Spring Council 2 | Jobs and Growth

As this week's European Council meeting will concentrate on growth and employment (additionally to energy, that I've already tackled), I want to take a closer look at the current European strategy for jobs.

The neoliberal premises to job growth are now in practice in some countries for about 10 years or more. The experience with it is finally here. If we look at the European best-performers (Sweden, Finland, Denmark, UK), they proof the neoliberal premises astonishingly wrong. And here's why:

Premise 1: Monetary stability
Monetary stability (=low inflation) means budget restraint, and budget restraint means few public investment. This scheme is true for many countries since more than ten years. Those countries that spent more on public investment (which is, after all, investment in the future) are now doing particularly better both in jobs and in growth (Scandinavian countries, UK). Moreover, monetary stability blocks new private investment.

We should, therefor, push for a reform of the European Central Bank (ECB). Growth has to become a Bank's goal equal to monetary stability. Public investment shall no longer be punished by the ECB.

Premise 2: Competition in political structure
The Barroso commission sees downwards-competition in taxes, labor regulation and social services as beneficial in a global context. In fact, the European countries are not competing against the world, but primarily against themselves (the European trade balance is positive and growing, meaning it is very competitive).

Cutting in social spending has not turned out to be an incentive for growth and jobs. In fact, the countries that kept up a good social security are again best-performers.

Countries shall have the right to compete. But instead of obviously unsuccessful down-competing social standards (that shall be secured europe-wide), a more flexible macro-economy (see premise 1) can ensure that differently developed economic regions take different actions.

Premise 3: well-paid jobs cost growth
In many countries, wage raises have widely trailed the raise in productivity for the last ten years or more. This has severely damaged the economy, as less money is spent by the employees. Cheap jobs may make European products more competitive internationally in the short run, but keep in mind: more than 80% of European trade happens within the Union. Sacrificing internal consumption for exports is therefor a bad deal and hurts our export competitiveness in the long term severely.

Countries that keep wage increases in line with inflation and productivity have therefor been more successful.

Premise 4: liberalisation
Liberalisation in power, gas and telecommunication has shown two phenomenons: higher consumer prices and creation of huge monopolies (EdF, GdF, E.on, etc.). Both are counterproductive, hurt the economy and endanger access to public goods. The EU has to make regulation of the liberalised markets more democratic and more attentive. New markets (like pensions) should not be opened, as the effects (less growth and fewer jobs) will probably be similar.

Doing good politics means learning from experience. If the Union and the Barroso-commissison has any plans to do successful growth and jobs politics, they will follow the Swedish, Finish (and to some extent) British example.