EU: Recent Developments

Lord Giddens Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Giddens]

My Lords, noble Lords will forgive me if this point has been made but it is very odd that of 39 speakers only two are noble Baronesses. I do not know whether there is something about the European project that is specifically male but, if there is, it perhaps explains part of its failure to appeal to large sectors of the electorate.

In my contribution I want to ask, and attempt to answer, a simple question: where will the jobs come from in the future in European Union countries? Like all simple questions, it is fiendishly difficult to answer. It is not quite up there with, “What is the nature of reality?”; nevertheless, at this point in time it is a crucial issue for the European Union. Once you examine it forensically rather than superficially, it proves to be an extremely difficult issue, but I should like to do my bit in trying to think it through. To do so, we have to retrace somewhat the origins of the current crisis. Everybody knows that this crisis stems from the famous flaws in the construction of the euro and from what happened in global financial markets. It is important to recognise that second point: many traders acted on the assumption that sovereign debt would always be repaid, and we know that this is much more iffy now than was thought at the time.

However, there is a second strand to the current crisis in European Union countries that has not been examined as much as the crisis in the euro itself, and that is the failure of the Lisbon agenda. Noble Lords will not need reminding that the Lisbon agenda was supposed to make the European economies the most competitive economies in the world by the year 2010, a claim which looks somewhat ironic in light of the happenings today. The Lisbon agenda was supposed to apply to all EU countries but it was actually a crucial part of the eurozone project because the Lisbon agenda was supposed to produce convergence between the very different economies which were part of the eurozone project.

From the beginning, convergence was seen as a key part of the eurozone project. Instead of producing convergence, we had divergence especially between the northern and the southern countries. Baldly put, those countries which reformed were mainly the northern countries; they became successful within the confines of the euro. Those countries that did not reform, but simply borrowed, now experience the sort of epicentre of the crisis that we see.

It is obvious that austerity programmes will not bring about growth in and of themselves and that they will not reinstate high levels of employment. Therefore, how can competitiveness be restored in EU economies? I would like to offer a few points about that. First, some aspects of the Lisbon agenda remain relevant. One example is the insider-outsider labour markets, as economists call them, which are particularly pronounced in countries such as Italy, Spain and Greece. The persistence of such strongly protected labour markets is one of the main reasons why youth unemployment is so high in those countries; it is notably very high in all three. However, I do not think that any of the provisions found in EU forward planning at the moment are sufficiently innovative to answer the question which I posed. The Lisbon agenda is not powerful enough; it is not innovative enough; and it is not relevant enough to the contemporary world.

Secondly, the same is true of Europe 2020, which is supposedly the main kind of planning vehicle for job creation in the European Union. It is a kind of road map, but to my mind not an effective one, and nor, I am afraid, is completing the single market. That can make a contribution, but it is nowhere near enough to reinstate the level of job creation that we need in EU countries if we are to compete effectively in what is a very different world from even 10 years ago. I argue that we need a huge effort of imagination on a policy level and on an intellectual level, and we need to rethink some of the existing nostrums that we have about economic growth and job creation.

Thirdly, I argue that, although the European economies will remain service economies, we have to look at reviving manufacture. Looking at Euro 2020, and at existing European plans, we see how inadequate they are. Most of the plans for the revival of manufacturing in the European economies are based on the idea that Europe can develop high-tech economies which can keep European countries ahead of Asian competition. If you look at a concrete example, you can show that this model is quite flawed. An illustration of that would be German pre-eminence in solar technology. The Germans were leading the world in solar technology and in the production of solar panels until relatively recently, but then China entered the market, the price of solar panels fell dramatically and German industry was simply undercut by that process. Therefore, it is not clear that we will be able to preserve a cutting edge that will rejuvenate manufacturing.

For this reason, we in Europe should take seriously the debate that is going on in the US about reshoring. This is the opposite of offshoring; it is the drawing back of industries from countries to which they have been lost. This is one of many examples that I would look to for innovative thinking. As a practising social scientist, one principle I have always applied is that a current trend will always at some point turn into its opposite. There is a cogent argument for this in respect of offshoring, and American economists have done a lot of recent work on it. Why is it happening? Wage rates are rising in Chinese manufacturing centres; real wages in the United States and in EU countries are falling; the price of oil looks set to stay high because of potential disruptions to the global supply chain; and there are problems sustaining patents in countries that do not have effective legal systems.

The Boston Consulting Group in the US has done an intensive study of American industries and recognises something like nine industrial clusters where there are already signs of manufacture returning to the US economy. The clusters are not the ones that one would predict. For example, they include furniture manufacture and other mundane branches of industry. I offer this not as a solution to the question of where jobs will come from but as an example of the need to use our imagination and think differently from the ways in which we have thought until now.

A rethinking of the processes of job creation and competitiveness in EU economies should be part of a root-and-branch rethinking of the European project. I admire the noble Lord, Lord Willoughby de Broke, as a tennis player and fellow member of the parliamentary tennis team. I do not completely agree with his view of the European Union. I am pro-European, and believe that by coming together, countries have more power in a fractured, globalised world than they could possibly have individually. However, pro-Europeans should recognise that the critics make very important points, and we should rethink the European project in relation to them. The European Union is too slow-moving and bureaucratic. It simultaneously lacks leadership, capacity and democratic participation. If we pro-Europeans cannot address these fundamental shortcomings, Europe may become what many people fear: a theme park for affluent Chinese tourists. This is surely a vision to avoid.