or individual
company interests at stake) and the structure of the sector (few big companies
like in the automobile industry or a lot of small businesses like in mechanical
engineering). As we have learned from Olson (1965), associations with a
heterogeneous membership of relatively small companies are subject to a
collective good problem. Furthermore, small companies are very often operating
in limited market segments and are therefore not interested in deregulation
policies leading to market enlargement and potentially higher economies of
scale. Our plan to concentrate on the interaction between public and private
actors clearly departs from the main stream of research on this topic which has
been, up to now, overwhelmingly focused on public/political actors.
Also, the main thrust of
research has been concentrated on bargaining processes within a certain policy
area. This has to do with the nature of traditional policy analysis and its
methodological focus on case studies of individual policy fields. Within the
fragmented multi-level power structure of the EU the strategy of concentrating
on a single policy field or sector would narrow the range of potential policy
solutions or outcomes. In order to avoid misleading generalizations, it is
therefore necessary to allow package deals to stretch over several policy areas
(e.g. environmental policy and anti-trust policies) instead of restricting the
analysis to single policy domains. However, package deals stretching over
different policy areas can cause problems for corporate or collective actors.
Public choice theory points to the problem of internal distribution of benefits
within collective actors. Since collective actors often lack hierarchical
control, package deals are less likely to occur since they will be blocked by
the more disadvantaged subgroups or individual members. Nonetheless, most
public choice models take stable and homogeneous belief systems among
collective actors for granted (Benz/Scharpf/Zintl 1992). These conceptual
problems can be largely ignored when we deal with hierarchically controlled
companies as we do in our study. Still, these problems exist in the case of the
European Commission which is a complex corporate actor internally divided at
least in distinct Directorates General (DGs) with potentially different policy
perspectives. Their general interest is to maximize their sphere of influence
within the overall organization. To put it differently, a package deal between
the Commission and private actors such as big businesses could involve another
package deal within the Commission itself. Clearly, we have to be aware of this
aspect in our analysis.
Summarizing, in the potential range of
settings in which package deals can occur we distinguish between deals which
are settled within one policy area and those which stretch across two or more
domains on the one hand. On the other hand, we distinguish between deals which
are arranged among public agents only and those where public and private actors
reach such an agreement on the other. This leaves us with four potential cases
in which package deals can occur. (c.f. Table 1).
|
|
package
deals involve only one policy domain |
package
deals involve different policy domains |
|
interaction
between public actors |
1 |
2 |
|
interaction
between public and private actors |
3 |
4 |
(We are grateful to Edgar Grande for suggesting this
scheme.)
These types show similarities, but there are
also differences. Investigations of policy making processes have shown that
package deals between different public actors (e.g. between the government and
parliament or between different committees or parties within the parliament)
occur frequently under the conditions of the political system of the United
States. In this study, we claim that within the institutional setting of the EU
package deals involving different policy domains are increasingly likely to
occur between private (firms) and public actors (European Commission).
Therefore the paper will concentrate on field 4 of table 1.
The political system of the EU
shows striking similarities to the system of the United States (Majone, 1994).
Both have divided institutions and offer access to organized interests that
feed the policy-making process at various stages. Yet, our perspective points
to some theoretically interesting peculiarities in the European system.
Comparing Brussels with Washington, we find less public control of the
executive institutions in Brussels, specifically of the European Commission. On
the one hand, this is the consequence of a by far institutionally and
politically weaker European parliament, compared with the US-Congress. On the
other hand, less public control is a consequence of the fact that the European
Commission is not directly elected. Furthermore policy competencies in Europe
are further fragmented, both between and within the political institutions
(Parliament, Commission, Council). These circumstances make package deals as a
specific form of interest mediation very attractive for the partners.
But there are also factors which
hamper package deals between the Commission and large firms. Since firms are no
public institutions, they have no legal influence. While national governments
are bound to the success of large firms, the commission is not. The dependency
of national governments on elections goes hand in hand with the opportunity of
firms to bind economic interests to the securing and creation of jobs of
possible voters. For the Commission such a dependency does not exist. The
institution only needs the support of the European Council and – in some legal
areas – of the European Parliament. Thus the Commission is not dependent on the
consent of large firms on principle in the way the US-President is dependent on
the consent of the Congress and of the voters. There must be specific
incentives for the Commission to bargain with large firms in each domain. But
if there are such incentives, the obstacles for an agreement on package deals
with public actors are smaller for the Commission than they are for national governments. The lack of public
control gives the Commission a far better possibility to incorporate single
interest groups into its decision-making-process than any national government
could possibly have.
However, favorable structural
requirements are only a necessary but not a sufficient condition for this kind
of deals. Essential are the resources the partners can trade. In other words,
the theory of modeling package deals between the Commission and large firms can
only be understood, if the main goals of the actors and the resources they
command to engage in bargaining processes eventually leading to a package deal
are made clear.
We suppose that the Commission's
main goal is to enlarge its competencies independently of potentially diverging
goals of different Directorates General within the institution. Big companies
can be expected to advocate mainly their economic interests (e.g. reducing
transaction costs and achieving economies of scale and scope). Anyway, both,
the public and the private side, are often incapable of achieving their goals
without partners. The Commission lacks legislative decision-making powers in
order to achieve positive integration in some fields. Furthermore, it needs
partners to extract funds from the member states. In order to be capable of
making decisions without the consent of the member states, the Council and the
Parliament – and regarding the recruitment of partners for European research
co-operations, the Commission – have to use their regulatory competencies and
financial resources in addition to its decision-making authority within policy
domains of negative integration. Depending on which policy field is addressed,
the Commission has various legal instruments at hand, all of which differ with
respect to the influence and liability the decision will have. It can thus use
competencies in one field—for example agriculture, anti-trust, genetic
engineering regulation and/or trade—in order to gain influence in fields where
it is short of legal powers and sufficient economic funds such as energy, transport, the promotion of
industrial biotechnology, and social welfare.
In this case it is important to
realize to what substantial degree the change from unanimity to qualified
majority voting in the Council has changed the "rules of the game".
While under unanimity rule it is
sufficient for a specific interest to find one veto-player (a national
government "captured" by an important company (e.g. VW in Germany) or
interest organization) as to avoid unfavorable regulation, the situation is
much more complex under majority rules. For big companies with strong interests
on the European level (e.g. in deregulation measures of markets) a strategy of
conventional lobbying to "convince" their national governments will
no longer have the desired results. They will either have to persuade a sufficient
number of governments to be successful, which seems to be rather difficult and
cumbersome, or they will have to involve in bargaining with the actor in charge
of designing and promoting policies, i.e. in our case the European Commission.
A possible resource for firms could be the support of the national government
for an initiative of the Commission, once a deal has been successfully
packaged. The "trading good" of the Commission could be some highly
desired regulatory measures in other policy areas.
In the following two sections we
will attempt to demonstrate to what extent the conditions for package deals are
fulfilled in two sample business sectors and to find empirical evidence for
them. The business sectors we have chosen are biotechnology and electrical
energy, both following a "most different case design". The
biotechnology sector on the one hand shows a mixture of many small and few
large firms. The produced goods differ widely. The European market is not of
great importance for the firms as they predominantly strive to supply their
products to the world market. The Electric Energy Sector on the other hand only
consists of large firms. The produced good, electricity, is unique. For energy
firms, the European market is of major interest. Our argumentation will be,
that in spite of these differences, the emergence of package deals between the
Commission and large firms involving different policy domains can be described
as an analogous form of governance.
At a first glimpse, package deals between the
European Commission and large firms seem to be very unlikely in the
biotechnology sector. There are many reasons to suppose that neither the firms
nor the Commission have special interests or valuable resources to engage in
this special form of bargaining. First of all, biotechnology belongs to the
competitive sectors of industry which are not dependent on state subsidies. It
further consists of technologies cutting across business areas and is used by
companies in addition to other relatively successful divisions. Therefore
chemical, pharmaceutical and food industries do not show a particular interest
in European programs to promote biotechnology research.
One of the main features of many
biotechnologically produced goods is their specifity. Firms tend to find
economic niches to create a demand for their products, but do not need to
unconditionally find partners to lower their costs by enlarging their
production. On the other hand, there are some biotechnologically produced goods
which may have large economics of scale, like for example herbicides. So there
exists a mixture of many small and few large firms with varying interests.
Particularly small firms suspect that biotechnology programs of the EU could
replace the domestic programs which are more attractive for them. Large
companies on the other hand are oriented to the international market, the
US-market being first and foremost of most interest to them. Therefore, many
firms established links to the United States at an early stage. These
multinationals have, like small firms, no particular interest in supporting the
promotion of the EU of biotechnological research (cf.
Behrens/Meyer-Stumborg/Simonis).
Nevertheless, large firms and
the European Commission are interested in bargaining with each other for some
reasons. Firstly, biotechnology firms are not only interested in the promotion
but also in the regulation of biotechnology. Biotechnology can be regulated in
many ways: There are horizontal regulations to lower the risks of genetic
engineering research and the industrial use of genetic modified organisms.
Additionally, there are different vertical regulations for biotechnologically
produced goods like drugs and food. Starting in the mid-1980s, the European
Commission has gained land within these regulatory policy fields. By increasing
globalization of markets European companies will be forced into mergers with
others to become competitive multinational actors. The effect of globalization
provided a possibility for the Commission to establish itself as the
co-ordination center of European biotechnology policy (Gottweis 1998, 167).
Furthermore, the European Community increased the legal competencies for the
Commission: the Single European Act (SEA) provided the Community with explicit
powers in research and technology development (Articles 130f-p EC) as well as
in the domain of environmental policy (Articles 130 r-t EC). In the meantime
the necessity for a European law to regulate genetic engineering had become
indisputable. But the following policy-making process was dominated by a
conflict of interests within the Commission. The outcome of this conflict
between the Commission's environmental department and other actors generated a
basis for the success of the Commission's biotechnology policy in the long run
(Bandelow 1997, 1999).
While DG III and XII supported
product-orientated regulations, DG XI (Environment; and, until 1991, Consumer
Protection) advocated a new process-orientated approach. In the late 1980s, it
were the DG XI and its partners that dominated the process of formulating
directives on the contained use of genetic modified micro-organisms
(90/219/EEC) and the deliberate release of genetic modified organisms into the
environment (90/220/EEC). Thus, the very first results of the genetic
engineering policy of the EU did not match the interests of biotechnology firms
(Cantley 1995, 565). Not only the big companies lost this first round. The
Commission was not successful in enlarging its competence either. It managed to
set a framework for a genetic engineering law in Brussels, whereas the second
primary goal of the Commission, the Europeanization of promoting research on
biotechnology, failed (Bongert 1997). While the major common interest of the
Commission was to get substantial funds for the promotion of biotechnology, its
regulation policies were paid more attention of the industry (Szczepanik 1993).
The potential to impose binding supranational regulations gave the Commission
an important resource which made it attractive as a partner for large
biotechnology firms. In other words, a necessary condition for the negotiation
of package deals was established. In mid 1989 the big companies created the
"Senior Advisory Group on Biotechnology" (SAGB). This specific form
of association was the object of pioneering research (Greenwood/Ronit 1992;
Greenwood/Ronit 1994; Greenwood 1995; Greenwood 1997). It also became a model
for other branches in establishing direct participation for large firms on the
European level in the 1990s (Coen 1998, 77). While former European associations
were composed of national federations of associations, the SAGB started with
just seven large firms as direct members (Hoechst, Monsanto, ICI,
Rhône-Poulenc, Montedison, Unilever and Sandoz). It was thus able to overcome
all the co-ordination problems of conventionally organized interest groups
hampered by "membership logic". All European associations witness
conflicts between large and small firms, between associations representing poor
and rich countries and between various branches of industry (cf. Lanzalaco
1995). The SAGB as an exception only consisted of big companies with the
overall strategy to become competitive in the global markets.
In addition to the SAGB, the national
bio-industry associations of Belgium, Denmark, France, Italy, Spain, The
Netherlands, and the United Kingdom established an umbrella organization that
solely advocated biotechnology interests (the European Secretariat of National
Bioindustry Associations, ESNBA). Formed in December 1991, the ESNBA developed
a mutually supportive relationship with DG XI while large biotechnology firms
and the SAGB enjoyed a close relationship with the DGs III and XII (Greenwood
1995; Aspinwall/Greenwood 1998, 25).
Although the aims of both
interest organizations coincided, SAGB became the much more successful model.
The European umbrella association could only add an additional voice. However,
the ESNBA did not represent the whole industry since there existed no biotechnology
industry associations in several member states yet (like for example in
Germany).
The SAGB started to become
successful in 1990. In January, the group released its main objectives in three
booklets; the most important was titled "Community Policy for
Biotechnology: Priorities and Actions" (Wheale/McNally 1993). It included
a list of demands for the revision of the Community's genetic engineering
directives. The Commission's DGs III and XII took this document as a guideline
for their own proposals. In April 1991, Martin Bangemann of DG III presented a
Communication to the Council of Ministers (Industry) in which almost the same
formulations as in the former SAGB-booklet were used. Although DGs III and XII
clearly advocated the interests of biotechnology firms, the companies still had
a major problem: the lost struggle in the 1980s was responsible for the
competence for genetic engineering regulations remaining at the Commission's
environmental department (DG XI). As long as DG XI was to control this crucial
area, the possibilities of package deals between big companies and their
partners within the Commission were limited. DG XI rejected advice from other
directorates and did not consult representatives of firms but relied on its own
experts (Cantley 1995).
Thus, in the perspective of the
industry, the first aim was to overcome the influence of DG XI to get access to
the formulation of regulative proposals. The best way to achieve this objective
was to improve the horizontal co-ordination of the Commission's biotechnology
policy by making use of the structural majority of the partners of the industry
in the Commission. It was the increasing pressure of large firms that led to
effective horizontal co-ordination in biotechnology policy within the Commission
(cf. Katzek 1991; Kädtler/Hertle 1992; Greenwood/Ronit 1992; Greenwood/Ronit
1994). This "Biotechnology Co-ordination Committee" (BCC) was founded
in March 1991. Involved in the BCC were the four "major baronies"
(Cantley 1995, 638): DG III (Industry), VI (Agriculture), XI (Environment), XII
(Science, Research & Development).
Big companies and their partners
within the Commission thereby removed the leadership of DG XI in regulating
genetic engineering and established themselves as the main actors and arenas of
biotechnology policy negotiations in the 1990s. The enlarged scopes for action
of the partners also opened up possibilities for package deals.
The big companies were still not
very enthusiastic about the intention of the EC to shift the national public
promotion of biotechnology research to the European level. Until the mid-1990s,
only about ten percent of European biotechnology research funds had been used
by industry (Bongert 1997, 128). Nevertheless, the firms consulted the
Commission and helped to establish contacts with scientists. So in the course
of the 1990s the Commission were gradually becoming more successful. While the
first European biotechnology programs lacked substantial financial resources,
the "Biotechnology Research for Innovation and Development" program
in Europe (BRIDGE) and BIOTECH 1 from 1990 to 1994 had a budget of 289 million
ECU altogether. BIOTECH 2 started in 1995 with more than 500 million ECU
(Bongert 1997, 126). The expanding European funds for life-sciences and related
technologies are the result of the more successful politics of the Commission
during the 1990's and they also form a resource of continuing financial support
in the future. Although large firms are generally not interested in a transfer
of biotechnology funds to the European level, they act according to a logic of
"shooting where the ducks are".
Not only with biotechnology
programs does the Commission lure industrial partners. We assume that the
Commission also uses its funds in adjacent fields. Funds for agriculture
increased to several hundreds of millions of ECU. Further programs for
biomedicine and health research (BIOMED) started in 1990 and increased during
the following years as well. In order to concentrate its resources on promoting
biotechnology DG XII changed its internal structure in 1990. Biotechnology,
agriculture and health were joint to a department of "Life-sciences and
-technologies". The Commission also established "Industrial
Platforms" within the BRIDGE-program to establish better contacts to the
industry.
The increasing funds can also be
regarded as a result of closer contacts the Commission holds to the industry.
The Commission fulfilled its part of the deal with the above mentioned
communication of the Commission's vice-president Bangemann. The Commission
presented drafts for a revision of the genetic engineering directives which
reflect and even rephrase the concerns of industry. However, the
decision-making process took several years because the German Commissioner
Martin Bangemann — being sure of the support of the German government — had to
fight resistance of several national governments and experts, e.g. the European
Parliament, environmental groups and the environmental department of the
Commission. A first result were several directives which revised the former
bureaucratic implementation of EU's genetic engineering law (93/572/EEC,
93/584/EEC, 94/15/EC, 94/211/EC, 94/730/EC).
Though big companies succeeded
in decreasing the influence of the Commission's environmental department by
supporting the horizontal co-ordination within the Commission, their missing
links and connections to the DG XI remained a problem. This was the main reason
for the SAGB to merge with the ESNBA in September 1996. The new association
(Europabio) has 38 large companies as direct members and eleven national
associations as corporate members. It managed to establish close relationships
with all the important departments of the Commission (Greenwood 1997: 72; see
also http://www.europa-bio.be).
This new association improved
the co-ordination of the industry's biotechnology policy. Its main success
became apparent in October 1998 when the revision of the "contained
use" directive was enacted. The revision gained law status on December
5th, 1998 and is to be implemented by the member states within 18 months from
legislation (98/81/EC, cf. Leskien 1998). It fulfils the central demands of
industry. It seemed as if the Commission wanted to thank the industrial
partners for their help in promoting biotechnology through changing the
regulation of genetic engineering and thus supporting the establishment of a
European network.
To sum it up, there are many
reasons to assume that there is a rising importance of package deals between
the European Commission and biotechnology firms. In spite of the fact that
neither biotechnology firms nor the Commission had the resources nor the
interest to engage in bargaining with each other in the 1970s, the enlargement
of Commission's Competencies has brought about a complete change of the
situation. So only by involving in different policy domains the Commission is
able to engage in package deals with biotechnology firms.
Throughout the last decades the energy sector
of the European Union has mainly been characterized by different national
energy policies and the reluctance of the member states to pool sovereignty in
this policy area. Until the mid 1980s there existed strong relationships in the
member states between governments and the energy or electricity industry.
Correspondingly, the electricity companies in most European countries were
closely tied to the government through ownerships or other privileged links:
for example in France (Electricité de France, EdF), Italy (ENEL) Spain (ENDESA)
and Great Britain (Central Electricity Generating Board, CEGB) either a public
national monopoly or a publically controlled company dominated the electricity
industry. The German vertically segregated electricity supply structure was
characterized by regional monopolies, in which these monopolies were not based
on a state lending, but on a legally protected monopoly position. Hence, until
the mid-1980s energy policy appeared to be a continual struggle between the
European institutions – above all the EC Commission – and the national
interests of the governments of member states. Under these circumstances it
does not surprise that despite a number
of attempts made by the EC Commission, there has never been a common energy
policy in the EC such as there are common policies in agriculture or transport.
However, the absent common policy framework does not mean that the European
institutions have no influence at all in the energy sector. The example of
electricity supply show quite the reverse: the basic conditions for national
policy-making in the electricity sector have dramatically changed during the
last years because of the Community's increased importance in the electricity
area. The approach of the Commission to influence the electricity market
through Third Party Access (TPA) – by which the existing electricity and gas
distribution networks are obliged to open themselves to other distribution
companies and large customers – towards a single internal market, created a
dynamism which began to evoke a fundamental structural change of the national
electricity industries. It is remarkable that the Commission's approach to
create an internal market for electricity in Europe could be enforced despite
of the strong opposition of many of the member states. Considering the fact
that the Commission legally has no formal competencies in the field of energy
policy, its success needs explanation. The evolution of electricity supply
shows the Commission’s progress in breaking down the barriers for an
intra-European trade in electricity was not so much the result of increased
competencies in the field of energy
policy but the capability to utilize approved instruments for new policy domains,
i.e. for competition and environmental policy. Besides the general relevance of
environmental protection and trade, the liberalization of electricity supply
provides empirical evidence for the assumption that a new type of package deals
between public and private actors (first of all between the EC Commission and
large electricity firms) is relevant
for the success of the Commission in core issue domains of electricity
suppliers in the face of missing formal competencies in the field of energy
policy.
Until the mid-1980s the
Commission's attempts towards a common energy policy had been blocked by the
divergent structural interests of the member states, although two of the three
founding treaties of the EC – the European Coal and Steel Community (ECSC) and
the European Atomic Energy Community (EAEC) – were related to energy. The
failure of a common policy framework in the European energy sector was caused
by the economic importance of the energy sector, which meant that the supply of
energy was generally of great national concern and policy autonomy was guarded
jealously by national governments (Padgett 1992). During this period the EC
Commission emphasized on fostering national energy resources and the security
of supply, in which methodologies like forecasting, target setting and the introduction
of interventionist policy mechanisms played the key-role for policy-making
(McGowan 1996a). Since these measures influenced, but in no way determined the
implementation of national policies (Wallace/Wallace 1983), the European
institutions – above all the Commission – made attempts prior to the Single
European Act (SEA) to introduce a European variant of corporatism to the policy
process. The Commission's endeavors to establish such political networks did
not make up for the lacking engagement on part of the firms though. The close
linkage between central or local governments of member states and the
electricity industry had the effect that electricity firms rarely undertook
specific policy initiatives on the European level; it was more comfortable to
let the government compete for the preferable market conditions.
From the mid 1980s onwards the
nation-state-business-relationship in the electricity sector gradually came
under pressure. The collapse of the OPEC energy prices and the fact that the
Eastern European countries entered the market caused a fundamental change for
the internal market conditions as well as for the external dimensions of the
electricity sector. Apart from new opportunities to secure the electricity
supply in Europe, it was an increased awareness of environmental protection as
well as the initiative of some member states – for example Great Britain – to
enhance the competitiveness in the electricity sector, which lead electricity
supply to greater dimensions within the
Community. After 1985, the European institutions intensified their efforts in
the electricity sector for the creation of an internal market, and in 1986 a
Council resolution heralded "a new 'market oriented approach', with
emphasis on competition as the principal mechanism for securing the Community's
future energy security" (Hancher 1990, 238). The new challenges of these
influences evoked a shift in the interests involved in national electricity
policy-making. In addition, a particular institutional change in the process of
European policy-making, caused by the SEA of 1987, set the economic boundaries
for firms (not only) in the electricity domain anew because it gradually eroded
the exit-option from the European market place and forced firms to establish
new European voices (Coen 1997). Since SEA, proposals on the internal
electricity market are decided by majority voting which adds dynamics to the
decision-making process. The EC Commission has been able to utilize this
instrument to strengthen its competence in the regulation of electricity
supply. The SEA says nothing about the property of the product
"electricity", yet it marks a turning point for the Community since
it reinforced the role of the Commission as the promoter for similar
electricity infrastructures in the member states. From 1988 onwards, the EC had
a mandate to develop an internal electricity market as part of the general
single market (Matlary 1996). For instigating the move to a single internal
market free from all barriers of trade, the EC Commission proposed Third Party
Access to the transmission and distribution of electricity. Concerning a
competitive structure of the European electricity market, a significant link
was established between the Community's competition policy, which is embodied in
the Rome and Maastricht Treaties, and its electricity supply (Weyman-Jones
1997). Furthermore, during the mid-1980s, the concern for environmental
protection began to impinge on the electricity sector, for the world wide
relevance of this issue lead the Commission to propose policies for the
reduction of environmental externalities in the electricity production and
consumption. Environmental policy is part of the Treaty of Rome, whereas energy
policy and electricity supply is not, and environmental policy found a strong
foundation in the SEA. Therefore, SEA not only had effects on the
decision-making process of the European institutions, it also steadily linked
electricity supply to environmental issues and market liberalization. It thus
altered the nature of political goods available for electricity enterprises on
the European level, considering that the link between environmental,
competition and electricity supply disclosed the Commission's possibility to
the effective use of policy techniques. The Commission has presently several
legal instruments for the regulation of the electricity sector at hand which
allow its encroachment into core issue domains of electricity suppliers, in
spite of the fact that the Commission has no legal formal competence in energy
policy.
The increasingly apparent role
of EU institutions in the electricity sector – above of all the regulatory role
of the Commission – caused large electricity firms to develop direct lobbying
strategies. In the past, electricity suppliers existed within protected markets
of strong interconnections with the central governments. The mandate of the EC
to develop an internal electricity market has resulted in a widening market in
which electricity firms are forced to protect and expand their market position
on the European level. In their seeking to attain these goals firms have two
kinds of strategies at their disposal: the constitution of cartels and the
exertion of influence by lobbying strategies. For the latter, resources and the
right contacts are required in order to have an impact on the drafting of
European directives with competitive advantages for large firms on the
political market place. The evolution of a liberalization process in the
electricity sector gives first empirical hints for a relevance of lobbying
strategies, and the relevance of bargaining procedures between the Commission
and large electricity firms respectively.
Since most member states are
cautious not to loose control over their electricity supply, the Commission's
proposal of TPA in the European electricity sector has been strongly opposed.
On the basis of heterogeneous interests the implementation of the single
electricity market was blocked by the central governments of the member states
for several years. However, the EU directive concerning the common rules for
electricity in the internal market came into force and the member states are
now obliged to open their electricity nets to other distributors. The
Commission's progress in breaking down the barriers to intra-European energy
trade are the grounds for our assumption that the success is connected with the
co-operative strategies the Commission applies with central – other than the
public – actors in the electricity
sector. It can be assumed that the Commission invalidates the resistance of
member states and gets the support of large national electricity firms by
negotiating the degree of liberalization with large national electricity firms
and is thus able to achieve the completion of the single market without strong
opposition. This supposition is underlined by the divergent degrees of
openings to the European electricity
market of the member states. While Germany fully opened its nets (100 percent),
other member states, for example Italy, Portugal, the Netherlands and Greece,
only opened their markets by 30 to 35 percent. France has opened its existing
electricity networks to other distribution companies and large customers one
year later and only by 30 per cent. The divergent degrees of liberalization in
the countries could be directly attributed to the interest of large national
electricity suppliers in a politically supported opening of the market or to
the interest in the protection of the market through regulatory measures.
The relevance of negotiations
between public and private actors in the European electricity sector is also
demonstrated by the fact, that after presenting the draft of the directive
concerning common rules for the internal market for electricity in 1992, it
lasted four years until the directive was finally passed by the European
Parliament in December 1996. The electricity sector is one straggler of the
liberalization process in Europe compared with other business domains (e.g.
telecommunication or banking and insurance). Schneider (1999) argues that some
cause for the late opening of the internal market for electricity lies in the
technological complexity and capital-intensity of the electricity supply.
Another explanation can be found in the renunciation of the EC of strong legal
powers for enforcing competition rules in the electricity sector. The
Commission had opted for bargaining and incrementalist solutions, although the
strength of the DG IV (Competition) lies in its ability to intervene directly
and eventually force the electricity industry to liberalize its markets.
However, the fact, that progress
has only been made since the electricity market was increasingly linked to the
environmental and deregulation markets suggest that negotiations between the
Commission and large electricity firms were modeled by package deals. The
linkage of EU electricity supply to environmental policy and market
liberalization has disclosed an opportunity to combine elements and objects
characterized by different preferential intensity for the Commission and large
firms. As to the European Commission, the determining motives for package deals
are its own interests. It prefers not to use established competencies in the
areas of competition and environment to achieve a formal Community competence
in energy policy itself (McGowan 1996a, McGowan 1996b). During the last years
the Commission has initiated various activities to formalize its role in energy
policy instead, e.g. intended to join the International Energy Agency (IEA) and
to be more actively involved in the decision-making process dealing with
emergency oil stocks. Both attempts of the Commission to formalize its
responsibility in energy policy were rejected in their original form by the
Energy Council in May 1990 (Matlary 1996). The large electricity firms are
interested in package deals as they have realized that the lobbying of the
Council of Ministers would have only limited the impact on the drafting of
European directives and could come too late (Hull 1993). The major electricity
producers anticipate large economies of scale and joint advantages to result
from the stretching of their share of the electricity market in Europe. At the
same time, they are wary not to come into a disadvantageous position because of
the national differences existing in basic political conditions for the
electricity sector. German energy producers, for example, are interested in a
harmonization of environmental regulation in the member states because of the
high level of environmental protection rules in Germany. These are grounds for
enterprises to be interested in having an influence on the speed and conditions
for the liberalization process for an extension of their European market
position. Package deals can be suitable for both sides, the Commission and the
large firms, to pursue their particular interests. The large utilities are able
to adjust their market behavior towards the Commission objectives, either in
environmental policy or in the realization of the aim of establishing a common
electricity supply framework, as long as, by exchange, they can limit the
regulatory impact of the Commission's directives on the structure of the
sector.
We have argued, that as a result of the
European integration we see a special type of governance emerge. The European
Commission as a public actor engages in package deals with large firms. The
deals usually involve different policy fields. The paper in the first part discussed
the similarities and differences of the institutional structures of the EU and
the United States, the latter being the institutional setting which is usually
cited as the classical ground for package deals. Both political systems live by
many-sided forms of separation of power in which political actors need partners
in order to be successful. In spite of all similarities between the systems,
the European Commission remains an institution with no counterpart in any other
democratic political system. Being a public institution, it is not dependent on
public consent. Apart from that, European integration is a fluent process in
which decision-making is linked with power distribution between the political
institutions. In this system it is of prime concern for the European Commission
to find partners in order to come to accelerate European integration.
The empirical part of the paper
demonstrates that the enlargement of the Commission's competencies makes
public-private package deals likely in various fields, as is the case of the
energy and biotechnology sector.
|
|
Biotechnology |
Energy |
|
structure
of firms |
increasing number of multinational firms |
predominate national or regional firms |
|
European
Commission’s competencies |
significant increase of Commission’s
competencies in all relevant fields |
no formal competencies within the field of
energy policy, but significant increase of competencies in related fields |
|
characteristics
of produced goods |
very specific products |
all firms produce the same product |
On the one hand, in the energy
sector we can find only large firms often bound to their Member State. With of
them all producing the same product (electricity) there is no way to gain
demands by changing the product. The firms aim at the European market. On the
other hand, in the biotechnology sector we find a mixture of small and large
firms, a variety of specific products; and these firms aim at the world market.
Furthermore, the field is dominated by a conflict in values. Nevertheless,
there are striking similarities of the Commission's bargaining strategy in both
sectors.
Our examples draw up the
preconditions for package deals: the Commission has competencies in several
policy fields and is able to offer package deals to the partners it negotiates
with; on the other hand the "trader" needs to be able to co-ordinate
solutions between several policy fields in order to come to a general solution.
In bargaining processes on European level only the Commission and large firms
show this specific characteristic. Since interest groups are much more
restricted in their action to the preferences and ideologies of their members,
some of the options offered by such bargaining procedures cannot possibly be
pursued. The result is that interest groups are restricted to the conciliation
of compensation agreements. Another limitation for interest groups regarding
their capability to conclude issue linkages is their inability to give their
members a guarantee that agreements will be fulfilled (cf. Ulrich 1994).
As a matter of fact, the
relevance of package deals, side payments and logrolling procedures for
decision-making on the European level is often stressed by political scientists
(e.g. Abromeit 1997; Weidenfeld/Jung 1997), though only for decision-making
procedures within the European Council. In this particular case package deals
are a strategy to surmount blockades of decisions between the member states.
The possibilities of national governments to conclude package deals with the
Commission are narrowed by distinct domestic interests. One important
restriction are the inherent legitimate demands (elections), another are the
complex responsibilities (federalism/regionalism).
The developments of
biotechnology and energy policy expounded here reveal yet another requirement
for package deals. The degree of resources of the Commission, i.e. financial
and/or regulative competencies, influences its chances to succeed in package
deals. We assume that the question of how important package deals as an
instrument to achieve supranational competencies will be in the future, depends
on the resources the Commission holds. Early policies illustrate how inferior
the role of the Commission as a partner for negotiations in both sectors was
because of its lack of competencies. Again, both sectors demonstrate that the
more resources the Commission has at its disposal and the more influential it
is, the more important it becomes as a partner for bargaining. It is only since
the Commission has been able to fall back on explicit regulative powers, that
its position in bargaining procedures with business could be institutionalized
(Coen 1998). Now the Commission can strategically utilize package deals in
negotiations with large firms. Package deals are interesting for large
enterprises firstly because they offer direct access to the resources of the
Commission and secondly because they allow them to influence the regulatory
decisions. Thus, big companies are able to use these deals in order to
compensate disadvantages of political decisions on a supranational level in one
policy field with advantages in other policy domains.
There still remains the problem
of finding an objective criterion for welfare effects of package deals between
the European Commission and large firms. There are already difficulties to
analyze the welfare effects of package deals between public actors. Even the
public choice theory, which takes stable interests and certain effects of
decisions for granted, shows considerable disagreement on the welfare effects
of "vote trading" as a very special form of package deals. While
during the 1960s and 1970s an optimistic view dominated the discussion (Coleman
1966; Tollison/Willett 1979), more recent research stresses the possible risks
(for example Benz/Scharpf/Zintl 1992). Before a judgement on potential welfare
effects via package deals involving EU-institutions can be made we have to
define what positive welfare effects are. Neo-classical economy applies the
"pareto-criterion" to evaluation of welfare effects. This criterion
defines positive effects as at least one person being better off than before
and no one is off worse. This is the result that applies to ideal market
situations only and — in the political context — to the rule of an unanimous
vote: If one actor experiences a loss, there will be no deal.
Nonetheless, package deals may
result in decisions which do not fulfil the "pareto-criterion" but
the "kaldor-criterion", which states that a net benefit occurs when
the sum of the benefits is big enough to offset the costs (Benz/Scharpf/Zintl
1992). Like the "pareto-criterion" this rule provides ground for
criticism: Net benefits may be positive although the social benefit may be
negative. Robbing the poor to give everything to the rich may turn out to
result in a net benefit. Thus, we must stress the point that allocative
efficiency of package deals is a controversial issue.
The fact that these arrangements
have distributive external effects is largely neglected by public choice
literature (Scharpf 1991). Package deals can lead to an imposition of costs on
"non-traders". If these costs outweigh the benefits achieved, the
deal can be assumed to reduce the social welfare (Stratmann 1997). Considering
distributive as well as allocative results of package deals it becomes clear
that it is necessary to find ways to reduce the risk of those arrangements
which impose costs on non-participating groups of the society. Other problems
that are of interest to political scientists are low public visibility and a
lack of democratic input-legitimacy (Abromeit 1997). Neither the Commission nor
the representatives of big enterprises are directly elected and thereby
democratically legitimated. None of the problems is easily solved, but it seems
clear that we need more public control through a clearer political polarization
of competing parties which is particularly absent in Brussels.
The absence of competing European
political parties or party blocks leads to a further normative problem: In
parliamentary systems with proportional representation we normally have
governing coalitions which can be regarded as formalized forms of package deals
("logrolling"). In non-parliamentary systems package deals may not be
stable. Unstable and shifting coalitions are assumed to lead to a decrease in
welfare (cf. Stratmann 1997).
Our preliminary results show
that package deals may have positive effects on the progress of policies.
Therefore, it would not be sensible to ban or prevent package deals, although
there may be negative effects as well. The future development of the European
institutional setting should bear these effects in mind. There are at least
three aspects which should be considered:
1.
Package
deals have to be negotiated openly in the light of the media and the public.
2.
It
must be guaranteed that these deals and partnerships are stable.
3.
Since
stable coalitions are needed it must be guaranteed that package deals will not
lead to lasting or even permanent shifts of cost to non-participating groups.
One possible solution to these problems is
trust, which is built up by iteration and institutionalization of package deals
(Benz/Scharpf/Zintl 1992). Utilizing other social factors is a possibility to
gain coalition stability, too (Ferejohn 1986; Zafonte/Sabatier 1998). Recent
public choice theory and empirical studies have pointed to the role of norms
for package deals. Co-operation and the distribution of gains received by these
deals are important as well (Benz/Scharpf/Zintl 1992).
Shifting the focus to
legislation, one of the main empirical results has been the role that is
assigned to parties and (different) party-memberships of actors, especially
within parliamentary systems like Germany. The main advantage of parliamentary systems
is the existence of two stable groups: the government and the opposition. To a
certain degree an opposition in parliament guarantees control and political
competition. The European Union still lacks such a stable opposition. While
governments represent their national interests in the Council and the
Commission primarily is a bureaucratic institution, the Parliament is the only
institution where an opposition could be established. Consequently there is a
demand for an opposition as an institution of control where package deals are
likely to occur. For the parliament this implies an enhancement of its
influence on the appointment of the Commission and especially its leader. What
we need is the choice for parliament to decide between two alternative candidates.
This would lead to a "polarization" in the Parliament and helps the
EC build up a European party system. Seen through a "package deal
lens" this may be more important than extended legislative competencies of
the European Parliament. What is needed is a parliamentary government in which
the leader of the European Commission is a member of the European Parliament
and depends on the support of its majority vote. Only such institutions of
parliamentary government will achieve a polarization of political camps —
government and opposition — which have a "natural" interest in
controlling each other. In other words, only parliamentary systems can
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Biographical Sketches
Nils C. Bandelow is Assistent to
the Chair of Comparative Politics and Policy Analysis and the Department of
Social Science, Ruhr-University of Bochum. In 1998, he finished his
dissertation dealing with an Advocacy Coalition approach to genetic engineering
policy. His further research is mainly directed towards health policy,
technology policy, attitudes of German and British members of Parliament toward
European integration. His homepage can be visited at http://homepage.ruhr-uni-bochum.de/Nils.Bandelow
Diana Schumann is research fellow
at the Chair of Comparative Politics and Policy Analysis, Department of Social
Science, Ruhr-University of Bochum,. She is concerned with the research project
dealing with European governance by package deals. This project contributes to
her dissertation on “Package Deals Between the European Commission and Large
Firms in the Energy Sector”. She was previously occupied with the NIFA-Panel and is furthermore interested
in labor market policy and statistic analyses.
Ulrich Widmaier is professor for
Comparative Politics and Policy Analysis at the Ruhr-University of Bochum, Department
of Social Science. His research interests include European Integration, Labor
Market Policy, Rational Choice Theory and Comparative Politics of
OECD-Countries. His further research is also based on a panel survey on the
technical, social and economic consequences of technological and organizational
change in the German mechanical engineering industry (NIFA-Panel), which was successfully finished by the end of 1999.