Sustainable competitiveness needs a social dimension

Glancing across the Atlantic, austerity and deregulation will make Europe neither competitive nor green.

Ever since the United States administration proposed its Inflation Reduction Act, signed by the president, Joe Biden, last August, there has been panic in the leadership of the European Union over an adequate response. While most have focused on the IRA’s green subsidies, worrying over how Europe can compete, the social dimension in the act has largely been overlooked.

This is striking in the Green Deal Industrial Plan announced at the beginning of February, where subsidies for green industry lack any social conditionalities. The US is teaching Europe, once a pioneer of the social-market economy, a lesson: if nothing changes, it will lag behind America, in social as well as economic terms.

Strings attached

Public subsidies need to come with strings attached. They should be dependent on companies’ performance on workers’ rights to join or form a trade union, on collective bargaining and on information-sharing and consultation with workers and their unions, as well as on the absence of extraordinary dividend payments and share buybacks.

In Europe policy-makers have fallen for employers’ warnings that such social conditions will scare off investments. Yet US companies such as Ford are attracted by the IRA—even though it includes, among other things, tax credits for firms which pay decent wages and hire apprentices and the taxing of corporate stock buybacks, to encourage businesses to invest instead of enriching chief executives.

Unfortunately, the European Commission continues to underestimate the value of investing in people. Of course, we agree that enterprises need to be competitive. But the only way to maintain a sustainable advantage within resilient industries is by investing in workers, quality jobs, training and upskilling, and in future technologies.

Sirens of austerity

When it comes to inflation, austerity and deregulation will not make Europe competitive, as we saw amid the eurozone crisis. By suppressing wages austerity killed internal demand and created an unnecessary recession, which was bad for everybody: business, the economy and especially wider society.

Yet we hear the sirens of austerity again, especially in the rate-hiking course on which the European Central Bank has embarked. All evidence from the ECB and Eurostat shows that last year’s massive inflation was mainly driven by record energy prices, due to the war in Ukraine. Inflation has started to recede, now that energy prices have also decreased (although gas prices remain higher than prewar). The ECB’s rate rises are not only misplaced as an instrument to tackle inflation but also discourage investments in the desperately needed green transformation.

Households are also consequently suffering from more expensive credit. But households’ concerns are not on the ECB’s agenda: despite all evidence, including its own reports, showing that there is no wage-inflation spiral, the ECB says that it is looking very closely at wages. This though wages drive internal demand—particularly given wage-earners’ higher relative propensity to consume than the well-off—and a recovery to a sustainable competitive economy relies on good wages.

Record profits

A much stronger case can be made that record profits in many sectors have fuelled inflation. Based on Eurostat and ECB calculations, between the fourth quarter of 2019 and the second of 2022, in manufacturing profits rose by almost 20 per cent, while wages increased by only some 4 per cent; in mining, extraction and utilities, profits were up by over 50 per cent, wages only by around 7 per cent.

The latest figures published by energy companies in January only confirm the war profiteering: TotalEnergies reported net profits of $20.5 billion and a generous payout to shareholders, BP announced net profits of $27.7 billion for 2022, Equinor announced record net annual profits of $28.7 billion and Shell said it earned almost $40 billion—more than double its 2021 profits.

We cannot understand why the commission and the ECB are not looking into how these record profits are driving inflation but instead obsess over wages. Trade unions are not against profits, if these fund investments and deserved wage increases for the workers who helped produce them, yet currently they are being pocketed by shareholders. As Eurostat indicates, investments have been going down, along with the purchasing power of wages.

Expenditure ceilings

Austerity could come in through the back door, with the commission’s proposed reform of the EU economic governance framework. We welcome reform of the rigid fiscal rules, which prevented governments from investing in their economies and people, putting a brake on Europe’s growth and competitiveness. But the proposed changes are not in the right direction.

We are particularly concerned about the proposition that rigid expenditure ceilings could be imposed on member states by the commission and the Council of the EU, without any democratic process involving the European Parliament. Sustainable reduction of the ratio of public debt to gross domestic product can only be achieved by supporting the economy concerned through investments (as these generate taxes and reduce unemployment expenditure, diminishing the numerator, while sustaining or increasing the denominator).

The commission does not seem to have learned from the positive experience of supporting the economy during the pandemic, via the National Recovery and Resilience Plans. Once again, the US is ahead of Europe here.

Unprecedented protests

While billionaires and big business are accumulating eye-watering wealth and profit amid the crisis, the lower and middle classes are being squeezed by the grinding cost of living. The results are predictable: researchers have identified a global wave of more than 12,500 public protests, with France, Germany, Italy and Spain among the top ten countries involved. The researchers say that this concentration of protests in the global north is ‘historically unique’ and that there have never been so many cost-of-living protests in one year.

Trade unions have been at the forefront of these demonstrations—many linked to the intense collective-bargaining rounds in which unions have fought to protect their members’ purchasing power in this extraordinary situation. With the campaign ‘Together. In Action. For Higher Wages’, industriAll Europe and its members have called for wages to be raised in line with inflation and productivity gains, including through sectoral (rather than merely enterprised-based) bargaining. It has also urged public-policy measures to tackle the causes of the cost-of-living crisis and fair taxes on big business and the wealthy.

Solutions exist. What has been missing in Europe at leadership level is the political will to implement them. Not addressing the cost-of-living crisis amid the perceived unfairness of the economic system risks pushing desperate voters towards the far right. Extremist groups have been on the rise across the continent and, in some countries, have even managed to win elections. This should serve as a wake-up call ahead of next year’s elections to the European Parliament.

The EU needs to change the narrative on how it responds to the US green-recovery plan—focused on imitation rather than competition. A revised approach to the Green Deal Industrial Plan, with a strong social dimension, would be a welcome step forward.

Isabelle Barthès

Isabelle Barthès is deputy general secretary of industriAll Europe.

Patricia Velicu

Patricia Velicu is senior policy adviser at industriAll Europe