Uneasy Progress: Increased Inequality and Mobility in the EU

Uneasy Progress: Increased Inequality and Mobility in the EU

by Future Planet Europe

The EUs social charter, as envisioned by Jacques Delors, one of the original architects behind the EU, is based on a fundamental vision of basic economic and social security for all Europeans.

According to the New Internationalist, however, “This social vision was also tied to the notion of a ‘free’ single market encompassing all of Europe. Compatibility between the market and society was simply assumed – a fatal error not just for the EU but in the entire approach of mainstream social democracy.”

Indeed, free trade is no guarantee for social security, or prosperity, not to speak of economic democracy and environmental sustainability.

While the creation of a common European market has brought the continent closer together, and may have made war less likely, the free market has had different effects on different parts of the Union.

At the inception of the EU, large transfer payments were made to assist the poorer nations, such as Greece and Portugal, to develop infrastructure, health, education and support agriculture.

However, as these funds were not primarily used to modernise the industrial sector and make the countries competitive, the long term effect of a common market made the poorer nations less competitive, and more dependent on aid.

The initial boom created by transfer payments from the rest of the EU was followed by another capital infusion from cheap loans after the formation of the common currency. These were both short lived stimuli, and the resources were not used to increase labour productivity but to create infrastructure and support consumption.

In Spain, the economic growth was due to more people entering the market place, rather than labour becoming more efficient. All loans given to Spain resulted in a property boom with real estate prices going up, but not in industrial growth.

“To be sure,” writes Bill Dawidow in the Atlantic Monthly, “the economies of southern Europe would have struggled even without being yoked to the euro. But I think it’s reasonable to blame the euro for turning those problems into a catastrophe.” 

The Euro, he argues, enticed these countries to borrow money at very low interest rates.  “Real estate bubbles, he continues, “were just one of the consequences. Cheap money enabled countries to run up big debts, pay high wages to government employees, and create false prosperity that encouraged consumers to spend and borrow.”[1]

Now that the transfer payments have reduced and the borrowed money is due for repayment, the real effect of the EU free market can finally be evaluated. Free trade between unequal economic partners, such as between Mexico and the United States, often divides the economy into high- and low-income zones where the industries cannot compete with the industrially advanced nations.

After the North American Free Trade agreement was signed between the United States, Canada and Mexico creating the largest free trade economy in the world, the Mexican economy started deteriorating quickly.

Norwegian Economist Erik Reinert terms this three-stage process de-industrialization, de-agriculturalization and de-population. As a result, the Mexican farm economy was devastated.  Local staples like maize and beans had to compete against the much cheaper imports from the North. Soon millions of illegal immigrants from rural areas migrated to the US to seek work, in many local areas only people over 60 still remains. 

A less dramatic, but similar development is happening within the EU itself. Parts of the EU are becoming like a miniature third world, with the same fundamental problems as developing countries in Asia and Africa. In these areas, the industry and technology sector cannot compete internationally or within the EU, and so they are forced to promote agriculture, services and tourism. As no country in history, apart from maybe some island tax havens, have been able to prosper without a strong industry, the future for these countries are grim.

With free trade and the mobility of capital and labour people move from one area to another in search of work.  This movement of people is certainly advantageous to corporations, who have a steady flow of labour and, in the short run, to individuals and their families.

But this free flow across national borders also creates problems and complexities for countries, local communities, and people. Even though Norway is not a full member of the EU, every Norwegian is aware that a large percentage of the nurses and waitresses working in Norway are from Sweden, while a large percentage of carpenters and painters are Polish men, who often stay away from their families for months at a time.

Such labour mobility across national borders contributes to an increased black economy, a lowering of wages, and to a reduction in skilled labour in the home country of the mobile labourer.

Another complex side-effect of European free trade has been “brain drain’, the outflow of highly qualified workers from key industrial countries is increasingly becoming a challenge for many countries of the Eurozone.

Poor career prospects, constraints on freedom, low wages, unemployment, bad living and working conditions, social insecurity and political instability are just some of the factors that play into young professional’s decisions to leave their home countries and seek more profitable environments elsewhere.

Negative consequences of brain drain include the direct loss of intellectual potential, and also indirect loss of economic investment, tax revenue and staff shortages in key industries. Whilst the brain drain is beneficial its flaws are inherently in its title because it usually involves the loss of human capital i.e. skilled labour force who are vital to the development of society and the country as a whole.

In the case of skilled man powerAlam et al. recognise emigration of these skilled workers as “essentially providing personal benefits for individuals rather than public benefits”.

Receiving countries with positive economic growth patterns such as Germany and countries outside the Euro Zone are benefiting through e.g. offsetting labour shortages, enhancing the average skill levels in the labour force and increasing wage pressure in the national labour marked etc.

In the case of Europe, three major directions of brain drain are apparent:

  1. From developing countries to the EU
  2. Inter-European (East-West flows)
  3. From Europe to the US, and, more recently, to developing countries

When the financial crisis struck in 2008, the knowledge economy was one of the greatest victims. A major and common concern is the inequalities of European wages, and some say ‘equal pay for equal work’ in the Eurozone might be a remedy.

Inequality is not only growing between countries, but between people inside the same countries as well. Due to economic liberalization having been widely accepted within Europe, taxation policies and government rules are becoming increasingly regressive, favouring the rich. People who work pay higher taxes than those who live on what used to be called unearned income, such as capital gains and interest.

Social safety nets are being dismantled. We are frequently told that we cannot afford the social security systems in place, and yet the rich are getting richer and taking an increasingly larger piece of the pie.

Historically, the European economy, and especially the Nordic economic model, reduced economic disparity by letting the trade unions and the employers together negotiate wages. If they did not come to an agreement, the unions would go on strike, and if they still did not agree, the state would come in as a mediator to reach a solution agreeable to both parties.

According to Norwegian historian Edvard Mogstad, “This system gradually improved the wages of the workers and worked quite well for decades until the 1980s, when European capital and industry got an upper hand by following a Thatcher/Reagan-style neo-liberal agenda.” [1]

This point of view is supported by the Organization for Economic Cooperation and Development (OECD), which states that “Inequality in Europe has risen quite substantially since the mid 1980s. While the EU enlargement process has contributed to this, it is not the only explanation since inequality has also increased within a “core” of 8 European countries.” The increasing wealth disparity in Europe is both troubling and inevitable under the present economic policies pursued by the EU and its member states.

Uneasy Progress: Increased Inequality and Mobility in the EU

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