From disposable labour to a different globalization
Report on The Broker Day 2014
The central theme of The Broker Day 2014 on 14 April was employment and inequality, and the structural macroeconomic problems underlying them. The main speaker was Minister of Social Affairs and Employment and deputy prime minister Lodewijk Asscher, who made a comprehensive speech on full employment in the 21st century. Like the other speakers, Asscher concluded that a change in policy is required in the areas of taxation, financial regulation, trade and vocational training, to create more and better jobs.
Nearly 100 people gathered in the historical De Burcht in Amsterdam (the oldest trade union building in the Netherlands, opened by the diamond workers’ union in 1900) for the annual meeting of think-tank The Broker. Daniëlle Hirsch, director of development and environment organization Both ENDS, Monika Sie Dhian Ho, chair of The Broker executive board, Frans Bieckmann, director of The Broker, and Lodewijk Asscher, deputy prime minister, Minister of Social Affairs and Employment and member of the Dutch Labour Party (PvdA), spoke on how to promote employment in a globalized world.
Employment was the central theme of the day. Frans Bieckmann kicked off the proceedings with a short outline of global trends on work and employment and concluded that rising unemployment and the growing precariousness of work underlined the need “to place the active promotion of decent work and more work throughout the world – in poor countries as well as in the Netherlands and Europe – at the centre of policy”.
Minister Asscher stated his intention to make decent work and “as full as possible” employment a central priority in his policies. He declared that he would take firm measures to combat “the parasites of the labour market who facilitate disposable labour”. This included “fraudulent employment agencies that contributed to illegal labour and employers who make use of bogus constructions”. The minister also wants to tackle the problem of “enterprises whose main aim is to sell companies after a year or two at a profit”, and which “have little interest in investing in the training and sustainable deployment of its employees”.
In his speech, deputy prime minister and Minister of Social Affairs and Employment Lodewijk Asscher spoke about the goal of achieving full employment in the 21st century. He outlined the contours of a new perspective aimed at creating more employment and combating growing inequality.
Several of the speeches focused on the relation between employment and various forms of inequality: income inequality, capital inequality, and the widening gap between well paid jobs at the top of the labour market and the lack of perspective for better work at the bottom. Those at the bottom of the labour market are hardest hit by the effects of the crisis and its structural economic causes, suffering from rising unemployment and a reduction in the quality of those jobs that are available. “With the richest in high-inequality countries becoming steadily richer, while the 50% in the middle are not much better off than thirty years ago, we have to conclude that trickle-down economics is not working,” said Monika Sie Dhian Ho, chair of The Broker board.
In her speech, chair of The Broker board Monika Sie Dhian Ho addressed increasing inequality. According to her, the moment has arrived for a different kind of globalization and a policy that breaks with the aim of compensating for the negative consequences of macroeconomic free market policies, replacing it with one that structurally integrates the goal of reduced inequality and more and better work, and makes it an explicit aim of government measures.
Minister Asscher told his audience that “inequality in a country can be measured on the basis of three questions. First: what part of the country’s prosperity is enjoyed by the factor of production labour and what part by the factor capital? Second: how fairly are wages and salaries distributed? And third: how fairly is wealth distributed? If you look at these indicators, you see that inequality is rising in the US and Europe”.
Asscher focused attention on the “polarization of the labour market”, saying that “the middle classes are now also under pressure, in terms of both wages and jobs.” The minister’s labour market policy aims mainly at investment in better education and facilitating lifelong learning. “We need to create a new, larger and highly educated middle class. That means putting investment in people – and therefore in the Netherlands as an attractive place to do business – at the top of the agenda.”
Shifting relationship between capital and labour
The shifting relationship between capital and labour came to the fore not only in Asscher’s speech, but also in other contributions during The Broker Day. “In the past 20 years, labour income has fallen as a percentage of prosperity, in favour of capital earnings. In OECD countries, it fell from 66% to 62% on average,” said Asscher. “The distribution of wages and salaries has become increasingly unequal and the labour income percentage has fallen in practically all developed economies. This means that those who provide capital and the top layer of the population are appropriating an increasingly large share of the cake.”
Frans Bieckmann addressed the increasingly unequal distribution of wealth in the past 30 years. “Since the financial crisis, the wealth of the top layer in the Netherlands (but that applies to elites throughout the world, including those in poor countries) has only increased even more,” said Bieckmann. According to him, the main causes are the extreme forms of free trade and globalization of the financial system. Monika Sie also explained the increasing inequality in large parts of the world in terms of “new causes, linked to the deregulation and globalization of financial markets, the flexibilization of labour markets, and the nature of economic reform policies”.
According to Bieckmann, financial globalization has led to a situation in which “the profits and capital of shareholders are decreasingly invested in the real economy, for example in small and medium-sized companies where most jobs are created”. As a consequence, growth of GNP does not automatically lead to more jobs or higher wages, as the money goes to shareholders and other capital holders in the form of higher profits. Rolph van der Hoeven, professor in Employment and Development Economics at the Institute of Social Studies later added that capital is decreasingly taxed and called for “more regulation of capital flows. We have to reach international agreement to tax capital more heavily, to ensure that the benefits of the rise in productivity of the last decade are again enjoyed more by society as a whole.”
During the debate, Minister Asscher pointed out that there have also been genuinely positive developments in curbing the excesses of the financial system. When the banks in Cyprus were in danger of falling during the euro crisis, Jeroen Dijsselbloem – chair of the Eurogroup and, as Minister of Finance, Asscher’s colleague in the Dutch cabinet – proposed making large-scale savers pay some of the costs. “Before then, all the risks taken by the financial sector had to be covered by governments,”said Asscher. “And that means by taxpayers, since that led to more cutbacks in social security and health care. Dijsselbloem was successful in turning that around at European level. So large savers were the first to bear the costs. It says a lot that the London financial press immediately called for him to be sacked. But, to the surprise of the City in London, Europeans in the street made it clear that this was just what they had been waiting for. By responding to the crisis in this way, the Netherlands – through Dijsselbloem – showed that there is a choice: allowing governments to bear the financial risks or letting capital bleed.”
The need for a new model
In his speech, Frans Bieckmann discussed the following assumptions about the current economic policy on employment, showing that they are ‘dubious’ to say the least: economic growth automatically leads to more jobs; inequality and high profits are necessary to create employment; more free trade and international competition generate more jobs; and low wages lead to more work. He concluded that the current economic model, based on neoclassical economic assumptions, is on its way out, saying “it is cracking and creaking on all sides”.
Daniëlle Hirsch, director of development and environmental organization Both ENDS, said in her speech that the current economic model is no longer sustainable. In her view, economies grow only in quantity and not in quality, and the welfare of the population is declining. According to Hirsch, something “real” has to change in the “capital-intensive production and consumption model”.
Director of Both ENDS Ends Daniëlle Hirsch emphasized the way in which the Netherlands has a role to play in a fairer and more environmentally friendly international economic policy. As a leading economic player in the world, the Netherlands can make a real difference in, for example, trying to achieve trade and investment agreements based on the welfare of the population.
To create more jobs and combat income inequality, Sie also calls for an “alternative policy programme aiming to achieve a more equal distribution of income, which would in turn generate more stable and robust economic growth”. This calls for “different mindset from policy-makers in all areas”. While there is widespread agreement among academics that the current economic policy is not the right one, this is only slowly dawning on policy-makers. But, among them, too there are signs of a change of direction. And many of them, according to Asscher, already acknowledge the importance of combating inequality. “In Europe and the US there is growing awareness that a fair distribution of income is also necessary to create a solid base for economic development and, in the long term, for rapid and sustainable economic growth”. Asscher, too, recognizes the need to move towards a new economic model, saying “our economic system is clearly not capable of assuring full employment and an equitable distribution of wealth and income”.
Asscher resists the race to the bottom in terms of wages and jobs and is focusing on a policy full employment. “Full employment does not therefore have to be achieved by decreasing the price of labour as a factor of production,” he says. “Disposable labour cannot be our future. Decent work for a decent wage can go hand in hand with the goal of full employment.” The minister wants to create more jobs by making it cheaper to employ low-paid workers without them earning less. He believes that can be achieved by making it easier and cheaper for companies to take on staff. As an example of this, he referred to the SPAK tax discount scheme, which existed in the Netherlands until 2005. “In the coming period,” says Asscher, “I want to explore the possibilities for promoting employment at the foot of the labour market as much as possible. The forthcoming large-scale review of our tax system must therefore have that aim: providing employment for those who are currently missing out.”
In addition, Asscher wants international enterprises to pay more company tax. The fact that they currently pay so little tax “undermines the base for social services and the scope for investments in human capital, and increases the tax burden on labour”. A joint European approach to tax evasion can also help achieve a better balance of taxation between labour and capital.
From redistribution to predistribution
Monika Sie wants to go a step further: it is no longer a matter of redistributing prosperity after it has been generated, for example through taxation, but of ensuring as much as possible that redistribution is not necessary. “The massive pressure towards greater inequality, economic insecurity and exclusion, and the damage to social cohesion and democracy, lie far beyond the range of compensatory redistribution. Moreover, using the power of government to redistribute on a large scale will be more and more difficult.” Policy must therefore focus from the start on the causes of problems, rather than compensating for negative consequences afterwards. In the words of deputy prime minister Asscher, we have to move “from redistribution to predistribution”.
To achieve that, more space will have to be generated for countries or regional blocs, says Bieckmann. He called for more “policy autonomy” saying “new mechanisms have to be created so that countries have more space within that larger whole to choose their own development paths, set their own priorities, or experiment with new forms of economic organization.” In his contribution to the debate, Guus Geurts made a similar plea for more regional production and trade. In his view, such regionalization can have favourable consequences for Africa en Asia: it would mean that Europe would be less dependent on African raw materials and dump less of it surplus there, while the production chains within Africa would become stronger.
Momentum for change
According to Sie there is now a momentum to take fundamental steps towards a new economic policy that reduces inequality and generates more jobs. In her view, two factors play an important role in this process. First, a change in academic thinking on inequality. “Economics is changing from a model-based science to an empirical science”, the results of which clearly show that “inequality will not decrease if policies stay the same, but will increase further”. Second, more and more recent research shows that a high level of inequality is bad for economic growth and financial stability.
This change will have to be above all political: governments have to take their responsibilities and political movements must force democratization of the economy. “It is regulation and policies made by politicians that determine the degree of inequality,” says Sie.
Hirsch discussed this in greater detail, drawing attention to the need for a new focus in Europe’s trade and investment policy. “If we acknowledge that we are dependent on the quality of economies elsewhere, as they form the basis of our production and trade model, we also have to recognize that we can only achieve improvements in employment and equality here if the same happens there, too,” says Hirsch. “That is the choice facing us: are we going to use our resources and position to strengthen other economies and make them sustainable so that together we can improve wellbeing in the long term? If so, then we have to be more consistent in the choices we make in our trade relations.”
According to Hirsch, current investment agreements exist only to protect foreign investors, while investments should also serve the interests of the environment and the local population. In her view, these agreements should be based more on “reciprocity”, so that partner countries “can also demand that investors help create jobs, protect the environment and pay their taxes”. Only with such a new focus in its trade and investment policy can the Netherlands create sustainable employment both at home and abroad. Hirsch argues that the Netherlands can make much more use of its strong economic position to achieve these changes.
However, the change will not only have to come from government and other political actors, but must also be enforced by pressure from below and put into practice. “The sustainable countervailing power that the trade union used to exercise and which offered resistance to unjust distribution of incomes on a day-to-day basis, has been considerable weakened,” said Monika Sie during the debate. “We need new alliances, new forms of countervailing power to move us towards the kind of economic order we want.” That is why, according to Hirsch, “we need to invest again in organizations that stand for better governance, that defend people and the environment, and which give realistic information on the local investment climate and investment risks in certain regions. And in local initiatives that develop new economic activities. In the long term, that will provide us with sustainable trading partners.”
Democratization of ownership in companies should also be encouraged, a development that minister Asscher strongly advocates: “Employee participation is less well protected in multinationals. It remains important to involve employees as much as possible in decisions, both on the work floor and in an organized context. For example, on top salaries within a company. That offers a useful counterbalance to the influence of shareholders, which can be too sharply focused on short-term profits and less on the sustainable deployability and training of employees.”
During the debate, Paul de Beer (University of Amsterdam, director of the Amsterdam Institute for Advanced Labour Studies) extended this argument to influencing companies’ investment decisions. ”Capital has become increasingly volatile,” de Beer said. “Employees have to have greater control over it by, for example, becoming shareholders themselves. It is also very important that we make international agreements so that employees and other stakeholders – including consumer, environmental and development organizations – have a say in important economic decisions.”
During The Broker Day, there were a number of calls for widening and deepening knowledge and its exchange, to provide a more solid base for the transition to a different economic order and for efforts to achieve that transition. Monika Sie advocated “an agenda of social investment, substantial investments in research, promoting innovations that focus more on saving on environmental costs than on reducing labour costs, with the associated loss of jobs.”
Minister Asscher considers it important that politicians and other political actors listen to academics and scientists. “Politics has the tendency to think in the very short term,” he said. “It is therefore important for us to look more at the long term and take an interest in what the latest scientific developments. … I don’t believe that all the initiative should come from politics. And that is not what happens in reality, either. Politics is often a reflection of something that is no longer considered acceptable in society, such as when the top 10% gets richer while those lower down get 10% poorer. That finds its way into political thinking and, all being well, in a positive manner.”
Broker director Frans Bieckmann said that The Broker aims to help formulate and provide factual and scientific evidence to support “a coherent alternative for a failing economic model: in which work is not subordinated to growth of GNP, in which multiple crises (inequality, climate, the financial system) are addressed structurally, in which politicians take their responsibilities, and in which concrete policy measures are developed to make all this effective in practice.”
Or, as Monika Sie said at the end of her speech: “That alternative calls for a different mindset from policy-makers. They need to strive to achieve full employment as an independent goal, alongside aiming to achieve economic growth. … I hope and expect that The Broker, as an international academic and policy platform, can move beyond the bringing together of analyses and contribute to the exchange of knowledge and experiences leading to such a policy alternative.”