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Another slant on "The Lisbon Agenda" Samuel Brittan: Speech at All-Irish Trades Union Congress Seminar Belfast 21/06/05 The Lisbon agenda has become a mantra. I did once try very hard to read the Lisbon summit communique of the year 2000 from beginning to end. It was hard work. It was full of uplift and unexceptional exhortations without any suggestion that there could ever be any conflict between desirable policy goals. It had the characteristically inflated headline objective of making the European Union "the most dynamic and competitive knowledge based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” by 2010. It is perhaps not an accident that the Lisbon communique was issued during the heyday of the international influence of the British prime minister Tony Blair, who warmly welcomed this agenda and claimed it as a British triumph. The basis of his Third Way is to embrace every possible objective replacing "either/or" with "both/and". Several concrete aims could be found among the political fluff. One was to raise the average annual EU growth rate from two per cent to three per cent between 2000 and 2010. More important was the objective of raising the average employment rate from 61 per cent of the relevant population in 2000 to 70 per cent by 2010. It is uncontroversial to say at this halfway point we are nothing like halfway there. What was basically misguided about all these attempts is that they covered matters which were still left to national governments and where summit type aspirations have little role. There have been some reforms. Examples include the Hartz measures in Germany, a more elastic interpretation of the 35 hour week in France and more flexible rules for hiring and firing part time workers in Italy. But nearly all the improvement has been at a national level and in response to pressures on national labour markets. There is little evidence that any of it has emanated from EU decisions or summit meetings. Even where policies are decided at an EU level, these high sounding declarations have little effect on decisions. The officials who draft these communiques live in one world; people like President Chirac live in another. When it comes to the point Chirac was allowed to pour cold water on a proposed services directive, which might have made a reality of the internal market for the greater part of EU output, in a vain effort to strengthen his hand in the referendum on the EU constitution. There is nothing novel in the principle "If you scratch my back, I will scratch yours”; but let us not dress it up as a superior economic or social model. It is indeed right and proper that many of these policies should remain at a national level. Let me try to explain in a non-chauvinistic way. In no country is there either a pure free market or one where intervention is limited to ascertainable social costs, public goods and principled redistribution. Left to themselves, separate European states make unprincipled concessions to different lobbies depending on their political strength: France to agriculture, Germany to heavy industry and so on. But at least under national decision-making they are free to make their own tradeoffs. In the EU these separate perverse policies are all added together in a way that is avoided in a pure free trade area. For instance, the UK, Scandinavia and the Czech Republic have to countenance a level of agricultural protection geared to French farmers and Bavarian weekender smallholders which could be avoided if decisions were returned to a national level. There is thus a slightly cynical aspect to the Euro scepticism of some British economic liberals. For they rightly suppose that so long as basic free trade and free movement remains. the balance of policies will be less protectionist towards special interests if each country makes a separate decision. Since the year 2000, "Lisbon" has become a code word for trying to make markets more flexible and competitive;and it is only in this special sense that I am prepared to defend it. It is important not to exaggerate the extent to which the EU economy lags behind the American one in levels as distinct from rates of change. Output per hour in some European countries is fully up to US levels. The difference lies in labour force participation: unemployment rates, inactivity rates, retirement ages, working hours, length of holidays and so on. If these differences were entirely attributable to preference for a different work/life balance - with more leisure and early retirement or generous unemployment pay, offset by less take home pay - there would be nothing more to be said. But there are at least two problems associated with the European social model. The first is that it may not reflect genuine individual preferences. There are individuals who are priced out of work by pay rates, overheads and regulations ordained by the so called social partners who do not sufficiently take into account those who are marginalised by these centralised agreements. But secondly, even if the social model did reflect individual preferences at the present time, they would be extremely unlikely to do so in the years ahead when the dependency ratio - that is the ratio of pensioners to the working population - is expected to shoot upwards. If this is not to generate unbearable social tensions it will be necessary for European growth to accelerate, whether through improved productivity, greater labour force participation or a mixture of both. It would also help if the denominator of the dependency ratio, namely the population of working age, were improved by a more liberal policy towards immigration. But fortunately that is not my subject today so I might be able to escape alive. The OECD has recently estimated that an onslaught on competition - restraining regulations in each country to "best practice" levels would lead to an increase in GDP per head of 3 to 3˝ per cent in both the European Union and the USA. The United States may or may not be a corporate paradise, but it is certainly not a free market one, as any study of regulations imposed by the individual states will show. Of course reforms should be carried out whether they take Europe nearer or further away from the American model. But I doubt if removing product market restrictions and restrictions on inward investment would by themselves do much to reduce unemployment, which has its roots in the labour market. It is not difficult to guess why governments always put labour market reform at the end of the "Lisbon" list instead of highlighting it. They hope that they can get away with some freeing of labour markets if they bury the objective in a great many wordy declarations on other subjects, such as knowledge based economies and sustainable growth. Even then there is no recognition of any relation between the cost of labour and the amount employed. Even people who realise that labour costs are often too high still take refuge in wishful thinking. At one time it was fashionable to attack mainly high social security contributions. But if labour markets are reasonably flexible workers receive a lower wage rate than they would if payroll taxes were lower. Today there is another fashion, especially in Germany and France. That is to let hours of work creep upwards without fully compensating adjustments in pay. The true liberal answer is to give as much scope to differing worker preferences in deciding between reduced social security benefits, longer hours and reduced gross pay. The main influence driving national governments to reform has been competition from the ten new EU states who enjoy much lower levels of pay and social protection. The pension problem associated with higher dependency rates will also begin to impinge on national policies. But exactly how or when it is difficult to say. Bismarck once said that the future or Europe would be determined not by majority votes and parliamentary resolutions but by blood and iron. Today’s equivalent of blood and iron consists of the realities of low wage competition, both from new EU members and outside, and the growing transfer burden to the older population. EU institutions, along with independent think tanks, can help by impartial analysis employing as little Euro-speak as possible. One important and constructive role which the trade unions can play in a new labour market is to represent more fully the preferences of individual workers. Instead of getting into head-to-head arguments about whether a 35 hour week, or some other length, should be the norm they should argue for personal choice. Individual workers should be able to choose their own packages of working hours or holidays versus take home pay, or security versus high earnings, or even pace of work against cash reward. These choices can vary between different enterprises and they do not even need to be the same in a single large enterprise. If they concentrated on this representational task there might at last be some common ground between trade unions and market liberals. But do not let us celebrate too soon. I am sure our discussions will show there is a long way to go.
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