Poverty, unemployment and the responsibility of governments in Europe

Poverty, unemployment and the responsibility of governments in Europe
Dr. Alexandra Wagner

Dear Colleagues and Companions, Ladies and Gentlemen:

I very much appreciate having the opportunity to participate in this ASEM 2000 People's Forum and to discuss politically relevant questions relating to employment and social policies with representatives of different NGO's from Asia and Europe. This period of history, characterised by frontier-crossing capital flows with all its consequences, cannot do without an exchange of experiences at an international level and without the international solidarity of the working people in defending a just and common cause.

My presentation is intended to inform you about several important developmental trends and debates under way in European employment and social policymaking. My paper will also yield critical comments on the current policies implemented by the European Union (EU) and its member-state governments, and it will at the same time suggest viable alternatives.

Poverty and unemployment are problems experienced even in European countries (which, judged by international standards, are relatively wealthy). Within the EU, nearly one fifth of the population is affected by relative poverty, with an equivalised net income of less than 50 percent of the average European annual income, and in 1999 the unemployment rate within the EU was as high as 10 percent. In terms of absolute figures, this means that there were more than 17 million unemployed individuals throughout the EU. The developmental trend of unemployment in the EU is gradually moving from its traditionally cyclical pattern: rising, falling and rising again and is coming to resemble that of a staircase: rising, standing still and rising again. Even applying the most optimistic forecasts, unemployment in 2001 would be higher than it was at the end of the 1980s.

Not only are there many more people unemployed today than in the past, but the average duration of unemployment and the percentage share of those in long-term unemployment has also risen. Unemployment and in particular long-term unemployment continues to be one of the most important contributors to poverty in Europe. However, the emergence of a sector known as the 'the working poor' i.e. people who are poor although they are engaged in paid work, is a quantitatively new and critical phenomenon for the EU as a whole. Within the EU, the proportion of 'working poor' employees constitutes about 8 percent of the total number employed, which corresponds to approximately 9 million people.

In some European countries, a decision to have children may entail a poverty risk. Since the states' support for children in these countries (in terms of child allowance and child care facilities) is insufficient and scarcely covers the actual expenditure involved in raising a child, the per-capita income of families very much depends on the number of children in a household, income falling with each further child.

As I see it, the fight against poverty requires staged intervention at no less than three levels:

1. Unemployment must be reduced and finally eradicated. What we need is an employment policy which aims at offering each and every adult person, who is fit for work, the opportunity to secure his or her livelihood by means of paid work.
2. The conditions of work must comply with established social standards and laws. Terms of employment should be regulated both through employment law and at the level of collective bargaining. The place and conditions of work should comply with rigorous safety and health standards and employment policy should be developed in close consultation with the workforce.
3. The social system must be designed in a way that on the one hand those unable to work (such as those incapacitated because of ill health or children) are protected by means of social welfare benefits and on the other hand social welfare is afforded to those unable to obtain a job together with the provision of continuous professional training and adequate retirement benefits.

However, the theoretical and political debates presently conducted in Europe are far from being unanimous on the view that the creation of secure, regulated high-quality work for all women and men wishing to take up paid work is a goal worth going for. And the demand for appropriate levels of social security is another issue being discussed in a highly controversial manner.

Since time is short, I wish to comment on only two politically relevant counter-arguments to the above proposals:

A. Any work is better than none. Supporters of this view state that a poorly remunerated and potentially short-term job requiring little or no qualification is better than having no job at all. They claim that, for this reason, poor quality jobs should be encouraged and even fostered. In my view this means nothing less than an argument for the deregulation of the terms and conditions of employment. We often hear the proposition that the various forms of employment regulation still on the books in many European countries are themselves one cause of the high unemployment rate. Subscribers to this view maintain that the necessity to comply with these requirements makes labour too expensive to hire. Consequently, they see the reduction in 'labour costs' as an indispensable prerequisite for any expansion in the workforce. However, such line of thought chooses to ignore one critical aspect of the debate: namely that wages are not only a cost factor, they also generate stronger purchasing power which, in turn, boosts demand. There is a well-known saying in Germany: "Cars will not purchase cars." The idea behind this maxim is that wage cuts will always weaken domestic demand and will thus reduce sales opportunities for goods produced and services offered. Wage reductions may result in a rise in unemployment. We often come across the argument today that jobs in the service economy are less productive and therefore justify lower levels of remuneration in contrast to jobs in the more productive sectors of the manufacturing industry. In Europe, this often involves an extremely unjust underestimation of female qualifications and undervaluing of female participation in the workforce.

B. The second counter-argument concerns the structure of the social security system. The assertion often made is that the high rate of unemployment is due to the high level of social security support available. Many of the unemployed are considered not to be really interested or motivated in taking up paid work. Their alleged reluctance is attributed to the fact that, in terms of income, wages derived from work yield little more than unemployment benefit or other forms of social allowance. Advocates of this view claim that it is vital to cut back on social welfare allowances. Stronger pressure should be exerted on welfare recipients to force them to accept even poorly remunerated jobs irrespective of his or her qualification. If unemployed individuals still refuse to take up work then they will forfeit their entitlement to a social welfare allowance. Notwithstanding the fact that the image of the unemployed as benefactors of a 'golden' or 'social hammock' cannot be confirmed empirically, it is wrong to insinuate that victims of the massive changes in the labour market choose to remain unemployed more or less 'of their own free will'. If the grounds on which an individual can receive social welfare allowances are tied to 'good conduct', then we would be witnessing a major reinterpretation of the definition and understanding of the European welfare state. Social welfare benefits constitute an entitlement and cannot be subjected to a constant threat of revocation and withdrawal. It is wrong to attempt to use unemployed people - victims of the imbalances in contemporary economic development - as a means with which to lessen the pressures in the labour market as a whole.

I have given a brief sketch of these two views in order to show the powerful attacks being launched against the standards achieved in the regulation of employment and the social security system. For instance, the European Commission deplores the fact that, so far, "benefit systems and rigid employment protection legislation have been tackled in only a few" member states. The Commission recommends that wage increases should be maintained largely below the productivity growth rate.

This way of thinking does not regard our extensive employment protection rules and social welfare system as a positive achievement deserving of preservation and safeguarding against the rules of competition and market-driven liberalisation. On the contrary, these instruments are being unjustly branded as somehow acting as a disincentive to work and therefore an obstacle to the creation of more jobs. The deplorable consequence is a call for the removal or at least dilution of employment protection rules and social welfare schemes. As a result, measures of an increasingly disciplinary and authoritarian shape are being implemented - ensuring welfare mutates into workfare, which is anything but fair. Hence, the concept of full employment is being progressively emptied of any social dimension except in one aspect: Being in any kind of job for any kind of payment and very little or no social protection may even be recommended for some of the employed.

There is an increasing tendency among European policymakers to undermine and paralyse the specific social content of the European development pattern. Previously this social dimension to development was proffered as a viable alternative to the American neo-liberal system. This shift in policymaking overlooks the fact that over the past three years social movements and intellectual critics have made important inroads into EU policymaking, the fact that in many European countries social democratic governments have been voted into office, the fact that employment was officially introduced into the European Treaties as a matter of critical concern and the fact that full employment was officially declared a key objective to be pursued throughout the EU.

Neo-liberal austerity, deregulation and privatisation crown an economic philosophy which has been at the heart of policymaking since the Treaty of Maastricht, signed in 1992. This philosophy dominates the latest 'Broad Guidelines of the Economic Policies of the Member States and the Community' (BEPG 2000) and some of the neo-liberal agenda's most pronounced and restrictive features - cuts in public expenditure, low wages, deregulation and removal of social welfare benefits and employment protection - have even been underlined and reinforced in the current BEPG.

In the past, the concept of full employment was embedded in a context of secure jobs, appropriate remuneration, access to social welfare and a high standard of employee rights and protection. In the new context, the concept is becoming subordinated to the demands of profit hungry employers and politicians wishing to get everybody to work regardless of conditions in order to foster overall growth and international competitiveness.

The pursuit of growth is no longer seen as a means to achieving full employment. Growth has become an end in itself for which all available jobs and joint efforts are needed. The term 'full employment' is being excised from any discussion on social policy. It is being shaped and adapted to conform to the needs of absolute growth and to the demands of international competition and profitability. This is the distorted sense in which the term full employment is currently being used. The reasons for the persistency of the neo-liberal option seem to lie in economic interests and power, and no way in intellectual poverty or stubbornness.

Income distribution, as a priority, has undergone a marked shift in favour of profit accumulation. The share of income as a percentage of Gross Domestic Product (GDP), which had been hovering around 74 percent throughout the 1960s and the first part of the 1970s and risen to more than 76 percent during the second half of the 1970s, fell almost continuously during the 1980s and reached a historical low in the past two years, levelling out at 68 percent. It is this shift away from income re-distribution and towards profit accumulation, with the resultant greater income inequality, which has impeded and continues to impede growth and contributes to the rise in the rate of unemployment.

Greater levels of saving is a characteristic of high income households i.e. as real incomes rise, there is a corresponding decrease in relative consumption. Whereas in lower income households, consumption can often outstrip income earned. Non-consumption (relative to the level of income earned) among high income households coupled with the impossibility to 'go for consumption' among lower income households weakens demand and, consequently, lowers the rate of growth. Relative income saturation in one group and unfulfilled desires in the other group co-exist, interrelate and are an key contributory factors cause of stagnant tendencies in the economy.

The challenge is how to create secure, properly paid and satisfying jobs for those who need and wish to work. Certainly this implies a broad process of redistribution of income that allows for the provision of jobs where the quality of life and not merely the quantity of goods and services available is enhanced.

Poverty is unacceptable. At the very least, wealthy societies must ensure that all citizens, regardless of their personal circumstances, have the income necessary to provide for their basic needs. The struggle against poverty and social exclusion has to be one of the core concerns of an alternative economic policy. To fight poverty, the existence of an adequate and non-discriminating welfare system is of paramount importance. Not only should social security systems give priority to focusing on the poor but provisions should be put in place to eradicate poverty permanently.

In principle, this vision can be implemented. Numerous investigations prove that social welfare expenditure is by no means a cost to the economy. The reduction of working time and the increase of workers' living standards, both of which could always only be achieved as a result of fierce fights, went along with increased efficiency and performance . The extra expenditure was thus not only covered, but, seen as a whole, even overcompensated. Social policy is by no means an unproductive cost factor. Even from a purely capitalist-entrepreneurial angle, care for the human labour force will prove a viable undertaking.

The responsibility of governments in the fight against unemployment and poverty rests upon the following twelve pillars:

1. A governmental economic policy which achieves full employment; 
2. A budgetary policy fostering domestic demand and economic growth;
3. A tax policy providing for social equality and distributive justice;
4. An infrastructure policy promoting growth and employment through high levels of public investment;
5. A wage policy ensuring stable demand and separating wage amelioration from productivity and price increases;
6. A working time reduction policy fostering distribution of paid work among more people;
7. An innovative economic policy oriented towards socio-ecological reform in production and consumption;
8. A policy to maintain and improve the public sector, which is an important regulatory tool of economic and employment policies;
9. An equal opportunities policy guaranteeing opportunity for development to all people, irrespective of their sex, nationality and religion;
10. An education policyensuring high levels of continuous training as well as political education;
11. A labour market policy geared towards balancing supply and demand in the labour market through establishing stanadards for qualification and employment and offering special help to disadvantaged people;
12. A social welfare policy forming a hedge against employment risks, caring for those who are not able to work and offering more than minimum security.

I further advocate a more comprehensive and more consistent social dialogue at EU level, enabling broader participation and increased responsibility of the social partners. If it came to such a social dialog, trade unions would be mobilised, in different ways, in different countries, yet always for the sake of a common cause. The three main goals are: return to full employment, reintegration of groups currently excluded from normal employment opportunities, and more comprehensive social protection. Employers might find it useful to renew the social dialogue in this way because it would allow them to negotiate a faster and more effective introduction and implementation of new technologies and organisational changes which will not fail to enhance productive flexibility.

I should like to emphasise that the solidarity of dependent employees - beyond all national borders - is an indispensable prerequisite for driving back the dangerous logic of the neo-liberal economic management. It is becoming common practice that dependent employees are prepared to dispense with certain entitlements if only they are granted a limited exclusion of dismissal and certain investment promises in return. In the framework of the so-called locational competition for work, investments and orders, workers councils are combining efforts with "their" respective company management in an attempt to secure jobs in a struggle against internal or external offerers. What counts here is not the common interests of the employees of all sites as opposed to the employers' interest, but the interests of individual staffs as opposed to that of competing companies. If there is no cross-company and cross-country solidarity of staffs, the companies will win the race, thus implementing cost savings not considered enforceable so far.

I should like to end my lecture by quoting the meaningful and wise words of a German economist:
"An economic system whose indicators of success - i.e. the stock market prices - show a positive reaction when unemployment and poverty are on the increase, is deeply inhumane." (Karl Georg Zinn)

More information:
www. Memo-europe.uni-bremen.de

Alexandra Wagner, Institut Arbeit und Technik (IAT)
Germany