Foundation Forum 2009 - Reflections on the recession

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Social partnership in good and bad times

Social partnership has served Europe well in the past recessions and can demonstrate its value again in this crisis if the partners work together on common interests and negotiate and compromise on divided interests. This should be an opportunity for social dialogue and joint responsibility - for strengthening constructive collective bargaining at all levels. Research and development funds should be used to develop new programmes which address and resolve the competing demands of older and young workers through training and re-training and other innovative labour policies.

This recession presents challenges rather than opportunities; the opportunity here is to harness and strengthen the European Social Model so that it can face the challenge of addressing the multifaceted problems and competing claims of its stakeholders to provide improving working and living conditions for the citizens of Europe. Overall, it has proved itself during periods of sustained growth and stability; now it needs to demonstrate that it can sustain Europe on the slow road to recovery ahead.

Approaches to pension reform

Improved health care and the extension of life expectancy can give rise to the proposition that people should be contributing to their pensions for longer. Opinion is divided on pension reform. Is it a financial expedient rather that a solution in difficult times? Is it illusory to expect people to continue to work when they have reached retirement age? And if they continue to work, are they not depriving the young of jobs and a foothold on the job ladder? There is scope to look at ways of offering shorter working time to older people through collective agreements, which will free up jobs for the young. Equally, with an ageing workforce and high rates of youth unemployment, are current and future pension provisions sustainable? In the context of financial turmoil these hard issues need to be addressed.

Governance in the financial sector

A clear thread of the debate is the widespread belief that the financial sector is largely responsible for the crisis, on a global scale. The failure of corporate governance of the sector must be addressed. Reform and proper regulation of the financial institutions is an imperative. There is also a view that financial institutions are no longer playing a productive role in the economy. The future of the economy relies on banks to lend money, if they are no longer lending, they are not fulfilling their role in the economy. In addition, the perception is that the crisis started in the financial sector and, therefore, its pay and structures, not the public sector, need to be examined.

Classical entrepreneurs have been replaced by a new breed of managers who are shifting productive investment to financial speculation. Interventions suggested that regulation of the financial sector has to be tackled as a matter of urgency. All the elements of the financial sector, which is perceived as largely responsible for this crisis, are still in place; banks and hedge funds are still operating and setting their own rates of pay.

The debate opened on whether politicians should lead by example and take pay cuts, which developed into a broader discussion on the public sector cuts. Marian Harkin, MEP, said that perception about politicians’ pay is hugely important at a time when cuts are being made in vital public services. On that basis, politicians and higher paid members of the public sector should take pay cuts.

Paula Clancy, Director, TASC said, ‘there are economic arguments for and against cuts, but there are also democratic issues at stake.’ She moved the focus of the debate from cuts in public pay onto the financial sector. National economies are ‘being pressurised by bond-holders, avoiding their displeasure and accepting their measures,’ according to Clancy. She endorsed financial analyst, Domini’s prescription that it is now time ‘to rewrite the financial rules’.

According to Amy Domini, financial companies are about moving money, not about helping society. However it is ‘business as usual on Wall Street’. There has not been debate about this in the US or any serious addressing of the problem. She advocated financial reform rather than legislation as a more effective means of addressing the issue.

Conny Reuter, Secretary General of SOLIDAR said that the question is not what politicians are paid, but what they deliver and it would be a mistake to endorse a populist call for a cut in politicians’ pay. This contrasted sharply with the scrutiny under which the public service has been placed. He noted that it is ‘workers who always pay’ and they pay for the public service. He suggested a new approach is needed, otherwise lowering of working conditions, driven by competition, will cause a downward spiral. ‘We need to rethink the dogma and ask ourselves what the value of that service is, whether it is a private or public service? Market mechanisms are not the only effective way of regulating the market.’

Systemic problems or cyclical headaches?

Despite the widespread concern about the financial sector, there was no general agreement that the crisis is systemic. Jørgen Rønnest, Chair of the Social Affairs Committee, BusinessEurope, rejected the concept that dealing with the crisis as a systemic problem is the correct approach. He said that many of the problems pre-dated the crisis and solutions should be found at company and sectoral level. He warned against over-regulation of companies.

In the aviation industry there is one common factor in the current climate – no airlines are doing well, they are taking the brunt in a cyclical industry and ‘no business as usual on Main Street,’ according to Niamh McCarthy, Head of EU Competition and Regulatory Law at British Airways. There are expected to be 35,000 job losses in the industry. What are needed are serious structural changes, according to McCarthy. British Airways has been forced to reduce the number of flights and routes. In doing so, it has found that there was a demand for part-time working which had not previously been met. Her prescription for the crisis is that meeting the challenge is going to be ‘around working smarter and negotiating with trade unions.’

Recent statistics on workplace related disease show that the incidence of stress-related and muscle disorders are increasing. In the current crisis, due to major restructuring in companies, the Finnish Institute has researched the ‘survivors’ of restructuring and the indications are that there is a considerable amount of unreported illness, as workers fight to keep their jobs. This has a knock-on effect on industry, as illness (and indeed death) of workers is an expensive loss.

Judith Kirton-Darling, Policy Advisor, European Metalworkers’ Federation, cited the example of the metal sector, which she characterised as being in the eye of a storm in this crisis. Companies in that sector face huge challenges relating to scale and depth. In these circumstances, she suggested that a shift from the shareholder model of industrial companies, which has dictated how they are structured, is needed.

There needs to be further harmonisation of social partnership in European industry to face the current crisis. Recently, from a structural point of view, Ford and General Motors, in Germany, faced the same difficulties. Social dialogue at company level and effective European Works Council action played an important part in coping with changes in Ford in Germany. Meanwhile, General Motors did not react or anticipate change in time and have suffered accordingly. However, jobs in Ford were lost in Spain because short-term working schemes could not be applied there.

What is clear is that the days of rapid growth in traditional industries will not return in the foreseeable future in Europe. China is up-scaling at an incredible rate and the competition Europe faces from emerging markets is likely to intensify. This may point to the need to focus on niche areas and on what Europe does well. It may be an opportunity to build up activity in high value and green products.

Afterword

Current data from the European Restructuring Monitor (ERM) shows that EU Member States will have to deal with the fallout of the recession for quite some time to come. The European Union emerged from recession in the third quarter of 2009 but growth remains weak at +0.3% across all EU27 Member States. All Member States continue to suffer the effects and aftershocks of the recent severe recession. Unemployment notably continues to rise and its pace of increase has accelerated in the most recent quarter to reach the highest levels in over a decade. ‘Though they are, on the whole, more positive than in recent quarters, macroeconomic indicators in the EU continue to send mixed messages,’ says Donald Storrie of Eurofound’s Employment and Competitiveness unit. “On the one hand, there are clear signs of recovery, albeit one that is slow and potentially vulnerable. On the other hand, labour markets continue to suffer and unemployment is unlikely to peak before the second half of 2010.’

 

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