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Central and Eastern Europe
Pathways to Europe: Future of the European social model - by Dr Wolfgang Weinz

Enlargement in 2004 by no means put an end to the integration of central Europe: countries whose development lags a long way behind - such as Bulgaria, Croatia and Romania, as well as the entire Balkans and Turkey - are seeking admission. And yet enlargement was effected without establishing stable social security systems and industrial relations in the accession countries. This generates problems for the social stakeholders, above all for the trade unions in both western and central Europe, since the social dialogue mechanisms thus far developed neither reflect the new reality- wage undercutting and social dumping - nor appear likely to help solve these problems.

We shall describe below the genesis of the western European social model and the socio-political reality of central Europe. We shall adopt a trade union perspective and make plain that, unless trade unions and industrial relations can be thoroughly Europeanised and internationalised, Europe's unique social policy approach may soon be a thing of the past.

Arrival

The political upheaval of 1989/90 was widely perceived in central and eastern Europe as a “return to Europe": back to the rule of law and pluralist democracy; away from Moscow's sphere of influence. The decisive majorities in the EU referendums should be viewed in this light but also, in the context of NATO membership, as an unambiguous vote for a Europe of peace and prosperity. In this sense 1 May 2004 provisionally concluded a process which propelled central Europe back into the heart of European politics. Critics, on the other hand, maintain that accession is incomplete and comes at a high social price.

The new EU citizens’ low turnout at the European Parliament elections - only about 26 percent - is hardly surprising since considerable disenchantment set in during the accession process. The central European countries' desire for accession always did derive more from perfectly comprehensible national interests than from Euro-euphoria. Wherever would that have come from?

The scale and speed of the accession process were determined by the fastest and most comprehensive privatisation and deregulation possible. The establishment of social institutions, social security provision and industrial relations ranked far behind the all-pervasive turbo-capitalism and the all-consuming acquisitions by foreign investors.

While the transformation from a command economy to a market economy has just been completed at breathtaking speed and the societies of central Europe are struggling to organise themselves politically and socially, they look on with astonishment as western European society delivers itself up to individualism and post-materialism, dismantling social security systems and benefits. No sooner have the 75 million new EU citizens escaped from so-called "really existing socialism" and drawn closer to the alternative, promising model of a market economy than the welfare state disappears before their very eyes. This is not what they had expected.

Protagonists in the building of civil society in central Europe are witnessing a retrenchment of the welfare state and attempts by western European society to defend itself against several threats simultaneously. Firstly the challenge of globalisation, which seems unstoppable in its drive to subject the entire world to economic dominance and turn social standards into disadvantages in terms of cost and location. Then there is the European Union which, driven by industrial interests, first established the largest internal market in the world and then brought about European monetary union. To make matters worse, eastward enlargement also fuels internal fears and potential threats which are unscrupulously exploited in the popular press: here the threat of migration; there the spectre of a "brain and care drain".

With wages and labour costs in central Europe more than two thirds lower than in the west, there are growing fears of social dumping and the transfer or relocation of production to countries where taxation and non-wage labour costs are lower. This has led at the eleventh hour to helpless outbursts of local patriotism and to equally unrealistic demands for European tax harmonisation so as to create "fair minimum tax rates".

Even the simplest economic facts are ignored in this collective bout of European social Darwinism. For example, the fact that productivity in central Europe is actually rising by around 4% per year, which represents a positive development if the much-dreaded wave of migration is to be forestalled. Yet despite this trend, the level of productivity in the accession countries - at US $14.50 per hour - still lies well below that in the EU of 15, at US $ 36.20. Nor is much notice taken of the fact that the huge profits made from export trade with the accession countries create jobs in the west.

The fall of the Berlin Wall increasingly exposed western Europeans to media-orchestrated social dumping, aimed at safeguarding company sites and preserving the welfare state, whilst in central Europe, on the other hand, the trade union structures required to take defensive action or even launch a proactive pan-European campaign do not exist. All of this is taking place against the background of organisational malaise among central European trade unions and industrial relations which can be depicted - perhaps rather too schematically - as follows:

* A pattern of employee representation that is dominated by company unions, with all the negative organisational, political and financial consequences for the establishment of efficient sectoral trade unions.

* A misguided use of resources and the setting of false priorities go hand-in-hand with a lack of trade union competence and presence in both company and sectoral collective bargaining, thereby heightening the competition between company-level interest representation and sectoral trade unions.

* This leads to unsuccessful trade union organisation and ultimately passivity, whereas such work is particularly necessary in transnational companies. Not to mention the burgeoning SME sector, practically a no-go area for trade unions.

The reputation and condition of trade unions after 1945 and 1989 could not have been more different. The end of fascism left behind a morally and politically invigorated trade union movement, whereas after the end of communism even social-democratic policy-making bears the stigma of despised, outdated collectivism.

Farewell to the social model?

In keeping with the principle of subsidiarity, the social model is clearly limited in scope. Since social security systems have developed along different lines, the EU lacks competence in this area.

Directive 94/45EC on the establishment of the European Works Council (EWC) was long regarded as the operational showpiece of the social dialogue. Ten years on, however, the intended Europeanisation or even internationalisation of EWCs in transnational companies has evidently failed to materialise, repeatedly thwarted by straightforward language barriers but also by competition between different national sites. This is particularly worrying because such competition will take on dramatic proportions in the EWCs of the 25-member EU, with its striking east/west wage differential. It will not only erode wage levels in the west; we know of instances where, allegedly to safeguard particular sites, workforces in central Europe have agreed to pay freezes or even to work unpaid. Wage competition comes from Ukraine and Moldova, but the undercutting knows no borders since just beyond Moldova lie the next low-wage and low-tax countries: Russia and China.

Just as social policy still falls under the auspices of national governments, wage policy remains the exclusive prerogative of national trade unions. Let us summarise and attempt to compare the reality in central and western Europe.

* The heterogeneity of national labour laws, social benefits systems and stakeholders in the EU Member States has prevented the development of a European pattern of industrial relations or even a European employment and social policy. The social dialogue requires exchanges and cooperation between government bodies, employers' associations and trade unions on the basis of existing labour legislation and mature institutions.

* Due to the economic priority and the pace of change, the transformation in central Europe has not led to the establishment of similar institutions and corporatist thinking. It has proved impossible to establish a homogeneous pattern of social institutions and industrial relations; eastward enlargement compounds the heterogeneity of industrial relations in the former EU of 15.

* While criticism in western Europe is levelled at regional sectoral collective agreements and wage cartels, collective bargaining in central Europe is confined to company agreements or, worse still, to bargaining-free zones in prospering SMEs.

In this precarious situation, trade unionists in central Europe will look at the position in western Europe and ask: has the social model in the west safeguarded jobs, improved workers' rights, preserved social security systems and strengthened the trade unions through increased membership? And if the west answers “no”, trade unions in both west and east will have to wave goodbye to some cherished beliefs and unrealistic expectations.

Searching for a new direction

Clearly, eastward enlargement will challenge the existing European social model. This should be seized as an opportunity for a Europe-wide debate and review of the social dimension in the EU of 25. A realistic, targeted strategy must take account of the following truths:

· The western European concept of social dialogue needs to be reviewed on the basis of past experience and the reality in central Europe. Otherwise the dialogue could result in a costly and pointless monologue.

· Gone are the days – if they ever exist - when trade unions could rely on the EU or on national governments. Rather, national governments are now engaged in keen competition to attract businesses and preserve company sites - all to the detriment of the welfare state.

· The Achilles heel of the trade unions is poor interest representation in the workplace and the absence of sectoral wage bargaining in central Europe, not least as a result of unsuccessful trade union organisation.

Industrial relations are still determined nationally 95% of the time, so strong local and national trade unions are a prerequisite for action at European level. At least two conclusions can be drawn here: firstly, attention must be focused at sectoral and at national level on strategic companies and sectors, with a view to conducting effective recruitment campaigns in the foreseeable future. Secondly, relations between workplace representatives/works councils and sectoral trade unions must develop into a constructive strategic alliance.

Eastward enlargement is by no means complete following accession. On the contrary, it lacks a social dimension reflecting the disparities between east and west and offering realistic tools for a harmonisation of industrial relations. The "social deficit" of eastward enlargement has already had an impact on taxation and wage policies, social security systems, labour law and the role of trade unions in society.

Possible solutions

One could simply wait for economic performance and growth in central Europe to catch up and bring about a harmonisation of living standard and working conditions within one or two decades, thereby aligning wages and social benefits. That would be a fatalistic approach and would wreak havoc in social policy terms: the longer the trade union vacuum lasts in the east, the lower the eventual level of social policy harmonisation will be.

A proactive approach consists of a Europe-wide trade union strategy. As well as reviewing the social model, the standards ratified at accession must be rigorously implemented and enforced. The problem in many cases is not low-wage countries but low-cost countries. Norms, standards and legal provisions are simply not applied or even monitored, obviously leading to cost advantages and lamentable working conditions.

The second - and much trickier - aspect consists in overcoming the contradiction between European rhetoric and the reality of trade union organisation. If transnational companies are regarded as the flagships of globalisation and worldwide standard-setting, work within them is an indispensable part of the much-needed internationalisation of industrial relations. Only in that way can regulatory mechanisms and minimum standards be created to put an end to cutthroat downward competition.

The success story of the EU in the post-war period lay in its creation of prosperity and the absence of war and violence. Now, after the end of the Cold War, Europe's social value system must ensure acceptance and integration. That would make the European trade unions part of - or even the driving force behind - an urgently required debate between politicians and citizens, not in a spirit of resignation but looking to the future.

Dr Wolfgang Weinz,

Project Coordinator, IUF*

* The International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF) is a worldwide federation of trade unions bringing together 348 trade unions in 124 countries with over 2.7 million members. Its headquarters are in Geneva, Switzerland.

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