European Affairs

Summer 2005

 

Cover Story:

EU Economic Reforms Can Also Further Social Justice

By Peter Mandelson

 

Europe today faces a deep crisis of direction and legitimacy. There have been many such crises before, and doubtless there will be more in the future. For make no mistake - Europe does have a future. I believe profoundly that Europe, having solved the problem of the European civil wars of the 20th century, is a large part of the solution to many of the challenges of the 21st century.

But after the French and Dutch votes, Europe doesn't feel it is the bold solution now. The rejection of the constitutional treaty poses pro-Europeans with a profound problem. There were multifarious motives for the "No," but the message is stark. Partly it was a domestic protest vote. But people are disenchanted with the European Union. They are confused about its direction or they think it is speeding ahead too fast in the wrong one. They feel it lacks connection with their real concerns.

Europe presents too many visible targets to its enemies: from the failure of Members of the European Parliament
to control their expenses - despite the sterling efforts of many MEPs - to a culture of over prescriptive regulation - which the new Commission is at long last attempting to tackle. This produces a vicious circle in which national politicians, claiming to be pro-Europeans, make populist attacks on Brussels, just as past leaders in the UK have done, which only nurture public alienation.

This is the trap French President Jacques Chirac fell into. If political leaders are to persuade their electorates to support the idea of Europe, they have to explain clearly why, despite the inevitable frustrations of working together in a collective of 25 countries through the machinery of Brussels, Europe is a good thing from which we gain many benefits.

The decisive "No" vote amongst the younger generation in France was distressing. The old European project of "an end to war" has inevitably lost resonance. The freedoms Europe offers - democracy and human rights across our continent, the freedom to travel, study, work and settle in different European countries - are taken for granted. They should not be. We are only 15 years from the end of the Soviet Union, and much closer still to the horrors of the former Yugoslavia. We must beware of amnesia.

The constitutional treaty itself is not the real problem. The treaty's institutional reforms would make the European Union more effective, transparent and accountable. Europe would be mad to scrap a painfully established consensus. The aim must be that in future, popular support could be mobilized to implement those reforms, perhaps in a different form, but without seeking to bypass the people's will.

The real problem in Europe is that there is no consensus about what Europe is for and where it is going. The European project is today under sharp attack from a populism of the Right that blames foreigners for every woe, and a populism of the Left that feeds on fear of globalization, Anglo-Saxon "liberalism," job losses and "delocalization." This phenomenon is widespread, not only in France, but also in the Netherlands and all across Europe, including Britain.

On the Continent, the progressive center ground in which the idea of Europe has always been rooted, is damaged and weakened in several countries by poor economic performance. How to marry economic dynamism successfully with security and social justice is the central political challenge for politicians seeking to build a European consensus in the globalized post-war world. For a decade or more the answer has eluded some of the biggest economies in Europe. And the issues do not get easier as all Europe faces the double challenge of an aging society and intensifying global competition, especially with the rise of Asia.

Europe must press ahead with painful economic reforms. But reform is for a purpose: not to Americanize Europe but to make our European model of society sustainable for generations to come. Essentially we need a new social consensus for economic reform, based on a social justice argument, which is capable of uniting mainstream opinion in France and Germany as well as in Britain and the Netherlands and the rest of the 25-nation European Union.

Those both in Britain and on the Continent who believe that there is a fundamental and irreconcilable difference between an "Anglo-Saxon" model and the continental view create in my view a false antithesis. Our vision of the society we want to live in is close. Where we differ is in our understanding of the fundamental need to accept change and reform.

"The real problem is that there is no consensus about what Europe is for and where it is going"

Europe cannot stop the world and get off. Take China's emergence as a world economic power. I do not want to stoke fears about China. Rather the reverse. I want Europe to rise to the challenge of accommodating a new China as a constructive partner, not a deadly rival. China is only a proxy for what is happening on a wider scale in Asia and South America - and some day hopefully in Africa and the Middle East, when those regions are able to participate in the benefits of globalization.

Profound economic challenges lie ahead for Europe. The issues we face in surging imports of Chinese textiles today will affect other sectors tomorrow. Intensifying competition exists in all the traditional industrial sectors: footwear, machine tools, consumer electronics, and cars. The impact will be severe, not just in France and southern Europe where the loudest of demands for action in textiles have been heard, but across the European Union as a whole.

"The old European social model was a great achievement,
but it is flawed"

Of course the temptation is to cry foul. To denounce competition as unfair; to complain of artificial exchange rates; to protest that goods are being sold below long run sustainable costs; and to argue that wage levels reflect forced labor and the absence of trade union rights. As the responsible political authorities in Europe, the Commission and the member states have a duty to listen to these arguments, not dismiss them as a fantasy, and be prepared to act where a well-founded case can be made.

But let us not deceive ourselves and refuse to face realities. Europe is faced with a fundamental choice of directions. One way we sink into protectionism and populism - and if we make that choice, we really will sink. Because by putting up barriers between ourselves and world markets, we may save jobs in the short term but only to ensure that our industries are globally uncompetitive in the longer term.

The only alternative is the difficult and painful task of reform and modernization. To prioritize growth and jobs is not a neo-liberal obsession. Yes, it involves difficult economic reforms, affecting many vested interests as well as people's livelihoods. Yes, it demands of us to press ahead with opening markets in Europe, in order to provide European business with a vibrant economic base on which it can compete in the rest of the world. But the thrust is reform for a purpose: to make our European model of society sustainable for generations to come. No wealth, no opportunity. No opportunity, no progress.

The failure of economic reformers has been in not offering a positive vision within which the short term pain can at least be understandable, even when it still hurts. In the past we have tended to stress the inevitability of globalization in the world, and of deepening economic integration in Europe. But globalization is not a tide that we should simply let flow over us. We have to make the case that we can marry globalization with social justice; that we can open markets in Europe and pursue economic reforms in a way that narrows, not widens, the gap between winners and losers. Globalization is not a zero sum game, certainly not for politicians with progressive values.

The old European social model was a great achievement, but it is flawed. In most European countries, it was built around the protection of existing jobs - through legal rights and collective bargaining. These arrangements worked well in an era of slower economic change, when employers could manage any need for job losses and redundancies smoothly over a long period. Today in a more rapidly changing world, firms have to be faster on their feet. Today's innovation may be overtaken by tomorrow's new technology or new market demands. This is why our existing job protection arrangements, which put emphasis on preserving the status quo, deter new investment in Europe.

To extend the legal protection of jobs would also offend against the requirements of social justice, because it would accentuate a great divide between the lucky insiders who have protected jobs and the unlucky outsiders who are unemployed. Look how many young people are unemployed in France and ask why so many of them see Europe as the unwelcome agent of a job-destroying globalization. A new social model for Europe has to break down this insider/outsider distinction country by country, according to their different circumstances, but at the same time offer new forms of security and opportunity for all, at all stages of the life cycle.

The challenge today is to equip every citizen of Europe, from whatever social background, nationality, color or religion, to fulfill their own individual potential in a rapidly changing world. The essence of our European cultural and religious tradition is this recognition of the uniqueness and equal worth of the individual. We then combine this essential insight of the Enlightenment with recognition of the need for a strong society, particularly in both the social catholic and social democratic traditions, to enable the individual to achieve fulfillment within a stable social framework.

The situation today is that these essential insights of our Europeanness remain valid. But the collective institutions and systems we built in the last century to underpin them have outlived their time - in particular, social consensus corporatism, the social insurance welfare state and centralized universal public services that played such a crucial role in the era of mass industrial society.

The ends remain-but the means require modernization and reform. We need new approaches and new institutions to tackle the new social challenges of extending opportunity throughout the lifecycle.

"Addressing the needs of the 'losers' in Europe is essential if Europe is to proceed with enlargement"

These include tackling inherited disadvantage by investing in the social support and education of young children and their mothers; providing high standards of schooling in ethnically diverse and socially fractured communities; promoting skills and lifelong learning for those who missed out at school; reaching for world class standards of excellence in higher education and research; opening access to retraining and help with adjustment for the victims of economic change; helping older workers reintegrate into the labor market and abolishing the traditional concept of retirement; integrating migrants and minority groups more successfully than we have so far succeeded in doing into our local communities. These are examples of the common challenges a modern social model should be addressing.

Some people will ask what all this has to do with Europe. Are not these in essence national questions for each member state to solve? Yes, they are in the main. Welfare systems and labor market policies are country specific, and so should be reform policies. Creating a modern social model for Europe is not a question of harmonizing employment law and social standards. But there is an indispensable European dimension to national reform policies. Establishing greater consensus on how we make economic change acceptable is the key to faster economic reform, member state by member state, from which we all benefit.

And addressing the needs of the "losers" in Europe is essential if Europe is to proceed with enlargement. I believe in enlargement as a means of extending democracy, human rights and our values to a wider Europe. But there will be no consent for enlargement to the Balkans, Turkey and beyond, unless we first address the problems of the "losers" back home.

On economic reform, Europe's policy makers know what needs to be done; the problem is summoning the political will to do it. The policy is all there in Commission President Jose Manuel Barroso's Growth and Jobs Strategy: a crackdown on abuses of competition; enforcement of EU single market laws; a revised services directive; opening up public procurement; reform of state aids; thoroughgoing regulatory reform. But to develop a new social model, we now need an open debate. It will not work if advocates of the old Social Europe simply continue as before, regardless of globalization. It will not work if economic reformers appear to think that acceptance of globalization is all that matters, regardless of the social action needed to make it work for all. Economic reformers need to adopt both a new language and a new set of priorities.

A new consensus can be found in Europe. There is massive public discontent, but also a realization that things cannot simply go on as before. One thing the so-called elites need to learn from the French and Dutch referendums is that we must stop pretending that the answers to the problems lie in yet more treaties, charters or institutional tinkering. Treaties are needed to set a framework of cooperation and oil its machinery. But only policies, not treaties or eurotheology, can address the core issues.

Peter Mandelson has been European Commissioner for Trade since 2004. He was previously a leading Labour Party politician in Britain, where his posts included Secretary of State for Northern Ireland and Secretary of State for Trade and Industry. He has been a close political adviser to Prime Minister Tony Blair. This article is adapted from the Fabian Lecture delivered by Mr. Mandelson at Canary Wharf, London, on 13 June 2005.