‘Rien ne va plus’? Ways to rebuild the European Social Market Economy
Speech held by John Monks, ETUC General Secretary, at the European Economic and Social Committee (EESC) conference on ’Rien ne vas plus’? - Ways to rebuild the European Social Market Economy in Brussels on 22–23 January 2009.
Never again - Ways to rebuild the European Social Market Economy
I saw an old Marxist colleague in London recently and he reminded me of some speeches I gave on modernising unions in the mid 90s. From time to time, he used to argue at meetings that all banks should be nationalised and I used to reject this idea as impracticable and crazy. Now that European governments and the US have nationalised or part-nationalised nearly 20 European banks, he asked ‘did I still have the same view?’ It was a good question. Events can make fools of us all.
What is clear is that this crisis / recession has shaken orthodox beliefs in western Europe and the USA like nothing since the Second World War. There have been other serious crises. Some people, who I respect, are still arguing that this one will be no deeper and no longer than the crisis of the early 1990s.
Let us hope that they are right. But what seems different is the global scale of the crisis, the speed of deterioration, and the difficulties of re-balancing the banking system.
I was a speaker at the recent Paris conference called by President Nicolas Sarkozy, Tony Blair and Angela Merkel. A number of points struck me. One by Tony Blair was that governments had to deal with two problems simultaneously. One was that the banks had lent recklessly, had operated off balance sheet, and constructed liquidity on shaky foundations. That had prompted calls for stronger regulation, tougher controls on banks and so on. But the more immediate problem was that banks were hardly lending at all, except to very, very low risk customers; they were being exceptionally prudent as they battled to improve their own balance sheets. There was very little risk in the immediate future and perhaps for years to come of regulatory failure. The big risk is that they are taking no risks.
That dilemma is present in the title of this conference because we are trying to do two things at once: getting the economy moving to keep growth up and to keep unemployment down, but also we are trying to make sure that we do not repeat the kind of mistakes that have brought the world economy to its knees. There can be no return to business as usual.
On the latter point, we have company. Chancellor Merkel and President Sarkozy have said repeatedly much the same thing, most recently at that Paris meeting to which I referred previously. They have said – and I hope they mean it – that at the G20 meeting in April – Barak Obama’s first visit as President to Europe – the United States cannot on its own set the rules of the new system in the ways it did after the Second World War and less tidily in the early 1970s.
I hope that this means a much less ideological approach by governments on de-regulation, on privatisation, and even on de-unionisation in some cases as ever freer markets became the only game in town. The State was shrinking, the market sector growing and this was a market sector dominated by short-termism and a relentless search for fast returns on capital employed, usually not using your own money when you could use the banks; and scouring the world for the best returns, following the crowds, even if you did not fully understand the world of derivatives and sub-prime property markets which was attracting those crowds of investors. That was the essence of much of the financial world.
Having said that, the immediate priority is getting the European economy moving upwards. Unemployment is soaring in some countries and rising nearly everywhere. Bankruptcies, re-possessions and bad debts still continue to rise.
At this point, it is important to note that the European authorities and national Governments are mostly all doing the right things. Interest rates have been cut, public spending increased, nationalisation and government intervention and assistance are back in vogue. Keynesianism, New Dealism and social democracy are flying again – even traditionally rightist leaders like Nicolas Sarkozy and Angela Merkel are behaving as de facto social democrats. All the traffic signals for growth are set at green, although there must be concerns that we run the risk of clashes between the single market rules and national governments responding to political and union pressures for intervention and bail-outs.
I consider that more will be needed. The fiscal stimulus in Europe, although enormous, is proportionally less than in the USA. We need to be ready to increase ours substantially. Commissioner Almunia has taken up an earlier idea of ETUC and others to offset the higher borrowing costs for some EU countries by establishing a centralised debt agency for eurozone members.
I have called for a New Social Deal for Europe by which I mean new measures to help workers cope with all these painful changes that we expect in the months ahead. The elements of a New Social Deal must include guarantees that companies will try to maintain employment levels, assisted by temporary short-time working schemes; that wage levels especially for the low paid in some countries should rise to boost demand and stimulate consumption; that benefits for the unemployed and opportunities for training and retraining should be improved to increase purchasing power and to invest in the future; that the macro-economic dialogue should be used more to make wage development compatible with macroeconomic policies; and that public investment in green technologies should be stepped up substantially.
The recent joint report on labour markets agreed with our social partners is a good base for us to work on this area. We produced that report when markets were rising and the outlook was very good for economic growth and jobs. We now need to return to it and take account of the changing context, the new circumstances and the conditions of today and tomorrow. In my view, there might be rather more emphasis on the ‘security’ side of flexicurity, and not just on flexibility, important though that is. If we are going to say that, Danish style, there should be greater emphasis in our society on protecting the worker, we want to discuss the quid pro quos, the guarantees, the new opportunities, and the rest. That joint analysis with the employers was a ground – breaking piece of work and we need to assess if it can be used to help in the current context.
It is also important that we do not adopt ‘beggar thy neighbour’ policies in Europe. We nearly saw that in relation to the bank rescues in early October until the French Presidency brought a welcome degree of co-ordination. Now we might see it in relation to pay freezes, competitive cuts in social welfare and protectionist actions of one form or another. That happened in the 1930s and contributed to the disaster of the Second World War. We never want that again and although I do not think that member states and their employers and unions are in the 1930s mode, they may lapse into deflationary actions of one kind or another which would have very grave effects. What is certain is that after the banks and car companies there will be a long queue of supplicants for help from governments, and Europe needs to try and prepare itself for these exceptional circumstances.
I do not delude myself as some of my old friends do that this is the end of capitalism. But it might be – it should be – the end of a certain type of capitalism – what I have termed casino capitalism and what Paul Volcker, ex Chairman of the Federal Reserve, has called ‘alchemy’.
We cannot surely have a system in future whereby firms trying to develop sustainable technology have little chance of attracting investment while there is a great splurge on dodgy property. We cannot surely have a system which is so short-termist as the one that has imploded. We cannot surely have a system which promotes ‘off balance’ sheet trading by financial institutions to avoid regulation and perhaps tax. We cannot surely allow tax havens to flourish allowing some to benefit at the expense of the community as a whole.
We have a long agenda of issues to rebuild the Social Market Economy. This conference is a useful start.
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