A Clouded Outlook
Monday, Aug. 02, 2010
Sometimes Japan seems to be on the wrong continent. Everywhere else in Asia, from Shanghai to Mumbai to Jakarta, there is an aura of perpetual motion, a sense that tomorrow will be better than today. The region is on a frenetic 365-day-a-year hurtle into a brighter future. Japan once shared Asia's dynamism and mission. But not anymore. Today, Japan is an island of inertia in an Asia in constant flux. Japan's political leadership is paralyzed, its corporate elite befuddled, its people agonized about the future. While Asia lurches forward, Japan inches backward.
And yet no one in Japan is doing very much about it. For 20 long years, ever since the spectacular collapse of a stock-and-property price bubble in the early 1990s, the economy has existed in a near cryogenic state. The postbubble period of malaise called the "lost decade" has stretched into the lost decades. Growth has been practically nonexistent, the welfare of the Japanese people has suffered and the old industrial titans of Japan Inc. are retreating on the world stage. Japan will likely lose its cherished status as the world's No.2 economy this year, to a more energetic China. Though that was inevitable, the fact that China is so quickly closing the gap in economic power doesn't bode well for Japan's standing in the world. (See pictures of stagnant Japanese economy.)
Every few months, Tokyo's political revolving door spits out a new Prime Minister (Japan's had six PMs in the past four years) who inevitably vows that the time has come, finally, truly, to reform. But the proposals announced with expectant fanfare usually get swallowed up in Japan's dysfunctional political system. Even Prime Minister Naoto Kan has acknowledged the atmosphere of suffocating hopelessness. "There is a growing feeling of being fenced in," he told the nation upon taking office in June, "a vague sense that the whole country is being stifled."
Kan is the latest political leader to promise a breakthrough. The former Finance Minister has proffered a growth strategy he calls the "Third Approach" — an agenda mixing European welfare-state policies with government-supported efforts to create jobs in promising sectors like green energy and health care. But Japan's political process instantaneously became his ball and chain. In July elections, frustrated voters stripped Kan's Democratic Party of Japan (DPJ) [http://en.wikipedia.org/wiki/Democratic_Party_of_Japan]of its majority in the upper house of the Diet, the country's parliament, less than a year after sweeping the longtime opposition party into office in a landslide triumph. The continual disarray in Japanese politics threatens to make Kan's attempts to reform the economy even more difficult. (Read "Can Japan Put Its Economy Back on Track?")
Time may finally be running out for Japan. In the wake of Greece's sovereign-debt crisis, investors have begun focusing on the sick state of national finances in the industrialized world, and Japan's are among the sickest. Decades of fiscal mismanagement have saddled the government with debt equivalent to nearly 200% of the country's entire economic output — the biggest burden among developed nations — and pressure is building on Kan to introduce painful austerity measures. "There is an awareness that things can't stay the same," says Jeffrey Kingston, director of Asian studies at Temple University's Japan campus. "The problem is, people really don't know what is next. Japan's huge problems are just festering and Japan remains rudderless." (Comment on this story.)
From Dynamo to Dinosaur
In many ways, Japan is a glimpse into a possible future for the U.S. and Western Europe. The Japanese have been struggling with major issues — an aging society, a fiscal disaster, weakening competitiveness — that the West is beginning to contend with as well. Japan's struggle today starkly shows the perils of inaction, of allowing domestic political calculations and ideological inflexibility to take precedence over the pragmatism necessary to thrive in a changing world.
What makes Japan's story so much more frustrating is that not so long ago, the nation was at the forefront of change. Japan's bureaucracy-led economic system was heralded as a growth machine superior to the more laissez-faire approaches of the West. The management practices of Japan's biggest corporations — from ultra-efficient "just-in-time" manufacturing processes to consensus-based decisionmaking — were the envy of the world. Long before Apple's iPad, it was Japan's Sony that invented the must-have gadgets that changed global lifestyles (remember the Walkman?). Japan didn't need answers; Japan was the answer.
Yet those same policies and practices that sparked Japan's miracle have come to strangle it. Japan has remained wedded to the same basic growth model it used in its miracle years — bureaucracy-led policymaking and a die-hard devotion to exports and manufacturing — even though it no longer fits Japan's modern, high-cost economy or keeps the country competitive. Though Japan's financial sector generally avoided the subprime-induced meltdown that hit the U.S., it got smacked much harder by the global downturn. In 2009 the economy sank 5.2% compared to 2.4% in the U.S.
The Japanese people are paying the price. Though Japan is still the richest in Asia, on a per capita basis, it is not getting any wealthier. A distorted, overprotected labor market, much like those in Western Europe, forces 1 in 3 workers into temporary or contract jobs, denying them proper security, wages, benefits or training, and dampening the consumer spending the country needs to restart growth. The average wage, at $3,400 a month, was roughly the same last year as it was in the mid-1990s, while the household income of a worker's family, at $5,300 a month, fell 4.6% in 2009 from the year before.
Stumbling in Sendai
Sendai is a microcosm of what ails Japan. The modest town of 1 million people is the capital of the prefecture of Miyagi, where unemployment, at 6.4% in 2009, was well above the national rate of 5.1%. Sendai's young graduates are forced to relocate to bigger cities like Tokyo or Osaka since they are unable to find good jobs at home. Yet local government officials and business leaders display a distinct lack of creativity in addressing the region's economic woes. (Read "Japan's Government: Five Ways to Fix the Economy.")
Take the local economic development plan. The government intends to create jobs by attracting factories to Miyagi in three industries — automobiles, food processing and electronics — with special tax breaks and other financial incentives. Yoshinobu Ikuta, an assistant manager at the prefecture's New Industry Promotion Division, explains that the goal is to turn Miyagi into a major industrial hub, on par with the area around Nagoya. As a sign of the potential promise, he points to the construction of a car-assembly plant in Miyagi by Toyota subsidiary Central Motor, due to open in 2011. "We want autos to create more jobs so young people stay in the area instead of getting jobs outside," says Ikuta.
Such a plan might have worked — if the date were 1975. Back then, Japan was a rapid-growth economy with high rates of industrial investment. But the Japan of today is a high-cost economy suffering from excess capacity, in which companies have less incentive to invest heavily. Investment as a percentage of GDP was 20% in 2009, down steeply from 33% in 1990. Many manufacturers in industries like carmaking prefer to build plants overseas, where costs are lower or markets are expanding. The Central Motor plant is the first new assembly factory Toyota or one of its subsidiaries has opened in Japan since 1993. As a result, the essence of Miyagi's development plan is effectively to steal jobs from other parts of Japan, not create entirely new industries that could increase overall employment. (See pictures of Japan in the 1980s and today.)
Ikuta is aware of such facts, but dismisses them. He and his colleagues — and their overlords in Tokyo, who still call most of the shots — are stuck on the decades-old idea to equate economic progress with physical factories. He defends the Miyagi plan, saying that technological changes in the auto industry, such as a potential shift to electric cars, will provide opportunities for Miyagi. "We hope that the whole industry will change and merge with other industries," Ikuta says. But what about targeting more cutting-edge sectors? Maybe IT services or R&D centers? Sendai, after all, is home to Tohoku University, one of the nation's top science and technology schools. Ikuta and his colleague Hiroo Sato, who oversees efforts to woo electronics makers to Miyagi, say any investment is welcome, but the government's focus is still on factories. Nor do they seem interested in having foreigners create jobs for Miyagi's unemployed. Ikuta and Sato both say Miyagi is open to foreign investors, but, unlike competing cities and provinces in China, Taiwan and elsewhere in Asia, the local government is doing little to attract them.
Sendai's business leaders don't seem to have any better ideas. At the city's Chamber of Commerce, Morio Sato, the secretary general, simply repeats the exact same government development plan. Autos. Electronics. Factories. When pressed for their own ideas for creating jobs in the region, Sato and his colleagues go mum. What can the government do to help businessmen in Sendai? More squirming and nervous giggles, but no clear answers. Perhaps Sato and the other chamber members have bold ideas for fixing the economy, but were uncomfortable speaking out due to their sense of politeness, a common trait among Japan's older generation. But that, too, is telling — it shows the lack of public debate on economic reform. Eventually Sato works up the nerve to express an opinion, muttering that more state subsidies for small businessmen would help.
The desire for government handouts is a constant theme in Sendai. Kazunori Chiba, director of the Miyagi branch of the National Federation of Agricultural Cooperative Associations, says that the region's tillers have come under strain from past liberalization policies and require continued government support to survive. He not only wants continued subsidies for farmers, but also state efforts to control food supply to support prices. Farmers had traditionally been loyal supporters of Kan's political rivals in the Liberal Democratic Party, he not very delicately points out, but many switched to the DPJ. Now, Chiba suggests, it's time for the payoff, whatever fiscal problems Tokyo might be facing. "We are all aware of the government budget situation, and we are not demanding a great amount," says Chiba.
The business-as-usual approach in Sendai shows how stale Japan's bureaucracy-led economic model has become. "Japan still craves the old structure, but that structure is preventing the emergence of new industries," says Kazunori Kawamura, a political scientist at Tohoku University. "The bureaucrats create a system that benefits themselves. They are reluctant to invest in something that has a chance of failure. They'd rather invest in something with a track record. We need to take the relationship between the bureaucrats and the economy apart."
A few bold politicians have tried. Junichiro Koizumi, Prime Minister from 2001 to 2006, believed Japanese required more freedom to take risks to get the economy moving again. He undertook a wide-ranging American-style liberalization program, loosening up inflexible labor markets and deregulating the corporate sector to encourage new investment and entrepreneurship. But in a society that prides itself on egalitarianism, the disparities in welfare brought about by the Koizumi reforms made many Japanese queasy. The public was shocked when unemployed workers set up tents in downtown Tokyo during the Great Recession. The idea of market reform has become so tainted in Japan that the DPJ actively campaigned against it during last year's general election. Yukio Hatoyama, the first DPJ Prime Minister, decried what he called "market fundamentalism" as inherently immoral. (See pictures of Yukio Hatoyama's political life.)
The DPJ is trying to fix Japan in a very different way. Kan, as Hatoyama also intended, wants to snatch policymaking power from the bureaucrats and put it into the hands of the Cabinet. The DPJ has also realized that selling reform to the average Japanese will be difficult without a major upgrade of the country's often weak social safety net. The party has already waived high school tuition fees and introduced a state subsidy for families with young children, and it has promised to strengthen medical and child-day-care services. In doing so, Kan hopes to restart growth by bolstering consumer confidence and convincing Japanese families to spend more and save less. Kan has also raised the idea of cutting the corporate tax rate, which is higher than those in most other industrialized countries, to spur investment and create jobs. "The economy has continued to be stagnant because of the pursuit of economic policies that did not match the changes in the structure of industry and of society," Kan said in a June policy speech.
Doubts about Kan's plans are already mounting. Decades of wasteful fiscal spending — which previous Prime Ministers had used to stimulate growth with "bridge to nowhere" construction projects while sidestepping reform — have restricted Kan's ability to create growth with government policy. Kan himself has called the country's financial position "dire" and has warned of "fiscal collapse" if action isn't taken. In June, Kan rolled out a fiscal austerity package that would balance the budget over the next decade. Kan also floated a controversial proposal to double the sales tax to 10% to help fill depleted coffers. He argues that his administration can simultaneously rein in fiscal deficits and fund his social-welfare expenses. (Read "New Scandal Hits Japan's Ruling Party.")
Yet his argument is unconvincing. Raising taxes would stifle the very consumer spending he wants to stimulate, while possibly only denting the country's fiscal problems. Carl Weinberg, an economist at research outfit High Frequency Economics, warns the Japanese government will have to take far more severe measures if it wishes to reduce its debt. "We presently have no plausible scenario in which the ratio of debt to GDP ever declines," Weinberg wrote in a recent study.
Japan's corporate sector hasn't been any more enlightened. The biggest names of Japan Inc. have been steadily losing ground in key industries and markets around the world, often to more nimble competitors from elsewhere in Asia. That is especially the case in the crucial emerging markets of the future — China and India — where Japanese managers have been slow to adapt product lines to the different needs of their up-and-coming, but still low-income, consumers. In India, for example, South Korea's Hyundai sold two-and-a-half times more cars in the rapidly growing market in 2009 than Toyota and Honda combined, according to J.D. Power & Associates. Japanese brands are also falling behind in hot, new consumer markets. South Korea's Samsung and LG Electronics are tops in the expanding LCD TV business, not Sony, Sharp or Panasonic, while Taiwan's Acer is winning in the mini-PC netbook market.
If Japanese companies continue to lose global market share, consulting firm Bain & Co. warns, they could shed half of their mid-2009 market capitalization by 2012. Their problem is outdated boardroom practices. Work-your-way-up-the-ladder promotion systems and consensus-based decisionmaking have made managers risk-averse and opposed to outside influences. As a result, says Jean-Philippe Biragnet, a partner at Bain in Tokyo, Japanese firms don't absorb talent from around the world or identify new growth businesses as well as their American, European or even other Asian competitors. "Japan's consensus-based management becomes counterproductive in certain situations, when they use it as an excuse to not make tough decisions," Biragnet says. "What needs to be done is not rocket science. You need leaders who will be bold enough to make certain decisions." (See pictures of Tokyo Auto Show.)
Of course, some sound decisions are getting made. Japanese companies still possess the smarts to churn out some of the world's most inventive and beloved products — from Toyota's hybrid Prius sedan to Nintendo's Wii video-game console — and top-notch technology in key industries for the future, such as nuclear power and solar panels. Corporate managers are also learning to adjust to the needs of emerging markets. Toyota will begin production of its first model designed specifically for the India market, called the Etios, in late 2010, while in mid-July the company announced it will build a $600 million plant in Brazil to manufacture small cars for local consumers. In another sign Japanese companies are thinking more globally, both Internet retailer Rakuten and the company that operates the Uniqlo clothing-store chain announced this year that English would become their official language. Young people also appear more inclined to start their own businesses instead of automatically signing up with big corporations or government ministries as they did in the past. "Younger Japanese are definitely not company men in the old salaryman sense," says Kenneth Grossberg, a marketing professor at Waseda Business School in Tokyo.
The question is, What will they do instead? The economy is still so wrapped up by the old-fashioned bureaucracy that starting new businesses is a tough task. In fact, Japan's entire economic model needs an overhaul in order to create new opportunities for the nation's youth. Policymakers must break once and for all from the export obsession held dear for decades and find new sources of growth at home. That means ending its traditional bias toward manufacturing and developing the inefficient services sector by slashing the red tape that stifles competition. Japan also requires major labor-market reform in order to boost wages, productivity and worker welfare, thus stimulating more consumer spending. Softening the protection of permanent employees to encourage more hiring would help, as would enhancing the benefits and training offered to part-timers. Japan could also do with a greater role for women in the workplace and wider acceptance of immigration to ease the burden of an aging society. More broadly, the Japanese should finally jump on the globalization bandwagon by opening more to foreign investment and talent while seeking greater international experience. In a disturbing trend, the number of Japanese students enrolled at American universities sank 38% to 29,264 over the past decade, while those from China increased 80%, according to the Institute of International Education. (See pictures of young Japanese women in despair.)
Such a sweeping vision for the nation's future and its role in the world is regrettably absent. Katsuji Konno, president of Igeta Tea Manufacturing, a Sendai-based chain of specialty tea shops, complains that the country's leaders are too focused on short-term fixes rather than long-term solutions. "You have to think of more drastic measures," he says. "You need to think 10, 30, 40 years ahead." Until Japan stops living in the past, it may not have a future.
— with reporting by Terrence Terashima / Sendai
U.S. Weighs Tax That Has VAT of Political Trouble
Wall Street Journal
July 12, 2010
At least 139 countries, including most major economies except the U.S., levy a value-added tax on goods and services.
But as the U.S. faces swelling deficits, talk of adopting one has become more commonplace and is likely to intensify. The latest rumblings came earlier this month, at a meeting of a White House commission looking for ways to dig the U.S. out of its fiscal hole.
Asked by a commission member whether corporate leaders could live with what is known as a VAT, Business Roundtable officials said they would consider the idea, but only if Congress agreed to streamline and lower the U.S. corporate income tax.
"We certainly think, like everything, [a VAT] is something that should be examined, but examined in the context of...the overall structure of our tax system," John Castellani, president of the Business Roundtable, which includes chief executives of U.S. multinationals, testified at the hearing.
The VAT is a tax on sales that was first adopted in France in the 1950s. It's similar to a retail sales tax, but typically collected all along the production process, and businesses get a credit for VAT they pay to others. A car maker, for instance, would collect the tax from customers on all the cars it sells, but get a credit for the VAT it paid on tires and other on parts it bought to make the vehicles. The car maker would then pay the difference to the government.
Advocates say a VAT creates less incentive for avoidance compared to a sales tax, while limiting economic damage compared to income taxes. But conservative critics worry it's just another faucet for government to tap. And many business owners regard it with apprehension, in part because of its administrative complexity.
Two months ago, after pro-VAT comments by some high-profile figures including House Speaker Nancy Pelosi, the U.S. Senate voted 85-13 to condemn the VAT as "a massive tax increase."
But the VAT talk has continued in Washington, as political leaders confront the challenge of bringing the nation's soaring deficits under control. The talk will likely get louder for at least three reasons.
First, the VAT raises a lot of money, and Congress and the White House need a lot to avoid politically difficult spending cuts. According to one recent estimate, a VAT of 5% would raise $161 billion a year in 2012, even assuming that lawmakers build in protections for lower-income people (such as exempting necessities from the tax). Many large economies with a VAT charge rates of up to 15% or 20%.
And according to some economists, a VAT can produce all that revenue without discouraging investment as higher income taxes would.
"If you're looking for more revenue, I think raising rates under the current income tax probably is not a good idea and could do significant economic harm," says Eric Toder, a co-director of the nonpartisan Tax Policy Center think tank. By contrast, a VAT "doesn't interfere with where goods are produced...and doesn't interfere with savings, investment and capital formation." A White House spokeswoman said President Barack Obama "has not proposed this idea nor is it under consideration."
Second, many U.S. multinationals increasingly suspect they might have little choice but to accept a VAT, or some similar tax, if they hope to avoid further increases in U.S. corporate income taxes, or even win cuts in current rates. They regard current corporate taxes as too high, particularly given global trends toward reducing them. Some companies are hoping a VAT would encourage Congress to streamline and lower the corporate tax, something they regard as critical given international trends.
Third, even a few domestic businesses are beginning to eye the VAT as a possibility, despite the considerable administrative burden it creates. That's largely because value-added taxes are imposed on imports at the border, and refunded to domestic businesses on their exports, making a VAT an effective subsidy for U.S. producers, according to the advocates. (Some experts disagree.)
Still, there are many reasons why the VAT remains a heavy lift in Washington: As a consumption tax, the VAT hits lower-income earners disproportionately, because they spend more of their income. Fixing that problem probably requires offsetting the VAT with some kind of credit for the poor.
Even with such an offset, retailers dislike the idea, because they think a VAT creates a drag on overall spending, particularly among middle-income earners.
Also, many critics believe the VAT could start low—but then be steadily ratcheted up. They point to the experience of European countries that started with low VAT rates but gradually saw them increase. Congress also could lower the corporate rate now in exchange for a VAT, only to increase it again later, they worry.
Perhaps the most important objection is purely political. Folk wisdom in Washington holds that every government that has ever created a VAT has been voted out at the next election.
At this point, a U.S. VAT is a long shot, particularly given the current anti-government mood that prevails among a large share of voters. But it's not totally out of the question, assuming it's paired with enough reductions in other taxes to win support from key constituents.
By MATT WELCH
April 25, 2010
With the stunning emergence of the consumption-based Value Added Tax (VAT) as a legitimate public policy option, the Obama administration has now all but made it official: There is no European economic idea too extreme for 21st century America. Even if the Europeans themselves are largely headed in the opposite direction.
VAT, first rolled out in 1950s France, is a sales tax on everything that every person or entity buys within a country, with exceptions or reductions carved out for things like food, newspapers, or various links along the industrial supply chain.
Compared to the H&R Block subsidy program that is the US tax code, the VAT is a straightforward way for governments to skim 20% or so off the top of every transaction. By penalizing consumption and not earnings, it encourages savings and resists gaming by well-connected special interests. In an ideal world, you could enact a VAT while slashing America’s corporate income tax rate, which is the globe’s second-highest.
But as the last 18 months of federal misgovernance has aptly demonstrated, we do not live in anything like an ideal world.
The only reason VAT is even on the table right now is that bureaucrats like VAT enthusiast Nancy Pelosi have an appetite for spending that far outpaces Americans’ willingness to cough up their hard-earned dough. Every statehouse and city council across the land is literally out of money, and turning to the only people who can print the stuff: Washington.
The federal government spent $3.5 trillion last year while taking in just $2.1 trillion, producing a deficit-to-Gross Domestic Product ratio of 10%, a level not seen since World War II. By contrast, the European Union requires member countries to keep deficits at 3% of GDP. If America was in Europe, we’d be Greece.
What’s worse for us is that we’ve pretty much given up trying to address the root problem, which is the decade long spending binge initiated by George W. Bush and then tripled down on by Barack Obama. The VAT isn’t a way to streamline a complicated tax code; it’s a new spigot to flood money into the pockets of teachers who can’t be fired, and securities regulators who can’t get enough porn.
The grand irony here is that the very continent we’re scrambling to emulate has been moving aggressively in the opposite direction on taxes and economic policy.
While the US keeps corporate taxes frozen near 40%, EU countries have slashed them down to an average of around 25%. Top marginal income tax rates, which in the US are 35%, are under 25% all across the former East Bloc.
As the share of government spending in health care has been steadily increasing in the US, it has been inching downward in Europe. While first Bush and then Obama pushed through massive new public entitlements, governments from Stockholm to Rome have been grappling with real private reform.
Though conservatives especially like to sneer at the democratic socialism of Old Europe, it is precisely those cheese-eaters in France and Vikings up north who have been leading the world in privatization these last two decades, selling off everything from airports to sewage companies.
It was hardly an accident that, in the midst of Washington’s partial nationalization of Detroit automakers, Swedish Enterprise Minister Maud Olofsson announced “The Swedish state is not prepared to own car factories.” With this week’s news that General Motors is “paying back” one set of Troubled Asset Relief Program loans from another pile of TARP money, we can see why Europeans have a lot to teach us about separation of industry and state.
Where Republicans look across the Atlantic and see soft socialists worth avoiding, Democrats see enlightened progressives worth emulating. And it does not matter how little reality conforms to either fantasy.
So now the federal government is pushing to ape Germany and France in paying individuals far-above-market prices for selling their excess solar or wind power back to the electricity grid. The only problem? Those countries are running, not walking, away from those unaffordable programs.
The same dynamic is at play with labor relations. President Obama is on record pushing organized labor’s dream policy of “card check,” which would drastically bump up private sector unionism after decades of steady decline, and he has gone so far as appoint to his bipartisan “deficit commission” the notorious labor honcho Andy Stern.
Meanwhile Germany, which has the tightest labor-management-government relations in the EU, has been aggressively loosening, not tightening, workplace rules.
The fact that America’s most influential public-sector union leader is within a thousand miles of a deficit commission, let alone one that is floating the idea of an American VAT, tells you all you need to know about the relationship between any new consumption tax and fiscal responsibility. Which is to say, there isn’t any.
The solution to unsustainable budget deficits and precarious debt levels remains the same as when Barack Obama took office: Stop spending so much damned money. Until government gets serious about that, trial balloons for gobbling ever-more tax money deserve nothing more than a good swat.
And we’ll be left with a massive exodus of business geniuses to that bastion of capitalism — France.
Matt Welch is Editor in Chief of Reason. email@example.com
EurObama: What lessons can Europe learn from Barack Obama’s victory?
Claudette Abela Baldacchino
Claudette Abela Baldacchino
Social Europe Journal • Volume 4 • Issue 2 • Winter/Spring 2009
... (p.20) Where now for European Political Parties?
By Henning Meyer
Head of the European, Programme at the Global Policy Institute (London Metropolitan University) and Managing Editor of Social Europe Journal
‘Barack Obama’s campaign was able to recreate old – rather than create new – characteristics that traditional European parties, especially left-of-centre parties, have lost over the years: a sense of community and belonging’
(p.21) In a nutshell, Barack Obama has managed to recreate the community aspects of old mass parties and integrate them into a professional-electoral party. In the contemporary context, however, culture does not mean a certain way of living but rather being part of a community based on a charismatic political leader, new political ideas and a desire for grassroots activism.
The creation of this new culture in the Obama campaign has only been possible by the use of new media. So after it has transformed the economy and the way we communicate with each other, is the information, communication and technology (ICT) revolution now fundamentally changing the political process too? I think there are strong arguments in favour of this and Barack Obama’s success is evidence.
What does this mean for European parties? The socio-economic circumstances and ideological believes of citizens have indeed changed dramatically since the foundation of early European parties, political activism has however not disappeared. The success of single issue movements such as Greenpeace, Amnesty International and the Globalisation critics of Attac clearly shows the enduring desire for political activism. Some of these movements have even grown into political parties in their own right, for instance the German Greens or – with a rather different political agenda – the UK Independence Party (UKIP).
(p.23) European Parliamentary Elections 2009 – Time for a new Direction
By Martin Schulz
Leader of the PES [Party of European Socialists] Group in the European Parliament and the top candidate of the German SPD for the European parliamentary elections in June.
Europe’s success story had always been that the economy and social security are two sides of the same coin – until the 1990s when the neoliberal spirit began dominating the EU Commission and national governments. Since then the motto has been ‘deregulation’. Instead of social stability, strategies for deregulation and profit increase have governed the implementation of the single market.
Conservatives and neoliberals claim that social and environmental regulations prevent growth and lead to lower wages; longer working hours and the lack of workforce participation in company decision-making, on the other hand, foster growth and higher wages. But employment and trade union rights are not cost factors. They are vital to our economic success as they contribute to motivating employees, improving the quality of jobs, promoting social harmony and fostering workforce participation in company decision- making. Economic growth does not mean anything if it benefits only some.
Europe is governed by centre-right governments and it is badly governed. 19 out of 27 heads of governments are from the centre-right and send conservative and neoliberal commissioners to Brussels. Whilst the economies of the EU member states have been harmonised, the welfare states have remained national. Now the balance between capital and labour is threatened. As a consequence social inequalities grow – on the one hand profits rise, on the other hand real wages fall. In the view of many people, instead of helping people coping with the risks and challenges of globalisation the EU has turned into a henchman for the globalised economy. Europe’s citizens rightly demand that the EU should not only consider the interests of the economy but strengthen social rights and foster active employment. We – the European social democrats – therefore focus on a Social Europe and putting people first.
For a Social Europe
We want to create a European economic model that puts people and not the market in the centre of attention. The single market is the precondition for growth and employment. Economic growth, however, can never be an end in itself but must contribute to prosperity for everyone.
...We propose a European social progress pact with joint European goals and standards for social and education expenditures based on the economic ability of the member states. Furthermore, every EU legislation should be assessed according to its social consequence for the citizens in Europe.
...We campaign for the inclusion of a social progress clause in EU legislation. Also, we want a review of the ‘Posting of Workers Directive’. In Europe the principle of ’same wages and labour conditions for the same employment in the same place’ must hold true. The rights of employees, in particular the rights of European works councils, must be strengthened in order to guarantee employees’ participation in economic decision-making processes. A new European Commission will only be politically supported by European social democrats if it obligates itself to take into account social impact assessments when developing European legislation. The EU will regain the trust of its citizens and create enthusiasm for the European project if it reveals again its social side.
For a Fair and Social Globalisation
As we live in an age where nation states and societies work together more closely and inter-linked, many countries face obstacles in their ability to act. Especially the financial crisis and climate change reveal that we are living in a time of global responsibility and shared vulnerability. The basis of a globalised world is the interdependence of economies and societies. State boundaries have become permeable for people, ideas and money. On the one hand, many positive effects result from that. On the other, permeable boundaries give way to threats like international terrorism, the spread of weapons of mass destruction and regional conflicts which may also affect Europe.
The major question is now how to tackle the darker sides of globalisation. No country will be able to solve global problems on its own. The European Union will be a necessary instrument to cope with the global challenges of the 21st century. The EU consists of 27 member states with almost 500 million inhabitants. Its economic power represents one quarter of world trade and economic performance, and it is the world’s biggest single market. The EU is an important actor on the international stage and can enforce common interests much better than nation states could do on their own. In the realm of climate change, the reorganisation of international financial markets, the fight against poverty or against international terrorism, the EU can and must act according to the motto ‘united we are strong’. We want Europe to campaign for reforms of the central international institutions, especially the United Nations, the IMF and the World Bank, in order to strengthen their legitimacy and capacity to act. The EU can be actively involved in globalisation processes. It is a huge chance but also a huge responsibility for the EU. As an answer to globalisation, we want a strong, economically successful and social Europe.
Europe Strong and Social
The European Parliament elections on June 7th will decide which direction Europe is going to take. What kind of Europe do we want? A Europe of free capital interests or of social welfare? Conservatives and liberals want a Europe which puts free market and competition above all, even above people and the environment. In times of economic and financial crises we witness every day that radical market ideologies have failed. In the new century, we will need a Europe which combines social justice, environmental policy and economic success. We need a Europe which is not ruled by the shortterm logic of financial markets but by a long-term social and democratic logic. If the EU were to reveal her social side, people, in particular the young generation, would become enthusiastic about European projects again.
(pp. 28-35) Building the Good Society: The Project of the Democratic Left
By Andrea Nahles, Vice-President of the Social Democratic Party of Germany (SPD) and spokesperson for labour and social affairs of the SPD group in the Bundestag
By Jon Cruddas, MP for Dagenham (East London)
Europe at a Turning Point
...The economic wreckage of market failure is spreading across the continent.
But this is not just a crisis of capitalism. It is also a failure of democracy and society to regulate and manage the power of the market. At this moment of crisis we reject the attempt to turn back to the business as usual of unsustainable growth, inequality and anxiety economics. But we recognise too that there is no golden age of social democracy to go back to either. The future is uncertain and full of threats; before us lie the dangers of climate change, the end of oil and growing social dislocation.
But it is also a moment full of opportunities and promise: to revitalise our common purpose and fulfill the European dream of freedom and equality for all. To face these threats and realise this promise demands a new political approach.
On the tenth anniversary of the Blair–Schroeder declaration of a European Third Way, the Democratic Left offers an alternative project: the good society.
This politics of the good society is about democracy, community and pluralism.
It is democratic because only the free participation of each individual can guarantee true freedom and progress.
It is collective because it is grounded in the recognition of our interdependency and common interest.
And it is pluralist because it knows that from a diversity of political institutions, forms of economic activity and individual cultural identities, society can derive the energy and inventiveness to create a better world.
The foundation of the good society is an ecologically sustainable and equitable economic development for the good of all. There are no short cuts or ready-made blueprints. Instead, based on these values and aspirations, we will take each step together and in this way we will make our world a better place to live in. As Willy Brandt said: ‘What we need is the synthesis of practical thinking and idealistic striving.’
...The historic stage of social democracy associated with the Third Way and the Neue Mitte was a response to the long period of right wing dominance that had taken hold following the economic crisis of the 1970s. A new historic stage of capitalism had emerged, destroying the post-war welfare consensus and establishing a new consensus around neo-liberal values and a free market economy. The electoral successes of the Third Way and Neue Mitte were tempered by compromises and limitations...
...The Third Way and the Neue Mitte models of social democracy uncritically embraced the new globalised capitalism. In doing so they underestimated the destructive potential of under-regulated markets. They misunderstood the structural changes taking place in European societies. They believed that a class-based society had given way to a more individualised, meritocratic culture.
But the new capitalism has not created a classless society. Under market-led globalisation the economic boom created unprecedented levels of affluence but Third Way politics were not able to prevent it from dividing societies. After a decade of social democratic government, class inequality remains the defining structure of society. Success in education and life chances in general continue to depend on family background.
The era of neo-liberalism was always going to end in self-destruction. Now the economic crash has created a turning point. We have a choice: we can go back to how things were before – the unsustainable growth, the individualised and consumerised world of free markets, high levels of inequality and anxiety, and the failure to confront the danger of climate change. Or we can define a new vision of progress based on justice, sustainability and security in which there is a balance in our lives between producing and consuming, and a balance between work and our lives as individuals and members of society. There is an alternative, and it must be constructed at a European level.
...The Good Society Our values of freedom, equality, solidarity and sustainability promise a better world free of poverty, exploitation and fear. We have a vision of the good society and a more egalitarian economy, which will create a secure, green and fair future. But to achieve it capitalism must now become accountable to democracy; and democracy will need to be renewed and deepened so that it is fit for the task. A good society cannot be built from the top down, but can only come from a movement made by and for the people.
...The task of the Democratic Left is to develop the idea of a shared common good through argument, collective political action and campaigning among the people. The good society is about solidarity and social justice. Solidarity creates trust, which in turn provides the foundation of individual freedom. Freedom grows out of feelings of safety, a sense of belonging, and the experience of esteem and respect. These are the fundamental preconditions for the good society.
...The guiding principle of the good society is justice, the ethical core of which is equality. Each individual is irreplaceable and of equal worth. In the good society each is afforded equal respect, security and chances in life, regardless of background.
Framing all these values is ecological sustainability. The good society is part of the planet and attuned to its ecology. It develops ways of flourishing within the constraints imposed on it.
A fair and sustainable economy At the centre of the good society is the individual as productive agent. Only by reorganising the system of production can we create a society of freedom and equality. The neo-liberal consensus did not deliver the individual freedom it promised.
...We need to develop a new kind of economy rooted in the values and institutions of the good society. It will be one characterised by a variety of different economic structures and forms of ownership. It will make sure that workers codetermine economic decisions of their companies. From this economic pluralism we can ensure there is no going back to the globally unbalanced economic growth that led to the crisis. We need ecologically sustainable development that meets human needs equitably and improves the quality of life of all. Climate change, peak oil and the need for energy and food security demand largescale economic transformations.
The time has come to start to discuss and then implement a new model of prosperity, which can be globalised but without leading to ecological disaster. Quality growth, meaningful work and technological progress can lead to more wealth and a better quality of life, but markets alone cannot achieve these goals. The future will demand a more active state engaging with long-term economic planning and development to build a sustainable economy.
The reform of the economy can begin with government taking services of general interest – utilities, transport, post, banks and public services – back into public ownership or placed under public control, where this is the most accountable, equitable and economically sustainable way of guaranteeing these services. New rules for markets have to be established and stronger incentives fashioned for a more sustainable economy.
The market state and its agencies need to be transformed into a civic state that is democratised and made more responsive to individual citizens and small businesses. We need to balance a strong centre with effective power at local level for economic and social development. The advocacy roles of civil society organisations and the trade unions need to be strengthened. The primacy of politics over the financial markets has to be restored...
...A Politics for a better Europe
A politics for a Social Europe Europe needs a ‘Post Lisbon Strategy’ that is based on the concept of ‘social productivity’. Social productivity is about social growth: increasing the social value and quality of work, accounting for the environmental and social costs of markets, and developing sustainable patterns of consumption. The wellbeing of citizens and general quality of life must be improved beyond simple numerical and monetary values. Wealth needs to be redistributed in a more equal manner. Effective regulatory standards need to be introduced to guarantee good, affordable and comprehensive public services, fair wages, good working conditions, free education for all and a human approach to immigration and global solidarity...
...Employment and social security Different national paths constitute a source of strength in the EU. To achieve a Social Europe does not mean enforcing a single system on all nations, but agreeing a set of welfare outcomes. A European minimum wage, corresponding to the national average income, would help limit the increasing wage differentials in Europe and prevent ‘social dumping’. To push forward its implementation will require an organisation similar to Britain’s Low Pay Commission with a remit for campaigning and working closely with the trade unions.
The series of European Court rulings – the Laval, Viking and Rueffert cases – have deregulated labour markets by changing the terms of the 1996 Posting of Workers Directive. This now needs reform to restore collective bargaining, workers’ rights to strike, and establish equality for posted and migrant workers across Europe. Europe needs fair policies on taxation. Current tax competition in Europe is leading to a shifting of the tax burden from companies to individual income and consumption. This is regressive and unjust and there needs to be a harmonisation of corporate tax policy to safeguard the financial basis of national social security systems.
In the medium term, the European Union (EU) should have its own financial resources, based on a European corporate tax and a European financial transactions tax. Offshore tax havens should be outlawed and corporate profits taxed in the countries where they are earned.
Energy security and sustainability Europe must become the most ecologically sustainable economy in the world. If the US is starting a competition to become the ‘greenest economy in the world’, Europe must take part in this race because all humankind will win. We need Europe-wide green standards for power stations that adopt a series of successively tougher targets for emissions standards, which will drive the introduction of carbon capture and storage. An efficiency target for electricity generation, which is similar to that proposed for cars in the EU, would make it difficult for a government to allow the construction of new coalfired power stations without some form of carbon capture technology attached.
Balancing the grid at an EUwide level will reduce the need for coal and improve energy security by reducing reliance on foreign oil and gas. It will make significant cuts in carbon emissions and in the long run bring down fuel bills too. The current bilateral schemes that are being negotiated need to be extended across Europe.
(p.37) Europe on the Way to a Social Union?
By Christian Kellermann, Project manager for European economic and social policies at the Friedrich Ebert Foundation in Berlin
Andrej Stuchlík, Research associate at the University of Administrative Sciences in Speyer
(p.39-41) Levels of European Social Policy
The EU’s contribution to social policy is oriented towards the three great sets of objectives and cross-sectional tasks it has set for itself:
1. economic growth (as well as more and better jobs)
2. high level of social protection
3. equality of opportunity for all
In order to perform these tasks the EU has five main instruments:
1. the European Social Fund
2. social policy legislation together with ECJ rulings
3. the Social Dialogue
4. the Open Method of Coordination (OMC)
5. the Civil Society Dialogue
In the context of individual policy areas these instruments are assigned to three levels of social policy: substantive, regulatory and process-oriented (‘soft law’).
a) Substantive Social Policy Direct substantive payments to those in need
– for example, income support or housing benefit – require social security systems financed on a contribution/funded or pay-as-you-go basis. The level of redistribution varies considerably across Europe. Social benefits financed through taxation usually have a stronger redistributive effect than those financed directly by individual contributions. At European level the resources of the European Social Fund (ESF) can be assigned to this category of classic social policy redistribution, of the kind characteristic of nation states. The purpose of the ESF is the labour market reintegration of workers in the member states. In keeping with the existing Community competencies as regards the social policy underpinning of internal market freedoms the emphasis is on work and employment. This includes the financial instrument PROGRESS (Community Programme for Employment and Social Solidarity) and the only recently established European Globalisation Fund (EGF).
b) Regulatory Social Policy and the role of the ECJ/EU legislation
In contrast to redistributive social policy, the regulatory level is limited to rule-making. No substantial financial resources are required for this purpose and consequently such measures can be pushed through far more easily in the European power structure. It is true that this aspect of European social policy is strongly under the influence of the European Court of Justice and its rulings often lead to an extension of EU powers. In the area of regulatory social policy European law sets minimum social standards and basic rights at European level, and so creates uniform framework conditions for the internal market.
The treaties contain legal provisions in the areas of equal treatment of men and women in employment and work, anti-discrimination, free movement of labour, health and safety in the workplace, labour law and working conditions, as well as information and consultation of workers.
The two most important regulations in European law, and hence the supporting pillars of EU social policy powers, are those on freedom of movement and on migrant workers. Their influence extends to many other policy areas. EU regulation stops short at harmonisation, which is explicitly ruled out. Instead, minimum requirements are possible which may not infringe the systems of member states in terms of their basic principles. In this way the demarcation between the member states and the EU leads to sometimes intense conflicts.
The Social Dialogue
The Social Dialogue has something of a special place in European social policy. It is laid down in the treaties and the role of the social partners is widely recognised. At the same time, the Social Dialogue provides for little in the way of substantive guidelines, but serves as a consultation forum for debate and as a procedural level between autonomous social partners. But it is not restricted to non-binding exchanges of views. Such agreements can be achieved either with the help of the Council or completely autonomously between the social partners. In the area of employment the active participation of the social partners is at the centre of the European Employment Strategy and Integrated Guidelines. A substantial point of criticism of the Social Dialogue is the imbalance between the social partners due to the employers’ de facto veto right.
c) ‘Soft Law’
Coordinated social policy is often designated ‘soft law’ in EU jargon, ordinarily understood in contrast to ‘hard’ legislation (of the Acquis Communautaire). This encompasses the Community’s numerous social policy activities that lie outside direct treaty-based competencies. At European level the OMC is the central element for policy coordination. In essence it is a settlement procedure for national policies and not a binding instrument: there is no formal transfer of powers. In the foreground is the coordination of policy objectives rather than social policy convergence.
Certainly the OMC and this form of extension of EU social policy activities are attended by numerous difficulties. In terms of content, a discursive revaluation of EU social policy is taking place, but the focus is mostly on social policy that promotes competition and enhances market creation.