Plenary on the theme of Economic Security and Social Rights (Cluster 2)

05 September 2006
Speaking at the Asia-Europe People’s Forum in Helsinki, Susan George stressed the threat to the European social model, a result of generations of struggle, but is threatened by neoliberal policies in the EU and globally. It is impossible for Europe to compete with China and other low-wage, but high-skill, high-tech countries. Asia-Europe relations must be based on cooperation rather than competition if a race to the bottom on wages and social welfare standards is to be avoided.

The organisers of the Asia-Europe People's Forum [AEPF] have asked the keynote speakers at this plenary session to concentrate on key social themes in Europe and Asia including the social consequences of the growth paradigm; to raise the critical issues concerning Asia-Europe business and investment relations; and finally to trace a way forward in building an alternative, people-centred Asia-Europe dynamics. This is a large order, particularly for a twenty-minute presentation and a fairly short paper. Part of the request also requires specialised knowledge I do not possess, which I regret.

I also regret that there is no mention - at least not in this cluster - of the environment or of the consequences to nature of the growth paradigm. Given the paramount importance of this issue for Europe, Asia and the world in general, I will add this at the end to my own list of concerns.

Let me start with the part of the subject I know most about which is where I live, Europe. Neo-liberal policies in Europe have taken hold; they are championed not only by the usual business and financial interests and by national governments, but also and especially by the present European Commission, doubtless the least progressive, most neo-liberal ever - which is saying something! As a direct consequence, Europe's social model is threatened from all sides, national, European and international, and is moving European society towards social dislocation and less wellbeing than in the past.

Measuring the European Social Model

Let me elaborate on this European social model, particularly since it seems fashionable today to claim that it doesn't exist. Europe has a lot of faults and I do not want to discount the role of colonialism and plunder in its present stage of economic and social development. This is not, however, a historical contribution and we are here to talk about the present. In this present, there are objective measures of Europe's achievements, for whatever reasons they may exist. One of these measures is the Economic Security Index [ESI] developed by the International Labour Office. The ILO's index is less well known and more recent, but it is just as robust as the Human Development Index of UNDP if not more so.

The ESI is a valuable tool because it combines seven different kinds of economic security, including income, labour markets, employment, workplace safety, representation, skills, training and so on. The ESI is a composite, weighted-average index of these seven aspects and it shows that European countries - from both East and West - are all among the top thirty countries in the world of 90 countries examined. The Nordics are first, starting with Sweden at 0.977; the United States is no. 25 at 0.612. The first Asian country on the list is Korea [32, 0.545] followed by the Philippines [45, 0.455], China [58, 0.356], Sri Lanka [62, 0.330], Thailand [65, 0.287], India [74, 0.246] Pakistan [84, 0.146], Bangladesh [88, 0.070] and last of all, Nepal, [90, 0.051. Economic-job-income security is clearly not the only kind; but it does contribute hugely to other kinds, like food and health security and can be seen as a genuine measure of human well-being, if not of happiness.

Now let us take another objective measure which often [but not always] correlates with well-being, which is the Gini coefficient, a measure of wealth inequality between 100 and zero in a given society. An index of 100 means one person has all the wealth; zero means absolute equality - everyone has the same amount. In practice, the lowest Gini index in 2004 [that is, the greatest equality] was for Denmark at 24.7 the highest index [the least equality] Namibia at 70.7.

Note that the measure says nothing about how much wealth there is - just how it is shared. All the European countries are ranked in the 20s and 30s. The highest of the European 15 are the UK and Italy at 36 with Portugal at the top [38.5]. The United States is classed by UNDP 40.8 but some other sources put it at 46. Latin America is traditionally highly unequal with scores in the 50s, as are most African countries, although some of the poorest in Africa are in the 60s. What are the coefficients for Asia? By this measure, Japan is, next to Denmark, the most egalitarian country in the world at 24.9. Among the more recent Asian successes, the lowest Gini is Korea at 31.6, that is, a European-like wealth distribution. Sri Lanka, Indonesia and India are also in the 30s, but China, Hong Kong, Singapore, the Philippines, Thailand, Malaysia are in the 40s. There is no hard and fast law, but on the whole, at least above a certain economic level, a more equal country will turn out to be a more prosperous country, with more social rights. This is for the simple reason that many generations of peoples' struggles have brought the more equal countries to the better wealth distribution and the prosperity their citizens now enjoy.

The statistics also tell us, however, that inequality is rising all over the world. UNCTAD has been stressing this point since the late 1990s. Countries where neo-liberal policies are strongest and most pervasive show the greatest increases in inequality [for example the US, UK and also China]. Wealth concentration at the top of society is a marker for neo-liberalism and it is not an accident that the top one percent of Americans have doubled their share of the country's wealth from 8 percent in the 1960s [already very high] to 16 percent today. Brazil is proud on the other hand that during Lula's term as President, it has reduced its Gini coefficient by three points - which it rightly interprets as a sign of the impact of people-centred policy choices. If greater equality is wanted in either Europe or Asia, there is no mystery about the policies one must choose - they necessarily include taxation and redistribution; taken together they are otherwise known as the Welfare State.

Europe: Achievements and Democratic Deficits

Historically, Europe invented the Welfare State and also, much earlier, the Constitution and the notions of political and religious freedom, freedom of opinion, the press, speech ; popular sovereignty, suffrage and so on - not always observed in practice but universally revered in theory. Now the European Union is mostly governed by three highly undemocratic institutions: the Commission, the European Central Bank and the Court of Justice. The parliament has virtually no power - it cannot even introduce legislation, much less levy taxes.

The thoroughly liberal European Commission is doing its best to erode the gains incorporated in the European social model; precisely those aspects which have made the lives of most Europeans easier than the lives of most Asians. The European Constitutional Treaty [ECT], quite rightly rejected by the peoples of France and Holland, was truly a charter for neo-liberalism and [as its architect, Valéry Giscard d'Estaing himself pointed out] would have set economic policies in stone for at least a generation.

The Constitution to Destroy Europe's Model

Allow me to explain why this document - which the Commission is attempting to revive despite the French and Dutch rejections - was truly a "betrayal of social Europe" which we still have a slim chance to preserve. although the window of opportunity is both narrow and rapidly shrinking.

The ECT was not drafted by elected representatives. They could not themselves draft any text but only discuss and amend text submitted to them by Giscard and his immediate assistants; it was enormously long and complex; it could not be amended or invalidated; it "constitutionalised" neo-liberal economic policies. The only other Constitution ever to have spelled out economic policy in such detail is the Stalinist Constitution of 1936, written by the Politburo.

European elites loved it, probably because it got rid of any notion of democracy, popular sovereignty or a government of the people, by the people and for the people. This text made reference to "free and undistorted competition" 24 times, beginning with Article I-3 describing the objectives of the Union. Competition may be a good tool in some cases, at some times and in some national contexts but it is only a tool and cannot be enshrined as a general principle.

Other Articles hammer home again and again the need for free trade, freedom of investment and the primacy of the market-the word "market" recurs 78 times in the text. One might argue that Europe's prosperity and therefore the economic wellbeing of its citizens depends on free circulation of goods, services, capital and people, as the ECT constantly repeats. But when one discovers just how the Commission understands and hopes to implement such "free circulation", one also understands that the wellbeing of citizens has nothing to do with it.

An excellent example is the so-called Bolkestein directive on services which mandates the free circulation within Europe of service suppliers. Before it had to be substantially modified due to public outcry, this directive set out to organise a major contributing factor to social breakdown by prescribing an entirely new legal principle called the "country of origin". According to this principle, a worker from one of the ten newly acceded countries [or even workers from outside the EU with a valid work permit in any of the 25 member States] would be free to work in another European country under the laws obtaining in his or her own country of origin. The receiving country would not even have the right to be informed of the presence of foreign workers on its soil; no declaration to any authorities, including work inspectors, social security or the like was deemed necessary.

Such a measure would mean throwing away more than a half-century of hard-won labour law, as hours, wages, conditions and so on would be determined outside the country where the service was supplied. The authorities of the suppliers country of origin were theoretically supposed to oversee them. The Bolkestein directive was, in other words, an attempt for force Europe into the "race to the bottom".

Why? Because within the European Union of 25, wage differentials may differ by a factor of ten or twelve to one and social protection laws show equally wide variations, particularly between Western Europe and the newly acceded countries. The initial directive, as wary European citizens fortunately discovered, gave capital all the rights and none to labour; it would have brought masses of poor Eastern Europeans, prepared to work at almost any price, into the more developed Western States. Many Europeans remain convinced that the goal was at least partially to break down social cohesion in countries that have achieved some measure of it by making workers' lives even more precarious and subjecting them to the discipline of fear.

Public services are another part of the European social tradition. Such services anywhere are part of the "social wage" and contribute to social cohesion because they are in principle available to all at the same cost or at no cost. The European Constitution showed its neo-liberal colours in its treatment of public services. The ECT makes them explicitly subject to the rules of competition. Government subsidies to public services can be outlawed by the Commission. A decision to consider a national subsidy compatible with the rules of the internal European market must be unanimously approved by all 25 member States: this can only encourage "lowest common denominator" policies. Unanimity is also required in order to harmonise fiscal or social policies, so it is clear that only downward harmonisation can ever be adopted - for the simple reason that low-tax, low-social benefit member States see their fiscal and social policies as a comparative advantage for attracting foreign direct investment and for competing in international markets.

The proposed Constitution contains 448 articles and not one of them calls for anything but tax and social-policy competition. No space is provided to set a European-wide minimum salary or to harmonise salaries upwards, but nothing forbids setting them below the poverty line. That is exactly where they will tend to go under present European leadership. Capital, on the other hand, enjoys complete freedom. Any restriction on capital flows within the Union, or even with regard to non-EU members, must be agreed unanimously.

Proof that official Europe is promoting purely neo-liberal policies and has no intention of replacing them with more "people-centred" ones is to be found in its recent incorporation of the ten newcomer countries which are at very much lower levels of economic development than the fifteen Western European members. The EU has none of the vital financial means to integrate these countries [or to pay for the welfare of Europeans who are now 450 million]. When there are no common, social resources, then the only force left is the market. The market "solution" is precisely what the Commission and most governments want to promote. Meanwhile, the ability of individual member States to provide for social measures within their national borders is being steadily eroded by EU policy. Let us look briefly at what elements would be required to bring Eastern European countries quickly up to Western levels and to provide all 450 million Europeans with social protection and economic wellbeing.

What we would need: A short list

A realistic budget: Europe's budget is limited to 1.04 percent of GDP. Even the United States, not noted for its social generosity, spends 20 of the Federal budget [and the States spend a great deal more] on the wellbeing of citizens.

Taxes: Unlike most normal parliaments, the European parliament has no power to levy taxes. Even a one percent tax on corporate profits would go some way to rectifying this situation, but this would probably be forbidden by the constant insistence on the "freedom of capital" to do as it pleases.

A Central Bank under political supervision and with a broader mandate: Unlike virtually any other Central Bank in the world, with the possible exception of New Zealand's, the European Central Bank is completely independent of any political control and its chief is appointed for nine years. The Bank's only mandate is to control inflation [by raising interest rates]. According to many reputable economists, it has at times raised interest rates without any economic justification, without a sign of inflation in sight. This Bank is not required to worry about economic expansion, full employment or any other policy which would increase the wellbeing of ordinary citizens. High interest rates and zero inflation do, however, satisfy the desires of shareholders and rentiers.

A capacity to borrow: Every country in the world is able to issue bonds. These bonds may be more or less risky, of greater or lesser value, but the right of the governments in question to issue them is not in doubt. The European Union cannot borrow, even though, considering its economic standing, its bonds would undoubtedly be rated triple AAA - that is, of top investment grade. How, then, does it plan to improve and integrate its infrastructure, invest in research and higher education [which the "Lisbon Strategy" claims is indispensable for its future]; put in place Europe-wide clean energy and environmental policies or carry out any other indispensable projects?

A monetary policy geared toward economic expansion : Here again, as with the mandate of the Central Bank, the "Stability and Growth Pact" is narrowly conceived, interested only in punishing member countries whose rate of inflation or accumulated debt is judged by the neo-liberal Commission to be getting out of hand. This is T-Shirt Europe: One size fits all.

A decent solidarity fund for the newly acceded countries: This is not slated to happen either [no budget, no borrowing] and the ten newcomers will be kept for the foreseeable future as reservoirs of cheap labour and good places to delocalise industry so as to push down wages everywhere. The 10 new countries will not get the same treatment as previous arrivals, including Spain. Forty percent of the already insufficient budget is still spent on the Common Agricultural Policy, mostly to provide extra income for the richest farmers.

A Eurogroup with some political courage : Theoretically, the Eurogroup, made up of the finance ministers of the twelve Euro countries, could alleviate some of these deficiencies-it could, if it wanted to, launch bonds and adopt common infrastructure policies; it would take a major political fight but it could also, probably, instate taxes on corporations and on capital flows. No signs of any such thing are visible.

Europe also needs a complete democratic overhaul with more power to the Parliament, a possibility of citizen-initiated referendum, the possibility for legislative proposals coming from national parliaments or individual parliamentarians, an elected Commission and many other changes.

Trade: A Contentious Subject for the AEPF

In the AEPF, we must come to terms with the problem of the European model, particularly as it relates to trade because whether we like it or not, Europe is going to find itself in fierce competition with Asia, particularly but not exclusively with China. Because of our individual European governments' policies and those of the European Commission, our public services are under threat. Through trade agreements, the EU is attempting to force similar policies on other countries. The "Doha Round" at the WTO collapsed at the end of July - a welcome development in itself - but is likely to return perhaps after the mid-term elections in the United States in November. As I write, the ten-nation ASEAN group has called for the talks to resume. The conduct and content of these negotiations thus remains relevant.

In the WTO services negotiations, for example, EU Trade Commissioners [first Lamy, then Mandelson] have attempted to pry open markets everywhere. Their demands, at the WTO as well as in bilateral or regional trade agreements are models of neo-liberalism, particularly as regards the opening of the entire spectrum of services, including public services. They have fought especially for complete freedom of investment and have targeted among others mid-level Asian countries. Europe wants no limits, such as a 49% ceiling on foreign ownership, no requirements for joint ventures, local employment or local content rules, no quotas on the number of investors in a given sector or "economic needs tests" to determine how much investment country X actually needs in sector Y and so on.

The goal is a completely free hand for European transnational corporations and services are a priority for European lobbies like the European Services Forum and the UNICE [employer's union]. Europe has also been extremely aggressive in the area WTO calls 'NAMA', for Non-Agricultural Market Access. Here, EU negotiators are trying to obtain steep tariff cuts from mid-level developing countries in all industrial areas as well as forest, fishery and mining products. The internal European fight about agriculture versus services and industrial goods which is preventing the WTO talks from advancing will sooner or later be resolved in favour of the latter, because agriculture represents a small part of Europe's GDP.

As Asia develops, it should, normally, move towards greater equality. It should have more rather than fewer public services, which play a large part in the wellbeing of citizens. In societies where public services are of low quality or entirely absent, inequalities are necessarily higher and the "social wage" is reduced. From the European point of view, added wealth should also encourage Asian countries to follow the path of higher wages, shorter hours, more holidays and so on - in other words, allow workers to share significantly in productivity gains. This does not seem at all to be the way things are moving, especially in China. Again, I am viewing this situation from the European perspective. We are being told here that we can and must "compete with Asia", especially in up-market or high-tech goods.

But the situation we confront today is, increasingly, one which has never before occurred in human history. Previously, less developed, low-wage societies produced goods further down the value-added chain - for example they would move from primary commodities to semi-processed goods to textiles and footwear, then to small manufactures and so on. As recently as the mid-twentieth century, this was the pattern in the "NIC" countries like Korea and Taiwan. High-tech goods were left to the high-wage, high education-level countries.

Offshore Innovation: New Trends in Research and Development

Now however, corporate research and development money, much of it from Europe, is pouring into Asia as the most recent United Nations World Investment Report makes clear. As this report notes, China and India have been the main beneficiaries of this trend [of investment in R & D]. Of the 885 R & D -oriented greenfield FDI projects announced in the region [Asia and Oceania] in 2002-2004, three-fourths [723] were concentrated in these two large economies. In China some 700 affiliate R & D centres had been established by the end of 2004 . In India, more than 100 TNCs have established R & D least 16 other Asian economies received R & D-oriented FDI...Hong Kong, Malaysia, the Philippines, Korea, Singapore, Taiwan and Thailand frequently appear on the radar screen of TNCs.

The Finnish company Nokia has five research centres in Chinese cities, including Beijing, Shanghai and Hangzhou [with nearly 900 scientists-engineers employed in these three centres alone]. Many electronics, pharmaceutical, biotech and software firms have established large research centres in Asia but so have automotive and chemical industries, and they are closely integrated not just with Asian markets but with the TNC's "global innovation networks and thereby target global markets", according to the World Investment Report.

The classic rules of free trade were established in 1817 by David Ricardo, the father of the well-known doctrine of comparative advantage - each country has an interest in specialising in what it can produce most efficiently. Our EU leaders are champions of the orthodox 19th century view: Yes, they agree, some EU jobs will be lost either because of cheap imports or because factories are delocalising to cheap labour countries. However, they continue to argue that most of this work is labour-intensive and lower-skilled and can be done more efficiently in places like India and China; which, in return, will buy more of our high-value goods because we will maintain our comparative advantage for these goods.

Comparative versus Absolute Advantage

What they do not mention is that - according to Ricardo in 1817 - what he called the "iron law of wages" is brought into play in conditions of free trade. Wages tend to be reduced to subsistence levels when many workers living in societies at very different levels of social development are placed in competition with each other. This is already the case between Western and Eastern Europe. But when Asia, especially the huge economies of China and India, have just as much skill and knowledge as Europe in the high-tech, high-value sectors and are spurred on by huge foreign investment in R & D; when they combine this with extremely low wages and low social protection - then what? We are in an entirely new and unknown dimension. Comparative advantage in the classic sense is dead. Only absolute advantage remains - that is, we are placing not products but whole social systems in competition with each other. China has not only low wages, but a reserve labour army running to the hundreds of millions, twelve hour work days, no trade unions, highly educated personnel prepared to work long hours and weekends with few days off. It also has a dismal environmental record, about which more in a moment.

European leaders who tell us that the EU needs to accept open markets, labour flexibility and deregulation [i.e. getting rid of social advantages] in order to compete with Asia, is simply pretending we can do the impossible while lying to its people. At last the capitalist class, working through the European institutions which have been tailored to meet its needs, sees its opportunity for revenge against the gains of European workers over the past century. China and other low-wage, but high-skill, high-tech countries pose an entirely new threat to Europeans and can bring about not merely the economic but the social destruction of Europe as well.

It may seem that I am alarmist and overstating the case. It is true that Europe's exports are overwhelmingly to Europe itself [74%]; with only 7.5% of its exports going to Asia. On the import side, 72 % come from one European country to another and just 12 % from Asia.

Naturally the Chinese and Indian markets are also growing and will take some more European goods. However, both these economies are large enough to envisage self-sufficiency in many sectors. This is an areas which forums like the AEPF must discuss openly and frankly so that we can arrive at solutions which will allow the Europeans to retain and improve their own social model while still helping Asians to develop theirs. We should not exclude any possibilities a priori, not even that of posing labour or ecological conditions for imports. Since a great many of these are manufactured by non-Asian, often European transnational corporations, some people are proposing "site here to sell here" rules which would refuse the goods TNCs that offshore their production in this way. And we in Europe should listen to our Asian friends' advice on how we might advance together through cooperation rather than competition which will end by making all of us losers - unless of course we are top managers and TNC shareholders.

The Environmental Dilemma

Finally, please allow me a word about the ecological crisis and why Asia's growth terrifies Europeans - or ought to.

China is now the second largest contributor in the world to greenhouse gas emissions, following the United States. Although Chinese authorities lately seem to have become alarmed about the environmental situation, the general attitude seems to be "We need to develop economically, you did it this way, we are going to do it this way too, and we have every right to do so." This is rather like saying "We will go to the twenty-first century via the nineteenth". A quick visit to a site specialising in daily international environmental news turns up items like these: Overfishing and pollution are killing the East China sea [this from an official Chinese news source], China is experiencing the worst drought in 50 years, millions lack clean drinking water and the Yangtze is at its lowest level in a hundred years; sulphur dioxide emissions have increased by 27 percent since 2000, growth of energy consumption continues [a lot of it coming from particularly dirty coal]; a quarter of China's landmass is already classed as desert and the deserts are advancing - etc. etc.

The problem is that local managers are given development targets which they must meet or lose their jobs. Other items are more encouraging: China may be moving towards a fuel tax; the head of the State Environmental Protection Administration says that the "the central leadership is treating reductions in energy use and major pollutant emissions as two major hard targets [and setting] red lines that can't be crossed". For the moment, however, growth and a perverse development model prevail. People want cars, they want what Westerners have, and they want it now.

As for the rest of Asia, we know that the region has more typhoons than any other and these are growing in frequency and intensity with global warming. The Bay of Bengal and the coast of Bangladesh will be especially hard hit. Islands and low-lying coasts [as in Bangladesh and India] risk being submerged as global warming continues and sea-levels rise; species extinction proceeds apace, with ten percent of India's 15.000 higher plant species threatened. Bad news is everywhere, everyone knows it and no one is doing enough about it. Here is an area where, it seems to me, AEPF could call for European-Asian cooperation - on alternative energies, pollution control and so on. Both the know-how and the need are there. If we wait for the United States, we risk waiting forever.

A Brief Conclusion

I have argued elsewhere that the European model could and should become an alternative paradigm for the world in general. The American neo-liberal model is brutal, creating a few big winners and a lot of losers and placing all aspects of human existence in the marketplace. The Chinese model seems to me to combine the worst features of capitalism and of communism. Europe, despite its many failings and large-scale disasters [world wars, the Shoah, fascism, the gulag, etc. etc.] has now been at peace for sixty years - no small achievement considering its history. It has enough people, money, knowledge, culture; it has an existing social model to propose. Its officials are hell-bent on imitating the United States, but citizens are resisting neo-liberalism as best they can. They still have a chance to win.

I believe that Asians, along with their famous work ethic and many other virtues, want the same things as Europeans [we see this in France with second-generation Chinese, for example] - they want better wages and working conditions, full employment, quality public services including good schoos and health care, a decent environment in which to raise their children, more leisure time for family and friends... This is what the European model is about and there is no intrinsic reason it should be confined to Europe.

The way for them to have such a life is to prevent their leadership from following the exclusively neo-liberal path which will always result in a few winners and many losers. We saw Asian organisations, particularly of farmers and fishermen, fighting for such goals in Hong Kong at the WTO negotiations and were hugely impressed with their toughness and courage. Together we need to create many occasions and seize the opportunity the AEPF provides, in order to discuss how Europeans and Asians can cooperate rather than accepting competition as a way of life.