Social Europe politics, economy and employment & labour Tue, 07 Jul 2020 15:46:33 +0000 en-GB hourly 1 Social Europe 32 32 AI: those are citizens marching, not robots Thu, 09 Jul 2020 03:00:00 +0000 Artificial intelligence, usually thought of as substituting human endeavour, should be conceived as a way of enhancing it for all.

Social Europe

This series is a partnership with the Weizenbaum Institute for the Networked Society and the Friedrich Ebert Stiftung

Artificial intelligence, usually thought of as substituting human endeavour, should be conceived as a way of enhancing it for all.

human-centric AI
Miapetra Kumpula-Natri

We are witnessing another industrial revolution—a digital one. Rapidly evolving technology, superfast connections such as 5G, the massive amount of data this connectivity generates and artificial intelligence will reshape the lives and societies we know today.

Globally, the total amount of data is doubling every 18 months. In other words, in 2019 we were using only 1 per cent of the data which will be in use by 2030. This creates yet unimaginable possibilities for innovations, new business models and services.

Yet who will this trend benefit? Will the pool of data be used to build a human-centric digital society or could it end up concentrated in the hands of a few global actors, benefiting only the already wealthy?

The digital revolution should neither leave anybody behind nor lead to a ‘race to the bottom’ with regard to labour and social standards. Everybody must be included. We must not stifle innovation but data usage cannot be an unregulated vacuum. We must empower citizens to have better control over their data and use data as a tool to benefit people and societies as a whole. As legislators, it is our task to establish a regulatory framework that promote an inclusive, human-centric data economy in Europe.

AI has been a clear priority for the current European Commission from day one. But it was the commissioner for the internal market, Thierry Breton, who really put the emphasis on data. Data and AI go together: if we do not have data ‘flowing’ between different actors, whether public or private, and across borders, Europe cannot be number one in the world in reaping the benefits of digitalisation or AI.

On the European Parliament’s own-initiative report on data strategy—its answer to the commission communication in February—I have the honour to act as the industry committee’s rapporteur. The aim is to find a parliament position before the commission publishes concrete legislative proposals, such as the envisaged enabling legislative framework for the governance of common European data spaces, data act and implementing act on high-value data sets. From the standpoint of European citizens, the focus is clear: how to harness the potential of data to enable new services, business opportunities and jobs, while ensuring the digital transformation doesn’t leave behind common European values?

At the same time, it is important to understand that the digital market is truly a global one. I have an opportunity to follow also the global digital debate from the international-trade perspective as a standing rapporteur on World Trade Organization e-commerce negotiations in the European Parliament’s international trade committee. The EU must be an active global player and influence the development of the digital world based on its values—not the other way around. For example, we must put the focus on European competition policy: Europeans must define the rules, values and level playing field of the market; we should not be satisfied only with what others dictate.

Trust needed

Building a human-centric data economy and human-centric artificial intelligence starts from the user. First, we need trust. We need to demystify the data economy and AI: people tend to avoid, resist or even fear developments they do not fully understand.

Education plays a crucial role in shaping this understanding and in making digitalisation inclusive. Although better services—such as services used remotely—make life easier also outside cities, the benefits of digitalisation have so far mostly accrued to an educated fragment of citizens in urban metropoles and one of the biggest obstacles to the digital shift is lack of awareness of new possibilities and skills.

We need action throughout Europe, all the way down to the local level, to give our citizens the tools to understand rapid technological change—as well as investing in new engineers, software developers and visionaries via our education systems, reskilling and lifelong learning. How can employees and small and medium enterprises be innovative, if they do not have the knowledge?

Exemplary initiative

An exemplary initiative is a Finnish-developed, free online course, ‘Elements of AI’. This started as a course for students in the University of Helsinki but its wider potential was soon realised and the paradigm changed: the new aim of the university and its partner company was to educate 1 per cent of Finnish citizens in the basics of AI. The course boomed and the goal was reached in no time among Finland’s 5.5 million population.

Finland held the presidency of the Council of the EU during the second half of 2019. In a departure from tradition, it did not give any gifts during the presidency, expect one—extending the goal to offer basic knowledge of AI to 1 per cent of all European citizens. In co-operation with the commission, the course will soon be available in all official European Union languages.

So far, more than 430,000 people from over 160 countries have taken the course. It is not designed only for professionals or digital ‘nerds’ but for common people: the only requirement is an internet connection and a will to learn. The course is digital education and lifelong learning par excellence. It’s a concrete and easy-to-use initiative which really has a multi-functional purpose—you can use it just to learn the basics of AI on your own from your bed in the evening, or take the course as a part of the education system in school, university or work. It is already part of the curriculum in almost every Finnish university and some employers in Finland have advised their employees to take it—just to keep up with the evolving world.

Gender balance

Another key issue is gender balance. AI learns from real-life data and there is a tangible risk that it will adopt existing biases and even make them more apparent. This is why the coders and users of AI-based technology need to be diverse. Yet how long have we talked about the small number of women in the technology industry? I graduated as an engineer in the 1990s and that topic is certainly not new.

Concrete possibilities for equal participation make the world more balanced. In the Nordic countries, the majority of participants on the ‘Elements of AI’ course are female and in the rest of the world the proportion exceeds 40 per cent—more than three times as high as the average ratio of women working in the technology sector. After the course had been running in Finland for a while, the number of women applying to study computer science in the University of Helsinki increased by 80 per cent.

Let’s be inspired by this and relentlessly continue our work, from the grass roots to the global level, to ensure we build fair, equal and progressive digital societies.

Social Europe

For a law of ‘algorithmic justice at work’ Thu, 09 Jul 2020 03:00:00 +0000 Workers must be protected from adverse decisions where responsibility is displaced to apparently anonymous algorithms.

Social Europe

Workers must be protected from adverse decisions where responsibility is displaced to apparently anonymous algorithms.

algorithmic justice, algorithms at work
José Varela

More and more companies delegate many of their responsibilities as an employer to algorithms, separating the human factor from labour management and exchanging it for computer programmes.

The recruitment of staff, the organisation of working time, professional promotion and the allocation of bonuses—even the application of a disciplinary regime—are all being put at the disposal of algorithms. This trend poses a severe risk to the rights and freedoms of workers.

Digital platforms already manifest this threat: their algorithms control and monitor their workers, evaluate their performance, determine their remuneration and even execute layoffs—and under abstruse, capricious and opaque criteria. Many attribute to these computer programmes characteristics science rejects, such as infallibility, neutrality and superficial precision.

Not infallible

Algorithms are not infallible. Their decisions can be as biased as those of any human; therefore, their resolutions cannot be considered superior or more objective. This is confirmed by studies from Princeton University, which evaluate algorithms as ‘very unreliable’ when applied to work environments. A resolution of the Council of Europe warns against ‘triggering additional interferences with the exercise of human rights in multiple ways’. The World Economic Forum even talks about ‘artificial stupidity’.

Algorithms are not empathetic: they do not understand concepts of humanity or honesty. They do not have a scale of values, nor do they distinguish cultural or social differences. They do not forgive and forget and they are unaware of their own fallibility. They have no common sense.

Even in certain perceptual skills, they demonstrate the capacity of a baby. And they do not correct themselves through considerations of understanding or justice, balance or diversity, ethics or morality. Today, and in the long term, human comprehension is essential for making decisions that are fair and equitable.

Nevertheless, companies continue to implement these tools, so it is necessary to regulate their use and application in labour relations, closely monitoring compliance with human rights and legal obligations to workers. We are not talking about applying a ‘precautionary principle’ to a hypothetical risk: it is much more than a preventive measure. We must prevent repetition of discrimination based on race, gender and ideology—types of discrimination that have already been verified in the operation of many algorithms.

Algorithmic justice

The Spanish trade union UGT is thus advocating for ‘algorithmic justice at work’—a law that regulates the safe use of these computer tools in Europe. Key demands are, in short:

  • full application of article 22.1 of the General Data Protection Regulation—the right of each worker not to be subjected to solely algorithmic decisions—and safety from retaliation in exercising this right;
  • expansion of guarantees specified in the GDPR, so that decisions based on autonomous computing solutions are explicable, accessible and reliable, the logic applied in each decision is accurately and comprehensibly presented, rights to information and consultation take precedence over other laws (such as those on industrial property) and all workers, and their representatives, are able to exercise these rights;
  • measures to promote gender equality and diversity among those responsible for programming and auditing algorithms; and
  • clarification of which of the actors involved in an algorithmic decision (employer, software provider, insurer …) is ultimately legally responsible.

Only through legal initiatives such as these can we ensure safe and fair working environments for 21st-century workers. Digital progress is necessary for our economies and for the competitiveness of the European Union and its member states. But this progress cannot be at the expense of workers’ rights nor bypass union responsibilities.

We want progress and we want digitalisation, but not at any price—always with social balances, under fair criteria and with real labour rights.

Social Europe

Collective bargaining—a legal right unrecognised in Ireland Wed, 08 Jul 2020 03:00:00 +0000 The EU recovery plan must link company bailouts to enforcement of collective-bargaining rights.

Social Europe

The EU recovery plan must link company bailouts to enforcement  of collective-bargaining rights.

collective bargaining
Oliver Roethig

Late last month Micheál Martin was hailed taoiseach (prime minister) of the Republic of Ireland in a an unprecedented power-share. If this delicate government is to survive, it must among other things redress the power imbalance between workers and multinational corporations. The European Union must seize the opportunity of the recovery to help Ireland address its woeful track record on collective bargaining.

The need for decisive government intervention is stark. As working families face a historic housing crisis across the country—linked to a severe under-supply of social housing—Ireland has the second highest incidence of low pay in the EU, affecting 23 per cent of workers in 2019. By contrast, last year also saw Ireland register the highest growth in gross domestic product in the union, for the third year in a row. Recent research by Oxfam indicates that Ireland also has the fifth largest number of billionaires per capita in the world.

Distorted distribution

Why are so many people excluded from the benefits of such exceptional economic growth? While the tax-haven opportunities Ireland offers multinationals inflate its GDP, an important driver for this distorted, unequal distribution has been the active suppression of wages and conditions at work.

Ireland stands out as the only western-European EU member that does not have binding collective-bargaining legislation. While in other EU countries workers have a real say over decisions that affect them, in Ireland these rights are consistently disregarded by corporations with impunity.

Irish laws leave it entirely up to employers whether or not to recognise and negotiate with workers’ trade unions. Removing the setting through which workers have a say gives the green light to corporations to treat the interests of the workers they rely on as an afterthought.

A few days before the new government was finally formed, after months of negotiation, minimal legislation to set minimum-wage floors across sectors was struck down in court. This has left the poorest and most vulnerable workers even more exposed, at a time when they need protection most.

Left with nothing

The light at the end of the Covid-19 tunnel was recently extinguished for a thousand retail workers. Their employer, the UK-based department-store chain Debenhams, announced it would not reopen its shops in the republic after the crisis, leaving workers with a combined 10,000 years of service to the corporation with nothing.

Workers and their union, Mandate, are leading efforts to hold the corporation to its commitment on redundancy pay. The fact that workers are stripped of any rights to enforce such commitments—allowing liquidators to prioritise payments to other parties over payments to workers—is an aberration the incoming government must urgently address.

This systematic undermining of workers’ rights is part of the appealing package with which Ireland has been attracting the predominantly US-based transnational corporations which have located Europe offices there over the past decade and more. Many have brought highly sophisticated union-busting practices.

Shared prosperity

Collective bargaining is the backbone of the European social model. It lays the foundation for shared prosperity and keeps inequality at bay. From the workplace to sector-wide, it ensures working people have a say in decisions that shape their lives, embedding democracy in everyday decision-making. It redresses the balance of power between the great majority of people who work for a living and the powerful minority who reap vast wealth from what they own.

This balance was achieved through sweat and blood—out of the widely abusive conditions in the industrial revolution and the ensuing great social upheavals, collective-bargaining rights were born. We are at a crossroads: either the EU allows a descent back into widespread industrial injustice and conflict or it steps in to restore our common European social heritage.

Other EU countries must call time on Ireland leading the race to the bottom on workers’ rights and tax justice. One early test will be the outcome of the Eurogroup’s current presidency campaign, in which Ireland’s minister for finance, Paschal Donohoe, is a major contender. In a remarkable commitment to Ireland’s role as a tax haven, Donohoe infamously led the campaign against the European Commission seeking to cancel its ruling that Apple should pay Ireland €13 billion in uncollected tax.

Instead of rewarding such destructive behaviour, the EU must work with the new government to change the country’s course. The commission’s recovery package is an ideal opportunity to do so. By making bailout funds to private companies conditional on the signing of collective-bargaining agreements with workers, it can restore faith in the European project and improve conditions for millions of working people.

While social dumping is unravelling working people’s hard-won rights, fiscal dumping is draining the public purses of countries across the union. EU leaders must seize the moment and act decisively to help Ireland find its way at this crucial time.

Social Europe

‘Shareholder value’ versus the public good: the case of Germany Tue, 07 Jul 2020 03:00:00 +0000 Support for companies amid the pandemic must come with social and ecological strings attached.

Social Europe

Support for companies amid the pandemic must come with social and ecological strings attached.

shareholder value
Emre Gömec

With uncertainty around the world about how and when the coronavirus outbreak will decelerate, whole business sectors have been affected by lockdowns and are facing ruin. In Germany, more than 750,000 companies have put over 12 million employees on reduced working hours (Kurzarbeit), dwarfing the 3 million hit by the 2008 crisis. And in a survey of nearly 8,000 working people by the Hans-Böckler Foundation, 70 per cent of respondents said they felt financially insecure, with those in lower-income groups betraying most concern.

shareholder value
Mustafa Erdem

Society’s loss goes beyond the toll on employment. As the crisis lengthens, innovative capabilities accumulated over years and even decades may atrophy and disappear, making it far more difficult to emerge from the pandemic with a healthy economy.

This ‘innovation drain’ can be avoided if, and only if, corporations devote every available resource to retaining, and reinvesting, in productive capacity. Implementation of the rescue packages adopted in Germany in March and June must thus fundamentally address future practices of corporate resource allocation.

Companies with more than 250 employees constitute 0.7 per cent of the total incorporated in the country but they employ 39.2 per cent of the workforce and undertake 57 per cent of corporate investment. They will eventually receive much of the government support—including due to their ‘too big to fail’ status—based on their importance to industry supply chains and business ecosystems.

Making government support conditional on replacing value-extractive practices, such as excessive dividend payments and executive compensation, is the most effective way to block damaging business decisions which undermine investment in productive capabilities and secure employment.

Hours slashed

Among the applicants for Kurzarbeit and loans from the national KfW development bank submitted by DAX 30 and MDAX 60 companies, Adidas AG demonstrates the urgency of reinvesting resources in productive capabilities. While the company received approval of a €2.4 billion KfW-backed loan and slashed the hours of more than a thousand of its employees in Germany, its financial statements reveal that in the last five years it spent 73 per cent of its net income—a total of €4.7 billion—on dividends and share buybacks.

According to the assumptions underlying the dominant business model employed by large western companies, shareholders are the only risk-takers and a company’s primary purpose is to ‘maximise shareholder value’, even at the expense of any investment in innovative capabilities. Although shareholder influence is negotiated within a stakeholder coalition in the German variant, the model has also been applied by many DAX 30 and MDAX 60 companies since the early 2000s.

As a result, profits distributed to shareholders has been so high over most of the past two decades that, without any reserves for a rainy day, the collapse of economic activity was immediate when the pandemic struck Germany. Unprepared organisationally and financially, corporations faced difficulties within a very short time.

Germany’s case was, it’s true, not as dramatic as that of the US, where S&P 500 companies, having fallen victim to the American disease of corporate financialisation, distributed 92 per cent of their net income between 2009 and 2018 in stock buybacks and dividends. Still, in the decade from 2010 to 2019, 65 German companies in the DAX 30 and MDAX 60 indices paid out a total of €338.8 billion, or 46 per cent of their combined profits, in dividends, in addition to €35.3 billion, or 5 per cent of profits, in stock buybacks.

Value extractors

DAX 30, MDAX 60 and other public firms are likely to reduce or stop dividends and buybacks for a time. But once economic stability is achieved, in the absence of any formal restrictions, they will likely resume transferring large portions of their earnings to value extractors. Although some have postponed dividend payments, the majority of German public companies are willing to stick to current dividend plans.

Such a return to business-as-usual, as shortly after the great recession, would be unsustainable. Companies should, now and always, prioritise their employees’ financial security and focus on the sustainability of their productive economic activity.

Much of the financial support government has allocated to large companies has been undertaken with a long-term perspective and it should be conditional upon long-term behavioural change on the part of those receiving assistance. The chancellor, Angela Merkel, has confirmed Germany’s commitment to the European Green Deal while however treating financial markets as the source of cheap capital for climate-friendly investment.

Whether the commitments of corporations are formalised and enforced will be the big issue. If they are not, these cheap credits will only help companies to maximise shareholder value through financial distributions as soon as their cash flow is restored.

Climate crisis

The government’s response to the public-health crisis must not be repeated as we confront the climate crisis in the coming years. Aid to specific companies and sectors must be contingent upon conversion of production lines to cleaner products and services and on energy-system transformation if climate-protection goals are to be reached without any delay in the measures already approved by the European Commission. Only legally enforceable and binding regulatory measures would make German corporations truly follow what they professed in a recent statement on the need for a climate-stimulus programme to make the economy more resilient.

After many years of domination of value extraction over value creation, it is time for governments to place ecological transition and social equality at the heart of economic recovery, to strengthen our resilience in the face of health and climate risks. The broken corporate mechanisms which prevent our societies reaching sustainable prosperity must be replaced.

Social Europe

Time to tackle the tax dodgers Tue, 07 Jul 2020 03:00:00 +0000 With some bailed out companies continuing to pay dividends, the focus should shift to making big corporations contribute to the cost of recovery.

Social Europe

With some bailed out companies continuing to pay dividends, the focus should shift to making big corporations contribute to the cost of recovery.

corporate taxation
Eva Joly

Remember the ‘world after the pandemic’? The Covid-19 crisis has caused mourning in hundreds of thousands of families and brought the world’s economies to their knees. But by forcing more than half of humanity to stop, it has also forced us to think, to dream of a more egalitarian, greener world. In that world, we would recognise the importance of quality public services, having seen health workers fighting heroically against the virus and teachers trying to keep in contact with their students, despite the lockdown and lack of resources.

Through timely and otherwise-welcome operations of ‘solidarity’—donating masks and gel or opening up their premises—big brands have not hesitated to advertise on the back of the pandemic. But all over the world, many companies are paying out billions in dividends, even after benefiting from state handouts.

In France, for example, half the CAC 40 index—representing the 40 top companies by market capitalisation—still decided to pay out between €35 and €41 billion in dividends, despite receiving state aid from the short-time-work scheme to compensate workers for reduced hours due to the pandemic. In Germany, the list is also extensive, with carmakers featuring prominently—Volkswagen has placed around 80,000 employees on short-time contracts, yet still plans to pay around €3.3 billion in dividends. And in the UK, the world’s largest chemicals company, BASF, which received £1 billion in support funding, voted last month to pay out more than three times that amount in dividends to shareholders.

Champions of indecency

The soaring dividends are feeding the billionaires, though the European ones are not the champions of indecency. In the United States, the assets of 600 billionaires grew by $434 billion, or 15 per cent, during the first two months of lockdown. The fortunes of Jeff Bezos and Mark Zuckerberg alone—founder bosses of Amazon and Facebook respectively—increased in sum by nearly $60 billion. This is no coincidence, as digital companies have benefited most from the pandemic—since they do not require any physical interaction with the public—often at the expense of small and medium-sized distribution firms.

Ironically, these multinational digital companies are also the champions of tax avoidance. The ‘GAFA’—Google, Apple, Facebook and Amazon—are not the only ones who do not pay taxes according to their activities. But, because they are dematerialised, they are able to exploit the loopholes in the international tax system more easily.

By manipulating transactions between their subsidiaries, they are reporting record profits in tax havens and very low ones—if not losses—in countries with higher corporate taxes, even though they are actually operating extensively in the latter. For example, Amazon, in spite of doubling its profits in the US in 2018, didn’t pay a single dollar in taxes there, for the second year in a row.

This is why, while keeping in mind that the US administration has just announced that it no longer wants to take part in negotiations to overhaul the international tax system, it is urgent for countries to introduce, regionally or unilaterally, at least temporary taxes on the digital giants. This is one of five main recommendations proffered last month by the Independent Commission for the Reform of International Corporate Taxation (ICRICT)—of which I am a member alongside economists such as Joseph Stiglitz, Thomas Piketty and Gabriel Zucman—to enable states to cope with the explosion in spending caused by the pandemic.

When the economies of the European Union are set to shrink by 7.4 per cent, the worst recession in the bloc’s history—the International Monetary Fund is expecting a global recession of 4.9 per cent—austerity is no longer appropriate. We need to invest in health, schools and infrastructure, but also in supporting businesses, especially the smallest ones. But even if some governments pretend to ignore the fact that we shall have to foot the bill in the end, we must, from now on, turn to those who benefit from the system without contributing to it.

Siren calls

In addition to digital companies, governments must also apply a higher corporate tax to firms in monopoly or oligopoly situations—especially those profiting from the crisis, such as in the pharmaceutical sector. Above all, we must not succumb to the siren calls for tax cuts, for which big companies are already campaigning, claiming that they are ‘necessary for reconstruction’.

We already know that, in normal times, it is not taxation that pushes a company to invest in a country: it is more about the quality of infrastructure, the workforce, market access or political stability. And while expansion projects are constrained by uncertainty and corporate overcapacity, tax cuts will not stimulate private investment anyway. But they would certainly deprive governments of valuable resources.

To protect and increase these resources, we must finally make a major push for transparency, to uncover the amounts hidden in tax havens. This concerns those with large fortunes, of course, who should finally pay their fair share of taxes to fund the consequences of this crisis—some countries, such as Argentina, are considering this—but above all the multinationals.

They must declare where and how much they earn on a country-by-country basis. This would allow governments to tax them at a minimum rate—at least 25 per cent, according to ICRICT.

In concrete terms, if a French multinational, for example, decided to declare its profits in the Cayman Islands—or, even closer, in the Netherlands or Luxembourg—to take advantage of a very low tax rate, France would be able to recover the difference. This measure would quickly make the raison d’être of tax havens disappear.

And, for once, governments are in a good position to impose this transparency. All they have to do is announce, as France, Denmark and Italy, among others, have already done, that companies with headquarters or subsidiaries in tax havens—without carrying out any real activity there—will not be entitled to any public aid to deal with the Covid-19 crisis.

There is no time to lose. The 2008 financial crisis already made us dream of a fairer world—with results we all know about. Losing this new opportunity, at a time when social, human and climatic crises are multiplying throughout the world, would be unforgivable.

Social Europe

Priorities for the Covid-19 economy Mon, 06 Jul 2020 03:00:00 +0000 The most urgent policy priorities have been obvious since the beginning, but they will require hard choices and a show of political will.

Social Europe

The most urgent policy priorities have been obvious since the beginning, but they will require hard choices and a show of political will.

prorities, Covid-19 economy
Joseph E Stiglitz

Although it seems like ancient history, it hasn’t been that long since economies around the world began to close down in response to the Covid-19 pandemic. Early in the crisis, most people anticipated a quick, V-shaped recovery, on the assumption that the economy merely needed a short time-out. After two months of tender loving care and heaps of money, it would pick up where it left off.

It was an appealing idea. But now it is July and a V-shaped recovery is probably a fantasy. The post-pandemic economy is likely to be anaemic, not just in countries that have failed to manage the pandemic (namely, the United States) but even in those that have acquitted themselves well. The International Monetary Fund projects that by the end of 2021 the global economy will be barely larger than it was at the end of 2019, and that the US and European economies will still be about 4 per cent smaller.

Structural transformation

The current economic outlook can be viewed on two levels. Macroeconomics tells us that spending will fall, owing to households’ and firms’ weakened balance sheets, a rash of bankruptcies that will destroy organizational and informational capital, and strong precautionary behaviour induced by uncertainty about the course of the pandemic and the policy responses to it. At the same time, microeconomics tells us that the virus acts like a tax on activities involving close human contact. As such, it will continue to drive large changes in consumption and production patterns, which in turn will bring about a broader structural transformation.

We know from both economic theory and history that markets alone are ill-suited to manage such a transition, especially considering how sudden it has been. There’s no easy way to convert airline employees into Zoom technicians. And even if we could, the sectors that are now expanding are much less labour-intensive and more skill-intensive than the ones they are supplanting.

We also know that broad structural transformations tend to create a traditional Keynesian problem, owing to what economists call the income and substitution effects. Even if non-human-contact sectors are expanding, reflecting improvements in their relative attractiveness, the associated spending increase will be outweighed by the decrease in spending that results from declining incomes in the shrinking sectors.

Rising inequality

Moreover, in the case of the pandemic, there will be a third effect—rising inequality. Because machines cannot be infected by the virus, they will look relatively more attractive to employers, particularly in the contracting sectors that use relatively more unskilled labour. And, because low-income people must spend a larger share of their income on basic goods than those at the top, any automation-driven increase in inequality will be contractionary.

On top of these problems, there are two additional reasons for pessimism. First, while monetary policy can help some firms deal with temporary liquidity constraints—as happened during the 2008-09 Great Recession—it cannot fix solvency problems, nor can it stimulate the economy when interest rates are already near zero.

Moreover, in the US and some other countries, ‘conservative’ objections to rising deficits and debt levels will stand in the way of the necessary fiscal stimulus. To be sure, the same people were more than happy to cut taxes for billionaires and corporations in 2017, bail out Wall Street in 2008 and lend a hand to corporate behemoths this year. But it is quite another thing to extend unemployment insurance, health care and additional support to the most vulnerable.

Short-run priorities

The short-run priorities have been clear since the beginning of the crisis. Most obviously, the health emergency must be addressed (such as by ensuring adequate supplies of personal protective equipment and hospital capacity), because there can be no economic recovery until the virus is contained. At the same time, policies to protect the most needy, provide liquidity to prevent unnecessary bankruptcies and maintain links between workers and their firms are essential to ensure a quick restart when the time comes.

But even with these obvious essentials on the agenda, there are hard choices to make. We shouldn’t bail out firms—like old-line retailers—that were already in decline before the crisis; to do so would merely create ‘zombies’, ultimately limiting dynamism and growth. Nor should we bail out firms that were already too indebted to be able to withstand any shock. The US Federal Reserve’s decision to support the junk-bond market with its asset-purchase programme is almost certainly a mistake. Indeed, this is an instance where moral hazard really is a relevant concern; governments should not be protecting firms from their own folly.

Because Covid-19 looks likely to remain with us for the long term, we have time to ensure that our spending reflects our priorities. When the pandemic arrived, American society was riven by racial and economic inequities, declining health standards and a destructive dependence on fossil fuels. Now that government spending is being unleashed on a massive scale, the public has a right to demand that companies receiving help contribute to social and racial justice, improved health and the shift to a greener, more knowledge-based economy. These values should be reflected not only in how we allocate public money but also in the conditions that we impose on its recipients.

As my co-authors and I point out in a recent study, well-directed public spending, particularly investments in the green transition, can be timely, labour-intensive (helping to resolve the problem of soaring unemployment) and highly stimulative—delivering far more bang for the buck than, say, tax cuts. There is no economic reason why countries, including the US, can’t adopt large, sustained recovery programmes that will affirm—or move them closer to—the societies they claim to be.

Republication forbidden—copyright Project Syndicate 2020,Priorities for the Covid-19 economy

Social Europe

Carbon pricing and the exit from fossil fuels Mon, 06 Jul 2020 03:00:00 +0000 Adam Tooze argues the European Green Deal and young Europeans’ activism are fostering a virtuous circle favouring more rapid decarbonisation.

Social Europe

Adam Tooze argues the European Green Deal and young Europeans’ activism are fostering a virtuous circle favouring more rapid decarbonisation.

carbon pricing, emissions trading
Adam Tooze

In the 1980s the dawning of global awareness of the climate problem coincided with the politics of the market revolution, also known as neoliberalism. Naomi Klein has described this conjuncture as a tragic coincidence. Environmental policy was steered towards limited, market-based solutions, above all centring on schemes for emissions trading. To turn the giant oil tanker of the modern economy in a new direction we would rely on the price mechanism.

Thirty years on, as the pace of the climate crisis accelerates, the self-confident assumptions of policy discourse framed in the 1980s and 90s have collapsed. Rather than imagining ourselves as captains of a giant ship, as Jörg Haas of the German Greens’ Heinrich Böll Stiftung has argued, our situation today is more like that of a rally driver hurtling towards a corner, desperately trying to point the car in the right direction. We should be pumping the gas, hitting the brakes and pivoting the steering wheel all at once.

If 2008 and its aftermath had not already taught us, after Covid-19 we know for sure that when the status quo is put seriously in question the actual motto of modern government is: ‘whatever it takes’. And, faced with the scale and urgency of the climate crisis, we must demand a no-less-radical approach.

We should be using everything, from targeted investment strategy to conditional government aid and green ‘quantitative easing’. Subsidised feed-in tariffs, penalties for dirty consumption and generous spending on research and development all have their role to play. Nothing should be off the table, including outright prohibitions and nationalisation of key business interests.

Carbon pricing

Since time is not on our side, we need to preserve the maximum freedom of action. We should avoid, as far as possible, getting bogged down in politically damaging debates about the totemic policies of an earlier era—above all carbon pricing. Time is too short to cling to the neoliberal dogma that creating markets and setting prices is the high road to success in all cases. Carbon prices, whether set by emissions trading or carbon taxes, are unlikely to be enough.

Take petrol, which in Europe and Asia has long been the object of eye-watering taxation. As a result, Europeans and Asians drive smaller cars than Americans. But they still drive far too much and their cars are far too big. Prices are not enough. We shall need to use more direct disincentives, regulations and prohibitions, such as mandating the end of internal-combustion engines.

Not only is carbon pricing not sufficient. It also produces collateral damage. The impact of regressive price and tax increases on those at the bottom of the income distribution can be truly painful. That risks provoking a backlash and stiffening political resistance to decarbonisation, which we can ill afford.  

In the urgent push for action we cannot however escape our history. Since the 1990s, carbon pricing has been at the core of European environmental policy. It retains committed elite support, including from influential voices in the German government, which will be directing European Union affairs for the next six months.

If set right, prices do have the attraction of providing a pervasive general incentive to cut back on what needs to be cut back—namely emissions. In this respect they are a useful complement to more targeted policies.

If a high-enough floor price is set, along with a credible commitment to future increases, this will sway investment decisions and fuel choices. The near-total displacement of coal in the mix of UK electricity generation is a case in point.

Emissions Trading System

In the late 1990s and early 2000s the EU went to the bother of building the Emissions Trading System. In light of experience, if we had our time over we might not do so again. But the whole point of the climate crisis is that we cannot have our time over: the clock is ticking fast.

Furthermore, the EU-ETS is working. This is surprising, not only because of the scheme’s checquered history but also because, on the face of it, conditions in 2020 could hardly be less propitious.

Thanks to the coronavirus-induced recession, energy demand has collapsed. There would be every reason, therefore, to expect the system to have been swamped by a surplus of emission allowances, whose prices we should expect to fall. But instead, after an initial downward blip, prices for European carbon allowances have recovered to near their pre-crisis level, at around €25 per tonne.

Combined with the collapse of natural-gas prices, we thus find ourselves at the fuel-switching point. At the current price for allowances and given the relative prices of gas and coal, the most efficient power plant burning coal cannot compete with the least efficient gas-fired plant. If sustained, this should spell the end for commercial coal-fired power in Europe. Gas is, at best, a transition fuel but ending coal would be a big win.

According to knowledgeable market participants, emission allowances are trading at such robust prices because market actors believe the EU’s commitment to rapid decarbonisation—as manifested in the European Green Deal—is genuine. This is hugely significant.

‘Minsky moments’

Markets are driven by narratives. Money is made by betting on good news or bad news, prices up or prices down. The crucial thing is to anticipate the direction of travel.

Generally, and for good reason, we assume that speculation driven by private profit will run counter to the intentions of progressive policy. In the modelling of climate ‘Minsky moments’, for instance, we imagine that private investors do not believe governments will stick to decarbonisation policies. It then makes commercial sense to continue to invest in oil, gas and coal, which, in turn, makes it harder to achieve decarbonisation.

It’s a vicious circle. Decarbonisation happens, just not as a smooth and efficient adjustment but in the form of crisis—the Minsky moment in which prices of fossil-fuel assets suddenly reset.

Yet imagine if the logic were reversed. Imagine if speculators persuaded themselves that the smart thing to do was to bet on the realisation of policy, thus hastening that outcome and making it easier for governments to stay the course. Remarkably, that is what seems to be happening in EU carbon markets.

According to insiders, the reason emissions certificates are trading at such high prices is that ‘the market now thinks that even the maximum level of fuel switching will no longer cut CO2 emissions enough for the EU’s longer-term targets to be met, and that prices will therefore have to go higher to incentivise reductions in the other sectors covered by the EU-ETS. Indeed, with the EU set to raise its 2030 emissions-reduction target by the end of this year to either 50 per cent or 55 per cent versus 1990 (compared with the current 40 per cent target), and with the scope of the scheme to be expanded over the next few years to include shipping, buildings and transport, there are good reasons to be bullish about further market tightening.’

Investors are not staking their fortunes on a failure of political will. They are betting that, faced with the inadequacy of current targets, politicians will double down and raise the ambition of decarbonisation. If politicians follow through on this logic, then emission allowances will become more valuable. Anyone buying them now will have a chance to sell them later at a profit. That anticipation is driving the price of allowances up—and putting coal plants out of business more quickly.

Impressive mobilisation

The analyst community—or at least its environmental, social and governance wing—has become convinced of the seriousness of the climate crisis. And, regardless of personal opinions, they are convinced the current generation of European leaders are committed to the cause. Backing up that political commitment is the force of public opinion and, in particular, the impressive mobilisation of young people which changed the conversation in Europe in 2018-19. Politicians who backslide on the Green Deal can expect to be punished at the polls.

The result is a virtuous circle. It is, in fact, the fantasy of good liberal governance, in which public and private action reinforce each other. That should be reason enough to be sceptical. But, given the urgency of the crisis, we cannot afford to look a gift horse in the mouth. If, for once, investors are betting that the political commitment to decarbonisation is genuine, there are significant and potentially long-term benefits in vindicating that belief, thus reinforcing confidence and building credibility.

It is a sign of the seriousness of our situation that betting on the climate crisis is no longer a matter for long-term speculation. Those holding the emission allowances expect to make money, not perhaps this year but in the foreseeable future. If markets are to play any part in decarbonisation, that expectation must be fulfilled. It is therefore crucial to ensure a Covid-19 recession does not bring on a sudden devaluation of allowances. This happened before—in 2005 and between 2009 and 2013—with discouraging effect.

In the wake of the last price collapse, in 2017 the EU considerably tightened the ETS and introduced the Market Stability Reserve. This mechanism, which came into effect in 2019, was a classic exercise in smokescreen politics. Though the professed goal of the MSR is to stabilise prices by mechanically withdrawing allowances from glutted markets, its true purpose is clearly to support a high and rising price for carbon over the long run. Crucially, the 2017 agreement included provision to begin cancelling surplus allowances accumulated by the MSR from 2023.

Welcome signal

It is that prospect to which markets are responding, gambling on the seriousness of political commitments. France and Germany sent a welcome signal in their joint initiative of May 18th for European recovery, in which they expressed their support for a floor price for carbon. When the MSR is reviewed in 2021 it could be updated to target explicitly a minimum price. Even more important, as a signal to voters and investors, would be a commitment to raise the ambition of decarbonisation well beyond the current target of 40 per cent by 2030 and to extend the drive to shipping, buildings and transport.

We know from bitter experience that the market-based ETS is not the universal, apolitical device for energy transformation it was once touted to be. It is a weak mechanism whose effectiveness depends on the political will to create scarcity and thus the conditions for meaningful carbon prices. Too often expectations have been disappointed and credibility has been undermined.

Currently, however, market participants are betting that the political will exists to push for deep decarbonisation. That is what a majority of Europeans—particularly young Europeans—want. With the right political leadership, there is an opportunity to turn the ETS from a neoliberal white elephant into an effective instrument of climate policy.

It is an opportunity Europe cannot afford to miss. The more loudly Europeans demand it, the better.

This article is a joint publication by Social Europe and IPS-Journal

Social Europe

Challenging patents key to make Covid-19 vaccine work for all Thu, 02 Jul 2020 03:01:00 +0000 Finding a vaccine against the coronavirus is a biochemical challenge. Ensuring universal access to it, however, is a political choice.

Social Europe

Finding a vaccine against the coronavirus is a biochemical challenge. Ensuring universal access to it, however, is a political choice.

Covid-19 vaccine, pharamaceutical companies, patents
Kateřina Konečná

Since the outbreak of Covid-19, the search for effective treatments and a vaccine to stem the spread of the pandemic has generated much political debate and many headlines. The race to find a vaccine has been particularly fierce among big pharmaceutical companies competing to become the first to commercialise it on the market. According to the New York Times, more than 135 vaccines are being developed, with two reaching the phase of large-scale efficacy tests—the final stage before deployment.

These companies are prime recipients of billions of euro in public money to support research and development to find a vaccine. The European Commission, through its Coronavirus Global Response, has raised €7.4 billion towards this end.

A major motivation for many of these efforts is the desire to find a cure for the pandemic that has infected millions of people around the world, killed hundreds of thousands, and disproportionately affected the most vulnerable. This however is only part of the picture.

First-mover advantage

Big pharmaceutical corporates are aggressively seeking what in the business world is known as ‘first-mover advantage’. The risk is that the first to develop an effective Covid-19 vaccine files for a patent which could make it sole supplier. Shareholders are pouring billions into these companies, in the hope of reaping big dividends.

Such exclusivity usually applies for 20 years but companies are known to manipulate the system to secure extensions. They can make minor changes, including to the colour of a pill, to renew a patent—changes which may not have benefits for patients but are sufficient to extend control over the drug and who can thus have access to it.

Crucially, patents allow businesses to set prices—extremely high prices for first-mover pharmaceutical companies able to exploit the absence of alternatives in the market. This artificial inflation drives up costs for our public healthcare systems and increases the proportion of public money going to multinational companies, many based abroad, turning access to lifesaving drugs from a universal right into a privilege. Private health has already flourished in some European Union countries at the behest of the ‘troika’ (of the commission, the European Central Bank and the International Monetary Fund) supervising bailout programmes.

The current arrangements mean that those who are able to pay for drugs will obtain privileged access to a Covid-19 vaccine. Those unable to pay will be left stranded. We have seen how this story ends. An unjust and unequal system will mean millions of lost lives.

Universal access

But it needn’t be this way. Alternatives exist. Putting the public good above private interests means respecting the right to cure in public healthcare systems with universal access.

I am greatly inspired by the actions of the freedom-fighter, and South Africa’s first democratically-elected president, Nelson Mandela, who in the 1990s challenged the international patents system and the predatory behaviour of pharmaceutical companies. Mandela accused big companies of exploitation by charging exorbitant prices for HIV-AIDS drugs. He and his successor circumvented international patent rules to allow manufacturers to copy expensive drugs, delivering lower costs and saving lives.

Multinational corporations, backed by the US government, took the South African government to court, with Mandela as first defendant. Following international uproar, supported by a vibrant grassroots campaign, the drug companies however dropped the case, marking a huge victory for the right to cure.

Guarantees needed

The European Commission president, Ursula von der Leyen, has said that a Covid-19 vaccine would be universally accessible. But she has given no assurances as to how that would happen.

We need guarantees. The current system is broken. We cannot afford to lose more lives because of some companies’ desire to treat our health as a profitable commodity.

A progressive alliance across Europe, in which I take part, has launched a campaign to demand, first, that the EU condition research grants to pharmaceutical companies on universal access and, secondly, that the discriminatory and unjust patenting system be reformed, drawing on alternatives such as a universal patent pool.

A Covid-19 vaccine must be a public good. We have a right to cure.

Social Europe

The EU is muddling through another crisis—which may be good enough Thu, 02 Jul 2020 03:00:00 +0000 The divisions exposed by the coronavirus have reopened fundamental questions about the ultimate aims of the EU. But now is not the time to answer them.

Social Europe

The divisions exposed by the coronavirus have reopened fundamental questions about the ultimate aims of the EU. But now is not the time to answer them.

finalite, muddling through
Peter Verovšek

In addition to its staggering death toll and profound effects on global public health, the novel coronavirus has exacerbated tensions within the European Union. Long known for its tendency to stumble from crisis to crisis, the last decade has been particularly difficult for the EU. Building on divisions dating back to the financial crash of 2008, Covid-19 has hit hardest in the member states that suffered most during the eurozone crisis. Most notably, Italy and Spain had to shut down their economies, while simultaneously increasing domestic spending, before they had even fully recovered from the previous downturn.

For the member states at the centre of both crises, the north’s rejection of ‘coronabonds’ in the early stages of the current pandemic brought back powerful memories of the previous refusal by the ‘frugal four’ to countenance the creation of eurobonds at the height of the sovereign-debt crisis. This painful sense of déjà-vu was allayed somewhat—albeit temporarily—by the Franco-German initiative to create a €500 billion recovery fund financed through joint borrowing.

After its announcement by the French president, Emmanuel Macron, and the German chancellor, Angela Merkel, in mid-May, this idea was taken up and developed by the European Commission. However, its failure to gain the approval of key northern member states at the June meeting of the European Council has dashed hopes of a breakthrough, at least for the time being.

In light of these developments, it does not appear as though the pandemic will provide an opportunity to bring about an ‘ever closer union’. And while there is a certain logic to proposals pushing for a resolution of Europe’s ultimate aim—its finalité politique—to press them at this time would be a mistake. Such initiatives would not only probably fail, but would also likely limit the scope of integration by setting goals that are too modest in the long term, as the rejection of the ill-fated constitutional treaty in referenda in France and the Netherlands in 2005 makes clear.           

The EU’s experience of continuous crisis over the last ten years has shown that the current generation of European leaders has neither the appetite nor the ability to push integration forward. The union would therefore be better served by muddling through the pandemic, using its existing playbook of crisis-management. It should set aside questions of its finalité until a later, more propitious time when a younger, more pro-European cohort of leaders has taken power.

Cohort effects

The foundation of the EU and its subsequent development have been driven by powerful generational dynamics. Although the idea of unifying Europe has a long history, it only became politically conceivable after 1945. In the aftermath of two world wars and the atrocities of the Holocaust, ‘never again’ was more than just a slogan: it was an imperative for political change which enabled the pooling of sovereignty beyond the nation-state.

The founders of the European project in the 1950s had lived through the war as adults. Building on their memories of war and suffering, this cohort—including Robert Schuman, Konrad Adenauer and Altiero Spinelli—established the first European communities, laying the foundation for the EU.

They were followed by the forty-fivers, who had come of age during the war. Building on the moral lessons they drew from the past, leaders such as François Mitterrand and Helmut Kohl transformed the European Communities into the European Union through the development of the common market, the opening of European borders and the creation of the euro.

Since the turn of the millennium a new generation, unaffected by the memories of war and suffering which committed previous leaders to a united Europe, has come to power. The political views of this first cohort born after 1945 are defined by the prosperity of the first 30 years of the postwar era. Although integration played an important part in the Wirtschaftswunder (‘economic miracle’), the European Communities were not particularly visible to everyday citizens at this time. As a result, this period is usually perceived as the heyday of the nation-state.

In light of their formative experiences as young adults, the current generation of European leaders tend to calculate their commitment to the EU in economic terms. The contrast to previous cohorts is most visible in the handover of the German chancellorship from Kohl to Gerhard Schröder. Whereas the former, born in 1930, was committed to the EU as a result of his personal memories of World War II, the latter, born almost 15 years later, noted that being European was a matter of choice, not obligation. It is no accident that the growing support for neo-fascist, authoritarian, far-right populists on the continent in the last ten years is concentrated within this cohort of baby-boomers.

A younger generation

Given the lack of commitment to the European project displayed by the current leadership over the course of the previous decade, it is unrealistic to expect a breakthrough towards greater integration and solidarity now. Fortunately, muddling through the threat posed by the Covid-19 crisis may be good enough, as there is a younger, more pro-European generation ready to take power in the coming years.

This new cohort, born in the late 1970s and 80s, displays a strong commitment to Europe. Unlike previous generations, their European-ness is based on the experience of growing up on a continent of open borders. In addition to short visits, many members of this generation have studied in other member states through such programmes as the EU’s Erasmus exchange. The proliferation of study, work and romantic opportunities across the continent has created what the late Umberto Eco called ‘the first generation of young Europeans’.

This cohort’s pro-European sentiments are foreshadowed by Macron, the first member of this generation to be elected to the leadership of a major European member state. He has unveiled many initiatives to tackle the challenges facing the continent at the supranational level and this upcoming cohort is deeply committed to the European project.

In light of these generational dynamics, supporters of deeper integration should not rely on the current, broadly Eurosceptic set of European leaders to resolve the question of the EU’s finalité. Although Macron succeeded in convincing Merkel to abandon her notorious political caution by supporting the issue of collective debt to help member states weather the coronavirus, it makes little sense to ask the current generation of European leaders to push beyond crisis-management.

Better to delay

While the institutions should not abandon their attempt to create a more democratic EU through initiatives such as the now-postponed Conference on the Future of Europe, it would be far better to delay resolving questions of Europe’s finalité. Once this new, more pro-European generation has taken power, they and their leaders can decide whether to push for a full-blown European republic, a United States of Europe organised around the existing member states or merely supranational economic governance through the creation of a European Ministry of Finance and a eurozone parliament to provide the democratic legitimacy for common debt and tax collection.

Regardless of the concrete form it takes, resolving the issue of the EU’s ambitions is better left to the future, when such initiatives are more likely to succeed and more likely to display the ambition the European project deserves.

Social Europe

No more free-lunch bailouts Wed, 01 Jul 2020 03:00:00 +0000 With governments spending on a massive scale to mitigate the economic fallout from Covid-19, they should be positioning their economies for a more sustainable future.

Social Europe

With governments spending on a massive scale to mitigate the economic fallout from Covid-19, they should be positioning their economies for a more sustainable future.

Mariana Mazzucato

The Covid-19 crisis and recession provides a unique opportunity to rethink the role of the state, particularly its relationship with business. The long-held assumption that government is a burden on the market economy has been debunked. Rediscovering the state’s traditional role as an ‘investor of first resort’—rather than just as a lender of last resort—has become a precondition for effective policy-making in the post-Covid era.


Antonio Andreoni

Fortunately, public investment has picked up. While the United States has adopted a $3 trillion stimulus and rescue package, the European Union has introduced a €750 billion ($850 billion) recovery plan [albeit still under deliberation], and Japan has marshalled an additional $1 trillion in assistance for households and businesses.

However, in order for investment to lead to a healthier, more resilient and productive economy, money is not enough. Governments also must restore the capacity to design, implement and enforce conditionality on recipients, so that the private sector operates in a manner that is more conducive to inclusive, sustainable growth.

No longer taboo

Government support for corporations takes many forms, including direct cash grants, tax breaks and loans issued on favourable terms or government guarantees—not to mention the expansive role played by central banks, which have purchased corporate bonds on a massive scale. This assistance should come with strings attached, such as requiring firms to adopt emissions-reduction targets and to treat their employees with dignity (in terms of both pay and workplace conditions). Thankfully, with even the business community rediscovering the merits of conditional assistance—through the pages of the Financial Times, for example —this form of state intervention is no longer taboo.

And there are some good examples. Both Denmark and France are denying state aid to any company domiciled in an EU-designated tax haven and barring large recipients from paying dividends or buying back their own shares until 2021. Similarly, in the US, the Massachusetts senator Elizabeth Warren has called for strict bailout conditions, including higher minimum wages, worker representation on corporate boards and enduring restrictions on dividends, stock buybacks and executive bonuses. And in the United Kingdom, the Bank of England has pressed for a temporary moratorium on dividends and buybacks.

Far from being dirigiste, imposing such conditions helps to steer financial resources strategically, by ensuring that they are reinvested productively instead of being captured by narrow or speculative interests. This approach is all the more important considering that many of the sectors most in need of bailouts are also among the most economically strategic, such as airlines and cars.

Climate targets

The US airline industry, for example, has been granted up to $46 billion in loans and guarantees, provided that recipient firms retain 90 per cent of their workforce, cut executive pay and eschew outsourcing or offshoring. Austria, meanwhile, has made its airline-industry bailouts conditional on the adoption of climate targets. France has also introduced five-year targets to lower domestic carbon dioxide emissions.

Similarly, many countries cannot afford to lose their national car industry and are seeing the bailouts as an opportunity to drive progress toward the sector’s decarbonisation. As the French president, Emmanuel Macron, recently argued, ‘We need not only to save the industry but to transform it.’ While extending €8 billion in loans to the sector, his government is requiring that it turn out more than one million clean-energy cars by 2025. Moreover, having received €5 billion, Renault must keep open two key French plants and contribute to a Franco-German project to produce electric batteries. As Renault’s major shareholder, the French government will be able to enforce these conditions from both outside and inside the company.

In some cases, governments have gone beyond conditionality to alter ownership models. Germany and France are acquiring or increasing (respectively) the state’s equity stake in airline companies, citing the need to safeguard national strategic infrastructure.

Poor record

But there are also negative examples. The car-industry bailout has played out very differently in Italy than it has in France. The FCA Group has convinced the Italian government—which has historically provided large subsidies to Fiat—to grant its subsidiary FCA Italy a €6.3 billion guaranteed loan with basically no enforceable conditions. FCA Italy is expected to merge with the French PSA Group by the end of this year and the FCA Group itself is no longer even an Italian company. Born in 2014 from the merger of Fiat and Chrysler, it is domiciled in the Netherlands and its financial headquarters are in London. Worse yet, the company has a poor record of keeping its investment commitments in Italy, which has fallen off the global map as a car producer, in terms of volume and electric vehicles.

In other negative cases, major companies and sectors have leveraged their monopoly or market-dominant bargaining power to lobby against conditionality or have exploited central banks’ support, which tends to come with fewer or no conditions. For example, in the UK, EasyJet was able to access £600 million in liquidity from the Bank of England, despite having paid £174 million in dividends a month earlier. And in the US, the Federal Reserve’s decision to start purchasing riskier high-yield bonds has fuelled moral-hazard fears. Among those standing to gain are US shale-oil producers, which were already highly leveraged and mostly unprofitable before the pandemic arrived.

Far from a step toward state control of the economy, conditional bailouts have proven to be an effective tool for steering productive forces in the interest of strategic, broadly shared goals. When designed or implemented incorrectly, or avoided altogether, they can limit productive capacity and allow speculators and insiders to extract wealth for themselves. But when done right, they can align corporate behaviour with the needs of society, ensuring sustainable growth and a better relationship between workers and firms. If the crisis is not to go to waste, this must be part of the post-Covid-19 legacy.

Republication forbidden—copyright Project Syndicate 2020,No more free-lunch bailouts

Social Europe