The OECD Observer
January 1999, No. 215

 

International Labour and Co-operation
Remarks by Poul Nyrup Rasmussen, Prime Minister of Denmark

 

Trade Union Advisory Committee, 50th Anniversary Seminar Paris, 20 November 1998

Mr. President, Deputy Secretary-General, Ladies and Gentlemen, I am so delighted to be here, not just for nostalgic reasons, but also to assure you that even if one changes one’s job one does not forget lessons learned, friendships made and why we are here.

There are good reasons to celebrate this 50th anniversary of TUAC. It is important that international trade-union organisations formulate high quality policy advice and develop high quality arguments, and direct both to the highest possible level. This is TUAC’s primary mission. In today’s world, it is not only the level of noise you make that counts, but also the quality of the arguments you present.

One of TUAC’s important roles is to be a watchdog and source of inspiration and, as such, to make sure that policy-makers and economists do not forget society’s most important challenge, namely to improve living conditions for all citizens and to encourage job creation, to maximise wealth and to minimise unemployment. To that end, TUAC has historically made important—very important—contributions to the way we all think about economic policy.

Not that long ago, at the beginning of the 1980s, I took part in TUAC’s work as Chairman of the Working Group on Economic Policy. During that period, I also chaired a working party which produced a report entitled ‘It pays to co-operate’. Now, everybody can agree with that on a theoretical level, but when it comes to the points and the arguments, we had some difficulty. Imagine the situation. It was in the aftermath of the two oil price shocks—which had had dramatic effects on all OECD countries. We saw an explosion in unemployment. Millions lost their jobs and their self-esteem and were unable to make their contribution to the development of our societies. As a matter of fact, it was at that point that the concept of long-term unemployment was born. Many of those who lost their jobs never regained them.

The effects linger. One major reason why we have such high unemployment in Europe and elsewhere in the world today is the lack of a co-ordinated response by governments to the two oil price shocks. At that time, the question we asked was, how can we avoid fuelling high and rising unemployment?

Our answer was clear. Countries should avoid rather than pursue national strategies that push their problems onto neighbouring countries. That was a recipe for failure. In 1974 and 1979, each country had a national strategy and did not look at what its neighbours were doing. What we saw, especially after 1979, was a series of uncoordinated, mutually reinforcing budget reductions. I think we should take that as a lesson about how not to react to shocks. Our working group’s report says that there is ‘no excuse for lack of action’. We meant that the governments should begin stronger co-ordination of policy as soon as possible.

Since then our thinking has been refined, but the basic message remains the same—it pays to co-operate. And yet there are not that many examples of success. But let me mention one. Our work in Paris, I feel, played a part in the process which led to the creation of the internal market, which strengthened the European Union. Today, with the Amsterdam Treaty, we have a powerful instrument for intensifying co-operation on job creation. The moment is promising because we are beginning to create the tools we need. The challenge is to use those tools to exchange information, to learn from best practices, to plan the timing of our policy responses carefully—in short to co-ordinate better.

The European Commission has made a very interesting analysis of Europe as an economic entity. The main point is that around 90% of its economic activity is internal. Looking at the Union in this way makes it clear that the degree of freedom to create jobs without damaging the balance of payments is much higher than we believed it to be, and our ability to counteract international shocks is much greater than we realised.

Two lessons can be drawn from this year’s discussions of the international financial crisis. First, given the fiscal consolidation which we have undertaken to prepare ourselves for EMU, Europe is better prepared to withstand a crisis. Second, it is paramount that we do not react as we sometimes did in the past. We must avoid sudden cutbacks in our economies which could unleash a mutually reinforcing depression.

The economic history of the post-war era clearly demonstrates that when we do the right things together we succeed. When we do the wrong things, and act on our own, we fail miserably. But what is the right thing to do together. I, together with the international labour movement have always argued for strong co-ordination among governments in partnership with a strong, co-ordinated labour movement. An inclusive society and a wealthy society are not opposites. Far from it, in fact.

I have always argued that social protection, competitive strength and dynamism are mutually-reinforcing. Giving each individual a sense of security must, as I see it, go hand in hand with globalisation and increased trade. I am not arguing theoretically. My own country stands in evidence. We have high social protection, high labour force participation rates for both men and women and low unemployment, all at the same time.

People will move provided they don’t risk everything. This is important because we are now asking workers to prepare to change their jobs eight to ten times over their working life.

Social protection and active education policy in our member countries are the best ways to equip wage earners to accept change. This model is capable of generating high employment with low inflation and durable growth. What we must focus on in the era of globalisation is a knowledge-based strategy, not a low wage one. In Denmark we have found that an active employment policy focused on a range of initiatives from education to efficient and responsible policies for the unemployed is the right path.

My final point will be this. Even in the era of globalisation policies do matter and they do have an effect. There is a choice to be made. I hope that Europe will not develop into a fortress Europe, but will use its dynamism to produce good co-operation with all the regions in the world. Fortunately, regional integration has gone hand in hand with strengthened global co-operation.

Less-developed countries must be fully integrated into the global trading system. The argument here is that it is a ‘plus-sum game’. We have experienced it in Europe. For the applicant countries membership of the European Union is not a zero-sum game. We redistribute wealth. Therefore, it is also to the benefit of all to have the less developed countries fully integrated into the world economy. I look forward to seeing ‘it pays to co-operate’ become the leitmotiv of the next century.