EC: SUBSISTENCE FOR THE IDLE WILL NOT HELP THE EC'S WORKLESS. - Investment will go where workers will take whatever comes.

by Peter Wilsher is a freelance consultant and writer.
Last Updated: 31 Aug 2010

Investment will go where workers will take whatever comes.

During France's spring election campaign, the veteran Socialist leader and former prime minister, Michel Rocard, was passionately expounding his plan to cure the country's soaring unemployment. The dole queues, at the time, had stretched to include around 10% of the adult (or voting) workforce as they have done - give or take a point or two - throughout the Community this year.

If everyone lucky enough to have a job, he propounded, would agree to do 10% less work there would then be enough to go round and the whole problem would be more or less solved. He thought this was a great idea, he told several notably non-cheering audiences. But the cynical voters thought they detected an unstated flaw in the proposal. It would only work, they decided, if they also agreed to take a 10% pay cut. So they went on to give Rocard and his colleagues a resounding rejection at the polls.

As recession deepens across Europe (with the exception of Britain, where there do seem to be real signs of a lift) a lot of people are starting to realise the consequences of applying the first part of the Rocard prescription, but failing to swallow that second, painful but essential, part of the dose. Since 1980 the average working week in Germany has come down from 40 hours to 37 - while wages and social benefits have both sharply improved. During the boom years (prolonged, in Germany's case, by the first, euphoric effects of reunification) that hardly seemed to matter. In the words of Tyll Necker, who heads the Federation of German Industry (BDI): 'When the sun shines, you do not see the holes in the roof.' But now the economic climate has turned nasty, the rain is finding many places to pour in.

Almost every EC government currently faces the same combination of embarrassments: double-digit unemployment, sky-high labour costs, and deepening budgetary deficits, while the public simultaneously demands tax-restraint, job-preservation and continued high levels of social support for those who fall through the net. Between them, the Community's politicians are responsible for 17 million people 'actively seeking work'. Yet, both individually and collectively, they remain wedded to policies which concentrate on providing subsistence for the idle. Little effective action has been initiated anywhere which promises to help these redundant millions price, relocate or retrain themselves back into jobs.

In fact the reverse is normally the case. Decades of welfare state philosophy - of the kind epitomised in the Social Chapter of the Maastricht Treaty - have left behind a costly legacy. Rigid pay structures, buttressed by entrenched collective bargaining systems and often reinforced by the kind of minimum-wage regulation still being advocated by Britain's Labour Party, bar the return route for people who find themselves, for whatever reason, outside the office or the factory door. In the same way, tough job-protection laws, though no doubt introduced with the best of intentions, frequently have the practical effect of making once-bitten employers deeply reluctant to rehire. And western Europe's habit of subsidising ailing industries beyond the term of their natural life is now making its own dismal contribution, as small armies of coal, steel, transport and heavy engineering workers are decanted into an already glutted labour market.

Britain, as we all know, is still, to some extent, stuck in this mire (one need look no further than the campaign to prop up those 31 uneconomic pits). But at least we have started to learn and act on some of the lessons. It is in many ways Germany which is now most exposed to the true cost of 'social consensus' as an ever-lengthening list of its household-name employers find themselves driven to shed labour and responsibilities. Siemens has already let 13,000 workers go this year and Daimler-Benz will be forced to shed 27,000 by the end of 1994. It is hard to find one firm among the country's industrial elite which is not engaged in a similar paring-down exercise.

Chairmen and chief executives are dropping any pretence that this is just a cyclical phenomenon. Germany, as the current slowdown has revealed, has become too expensive a place to do business and remain globally competitive, and the same applies to much of the neighbouring industrial landscape, most notably in Spain, Italy and France. There is a disturbing tendency establishing itself to contract at home and concentrate new investment in more 'realistic' economies abroad.

The most spectacular recent example is probably BMW's decision to desert its native Bavaria and locate its next major slice of new productive capacity in the significantly cheaper and much more flexible US. But Britain, too, is proving a major beneficiary. When Robert Bosch, the prominent German auto-component supplier, was finalising its most recent expansion round, the biggest slice by far went to South Wales, where relatively low labour costs, the availability of a well-trained, adaptable workforce and an accomodating stance on planning permission all helped to weave an attractive welcome mat.

These are the same factors which recently persuaded Hoover to switch the whole of its vacuum cleaner production from Dijon to Glasgow, and are encouraging some of our own big companies to rediscover the virtues available on their own doorstep. Bowater, for instance, has recently pulled all its cosmetic packaging back for France and Italy to the UK.

As the Credit Suisse First Boston economist Jonathan Wilmot put it, in an age of lean production and continuous innovation the investment will go where 'people are prepared to do whatever job comes'. Britain may still be far from fully meeting that test. But it is way ahead of a Germany with its six-week paid holidays and virtual ban on weekend working.

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