Opening Conference of the European Year for Combating Poverty and Social Exclusion

Madrid, 21/01/2010

I congratulate the Spanish Presidency on this initiative. In all our societies the gaps between rich and poor have been widening. Income inequalities are back to late 19th century levels in some countries.

Other participants have rightly focused on the need for positive action to help the excluded – training, social security, minimum wages, etc to help them progress. I agree with the importance of those at European and national level.

But that alone will not work. We also have to look at what is happening at the other end of the spectrum, at the rich and wealthy who have been the real winners of globalisation, at the balance between capital and labour where the former has strengthened at the expense of the latter, and at the tax systems of the EU.

The harsh fact is that since 1989 in particular, trade unions and governments have been ineffective in stopping the inequality gap becoming wider and wider.

The collapse of the communist regimes of Eastern Europe opened up substantial new markets to capital. Even more spectacular is the opening of China to capital, followed by other Asian economies. In a few years 1.5 billion workers were added to the workforce of the global economy with opportunities for the free movement of capital, goods and services greatly enhanced.

One result has been extra pressures on industrial workers in the West. As China has taken over as the primary workshop of the world, so the industrial West has shrunk as capital has flowed eastwards. This pressure is now being felt on service workers in the financial and IT services sector as India grows its role in these areas.

So the scope for earning high returns has risen quickly on transferring production to low cost locations like China, and to a much lesser extent, the new member states of the EU. The return on capital expected by financial institutions, certainly up until the crisis, was 20% (Ackerman, Deutsche Bank), and this at a time of low inflation.

And it is not just profits. It is also taxation. It is easier than ever for multinational companies to transfer income and losses around the different tax jurisdictions, choosing the lightest regimes available. It is easy too for businesses to be located offshore in tax havens. Barack Obama said – there is a building in the Cayman Islands with 18.000 companies domiciled there. “It is either a very big building, or a very big scam”.

Does it matter if we are relaxed about the rich getting “filthy rich” as Lord Mandelson once unwisely said that he was.

It does for several reasons. For a start, the rest of the population see what is going on, and resent it. This is conspicuous consumption in the style of the Bourbons.

Second, the tax base of countries is severely weakened, and any threat to increase taxes, as is currently the case in France and the UK, in relation to bankers’ bonuses, produces howls of outrage and threats to emigrate to low tax jurisdictions. They accuse critics like me of envy or formenting class warfare when the truth is that they are the ones stirring social unrest and raising class consciousness.

Social inclusion needs social cohesion, and not just in one country. Like you could never have had socialism in one country, so you cannot have social inclusion in one country; it becomes undermined by low cost neighbours, neighbours nowadays being countries any where in the world.That’s why we need a stronger EU approach to economic governance.

The EU acting together is 30% of world GDP. It is still strong enough, if it acts together to check the rise and rise of the new Bourbons, and ensure that tax regimes are not competitive, one with another, undermining social safety nets and financial stability. Working together in the G20, the IMF, the UN and the rest, the EU must set a new course for the world-greener, fairer, socially inclusive and more equal.

To conclude, the successor to the Lisbon Strategy must reflect a commitment to greater equality if the EU is to take social exclusion seriously.