Social Europe (SE) http://www.socialeurope.eu politics, economics and employment & labour Thu, 18 Dec 2014 13:31:45 +0000 hourly 1 http://wordpress.org/?v=4.0.1 "What Does The Future Hold For Our Economy?" by Lawrence H. Summers http://www.socialeurope.eu/2014/12/future-hold-economy/ http://www.socialeurope.eu/2014/12/future-hold-economy/#respond Wed, 17 Dec 2014 10:41:22 +0000 Lawrence H. Summers http://www.social-europe.eu/?p=36435 As 2014 draws to a close people wonder what the new year will have in store. If you are worried about the world economy have a look at this discussion with Larry Summers. The former US Secretary of the Treasury discussed the major economic trends and challenges with David Leonhardt, editor of the New York Times’ The Upshot website. The conversation took place at the Aspen Ideas Festival.

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http://www.socialeurope.eu/2014/12/future-hold-economy/feed/rss2/ 0 What Does The Future Hold For Our Economy? - Social Europe Journal As 2014 draws to a close people wonder what the new year will have in store. If you are worried about the world economy have a look at this discussion with Larry Summers. The former US Treasury Secretary discussed the major economic trends and challenges with David Leonhardt, editor of the New York
"It’s Now Or Never: More Social, Less Europe in 2015!" by Johannes Schweighofer http://www.socialeurope.eu/2014/12/now-never-social-less-europe-2015/ http://www.socialeurope.eu/2014/12/now-never-social-less-europe-2015/#comments Wed, 17 Dec 2014 10:28:28 +0000 Johannes Schweighofer http://www.social-europe.eu/?p=36422 Johannes Schweighofer

Johannes Schweighofer

To put it bluntly: Europe, more precisely, the European Union, has not delivered for decades now. The Union safeguards the interests of the employers and the mandarins from Brussels and 27 other capitals. Basically, this kind of integration is not in the interest of workers, trade unions, consumers et cetera. In the current state of affairs, more Europe means less social cohesion. Therefore, disintegration (a “core Europe”, see below) could be in the interest of workers, at least to some extent.

The main reason for that is the highly ideological, “neo-liberal” and “ECOFIN/lobbies driven” agenda of economic policies: more structural reforms and austerity all over Europe, less regulation, no Financial Transaction Tax, no EU-financed investment program, et cetera. In this respect, demanding more Social Europe is a rather naïve and unrealistic position. Speaking about a “European Social Union” is, given the current political climate, nothing more than wishful thinking. Just have a short look at meetings of the Social Question Working Party or the Employment Committee of the EPSCO council, a rather disillusioning experience. Europe does not give the feeling of community, solidarity, (social) security – all deep rooted emotions that the nation states and the regions do deliver, at least as far as globalisation allows and politicians stand up for.

But sometimes history “jumps”: who thought in the winter of 1988 that the fall of communism and the collapse of the Berlin wall would be realised within one year? Nobody! It currently does not look that way but maybe the fall of the neoliberal wall is within reach. In any case, Europe is at a crossroads.

The Labour Market And Institutional Challenges Ahead!

  • Secular Stagnation, deflation and high unemployment

For years to come, “secular” stagnation is a realistic scenario (with a probability of, let´s say, 60%). If the forecasts are not over-optimistic (as usually), the Euroarea will reach the production level of 2008 next year. So we’ll have 7 years of zero real growth on average! Overall inflation rates are down to 0.3% and several member states already have entered a deflationary period. In order to bring global savings and investments into equilibrium, real interest rates should be below zero. But the combination of low inflation rates and the zero lower bound of nominal interest rates is an insurmountable obstacle. Maybe the era of high growth rates is over for a long time. Unemployment will rise in countries with lower rates (like Germany, the Netherlands and Austria) and will become structural in nature in the periphery (Greece, Spain, Portugal). Therefore, the social situation in the Euroarea will get far worse, maybe in some kind of dramatic way for some countries.

  • Overstretching

Politically, it was the right thing to do. But seen from a systems theory point of view, the complexity of the Union after the enlargement of 2004 has increased dramatically to the point of almost being dysfunctional. In this respect, enlargement has been a failure. Beyond that, many new member states have learned to see Brussels as a kind of new Moscow. The “overstretching argument” would also fit the EMU not being an optimal currency area and with no complete integration of fiscal policies.

  • In 2019, the EU will have less than 28 member states

This scenario comes into being with a likelihood of, let´s say, 33%. The centrifugal forces in the Union are all too obvious. Just to name UKIP and the British referendum in 2017, Scotland (they made it only just), Catalonia, Presidency election in France with Marine Le Pen potentially winning, and other euro-sceptical political forces all over Europe. The most important driving force regarding euroscepticism is that the European Union does not deliver for ordinary people and this is water on nationalists’ mills.

  • Kick the Brits out of the Union

What are the social and employment costs of British EU membership? The British governments in the last two or three decades have been against almost every social progress, were it the working time directive, the posted workers directive, employment goals in the European Employment Strategy or whatever. Therefore, it would be in the interest of all when Great Britain and their allies would participate in the Single Market only (this is what they are obviously aiming for).

  • The “Youth Guarantee” – Failing Europe, it´s a shame!

The European Youth Guarantee is a good example how Europe is failing: Firstly, the youngsters need primarily good-quality jobs, which are just not there in countries such as Spain, Portugal, Greece and others. This was the main reason why a country like Spain was arguing against the Youth Guarantee in the Council negotiations. Secondly, €6 billion in two years are not enough – we would rather need €21 billion, as the ILO says, or even more. Thirdly, almost two years after the EPSCO council has made the decision on the guarantee (in February 2013), only a small amount of money has been used for programmes so far. There are mainly two reasons for this failure: over-bureaucratic procedures in Brussels on the one hand and a lack of resources for even co-financing such small sums as 10%-20% of the total on the other. All in all, in the eyes of young unemployed this “Youth Guarantee” must be a great disaster!

  • Social democratic parties have to make a quality decision – to be or not to be

Last, but not least: if social democratic parties in government like in France, Germany, Italy, Denmark, Sweden and other countries are de-facto riding the neoliberal agenda and are paying only lip services to more Social Europe, then their historical end will be near, actually very near. Syriza, Podemos and other groups will continue their historical mission.

Johannes Schweighofer argues that the European agenda has to be completely rewired.

Johannes Schweighofer argues that the European agenda has to be completely rewired.

What has to be done? The high productivity, high wage innovation road beyond GDP

They might sound somewhat radical but I would consider the following steps towards more social cohesion necessary:

  • Find a core-group of like-minded countries for more Social Europe. You could maybe start with Luxembourg and Austria.
  • Work on a clear division of labour between the EU and the national level. All structural policies in the area of education, labour markets and labour law, technology and innovation and the like are national competences. Value added from Brussels could come in the area of security, energy and environment, monetary and fiscal policy and the like. Aim for a pro-active economic policy coordination (versus the rather restrictive version currently used) taking the Euroarea as an entity – NOT individual member states – and recognise positive and negative spill over effects in a pro-growth approach aiming mainly for qualitative growth, which means not just more products but products that serve life satisfaction on a broad basis.
  • Aim for a “high productivity, high wage” agenda which goes beyond GDP: In this respect, it is not cost-competitiveness that matters primarily but innovation, skills and competences. This means, for example, that the member states must get rid of the problem of having some 20% of adults not being able to solve even simple everyday problems (see PIAAC results). At the EU level, environmental standards should be set on a medium-term perspective and the main aim is to foster green innovation via continuous pressure on the innovative capacity of enterprises.
  • Implement true employment policies, i.e. demand management where monetary and fiscal policies serve the interest of high-quality employment. ECOFIN ministers fundamentally misunderstand investment as they only see the costs which come to the fore at the beginning; they are not able to see the long-term pay-off of good investment projects. As a Eurozone-wide counter-cyclical stabilisation capacity a European Stabilization Mechanism should be developed. In any case: the best social programme is good economic policies.
  • As high inequalities in incomes and wealth are bad for growth, fight rising inequalities by setting standards for European minimum wages (60% of average national wage levels) and minimum income schemes. On the EU-level, a social investment package could be stimulated and coordinated.

The only thing missing are the political actors that would carry such an ambitious program. But maybe history jumps again! Who knows what happens in 2015?

This column is part of our Social Europe 2019 project.

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"Economics Has To Come To Terms With Wealth And Income Inequality" by Joseph Stiglitz http://www.socialeurope.eu/2014/12/economics-come-terms-wealth-income-inequality/ http://www.socialeurope.eu/2014/12/economics-come-terms-wealth-income-inequality/#comments Wed, 17 Dec 2014 09:54:12 +0000 Joseph Stiglitz http://www.social-europe.eu/?p=36427 Joseph Stiglitz, Wealth And Income Inequality

Joseph Stiglitz

Nobel laureate Joseph Stiglitz has been writing about America’s economically divided society since the 1960s. His recent book, The Price of Inequality, argues that this division is holding the country back, a topic he has also explored in research supported by INET. On December 4th, Stiglitz chaired the eighth INET Seminar Series at Columbia University, in which he presented a paper, “New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals.” In the interview that follows, Stiglitz explores the themes of this paper, the work of Thomas Piketty, and the need for the field of economics to come to terms with the growing gulf between haves and have-nots.This interview was conducted by Lynn Parramore from INET and first published on the INET blog.

You’ve mentioned that economic inequality was the subject of your Ph.D studies. How did you come to be interested in how income and wealth get divided up in society?

Firstly, when you grow up as I did in Gary, Indiana, it was sort of prototypical of a divided America. You had lot of people in poverty. We didn’t have the 1 percent, but we had the 5 percent. I had no idea what real inequality was like, but we had a lot of people at the bottom. And secondly, it goes back to the years I went to college and the Civil Rights Movement. You remember Martin Luther King’s march was a march for the end of discrimination and for economic empowerment. So I think a lot of us realized at that time that we weren’t going to fully address the problems of a divided America — of race discrimination — if we didn’t do something about the economic differentials.

What’s new in your recent work on the distribution of income and wealth among individuals?

There are several things. There’s some debate about this, but I think most readers of Piketty’s book (Capital in the Twenty-First Century) get the impression that the accumulation of wealth — savings — is responsible for the rise in inequality and that there is, therefore, in a waya link between the growth of the economy — the accumulation of capital — on the one hand and inequality and wealth. My paper begins with the observation that in fact, you cannot explain what has happened to the wealth/income ratio by that analysis. A closer look at what has gone on suggests that a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods.

When you say “land,” you’re not talking about land in the Jane Austen sense, that is, agricultural land under the ownership of the lord of the manor.

It’s not agricultural land, it’s the value of urban land, and I would include in that, broadly, rents associated with natural resources. It’s the value of existing assets. As a footnote, some of what has gone on, in addition to an increase in the wealth/income ratio, is a capitalization of the increase in other kinds of rents, like monopoly rents. If monopoly rents get increased, if the market power of firms relative to workers gets increased, as when you have the ability of a few, like the banks, to get government guarantees — the value of that is increased and gets capitalized. And that increases wealth but it doesn’t increase capital. So it’s that distinction between wealth and capital that turns out to be critical. That’s the first idea.

The reason that’s important is that you then begin an inquiry into the sources, the explanations, of why the value of the land or other sources of the value of rents would have gone up. A lot of my book, The Price of Inequality, is about why rent-seeking may have increased, but the other part is more external in terms of the value of land or the value of assets. That, I suggest, is very closely linked with the credit system. So if you get a flow of credit increasing, as we’ve seen in the last few years — that flow of credit didn’t go to more wealth accumulation as we normally use the term in economics, as capital goods. What you got is an increase in bubbles of one kind or another.

What has happened repeatedly in recent years is that we’ve had monetary authorities allowing — through deregulation and lax standards — banks to lend more, but not for creating new business, not for capital goods. The effect of it has been actually to increase the value of land and other fixed resources [buildings, real estate, etc]. Disproportionately it goes to the increase in the value of these fixed assets. And that’s what everybody was worried about. So in that sense, in that discussion that occurred with quantitative easing — nobody linked that with inequality or linked it with the overall macro growth. The links with inequality are twofold: one is that at a very, very macro level, if more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods, then worker productivity won’t go up. Wages won’t go up. So some of what is going on is that we haven’t been doing the kind of investment that we should be doing.

But the other part that’s probably more important, I would say, is that when you deregulate, you allow more lending against collateral. Then those who have the assets that can be used for collateral see those assets go up in price, like land. And so those who hold wealth become wealthier. The workers, who have no wealth, don’t benefit from that expansion. So the link is that credit affects land prices and fixed asset prices, and those go disproportionately to the rich. And that is a major part of the increase in the wealth. That’s one strand of my paper.

The other strand of the paper was an attempt to lay out a general theory of the transmission, you might say, of wealth and other advantages across generations, and trying to identify, very broadly, centrifugal and centripetal forces — forces that would lead to a more unequal distribution and forces that would lead to a more equal distribution. You could almost say it’s a taxonomy — it’s a framework for thinking through things. And when you start to think about it, you see that there are many more forces going on right now for increasing inequality. And that’s also a framework for policy prescriptions. So if we have more economic segregation in a world in which we have local schools, locally-financed schools, we’re going to get inequality in education, and therefore the children of rich parents are going to get more human capital.

This model actually provides a very robust general theory explaining inequality. There are many other wrinkles in the paper, but the final insight is that when you think of policies that are going to address inequality of wealth, you have to be very thoughtful about what economists call “incidence of taxes.” If most of the savings is being done by capitalists, and you tax the return on capital, then they will have less to invest. That would mean, over the long run, that the rate of interest would go up. That would therefore undo some of the intent to lower the income of capitalists.

How do you prevent that negative effect of taxes on capitalists?

One way you might think about preventing that from happening would be making sure that the government invested — took up some of money from tax revenue and invested in capital itself. That would prevent the rate of return from rising. Not all of this is all worked out, but it’s trying to say that some of the statements that Piketty made that you should just tax capital may have been overly simplistic. One of the criticisms is that he talked a lot about r>g, and one of the points in my paper — this I showed back in ’69 — it wasn’t r>g that was the critical thing. It has to do with the savings rate and who is doing the saving. The more important point is that r itself is an endogenous variable. It will be affected by what goes on, and by policy. And therefore you can’t just say, if the savings rate were 1, then r would eventually equal g. So it’s hard to write down a model in which r would be greater than g forever.

In your paper, you indicate that the power of the 1 percent to exploit the rest seems to be increasing. Why is this happening? Are there limits to this exploitation?

In a more careful, academic way of putting it I would say that one of the explanations of what is going on is increased exploitation. You see the ratio of wages to productivity going way down, and that certainly is consistent with increased exploitation. And you see that the ratio of CEO pay to worker pay has gone up. So what I would say is that some of the explanations have to do with weakened worker bargaining power, weaker unions, asymmetric state liberalization where capital moves but labor can’t move, corporate governance laws that provide relatively little check on abuses of corporate power by CEOs, and an increase of monopoly power because of network externalities. So there are certainly a number of factors that would lead one to suggest that overall there is an increase in market power. There are some things where there’s more competition — because of the internet, for example, there’s more competition on the price side, but overall, when you look at the ratio of wages to productivity, there’s a marked increase in market power.

Probably there are limits — sometimes the degree of exploitation is expressed as the ratio of wages to marginal productivity of labor, and when that ratio gets down to zero – that’s a limit! What I would say is that things could get much worse if we don’t do something. That’s a relevant issue. What’s important is whether or not we’re on a path that’s looking worse and worse.

You suggest that monopoly power is on the rise. What role does this play in income and wealth inequality?

The holders of monopoly tend to be very concentrated. When you look at the Forbes list, the top 2 are both monopolists. (Bill) Gates got his money through monopoly power, and (Carlos) Slim got his money through monopoly power in Telemex. It’s not a statement that they weren’t efficient or they didn’t do things well. They may or may not have been innovative — there’s a lot of criticism about Microsoft but we don’t have to go there. But what we can say is that a lot of the income they got was through the exercise of monopoly power, and I don’t think anybody would doubt that. So when you look at the top, it’s monopoly power.

Many neoclassical economists have argued that when people contribute to the economy, they get rewarded proportionally. Is this model breaking down?

Yes. I think that the thrust of my book, The Price of Inequality, and a lot of other work has been to question the margin of productivity theory, which is a theory that has been prevalent for 200 years. A lot of people have questioned it, but my work is a renewal of questioning. And I think that some of the very interesting work that Piketty and his associates have done is providing some empirical basis for doing it. Not only the example that I just gave that if you look at the people at the top, monopolists actually constrain output. People who make the most productive contributions, people who make lasers or transistors, or the inventor of the computer, DNA researchers, none of these are the top wealthiest people in the country. So if you look at the people who contributed the most, and the people who are there at the top, they’re not the same. That’s the second piece.

A very interesting study that Piketty and his associates did was on the effect of an increase in taxes on the top 1 percent. If you had the hypothesis that these were people who were working hard and contributing more, you might say, ok, that’s going to significantly slow down the economy. But if you say it’s rent-seeking, then you’re just capturing for the government some of the rents.

How can we prevent inequality from getting worse?

I divide it into two parts, what can we do to reduce inequality of before-tax and transfers income and what can we do to improve the after-tax and transfers income. The first part is things like higher minimum wages, stronger unions, better education, and stronger enforcement of anti-trust laws and corporate governance laws. Those are the kinds of things that are likely to improve the before-tax and transfers income. The second part is addressing things like capital gains taxes, the preferential treatment that mainly benefits people at the very top, and better redistributive policies. Those would help the after-tax and transfers income become more equal.

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"Good And Bad Inequality" by Dani Rodrik http://www.socialeurope.eu/2014/12/good-bad-inequality/ http://www.socialeurope.eu/2014/12/good-bad-inequality/#comments Tue, 16 Dec 2014 08:30:21 +0000 Dani Rodrik http://www.social-europe.eu/?p=36411 Dani Rodrik, Good And Bad Inequality

Dani Rodrik

In the pantheon of economic theories, the tradeoff between equality and efficiency used to occupy an exalted position. The American economist Arthur Okun, whose classic work on the topic is called Equality and Efficiency: The Big Tradeoff, believed that public policies revolved around managing the tension between those two values. As recently as 2007, when New York University economist Thomas Sargent, addressing the graduating class at the University of California, Berkeley, summarized the wisdom of economics in 12 short principles, the tradeoff was among them.

The belief that boosting equality requires sacrificing economic efficiency is grounded in one of the most cherished ideas in economics: incentives. Firms and individuals need the prospect of higher incomes to save, invest, work hard, and innovate. If taxation of profitable firms and rich households blunts those prospects, the result is reduced effort and lower economic growth. Communist countries, where egalitarian experiments led to economic disaster, long served as “Exhibit A” in the case against redistributive policies.

In recent years, however, neither economic theory nor empirical evidence has been kind to the presumed tradeoff. Economists have produced new arguments showing why good economic performance is not only compatible with distributive fairness, but may even demand it.

For example, in high-inequality societies, where poor households are deprived of economic and educational opportunities, economic growth is depressed. Then there are the Scandinavian countries, where egalitarian policies evidently have not stood in the way of economic prosperity.

Early this year, economists at the International Monetary Fund produced empirical results that seemed to upend the old consensus. They found that greater equality is associated with faster subsequent medium-term growth, both across and within countries.

In high-inequality societies, where poor households are deprived of economic and educational opportunities, economic growth is depressed.

Moreover, redistributive policies did not appear to have any detrimental effects on economic performance. We can have our cake, it seems, and eat it, too. That is a striking result – all the more so because it comes from the IMF, an institution hardly known for heterodox or radical ideas.

Economics is a science that can claim to have uncovered few, if any, universal truths. Like almost everything else in social life, the relationship between equality and economic performance is likely to be contingent rather than fixed, depending on the deeper causes of inequality and many mediating factors. So the emerging new consensus on the harmful effects of inequality is as likely to mislead as the old one was.

Consider, for example, the relationship between industrialization and inequality. In a poor country where the bulk of the workforce is employed in traditional agriculture, the rise of urban industrial opportunities is likely to produce inequality, at least during the early stages of industrialization. As farmers move to cities and earn higher pay, income gaps open up. And yet this is the same process that produces economic growth; all successful developing countries have gone through it. In China, for example, rapid economic growth after the late 1970s was associated with a significant rise in inequality. Roughly half of the increase was the result of urban-rural earnings gaps, which also acted as the engine of growth.

According to Dani Rodrik, we have to distinguish between good and bad inequality.

According to Dani Rodrik, we have to distinguish between good and bad inequality.

Or consider transfer policies that tax the rich and the middle classes in order to increase the income of poor households. Many countries in Latin America, such as Mexico and Bolivia, undertook such policies in a fiscally prudent manner, ensuring that government deficits would not lead to high debt and macroeconomic instability.

On the other hand, Venezuela’s aggressive redistributive transfers under Hugo Chávez and his successor, Nicolás Maduro, were financed by temporary oil revenues, placing both the transfers and macroeconomic stability at risk. Even though inequality has been reduced in Venezuela (for the time being), the economy’s growth prospects have been severely weakened.

Latin America is the only world region where inequality has declined since the early 1990s. Improved social policies and increased investment in education have been substantial factors. But the decline in the pay differential between skilled and unskilled workers – what economists call the “skill premium” – has also played an important role. Whether this is good news or bad for economic growth depends on why the skill premium has fallen.

If pay differentials have narrowed because of an increase in the relative supply of skilled workers, we can be hopeful that declining inequality in Latin America will not stand in the way of faster growth (and may even be an early indicator of it). But if the underlying cause is the decline in demand for skilled workers, smaller differentials would suggest that the modern, skill-intensive industries on which future growth depends are not expanding sufficiently.

It is good that economists no longer regard the equality-efficiency tradeoff as an iron law.

In the advanced countries, the causes of rising inequality are still being debated. Automation and other technological changes, globalization, weaker trade unions, erosion of minimum wages, financialization, and changing norms about acceptable pay gaps within enterprises have all played a role, with different weights in the United States relative to Europe. Each one of these drivers has a different effect on growth. While technological progress clearly fosters growth, the rise of finance since the 1990s has probably had an adverse effect, via financial crises and the accumulation of debt.

It is good that economists no longer regard the equality-efficiency tradeoff as an iron law. We should not invert the error and conclude that greater equality and better economic performance always go together. After all, there really is only one universal truth in economics: It depends.

© Project Syndicate

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"Social Europe Needs A New Social Democracy" by Dimitris Tsarouhas http://www.socialeurope.eu/2014/12/social-europe-needs-new-social-democracy/ http://www.socialeurope.eu/2014/12/social-europe-needs-new-social-democracy/#comments Mon, 15 Dec 2014 11:34:43 +0000 Dimitris Tsarouhas http://www.social-europe.eu/?p=36405 Dimitris Tsarouhas, Social Europe

Dimitris Tsarouhas

As 2014 draws to a close, Europe’s economies remain stuck in second gear and feeble growth cannot compensate for the loss of output and jobs during the crisis. The fear of a Eurozone split has been tamed but has not been fully removed. And the ever more realistic prospect of left-wing governments in countries such as Greece leads to violent market volatility. Europe’s low and middle income classes feel as insecure as ever, while a new EU leadership makes attempts to convince citizens that ‘this time it is different’ and that the ‘last chance’ (Jean Claude Juncker) for EU revival will not be lost.

But how realistic is the prospect of economic revival combined with social cohesion and an effective fight against increasing inequality? The prevalent economic paradigm in Europe leaves little room for optimism. Germany’s government sets the tone for the rest of Europe, and that tone remains focused on the need for ‘fiscal consolidation’ and ‘structural reforms’, for most Europeans synonyms for social misery and economic contraction. The presence of the SPD in Germany’s coalition government was meant to rebalance the German approach but precious little has been achieved thus far. Elsewhere in Europe, the rejection of extreme austerity in Italy and France has led to political ‘noise’ by the Renzi and Hollande administrations, but such voices are either too weak or too ineffective.

The blame should however not be attributed solely to Berlin and the choices of Ms. Merkel and Mr. Schäuble. The economic governance architecture of the European Union as institutionalised prior (Maastricht Treaty, Stability and Growth Pact) and during (Fiscal Compact, Six-Pack etc.) the crisis makes progressive approaches to conditions of economic contraction almost prohibitive. As popular dissatisfaction increases and pressure on citizens’ wages, life quality and time keep on ticking up, social democracy has to realise it is, just like the EU, sitting in the last-chance saloon.

Rejecting ‘Old and New’ Social Democracy

The fight over labels among progressives is thankfully over, but many of the lessons derived from those battles have yet to be learned. The late Tony Judt rightly rejected ‘defensive’ social democracy, stuck in a romanticised notion of community and welfare that hardly addresses the contemporary needs of our diverse societies. To name but the most obvious example, a welfare state that overtaxes working people and redistributes resources away from those in genuine need (the young) to offer ever more to those that are increasingly affluent (the old) in the name of social justice bears little resemblance to genuine progressivism. Yet electoral politics and voter apathy among the younger age cohorts has led to a deep distortionary impact, with social policy reinforcing rather than addressing inequality. This is unsustainable.

While defensive is wrong, an overt form of ‘revisionist’ social democracy makes it hardly distinguishable from its political opponents, reduces the choice available to a worrying electorate and fails to redress the regressive trend in wages, incomes and assets observed over the last two decades. Flowing along the tide of global capitalism so as not to rock the boat and in the hope that some wealth will trickle down is a policy that has been tested. It failed miserably in 2008, helped oust a number of centre-left governments from office and has left its stigma among working class communities with their increasing distrust towards social democracy across much of Europe.

The EU and European social democracy are sitting in the last-chance-saloon.

The EU and European social democracy are sitting in the last-chance-saloon.

A New Approach to Social Europe

The Social Europe Journal has worked tirelessly to promote a progressive dialogue addressing contemporary problems. Core tenets of the dialogue and the results of solid research point to the following points as a basis for a new social democracy that will bring about substantial change and progressive reform.

First, the fight against wage, income and asset inequality has to move to the centre of social democratic thinking. Taxation regimes need to move away from taxing labour and towards wealth and over-inflated asset accumulation.

Second, productive public and social investment addressing long-term structural change (ageing society) has to be introduced nationally and at EU level. Baby steps are underway following the Juncker announcement on the investment plan. While the plan’s assumptions as to private sector involvement are fantasy, exempting such expenditure from debt/deficit calculations is a first step.

Third, resources ought to be redistributed at two levels: first, from the old to the young by renewing the inter-generational contract and thus hit the ambitious targets on reducing youth unemployment. Second, the welfare state’s resources will be strained for some time, and therefore market mechanisms need to be restructured to protect public finances. Jacob Hacker’s predistribution, if used wisely, is potentially transformative. It binds civil society, trade unions and other allies of progressive causes into a new story of how citizens related to the state and each other. It also has the potential to reframe the state-market debate in favour of a healthier approach.

Social democracy has gone a long way and there is every reason to expect that it will survive the current malaise to fight another day. But it will only be able to do so, and give substance to a genuine Social Europe, if its approach builds on past achievements with its sights firmly set on the future.

This column is part of our Social Europe 2019 project.

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http://www.socialeurope.eu/2014/12/social-europe-needs-new-social-democracy/feed/rss2/ 1 Dimitris Tsarouhas Dimitris Tsarouhas Euro protest The EU and European social democracy are sitting in the last-chance-saloon.
"Wage Cuts And Austerity Have Come To Belgium" by Ronald Janssen http://www.socialeurope.eu/2014/12/wage-cuts-austerity-come-belgium/ http://www.socialeurope.eu/2014/12/wage-cuts-austerity-come-belgium/#comments Mon, 15 Dec 2014 10:28:32 +0000 Ronald Janssen http://www.social-europe.eu/?p=36395 Ronald Janssen

Ronald Janssen

Workers are paying the bill while business is getting a free lunch

Today, trade unions in Belgium are organising a general national strike. This will come on top of 3 days of regional strikes as well as a national manifestation, all of which have been massively followed up by workers over the past month. Moreover, the trade union leadership is considering to continue with such actions in the new year. For Belgium, with its tradition of social dialogue, this is rather unheard of and to see similar intense trade union action one has to go 20 years back.

Belgian workers have however every reason to be upset. The conservative government, having taken up power recently, is applying an austerity programme of such depth that it reminds one of the brutal austerity policies that have been pursued in in many other European member states. Policies that have triggered the long European recession of 2011-2012. The total austerity package proposed amounts to some 11 billion euro or close to 3% of GDP.

Looking at the measures that are in the pipeline, both workers and unemployed people will face austerity from the cradle to the grave. There are cuts in childcare benefits, substantially increased childcare costs and (higher) education fees as well as swinging cuts in the educational budget and public services in general. Next year, workers will be forced to undergo a real wage cut of 2% while collective bargaining on wage increases is outlawed for the coming two years. Unemployment benefit systems are being hollowed out in many different ways and at the end of their active life, workers will have to work longer (to the age of 67) before being entitled to (reduced) pensions.

In all of these measures, the pressure is on wages while income from capital is not touched at all. On the contrary! On top of the 2% imposed cut in real wages comes a huge reduction in employer social security contributions. Business will enjoy a transfer of 4 billion euro or more than 1% of GDP.

The eternal alibi: Competitiveness, competitiveness, competitiveness…

These 4 billion are handed over to business on the basis of an old law on the competitive position of Belgium. According to this law and the annual statistics that are produced as a result of it, the competitive position of Belgium is under threat because hourly private sector wages in Belgium are rising too strongly in comparison with its three neighbouring countries (Germany, France and the Netherlands).

This, of course, puts employers in a perfect position. All they have to do is pointing to this law and its associated statistics to defend their case that there’s no room for collective bargaining on wage increases, that wages have to go down and that they urgently need another round in employer social security contributions.

It is however simplistic to reduce competitiveness to the dimension of wages. There are many other and indeed much more important factors than wages that influence competitive performance.

Belgium, it turns out, is a perfect case to illustrate how misleading such a simple wage competitiveness analysis can be. Indeed, as analysed below, a broader analysis of Belgian economic indicators shows that the competitive position of Belgium is actually very good.

A broader analysis of Belgian competitiveness

Let’s start by drawing productivity into the picture. Higher wages are affordable and raise no problem for competitiveness if workers’ productivity is also high. Looking at productivity levels in industry (see graph below), it turns out that Belgian workers are actually the champions of Europe. The average worker in Belgian industry allows business to enjoy the creation of 89.000 euro of added value a year. Belgium, together with Denmark, has the highest productivity of all European member states. Belgian productivity reaches a level that is substantially higher than in Germany or France.

 

1

Source: Eurostat

The picture remains favourable when balancing productivity levels with wage levels. For each 100 euro of wage an industrial company in Belgium is paying to its workers, it is gaining 158 euro of added value. This is again one of the better outcomes of Western European economies. And again, it is substantially higher than in Germany where business obtains 137 euro on added value by paying 100 euro in wages.

2Source: Eurostat

Another way to gauge the soundness of business competitiveness is to look at profit rates. If an economy has below average profit rates, this can be a sign the economy is not producing the right products at the right costs. The next graph shows that profit rates of non-financial corporations in Belgium have been in line with the euro area average since the middle of the previous decade. After a small dip during the 2008-2009 crisis, profits have also returned to their high pre-crisis levels. Here, German business does outperform Belgium somewhat but the difference is minor (a profit rate of 40% of gross added value versus 38% in Belgium).

3

Next is the question of investment performance. Economies can only export and satisfy external demand if they build the capacity to produce goods and services. Without (sufficient) investment, no (sufficient) production and no (sufficient) exports. On this comparison, Belgium returns to the ‘Champion’s League’ since the investment performance of its business sector is again outstanding when compared to the rest of Europe. Belgium’s investment rate is higher than the euro area average. It is actually substantially higher than the investment efforts of business in Germany, which makes one wonder whatever happened to the well-known (and German based) slogan of ‘today’s wage moderation being tomorrow’s investment’?

4

With labour productivity, profit rates and investment rates at high levels, it should come as no surprise that Belgium is also recording robust surpluses on its external trade. It appears Belgium is recording a surplus on its trade balance of manufactured goods that is as high as 10% of GDP. Germany, the export champion of the world, is only doing slightly better with a surplus of 12% of GDP.

5

Obsession with wage competitiveness: What will be the results?

To conclude, the Belgian government’s obsession with wage competitiveness is resulting in a policy mix that is seriously misguided. It is one thing to apply a responsible fiscal policy in order to address the elevated level of public sector debt, the latter indeed constituting the Achilles heel of the Belgian economy.

It is, however, quite another thing to abuse a crisis situation in order to organise a massive redistribution of income from wages to profits. The economic evidence shows that there is no need whatsoever to do this. Beefing high profits up even more does not make any sense. On the contrary, doing so will deliver a further blow to public finances since workers pay taxes on their wages whereas business has all the means at its disposal to avoid paying taxes on its profits, as is again and abundantly being testified by the ongoing scandal of ‘Lux Leaks’.

One thing is for sure: if the conservative government chooses to remain deaf to the economic arguments of the trade unions, the Belgian economy, under the combined impact of excessive fiscal austerity and wage austerity, will soon face the twin risks of prolonged depression and of low inflation becoming outright deflation.

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"Inequality And Work In The Second Machine Age" by Henning Meyer http://www.socialeurope.eu/2014/12/inequality-work-second-machine-age/ http://www.socialeurope.eu/2014/12/inequality-work-second-machine-age/#respond Mon, 15 Dec 2014 08:30:15 +0000 Henning Meyer http://www.social-europe.eu/?p=36390 My latest publication entitled ‘Inequality and Work in the Second Machine Age‘, which was published last week as SEJ Research Essay in cooperation with the Friedrich-Ebert-Stiftung London and The Worker Institute at Cornell University, has made quite a splash! If you are interested in the general debate you can watch the discussion I joined last week on BBC Newsnight. This piece was only a beginning as this topic will stay with us (and my work) for quite some time…

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http://www.socialeurope.eu/2014/12/inequality-work-second-machine-age/feed/rss2/ 0 Inequality And Work In The Second Machine Age - Social Europe Journal My latest article entitled 'Inequality and Work in the Second Machine Age', which was published last week as SEJ Research Essay in cooperation with the Friedrich-Ebert-Stiftung London and The Worker Institute at Cornell University, has made quite a splash! This piece was however only a beginning as  Henning Meyer,Inequality And Work In The Second Machine Age,Second Machine Age,Inequality And Work In The Second Machine Age
"Why TTIP Has To Be Rethought" by Markus Krajewski http://www.socialeurope.eu/2014/12/isds-ttip-rethought/ http://www.socialeurope.eu/2014/12/isds-ttip-rethought/#respond Thu, 11 Dec 2014 13:51:12 +0000 Markus Krajewski http://www.social-europe.eu/?p=36375 Markus Krajewski, TTIP

Markus Krajewski

The current debate about the planned Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States concerns a number of contested areas, but the potential impact of a chapter on investment protection with investor-state dispute settlement (ISDS) is certainly the most prominent aspect of the discussions. In light of an increasing critique of investment protection in the TTIP, the European Commission held a public consultation on the subject between March and July 2014.The consultation generated almost 150.000 online contributions. The Commission still analyses the responses and will produce a report on the results of the consultation.

The EU approach towards investment protection and ISDS as described and explained in the consultation documents contains a number of improvements compared with traditional BITs, including BITs of some of the EU Member States. If one considers the system of investment protection generally to be useful and assumes that this system can be improved through reforms the EU approach should be perceived as a step in the right direction as it contains a number of useful improvements.

These improvements concern inter alia a clarification that pure letter-box companies will not benefit from investment protection; the clarification and limitation of the scope of the concepts of fair and equitable treatment and indirect expropriation; and mandatory transparency requirements for ISDS.

However, even from a perspective which considers an improved investment protection system including a reformed ISDS to be more desirable than no investment protection, the EU approach does not seem satisfying, because it fails to incorporate reform proposals which have been advanced in recent debates and treaty practice.

Despite the improvements and regardless of potential further improvements, from a reformist perspective, investment protection including ISDS in an EU-US agreement remains in principle problematic.

In this respect the EU approach is insufficient because it fails to exclude portfolio investments from the scope of investment protection; to clarify that investor’s expectations are only relevant if they are based on formal statements issued by competent authorities and do not prejudge the legislative process; to apply general exceptions to all substantive investment standards instead of just to non-discrimination; and to foresee the possibility of an appeals mechanism which would apply to all investment treaties and not just the TTIP.

The EU’s approach could be improved from a reformist perspective by including these elements. In addition, it could be improved by requiring the investor to adhere to international standards and guidelines for multinational enterprises (such as the OECD Guidelines or the ILO Declaration) before turning to ISDS.

Despite the improvements and regardless of potential further improvements, from a reformist perspective, investment protection including ISDS in an EU-US agreement remains in principle problematic for the following reasons:

First, ISDS establishes a system of judicial protection which is only available for foreign investors. By definition, this additional system awards benefits to foreign companies which are not given to domestic companies. This discriminates against domestic companies.

Second, ISDS has the potential to destabilise the domestic judicial system, because public measures (such as laws, regulations, decisions, etc.) can be subject to two diverging legal assessments. This leads to legal uncertainty in particular if the questions before domestic courts and investment tribunals are essential the same (i.e. whether the measure violates individual economic rights such as the right to property).

Third and finally, ISDS can influence domestic legislative and administrative decision-making. Even if the substantive standards are defined in a restrictive way and even if ISDS proceedings are transparent, investors may nevertheless file their claims. The likelihood that the investor may win could be reduced through the reform proposals of the EU, but the potential threat with an ISDS claim remains as long as agreements such as TTIP or CETA contain a chapter on investment protection.

The ISDS

The ISDS provisions of TTIP are highly controversial

Improvements of the international investment protection system would require a new start, instead of relying on reforms of the current system. Such a new start should be based on the following principles and rationales: International investment law should generally protect domestic and foreign investors engaged in sustainable investment activities against arbitrary state actions, promote the rule of law and the protection of property rights in order to foster sustainable development and growth in all countries, be compatible with domestic regulations aimed at legitimate public interests even if they have negative impacts on private business activities and be integrated into domestic legal systems and support the development and maintenance of an impartial and functioning judicial system which is compatible with international human rights standards.

Measured against these requirements, current international investment agreements including the EU’s approach as laid down in the draft investment chapter of CETA are not appropriate. Therefore, an improvement of the current system without a fundamental change does not seem possible.

An improvement of the current system without a fundamental change does not seem possible.

An alternative investment protection system could be built on a number of ideas. One option would be a reliance on state-to-state dispute settlement. This approach, which has worked effectively in the WTO, has never been tested in the context of investment protection even though it exists in virtually all investment agreements and chapters. Under such an approach, the home state of the investor would sue the host state after the investor exhausted the local remedies. Another option would be to establish a permanent international investment court which would hear claims on the basis of investment treaties instead of arbitration tribunals. This option would keep the right of investors to raise claims but the legitimacy, transparency and neutrality of the international court would be higher than that of investment tribunals.

Apart from these alternatives to investment arbitration, a fundamentally new approach would be to negotiate and agree on measures which would improve the judicial systems in countries which are still developing an independent and efficient judiciary. To further advance this cause, investment agreements could include chapters on judicial reform and the rule of law. International trade and investment agreements should offer cooperation and support for countries which are struggling with these issues. For example, it might be worth exploring this avenue in current and future negotiations of the EU on trade and investment agreements with Thailand, Vietnam or other countries. However, a trade agreement with the US or with Canada does not need such a chapter, because the US and the Canadian legal systems offer sufficient protection for economic actors including foreign investors.

This is a summary of the study „Modalities for investment protection and Investor-State Dispute Settlement (ISDS) in TTIP from a trade union perspective” published by the Friedrich Ebert Stiftung.

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"After Rana Plaza: What The Brands Say" by Henning Meyer http://www.socialeurope.eu/2014/12/rana-plaza-brands-say/ http://www.socialeurope.eu/2014/12/rana-plaza-brands-say/#respond Thu, 11 Dec 2014 10:00:21 +0000 Henning Meyer http://www.social-europe.eu/?p=36264 As part of our ‘After Rana Plaza‘ project we also wrote to a number of brands and asked the following questions:

  1. Has your company met its contribution commitment to the ILO administered fund to help the Rana Plaza victims? If the answer to this question is no, why is this the case?
  2. The working conditions at Rana Plaza and other RMG-factories in Bangladesh have put the focus on the lack of control and accountability in global supply chains. In the aftermath of the incident, has your company changed policies or implemented new measures to improve the level of control in your supply chain? What have you done to prevent a disaster like this from occurring again?
  3. Several international companies have set a positive example by leveraging their economic influence over suppliers. Through a compact or other incentive system they push their suppliers towards accepting higher standards of production. Would you also be willing to enter a compact with your suppliers to incentivize higher production standards, including better health and safety standards and the right for workers to organize locally to further their interests?
  4. In how far do you expect your suppliers to ensure that workers have the freedom to associate and to become trade union members? What do you do to ensure that these rights are enforced?

Here are the answers:

JCPenney

Thank you for giving us the opportunity to weigh in on your research. While we don’t disclose the nature of our supply chain operations or our supplier relationships, it is important to note that the factories located in Rana Plaza were never active suppliers for JCPenney private merchandise. It was only after the devastating collapse, did the company learn that one of the factories produced Joe Fresh products, a small portion of which was intended for JCPenney. While JCPenney had no insight into the development and sourcing of Joe Fresh apparel, we continue to work with other retailers and brands through the Alliance for Bangladesh Worker Safety to better protect all those working in Bangladeshi garment factories.

Benetton Group

Question 1: 

Benetton Group did not have continuous relationships with any of the suppliers that operated inside the Rana Plaza building: nonetheless, the company has been in the forefront for assisting the victims and improving the conditions of the local RMG sector in the aftermath of the incident. This is why,  immediately after the tragedy, Benetton Group was among the first companies to take action for the victims choosing to  launch  a programme in partnership with the non governmental organization BRAC. The programme has been supplying artificial limbs to amputated victims. In the long term, the programme is supporting survivors and the families of those who lost their only source of financial support, to improve their social conditions and economic sustainability.

Question 2:

The Code of Conduct of Benetton Group, which was in place and applying to all our business partners even at the time of the accident, includes strict provisions on Health and Safety in all the supply chains of our company. Regular audits implementing the Code of Conduct were then already in place and after the Rana Plaza accident have been integrated and reinforced through additional independent CSR audits and through our active participation in the Accord on Fire and Building Safety, whose inspections are performed on all our suppliers in Bangladesh.

Question 3:

We think that the proposal of a compact with suppliers can be truly effective and sustainable if it becomes part of common efforts of the textile/garment sector to improve higher production standards in its global supply chain.

Question 4:

Benetton Group Code of Conduct requires all our business partners – suppliers and their subsuppliers included – to permit freedom of association, organization and collective bargaining in a lawful and peaceful manner. All our business partners’ workers have the right to form or join associations or committees of their own choice and to bargain collectively. Our company does not tolerate disciplinary or discriminatory actions from our business partners against the workers who choose to peacefully and lawfully organize or join an association. We ensure that the Code of Conduct and the labour rights spelt in it are reinforced through regular CSR audits on our supply chain and through corrective actions if needed.

Adler Modemärkte AG

Question 1:

Adler Modemärkte AG has not made a contribution to the ILO administered compensation fund for Rana Plaza, because none of the companies located in this building have been a nominated supplier of Adler. Instead, the company made a voluntary donation for Rana Plaza victims and is still engaged in direct aid, organized by local agents in Dhaka.

Question 2:

Adler has had stable relationships to its suppliers in Bangladesh for many years. Through our own purchasing managers and our professional buying agency MGB (Metro Group Buying, Hong Kong) we apply close control of their activities. Nevertheless, the Rana Plaza crash has shown that there is a further need of examination and control, especially in building safety, including fire protection and electricity. Since MGB joined the ‘Accord’ agreement, Adler and its purchasing agents also prove fire safety, electrical installation and – as a direct consequence of the Rana Plaza crash – the construction quality of supplier buildings.

Question 3:

In the past too, long before any accidents happened in Bangladesh, Adler has collaborated exclusively with suppliers who applied the BSCI standards regarding important working conditions and social standards. Additionally, Adler uses each visit at a supplier company to emphasize the great impact of safety, social and working compliance on the prolongation of contracts.

Question 4:

Under the rules of BSCI there have been a number of rights and conditions which regulate the social and working life of employees among the companies being certified. The freedom of workers assembly is one of them. Beyond that, Adler has never restrained workers from joining a union nor encouraged the management of supplier companies to do so.

Walmart

At Walmart, the safety of workers in our supply chain is very important to us.

While Walmart did not have any production at the Rana Plaza factory at the time of the tragedy, we are actively working to bring significant and sustainable reform to the ready-made garment industry in Bangladesh. To date we have committed over $15 million, and spent over $13 million, to improve the safety of factories in Bangladesh and empower workers through safety training initiatives. These efforts have included:

Committing $5 million to inspecting all factories directly supplying Walmart in Bangladesh.

Contributing $5 million to be part of the Alliance for Bangladesh Worker Safety.

Contributing $3 million to a Bangladesh humanitarian relief fund led by BRAC, one of the world’s largest development organizations. The fund will be used to support training and rehabilitation through BRAC and support relief efforts for the Rana Plaza tragedy.

Contributing $1.6 million to the newly-created Environmental, Health & Safety Academy for improved safety training.

Providing fire safety training for workers in factories in Bangladesh that produce goods for Walmart.

Continuing our Women in Factories Training Program, which is providing critical life skills training to women working in Bangladeshi garment factories.

We have led the industry by publicly disclosing the results of enhanced factory safety audits of every factory directly supplying Walmart in Bangladesh, which, through required remediation, have shown improvement in electrical and building safety.

As the last year has shown, collaboration is the key to driving real change. That’s why we are also collaborating with industry stakeholders through the Alliance for Bangladesh Worker Safety. The Alliance was established to improve worker safety conditions through greater collaboration, with members collectively contributing to a worker safety fund that is approximately $50 million, as well as providing access to around $100 million in low-cost capital for factory improvements, all to help factories make significant changes aimed at preventing tragedies before they happen.

For further questions on Bangladesh factory safety, we direct you to the Alliance for Bangladesh Worker Safety website at http://www.bangladeshworkersafety.org

PWT Group

Since the tragic event, we have :

  • immediately after the accident, taken initiatives on building controls and approvals. A procedure has now been taken over by the work of “the Accord”.
  • actively taken part in the cooperation of the Danish agreement PARTNERSHIP FOR RESPONSIBLE GARMENTS AND TEXTILES PRODUCTION IN BANGLADESH.
  • signed the international agreement – Accord on Fire and Building Safety in Bangladesh – and we take active part in this Agreement and its implementation with IndustriAll and UNI Global Union
  • joined the BSCI – the internationally recognized Business Social Compliance Initiative – and we are in the process of implementing BSCI rules and procedures.
  • participated actively in the work under DIEH (Danish Ethical Trading Initiative)

 

We did not produce at the factory when it collapsed, but we had produced at the factory before.

We donated in sympathy, already in July 2013 – before the ILO-fund was established, a significant 6–figure sum to the victims of the disaster. Donations were given to companies, which are all on the ILO approved-list. The donation was a response to the many calls for urgent action, immediately after the tragic disaster, which was referred to the industry, hereunder PWT Group.

The donation was given partly to BGMEA, which immediately provided medical assistance to those affected, and partly to the Centre for the Rehabilitation of the Paralysed (CRP), which subsequently has provided a significant, successful and proven efforts to rehabilitate the direct victims of the accident.

KiK

Question 1:

Right from the beginning we have been involved in the development of the voluntary trust funds and as one of the first companies we supported it with a donation of 500.000 USD. In June 2014 we doubled the amount because the trust fund was not sufficiently filled yet. KiK is one of the few companies making the amount of its donation transparent (http://www.ranaplaza-arrangement.org). The donating companies accomplished the commitment of contributing one half of the total amount of the required funds. The other half is to be supplied by the government as well as the local employers’ associations.

Question 2:

This tragic accident shows once again that only a common bond and a joint action of companies, government, trade unions, association organization and NGOs can bring about changes. The ACCORD is such a federation. KiK is one of the first signatories of this legally binding agreement for fire and building safety in Bangladesh. Up to now 186 international textile companies have joined the accord. As part of this arrangement the ACCORD members developed a program to reduce the risk of accidents at the production sites. On the basis of this program an independent safety inspection will be conducted in all of the participating companies’ production sites followed by remediation plans. Furthermore we have amended our sourcing strategies, e.g. broadened them to building safety aspects. For years we have been focused on developing long-term business relations with our suppliers to create sustainable improvements in the Bangladesh garment sector.

Question 3:

We aim for long-term partnerships that give our suppliers planning certainty as well as economic safety. We furthermore assist our suppliers in the organization and implementation of improvement activities. This joint action and the construction of a common understanding of working safety help initiating joint improvement processes.

Question 4:

To create a binding basis for all our commercial relationships, in 2006 we developed an international Code of Conduct (CoC). The KiK Code of Conduct requires compliance with minimum standards in the factories where our goods are produced. It includes a ban of child labour, a ban of forced labour or discrimination, maximum working hours, health and safety standards for the workplace, information and reporting standards for supliers as well as employees’ freedom of association.

The requirements and minimum standards described in our CoC are based on the ILO constitution and the relevant standards of the United Nations, ensuring that the labour guidelines we establish are valid worldwide. Compliance with our CoC is controlled by on-site visits through auditing companies as well as by our own employees.

Companies that did not reply:

Iconix (Lee Cooper), Auchan, Ascena Retail, KANZ – Kids Fashion Group, Robe di Kappa, Manifattura Corona, The Children’s Place, Güldenpfennig, Essenza Fashion, Cato Fashions, Mango, C&A Foundation

 

This project was not about pointing fingers or put blame on specific companies or brands. Its focus was to reveal the underlying issues in the industry the mainstream media coverage has neglected and develop some ideas for how working conditions and controls can be improved so a tragic event such as the Rana Plaza collapse can be avoided in the future. We have identified a few interesting avenues such as a supplier compact and new ways of consumer pressure and will seek to build on this with a view to developing more clear-cut proposals.

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"The Juncker Investment Plan Can Only Be A Beginning" by Catiuscia Marini http://www.socialeurope.eu/2014/12/juncker-investment-plan-can-beginning/ http://www.socialeurope.eu/2014/12/juncker-investment-plan-can-beginning/#respond Wed, 10 Dec 2014 15:57:23 +0000 Catiuscia Marini http://www.social-europe.eu/?p=36370 Catiuscia Marini

Catiuscia Marini

What is your general assessment of the Juncker package presented on 26 November? Is this “investment offensive” a U-turn in the Commission’s approach?

Speaking about a U-turn is certainly excessive. I would say that I feel a wind, or rather, a light breeze of change in comparison with the austerity dogma that Juncker’s predecessor, Jose Manuel Barroso, used to defend. I see in particular two major developments:

First, the European Commission has acknowledged that the EU is currently suffering from dramatic under-investment. Indeed, public investment fell by 20% in real terms between 2008 and 2013 and, according to the latest Commission forecasts for 2013 and 2014, public investment in the EU-27 in 2014 will reach a record low, which was already the case for the private sector in 2013. The investment levels are at 2% of GDP in the European Union compared to 4% in the US. And a last figure: the European Commission admits that current investment levels are € 230 to € 370 billion per year below the historical average. While the Commission’s analysis goes in the right direction, the same figures also show that the Juncker package will not by itself address the investment deficit with € 21 billion, which would under the extremely optimistic scenario presented by Jean-Claude Juncker be levied to € 315 billion over three years.

The other positive point I see is that there is a substantial move on flexibility. The European Commission proposes that the voluntary participation of Member States to the Investment Fund will not be included in the calculation of the deficit under the Stability and Growth Pact. Now the ball is in the court of the Member States both in terms of adding fresh national or regional money to the Fund and also in terms of accepting the exemption of national contributions from the deficit calculation set in the Stability and Growth Pact.

What is in the package for local and regional authorities?

Local and regional authorities certainly scored high in the battle of words around the topic of investment, considering the many references made to them in the Commission Communication. This recognition is fair enough given that sub-national governments carried out around 55% of total public investment in the EU-28 in 2013.

Another positive note is that the means of the EU cohesion policy remain untouched contrary to earlier fears. However, it is the implementation phase which will really show what could be in the package for local and regional authorities. One worry relates to the leverage effect. Alongside the Fiscal Compact investment package two years ago, the leverage capital injections for the EIB were estimated at 1 to 4. Now President Juncker expects a leverage effect of 15. This means that the Investment Fund would be targeted mainly at highly profitable projects. But is there a real need for capital injections into already highly profitable projects? Will it be possible that the future Fund supports investments for example in public transport at local or regional level which are profitable only in the long-run? Will broadband infrastructure in rural areas or programmes to increase energy efficiency be eligible? Much will depend on the independent investment advisory “Hub”, which will have a filtering role in assessing the projects.

What next steps do you see in relation to the “investment strategy” launched by the European Commission?

President Juncker is committed to a fast-track procedure. Provided that Member States agree on his proposals at the European Council of 18 December, he would present a regulation in mid-January, which should then be adopted by the Council and the European Parliament in time for the apparatus to be in place in June 2016. The Committee of the Regions will follow the topic up and make its voice heard where necessary because as we all know, the devil is in the details. We will also encourage regions which are in a position to contribute to the funding and the setting-up of projects to play an active role.

However, the Juncker package should only be seen as a kick-off initiative on a European investment strategy. More needs to be done in relation to the flexibility clauses in the Stability and Growth Pact. Indeed, everyone talks about flexibility without anyone knowing exactly what it is. We will pursue our fight to have the investments made by local and regional authorities in the framework of the European Structural and Investment Funds excluded from the deficit calculations of the Stability and Growth Pact.

We also want the European Commission to present a White Paper setting out a typology at EU level for the quality of public investment in public spending accounts, according to their effects on the long term. In the context of the revision of the Europe 2020 Strategy, we will also put forward the proposal that the investment rate per Member State is included in the macroeconomic surveillance.

And finally, we will keep on wondering what has happened to the idea of creating a European savings account. In other words, the European Commission made a first step in the right direction on a long path to go.

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