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Seventh European Regional Meeting in Budapest Balancing social and economic development

The European and Central Asian region is a key player in economic globalization. The region is also a world leader in economic, monetary and political integration, not only in the EU, but also in the Commonwealth of Independent States (CIS). The main task for governments is to reverse the high unemployment rates which continue to plague Europe, both Eastern and Western, and Central Asia. This calls for strong governance to sustain balanced economic and social development, says a report prepared for the forthcoming European Regional Meeting of the ILO in Budapest on 14 to 18 February. ILO online spoke with ILO expert Philippe Egger.

Article | 08 February 2005

ILO online: Sluggish growth in the European Union, persistent poverty in many parts of Eastern Europe and Central Asia - what do you think about reports on "lagging Europe"?

Philippe Egger: A recent survey confirms that Europe is the most attractive global zone for direct investment, receiving 52 per cent of world foreign direct investment (FDI) inflows in 2003. Within Europe, Western Europe is ranked by decision-makers as the world's most attractive area, followed by Eastern Europe. Deeper exchanges resulting from more open borders enhance the diffusion of new technology, improve the flow of products and services, raise efficiency in domestic and foreign markets, and encourage new investment.

On the other hand, in Central Europe, only five countries achieved a GDP per capita in 2002, which was higher than in 1989. In spite of rapid growth in recent years, average incomes in CIS countries, including the Russian Federation, and in several countries in south-eastern Europe, remain below their 1989 levels. Persistent poverty and growing income inequality have slowed progress in raising living standards.

Surveys of public opinion carried out by the EU single out employment and the economy as the two most important issues for EU citizens, followed by crime, health care and immigration. The main task is to reverse the high unemployment and low employment rates which are plaguing both Eastern and Western Europe, and Central Asia. This calls for strong, responsible and accountable governance to sustain balanced economic and social development.

ILO online: What are the economic and social implications of globalization for Europe?

Philippe Egger: Economic liberalization and interdependence opens up many new opportunities for investment and growth. It also carries new risks and greater uncertainties. Many of these risks have economic and social implications in terms of enterprise viability, job and income security, conditions of work, migration and social protection. There are many examples of outsourcing, closures and relocation throughout the region. The demise of outdated and unprofitable activities, and the constant restructuring of new ones, is a feature of modern market economies. It is generally estimated that one in ten jobs is destroyed and one in ten created every year, in the industrialized economies.

Economic integration is affecting labour markets with increasing intensity. A growing proportion of the labour force is engaged in activities exposed, through trade, markets and investments, to decisions taken in other countries. Employment levels and conditions are responsive both to economic growth and policies within the country, and to developments and decisions in other countries and regions. These developments clearly challenge national labour market policies and collective bargaining systems.

ILO online: How can the Europeans improve economic performance and employment records?

Philippe Egger: Macroeconomic and labour market policies complement one another when viewed as a coherent whole. Few would argue today that high unemployment can be reduced only through macroeconomic demand stimulation or only by labour market reforms. What is needed is a coherent and balanced set of policies straddling monetary and fiscal instruments and labour markets and social protection.

Only a few countries in Europe have been able to sustain economic growth with high employment, low inflation and moderate income inequality. Ireland, Finland and Slovenia are examples. But there are many examples of sluggish growth, as in Germany, or high growth and low employment, as in the Russian Federation, or low unemployment but rising income inequality, as in the United Kingdom.

Effective labour market institutions are necessary because of the manifold imperfections which beset labour markets, including discrimination, but by themselves they have little influence on aggregate employment. Greater coherence is required between institutions and macroeconomic policy. This requires adaptive changes to macroeconomic policy mixes and labour market regulations, to ensure their coherence with growth and employment. Capacity to conduct such adaptive changes varies greatly from country to country.

ILO online: What do you think about the European Social Model as a governance mechanism?

Philippe Egger: The European Social Model provides a valuable basis for the governance of balanced economic and social development. Common values, principles and institutions have forged an EU approach to the market economy and social policy. However, this is often equated with "old Europe". But the capacity of the European Social Model to reform itself while remaining true to its basic values and principles should not be underestimated. Reforms are actively being discussed and implemented in many EU countries. And enlargement is a further opportunity to examine the adequacy of the European Social Model to the challenges of our times.

ILO online: What is the role of social dialogue in all this?

Philippe Egger: An important form of coordination which can be effective in sustaining strong economic performance, is social dialogue and tripartite consultation between governments, workers and employers. Indeed, successful economic and social policies tend to be derived from general principles adapted to local contexts and actors. Social dialogue can make a real difference in building links between local, national and international decision-making. Forms of social dialogue differ greatly and may require adaptation, but the value of cooperation and dialogue around enterprise management, national policymaking, or indeed supra-national policymaking, cannot be questioned.

Productivity, wage bargaining and trade policy are key determinants of economic growth and employment throughout Europe and Central Asia. Policy coherence requires a high degree of cooperation and coordination among the different parties, as well as fairness in the distribution of national and enterprise income. An environment conducive to consultations and negotiations between representatives of employers and workers, and government officials is necessary to achieve quality in governance.

ILO online: What does the ILO suggest European governments do for economic and social reform?

Philippe Egger: Achieving full employment in conditions of decent work, without jeopardizing price stability or social equity, requires major economic and social reforms. These pose a genuine challenge of governance, given the manifold interactions between different policy domains. Pension reform requires an extension of working life dependent on better working conditions for older workers, or higher employment rates for women - the latter are often a function of the availability of child care facilities and lower discrimination in occupation. This makes reforms complex, but also shows that coherence among different strands of policies is a major feature of good employment outcomes.

The ILO brings to this debate two long-standing contributions; namely, international labour standards and social dialogue. International labour standards offer a body of basic rights and protection, as well as policy guidance. The supervisory mechanisms promote their application through dialogue and cooperation.

The virtues of tripartite dialogue are based on democratic representation, multiple levels of participation and sound technical analysis. Complex reforms require complex forms of social dialogue which could include, where relevant, other civil society actors. But time spent on analysis and dialogue is well-invested when the results of negotiations can be more smoothly implemented.

Note 1 - Managing transitions: Governance for decent work, Report of the Director-General, vol. II, Seventh European Regional Meeting, Budapest, February 2005. Chapter 1: Globalization, governance and balanced economic and social development.