Social Model Is Europe’s Solution, Not Its Problem

April 23 (Bloomberg) -- In the wake of the financial crisis, Europe’s leaders are calling the continent’s social model into question -- it is “done,” according to European Central Bank President Mario Draghi. That’s a travesty.

The crisis is, above all, financial. Yet governments aren’t addressing the malfunctions that caused this problem. Instead, they are forcing ordinary people to pay and attacking the social systems that support them.

Take the example of Greece. The country is being pushed to accept an austerity plan of unprecedented severity, predicated on reducing public spending and slashing salaries, pensions and social systems in the most brutal way. This has forced the country into an economic, social and political crisis that will last for many years.

These policies are initiated not by Greeks but by European Union officials in Brussels, at the European Central Bank in Frankfurt, or in London, where the U.K. government continues to block proposed measures to fund a recovery, such as a Europe-wide tax on financial transactions. These ideas are modeled on the austerity plans that were imposed on the countries of Latin America in the 1970s and ’80s, and they are suicidal.

Labor unions in the European Trade Union Confederation take the opposite view of these choices. Union leaders believe austerity is pushing Europe -- and many industrialized countries outside the region -- into a recession, unemployment and poverty. Democracy, both political and social, has to be restored.

To start with, it is time to rethink the EU, which has become nothing more than a large market, without any consideration of social or fiscal harmonization. The result has been to set Europe’s citizens in competition with each other, as can be seen in the debate about how Germany has grown at the expense of its partners.

Wealth that is generated by the creation of a continent-wide market should benefit the citizens of the EU together. It should, above all, raise standards of living. But the effect has been the opposite. As governments compete to attract companies by offering lower corporate tax rates and social contributions, the result has been to impoverish social systems and public finances, and therefore workers and pensioners.

Favor Income

Priority has to be given to growth and employment, rather than pleasing the markets. We need new economic, social and monetary policies. We need to move toward a new distribution of wealth that favors income derived from labor over capital; wages and productive investments over financial investments and dividends.

Far from reducing the purchasing power of workers and retirees by undermining the pension and social-welfare systems, we need to boost these as a way of supporting internal growth that is much less dependent on external markets. We need proactive employment policies that promote public-works projects, and laws that discourage companies from cutting staff levels when profits are high. All this is especially important for the young. Unemployment for the under 25s is now 23 percent in France, more than 30 percent in Greece and 50 percent in Spain.

The argument so often put forward to justify reductions in labor costs -- keeping companies competitive -- doesn’t stand up to scrutiny. What handicaps European businesses today is the lack of quality and innovation. To try to compete with Chinese businesses by lowering labor costs is a decoy. It does nothing but benefit short-term corporate profits, to the detriment of employees.

More of the wealth that companies produce should be used to increase salaries (together with social-security payments), and to pay for training as well as research and development. Doing so would help companies to innovate and strengthen their position in the market.

Above all, we need to maintain employment in the public services, the quality of which benefits companies as well as individuals. Cutting public spending can only be done to the detriment of the very things that underpin the growth of large industrialized economies: excellence in education, an effective health system and quality public services. To undermine these strengths is to misunderstand the challenges that we face today.

Mercy of Markets

Social-protection systems based on solidarity between the generations, between men and women, rich and poor, have to endure in their current form. To attack them is to cast onto the mercy of the marketplace our ability to maintain our health, to safeguard our pensions and to raise our children in good conditions. Invariably, this produces two-speed protections and weakens the poorest.

Social democracy has to find, or to rediscover, its place. It’s imperative that we encourage social dialogue and collective bargaining. In Greece today, as in other troubled economies, labor unions and social dialogue are held in contempt, creating a source of deep instability for the future.

International and European standards on employee rights, such as those set out in the International Labor Organization conventions or in Europe’s Charter of Fundamental Rights, are too often flouted and need to be applied. The social dumping that began in recent years, especially as a result of judgments handed down by the European Court of Justice, need to be reversed by political decisions. The EU, no matter what economic liberals say, cannot be built on social dumping and competition between the peoples of a single economic space.

Leaders on Europe’s political right are refusing to question the economic model they have been supporting for decades. The financial crisis has shown that this model, based on deregulation, privatization and reduction of the state’s role, is exhausted, if not bankrupt. Either by error or ideological stubbornness, Europe’s current leaders are imposing the heaviest burden of reform on those who are least protected.

If Europe’s governments continue on this path, they risk tipping their countries into new crises and reinforcing the nationalism and xenophobia that’s already becoming all too evident.

(Paul Fourier is a member of the executive board of the Confederation Generale du Travail, one of France’s largest labor-union groups. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

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