Cover Image
close this bookThe Courier N 145 - May - June 1994- Dossier : European Union: the Way forward - Country Report: Ethiopia (EC Courier, 1994, 104 p.)
close this folderDossier
View the documentEuropean Union: the way forward
View the documentEurope makes its way: from Rome to Maastricht
View the documentEconomic and Monetary Union - Major features of the Maastricht Treaty
View the documentThe European Monetary Institute - The tasks ahead
View the documentThe Courier surveys the scene with the help of Egon Klepsch, President of the European Parliament
View the documentThe challenge for 1996 - A people's Europe
View the documentTowards enlargement of the European Union
View the documentPHARE-TACIS: EU cooperation with its Eastern neighbours
View the documentWhat future for the CFSP?
View the documentThe European Union's development cooperation policy
View the documentThe challenges and ways forward into the 21st century
View the documentThe GATT exception for cultural products and the European creative imagination
View the documentImages of Europe

The challenges and ways forward into the 21st century

Growth, competitiveness, employment

The European Council held in Cop. enhagen in June 1993 called on the Commission to produce a white paper on medium-term strategy for growth, competitiveness and em. ployment, a decision which emerged from the debate by Heads of State and Government following Commission President Jacques Delors' report on the shortcomings of the European economies.

Much of the White Paper was supplied by the Member States themselves, but it was also guided by the discussions now under way between the governments and the employers' organisations and trade unions in our various countries.

The crisis has been analysed in detail in Europe and the rest of the world. Economists have managed to agree on some things, for example, that the increasing exposure of the world's economies to poorly regulated international trade made unpredictable by unstable exchange rates causes priority to be given to competitiveness. Indeed, there was a positive correlation between unemployment and technological progress in the OECD between 1974 and 1980. Competitiveness leads to ongoing cost reduction, particularly on the wage front, making exclusion and unemployment the only variables of adjustment (50 million Europeans are below the bread line), which keeps profitability up but saps actual demand. And when a majority of countries or trans-national economic operators take the same course, growth stops.

Nations-States are therefore no longer the right place for macro-economic regulation and, to echo Keynes, the sum of individual behaviour does not produce the optimum collective result. The same could well be said of the sum of national behaviour too. Back in 1705, Bernard de Mandeville's Fable of the Bees showed that the sum of private vice did not equal public virtue and, since his time, economic theory and games theory have proved that individual interests may very soon come into conflict with the collective interest - an idea developed, in particular, in the paradox of the two prisoners described by Merrill M. Flood in 1951 (Nicolas Falleta, The Book of Paradoxes, Paris, Belfond, 1986, p. 198) and the end of Stanley Kubrick's film Spartacus, in which the interdependence of the slaves heightens their resistance within a bloc of which they are both a part and the whole. Mathematical theory has already shown that a whole is different from the sum of its parts. The same goes for the Twelve... or the Sixteen.

On this subject, one project which caught the eye of Jacques Delors shortly before the White Paper appeared was the European New Deal, as proposed by Edmond Malinvaud (a teacher at the College de France) and 12 other European economists.

What exactly did they say? That the coexistence of unsatisfied needs and unused resources pointed to a breakdown in the economic machinery and that this was causing far more unemployment than had ever been created by technological progress, which made only a secondary and partial contribution.

What did they suggest? That, when it came to monetary policy, what was needed was a short-term interest rate slash and a campaign against competitive devaluation, plus a massive cut in unskilled labour costs and the launching of collective investment programmes to cope with a situation in which inadequate investment existed alongside complaints of surplus savings. Practically speaking, the idea was to invest ECU 250 billion (4% of European GDP) over four years.

And what did they expect? That growth would go to 3% p.a., employment rise by 1% p.a., unemployment drop by 0.5% p.a. and pay and prices remain static.

Why the White Paper? Jacques Delors replies

The preface to the French edition (Paris, Ramsay, 1994) said that the history of the White Paper was worth repeating, so let us look back a few months, to the spring of 1993, and see what the President of the Commission reported: economic recession, with 17 million unemployed, half of them on the dole queue for more than a year, and one European school-leaver out of five waiting for work for more than two years.

Why did Jacques Delors decide to focus thought and action on employment? Clearly because unemployment saps the confidence of nations and without that confidence no collective project will ever work. Unemployment dwarfs other problems, making many of them look ridiculous, almost indecent, alongside. It poses questions about the validity of the European model of society - founded, in a spirit of solidarity and cohesion, on our social security systems - and it calls for collective answers, because here, undeniably, unity is strength.

Jacques Delors presented his analysis of the strengths and weaknesses of the European economy to the European summit in Copenhagen in June of last year. It took five hours to discuss. The Council was anxious to move on from diagnosis to treatment and the White Paper on growth, competitiveness and employment was adopted six months later, at the next meeting of the 12 Heads of State and Government in Brussels in December.

One basic question underlying the White Paper is whether Europe has a specific malaise of its own. Jacques Delors' very direct answer is that the main shortcoming, in his eyes, is fragmentation and inconsistency. He maintains that the European economies are like orchestras which have brilliant soloists but cannot play in time and need something to cement them together into an ensemble, which is why the White Paper stresses trans-European networks and the information society. He suggests breaking the habit of easy answers and, in particular, putting an end to the idea of bringing everything down to monetary and budget policy, with employment policy no more than a variable of adjustment and seen only as a supplementary means of righting the balance.

He points out that European inflation took off again in 1988, when 8% of the working population was on the dole queue - which demolishes conventional theories about the link between unemployment and inflation - and suggests transferring the increasingly large amounts being ploughed into unemployment benefits (ECU 200 billion in 1993) to 'employability', i.e. to boosting the individual's potential for playing a useful part in society through work.

The conclusion is that today's economic policy must always do more than just keep up steam, for the rails of tomorrow's growth have yet to be laid. The economic machine needs an injection of new ideas for, as the century comes to a close, our societies have more to fear from a want of discussion, cooperation, will and political imagination than any other form of shortage.

The issues set out in the White Paper'

Is unemployment an affliction peculiar to Europe? The USA created 29 million jobs between 1970 and 1990, and Japan created 12 million and Europe 8.8 million in 1985-1990, but, in 1991-1993, half of them were lost. Europe's problem, in outline, is 16 million unemployed, which is 10.5% - one in 10 - of the working population.

Is there any need to mention that one out of every two unemployed has been on the dole queue for more than a yearend one out of four for more then two years and that, overall, unemployment is a fact of life for a quarter of the under-25s?

European unemployment can be summed up in three terms, each one a paradox - productivity, competitiveness and wage costs.

On the productivity front, Europe's performance per hour of work is high, but that does not create many jobs. Compared to the situation in the USA and Japan, our technological efficiency is out of step with our productive development potential. Our work productivity momentum is obviously at variance with our sluggish rate of growth.

Why is this? Because economic policies have been designed without any reference to employment policies. Social policies have been pushed into second place and now the social sector is getting its own back. Europe's problem is that business performance is confined to reducing the denominator of productivity without touching the numerator of production.

The paradox of competitiveness is this. Although, between 1987 and 1990, the internal market created jobs, they stopped, so was it all an illusion? Certainly not, but it did not produce the fruit it might have done, particularly as far as the SMIs were concerned, because the maturing process took longer than expected and action was delayed as a result.

The third paradox lies in wage costs. The usual complaint is that they are too high, but over the past three years both the size of and the increase in the wage bill have been a small part of business results. What we have, in fact, is a structural problem. The total cost of unskilled pay is too high in comparison with skilled pay, so the demand for skilled labour is high, while the supply is mainly of unskilled jobs.

So all the prospecting for new deposits of work is held up by the cost of unskilled labour and by the fact that menial tasks are looked down on in the North and end up being done by informal labour in the South.

Strategy

The White Paper recommends tackling structural problems - cyclical, structural and technological unemployment - rather than going for a short-term, neo-Keynesian recovery. How? Through an open economy, because controlled interdependence alone can bring about a positive sum game for all, and through a decentralised economy, because a market economy is intrinsically decentralising.

The White Paper proposes a method and recommends courses of action. The method is based on notions of cooperation, decentralisation and social dialogue.

There is no miracle cure - neither protectionism, nor a runaway economy, nor a general cut in hours, nor job sharing on a national scale, nor swingeing pay cuts, nor an axe through social protection to bring us down into line with our competitors in the developing world - none of these is the answer.

The way to move forward into the 21st century starts with the idea that the European Union ought to be able to create 15 million jobs by the end of the 20th.

A healthy economy should make it possible to think about economic and monetary convergence in macro-economic terms. Stable monetary policies geared to low inflation would lower interest rates again and make investment more attractive. And pay trends in all income brackets should be consistent with the aims of monetary stability and cost containment.

The economy should be open, because controlled independence is the only thing that can ensure a positive sum game for all.

A decentralised economy based on new technology will lead us towards a proper information society.

A more competitive economy will make it possible to get the very most out of the internal market, especially by speeding up the establishment of trans-European infrastructure networks and putting more into research and cooperation.

Lastly, the White Paper confirms the need for solidarity in the economy.

It suggests serving employment by investing in life-long education and training, knowledge and knowhow. The labour market has to have internal and external flexibility - external flexibility so that more of the jobless can meet the actual requirements of firms, and internal flexibility so these firms can optimise their management of human resources.

Optimum operation of the job market also means large-scale decentralisation in employment catchment areas. The success which some Member States have had in doing this shows that it is important to involve both sides of industry in the process. Similarly, it will take decentralisation at the level of individual firms before a change in working hours is an asset to the competitive position.

It is particularly important to reduce the relative cost of unskilled labour because of the close links with long-term unemployment. In eight of the 12 countries of the Union, tax and social costs are relatively heavier on low wages, one of the worst structural causes of unemployment and informal labour in the Community. A 30-40% cut in the social security contributions focused at the bottom end of the wage scale would boost employment by 2%.

A complete overhaul of the employment policy ought to level out the inconsistencies in the structure of unemployment spending. Currently about two thirds of the money the State spends on the unemployed are channelled into assistance and the other third into active schemes. The White Paper proposes a total rethink to head off long-term unemployment with a training policy geared to providing proper qualifications, with job opportunities, over several months.

Thought has to be given to catering for new and as yet tin-met needs arising from a changing way of life, changing family structures, the increase in the number of working women and the new aspirations of our senior citizens - some of whom are very senior indeed - and from the need to repair damage to the environment and rehabilitate the most underprivileged areas of our towns and cities.

A new approach to the corresponding services would be to stimulate both supply and demand in such a way as to shape a continuum of possibilities between supply protected by public subsides and competitive supply, thus pointing the way to a new social economy.

Going beyond the action of the individual Member States, there will be a fresh boost for Community action proper, along five lines, involving:

- making the most of the internal market;
- supporting SMEs;
- pursuing social dialogue;
- setting up vast European infrastructure networks (ECU 400 billion needs to be invested over 15 years);
- laying the foundations of the information society (ECU 67 billion required between 1994 and 1997). D.D.