OECD study provokes controversy in Belgium

An OECD country report, issued in April 1997, has recommended drastic changes to the structure and dynamics of Belgium's social and economic life. More flexibility, lower employment costs and less government intervention lie at the core of the OECD's proposals to revitalise the Belgian economy.

A recent study published by the Organisation for Economic Cooperation and Development (OECD) on the Belgian labour market and social climate has recommended drastic changes to the country's institutional and socio-economic structure. The most notable recommendations include a plea for greater flexibility, less government intervention in industrial relations, lower unemployment benefits, abolition of the indexation of pay to consumer prices and easier procedures for recruitment and especially dismissal. In summary, it may be said that the OECD largely advises Belgium to adopt the "American model". This study was to a certain extent reinforced by a report from European Commissioner Yves-Thibault de Silguy who also pleads for higher wage differentials, lower employment costs and greater flexibility. Both studies also stress the importance of low labour costs and high returns on investment.

The Belgian labour market

The OECD report has triggered numerous reactions amongst the social partners, government officials and social scientists. This is not surprising, since a wider debate about the rigidity of the Belgian labour market, the high and enduring number of unemployed people and the failure to create enough new employment has been underway for some time. This debate received renewed impetus in late 1996 following the failure of the social partners to reach a national framework agreement (BE9702101F). The OECD recommendations touch the heart of Belgium's socio-economic system. Some 20 years of both active and passive employment policies have not resulted in significant improvements on the labour market for large groups of the Belgian working population. Belgium has the highest rate of long-term unemployment in the EU; one of the highest rates of youth unemployment; a high level of female unemployment; and it a very slow rate of employment creation. Recent factory closures, such as the Renault Vilvoorde (BE9703102F) case and Forges de Clabecq (BE9702102N), have only added fuel to the fire of the debate concerning these problems. In the light of this, government officials and the social partners seem at last to have come to the stage where the debate centres around the core issues and no longer about marginal changes and adaptations of the current system.

The traditional call by the employers' organisations, VBO/FEB (Federation of Belgian Enterprises), VEV (Flemish Economic Confederation) and UWE (Federation of Walloon Employers) to reduce employment costs to favour more demand-side flexibility - such as numerical, functional and contractual flexibility - is usually met by the retort from the unions that there should be a clear commitment to increase employment.

Two models have been actively promoted as examples for Belgium: the USA model and the Netherlands model. Both are praised for their employment creation, low unemployment and good overall economic performance. However, they are both clearly based on different assumptions about the role of different groups in socio-economic policy-making and the values that underpin labour market decisions. The American model is based largely on market-driven dynamics and minimal government intervention. The Dutch model, by contrast, is embedded in the typical Western European tradition of social negotiations and the importance of social consensus.

Reaction and debate

According to Belgian Prime Minister Jean-Luc Dehaene, it would be a fallacy to adopt the American model indiscriminately. He reacted against the OECD report by claiming that it was an ideological "nuisance" and not a constructive addition to the debate. It is significant that Mr Dehaene expressed his opinion during a speech to the general assembly of the Belgian metalworking industry employers' organisation, Fabrimetal. Fabrimetal is one of the most vocal proponents of greater flexibility and wider wage differentials. The Prime Minister compared the OECD proposals to the situation in the Netherlands where social consensus-building is one of the main pillars of the current long-term policy of employment creation and labour market reform. He stated that "Belgium has to change its model gradually to meet the requirements of the information-age society, based on consensus-building. Therefore it is mandatory that Belgium tries everything to put the model of negotiating over social issues back on the tracks."

Both the ACV/CSC (Confederation of Christian Trade Unions) and the ABVV/FGTB (Belgian General Federation of Labour) have labelled the OECD report as an unacceptable basis for negotiations on the future of employment and socio-economic policy-making in Belgium. According to the unions, the report promotes solutions which "conflict with Belgian society's basic values, and it ignores alternatives". In addition, the unions claim that a solution to the problem cannot be based exclusively on the vision that growth is hindered by social protection, greater social equality and too much state intervention. The discussion has to be broadened to other issues, such as the social responsibility of employers.

Further negative political reactions have come from Hans Bonte, an MP for the Flemish Socialist Party (Socialistische Partij) who called the report an ideological manifesto and useless as a policy plan. Bea Cantillon, MP for the Flemish Christian Democrats (Christelijke Volkspartij) and director of the prestigious Centre for Social Policy, stressed the fact that work redistribution and wage restraint are options neglected by the OECD. She also pointed out that poverty rates have increased in those countries which have implemented the American model.

The VBO/FBE, on the other hand, confirmed that the OECD report is congruent with the recommendations formulated by the Belgian employers for several years. The VBO/FBE, however, also added that the main responsibility for employment creation rests with employers. The government has to create the correct environment to do this, which means primarily reducing rigidities in the Belgian system of pay determination and recruitment and dismissal procedures, and improving working time flexibility and secondary labour conditions (such as fringe benefits, training provisions and health and safety). VBO/FBE points out as well that the Dutch model also incorporates many aspects included in the OECD report which can apparently be implemented in a Western European context that takes into consideration the tradition of social negotiations and consensus building.

Given the rather different performance of the economies of Flanders and Wallonia over the last decade, the debate has also been characterised by a regional twist. The Flemish government and the VEV have pointed out that, if more drastic policies to revitalise the labour market and social agreements are not possible in a Belgian context, they will try to negotiate at the Flemish level. This would contravene tradition in Belgium. Walloon politicians have reacted fiercely against this point of view, stressing the need to keep labour market issues and social agreements on the national agenda.

Commentary

In conclusion, the OECD report has fuelled the ongoing debate about fundamental socio-economic options in Belgium. This debate has slowly but surely acquired a status of urgency based on the enduring character of labour-market related problems in the country and on the fact that past policies have not produced satisfactory results. Given the rather adversarial positions of the social partners, the tone of the debate can hardly be termed "friendly and cooperative". This is in contrast to the Dutch parallel where the social partners have agreed on a framework for job creation and modifications to the labour market and social security system. In addition, it is important to point out that the problems in Belgium have to be understood against the background of a large national debt and the Government's commitment to the Maastricht criteria. This combination leaves little budgetary room for manoeuvre and often restricts the debate to numbers and percentages, with discussions on fundamental issues rarely being held. (Hans Bruyninckx, WAV)

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