INSIDE OUT - The highly regulated market resulting from the EU constitution will hit disadvantaged and unskilled workers, immigrants and women especially badly.

by Andrew Neil, publisher of The Business and Scotsman newspapers
Last Updated: 31 Aug 2010

The highly regulated market resulting from the EU constitution will hit disadvantaged and unskilled workers, immigrants and women especially badly.

A curious inconsistency in British government policy was acted out last month. Tony Blair and Gordon Brown trooped to the TUC annual conference to tell union leaders that labour flexibility remained the key to British growth and prosperity, that rigid continental labour practices would not be adopted here and that a return to the TUC's glory days of the 1970s would not happen under this Government.

Yet that same week the Government published its white paper on the proposed constitution for the European Union (EU). In this, it accepted all the provisions in the constitution that will pave the way for the greatest drive to regulate Europe's labour markets since the Social Chapter was signed in the early 1990s. Few people - even those in business - realise this.

Most commentary focused on how the constitution will lead to greater political unification and centralisation in Brussels. Just as significant are those parts of it that amount to a huge (if hidden) setback to the cause of economic liberalism in the EU, and for jobs and prosperity.

The new constitution gives trade unions a formal constitutional role; it encourages a renewed emphasis on '70s-style corporatist bargaining between employers' groups and organised labour; and workers are granted a new range of 'social rights' which may overrule much national legislation and undo years of painful British labour-market reforms. During the constitution's drafting, the Government was opposed to some of these proposals. Its white paper makes it clear it has thrown in the towel.

This labour revolution by constitutional change will not happen overnight.

But it will happen. Only in the years ahead, when decisions and rulings by the European Court of Justice are taken to enforce the constitution, will its full implications emerge.

It is already clear that, under the constitution, companies and governments will have to consult trade unions on a range of decisions. For Britain, the change will be especially severe. For France and Germany, where big business and the trade unions already work closely together, it will make little difference.

The greatest threat to Britain's flexible labour regime is the inclusion in the constitution of the Charter of Fundamental Rights; Britain had previously pledged to veto such a move.

As economist Brian Hindley noted in a paper published by the Centre for Policy Studies in London, the provisions of the charter that deal with the labour market are so vague they have the potential to be expanded by an activist European court to an almost unlimited extent. For instance, providing working conditions that 'protect dignity' will allow the court to impose almost any amount of obligations on employers.

The charter says workers, trade unions and big business have 'the right to negotiate and conclude collective agreements at the appropriate levels and, in cases of conflicts of interest, to take collective action to defend their interests, including strike action'. As the European Court rules to implement that provision, the Thatcher laws that make strikes more difficult will be systematically eroded.

The constitution's provisions will continue taking the EU down the road to increased government intervention, when evidence shows that a low-tax, lightly regulated economy helps both rich and poor by inducing entrepreneurship, creating jobs and generating wealth. By increasing the costs and risks to employers of taking on new workers, a highly regulated labour market hits the disadvantaged, the unskilled, immigrants and women especially harshly.

The latest Heritage Foundation's index of economic freedom, which ranks countries according to how liberal their economies are, finds a clear correlation between free-market policies and economic growth. Countries such as New Zealand, Ireland, Estonia and the US - all in the top 10 most free nations - have fared better than Germany (ranked 19th), Japan (35th) and France (40th).

Despite the deterioration of its competitiveness, the UK remains the 9th-freest economy in the world; but the imposition of new rules in the wake of the constitution, combined with the Government's red tape and higher taxes, makes a slide down the rankings inevitable.

The free market is a universal principle, not an Anglo-American cultural trait, as some French intellectuals believe, which means that all Europeans stand to lose from the EU's new constitution. The decision of the US Founding Fathers to enshrine classical liberal values in their constitution has had a profoundly beneficial effect on the American way of life over 200 years later and is directly responsible for the country's phenomenal achievements.

The EU's new constitution might not last that long, but it will be around long enough to hinder the reforms required to reverse the EU's long-term relative economic and social decline - a decline into which Britain is now in grave danger of being dragged.

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