Mr Major’s Speech on Enterprise Europe and the Social Chapter – 4 February 1997
Below is the text of Mr Major’s speech on Enterprise Europe and the Social Chapter, made to the European Policy Forum. The speech was made at The Conrad Hotel in Brussels on Tuesday 4th February 1997.
PRIME MINISTER:
A COMPETITIVE EUROPE – THE ENTERPRISE APPROACH
Introduction
Most politicians – across Europe and irrespective of political party – have in common some of the same aims and ambitions. They would like their country to be more prosperous and people to become better off. They wish to see economic and political stability. And everyone wants peace.
In Europe, the greatest threat used to be war. Twice this century war has torn our Continent to pieces. It’s fifty two years to the day that the Big Three met at Yalta and set the course for Europe’s post-war history.
Today, the notion of war between the countries of Western Europe is unthinkable. And the credit, in no small part, goes to the European Union. Peace is the prize that the project of Europe has won.
We must build on that. That is why I believe that enlargement of the membership of the union – rather than more integration of existing members is the proper priority.
But my theme tonight is not enlargement, or the IOC, nor even EMU, important as these issues are.
The argument I advance today will not be new to my fellow heads of government. I have used it often enough in the European Council and privately. But I believe it needs a wider circulation.
Today Europe faces a historic challenge – how to keep our companies competitive and our people in work in the face of intense global competition. Prosperity – that aim which every politician shares – depends on winning in that world.
But Europe is not winning. 18 1/2 million people are unemployed – the size of Denmark, Finland and Sweden put together. We’re not creating enough new jobs.
Over the last 20 years America has created 36 million new jobs, of which 31 million were in the private sector. In that time, the EU as a whole only created 5 million new jobs, of which only I million were in the private sector.
Europe cannot brush that comparison aside. We have to ask why the private sector has not created extra jobs in Europe whilst it has elsewhere.
We have to find the answer and act on it.
I believe the answer lies in the policies Europe has followed.
We are at a turning point. The choice is either to press ahead with policies that are causing unemployment, or change direction. Crudely, the choice is between two dramatically different economic philosophies – the enterprise approach, and the approach most people know as the European Social Model.
It’s a debate in which the British Government is often portrayed as being out of step with her European partners.
Up to a point, that’s true. We are out of step with the European social model. We believe it prevents job creation and creates unemployment. We believe that is politically wrong and economically wrong.
But no-one should misrepresent our commitment to an enterprise approach to suggest we are against Europe.
We are not. We are for Europe. Millions of Britons fought and died to defend Europe’s freedom. Our history is entwined with Europe. Our trade depends on Europe.
Our arguments are not about Britain against Europe. Our arguments are about achieving success for the whole of Europe.
When Britain disagrees with some policy or other our European partners often shrug their shoulders and say ‘Oh well, they’re only saying that because of the domestic debate in the UK. They’ll come on board in the end.’
I understand why they say that – but they’re wrong on both counts.
First when we oppose a policy it’s because we believe it’s a mistake – it’s not a public relations gesture. I don’t just mean a mistake for Britain. I mean a mistake for Britain and Europe as a whole.
And second, our partners are wrong to believe we’ll come on board in the end. If we dislike the policy – we won’t.
Because Britain has too much to lose.
Britain’s Success
I said earlier that unemployment is a European problem. It is. But it need not be.
If Europe practised the enterprise policies it pays lip service to then it could become a dynamo.
These policies aren’t always easy. Or popular. But they work. And because they work they put our people back to work.
The evidence is easy to see.
In other comparable European countries, unemployment rates are the highest for a generation – and rising. But unemployment in Britain is lower – and still falling. This is not just the economic cycle, it’s because over the years we’ve built a dynamic enterprise economy.
Eighteen years ago, the British economy was a byword for failure. The state spent, taxed and controlled too much. It had all but snuffed out the flame of enterprise. That was Britain’s low point – and we changed direction.
We decided that the only route to success was the enterprise model – curbing the power of the state, cutting back unnecessary regulation, and controlling spending so we could cut taxes.
We put our trust in the free market, rewarded effort and success and, above all, made it worthwhile to create jobs.
We broke the trend of rising state spending. The share of national income taken by the government has gone on rising in Europe. But in Britain, government spending will be down to 40% of national income next year.
We cut income tax and corporation tax: we now have the lowest basic rate of tax for nearly 60 years, and at 33% the lowest main corporation tax rate of any major industrial country. And our overall tax burden is the lowest of any major economy in Europe.
We privatised loss-making nationalised industries, bringing lower prices and better services and turning loss-makers into world-beaters.
We tamed the power of the unions, and strikes have hit record lows.
And we’ve kept up a constant battle against regulations that throttle businesses – particularly small ones.
None of this has been easy. But it has meant Britain has been able to create more jobs in the last four years than all the other major countries of Europe put together.
It’s not just British companies that are creating the jobs – though they certainly are.
We’re now also drawing in billions of pounds worth of investment from around the world, one third of all inward investment into the European Union.
And our near neighbours are investing in Britain too. In recent years Britain has been the number one destination for overseas investment by German business. Some 1600 German companies now have a base in the United Kingdom.
The European Social Model
But while we have put our faith in enterprise and the individual, others have followed the European Social Model.
Britain apart, across the EU the state’s share of national income rose from an average of 45% of national income in the late 70s to 49% today.
Many countries are now making Herculean efforts to bring it under control. They are right to do so. But they have a long way to go and tough problems to overcome, not least the mounting bills for state pensions next century.
But public spending control is now one area where most European governments can agree on the direction for the future.
The same cannot be said for labour market regulation. There is a sharp divide between Britain’s enterprise approach and attempts elsewhere in Europe to cocoon jobs by legislation.
Protecting jobs by legislation sounds good. But it’s a fraud, a false security. It’s a case of bureaucracy defending the status quo as the quo inexorably loses its status.
Yes, you can pass legislation to make it harder for a company to reduce its workforce. But if reducing the workforce is what is needed to survive, all you’ve done is to jeopardise the jobs of the entire workforce.
It is a well meant but short-sighted policy.
The harder it is for companies to adapt to change, the slower they will be to match the competition they face. The slower they react, the worse they do.
Over-regulation damages growing industries too – the ones on which our security really depends. By making it more expensive to take on additional workers, it locks out the unemployed and adds to long term unemployment.
It may sound responsible and caring. But the European Social Model is in fact fundamentally flawed.
It deprives today’s companies of the chance to compete, and drives away tomorrow’s investment and new jobs.
Over-regulation doesn’t work. And as a result, nor do millions of Europeans. The figures say it all.
For every £100 paid in wages, in Germany non-wage costs add on an extra £31, £41 in France and £44 in Italy. In Britain, it’s only £15.
Social Chapter
When you look at those figures, it’s easy to see why Britain will not sign the Social Chapter.
This is not some arcane dispute about a trivial statement of good intentions. The point is that if we signed it, the Social Chapter would be the mechanism to implement the European social model in all its aspects.
It isn’t just what is in the Social Chapter today that matters. It is what will go in it.
The fact that we have refused to sign it has acted as a brake on its development. But remove that brake, and new legislation will pile up fast.
There is plenty in the pipeline already or under discussion.
Shifting the burden of proof onto employers in sex discrimination cases.
Extending full-time rights and conditions to part-time and temporary workers.
Compulsory arrangements for informing and consulting employees at national level.
Further restrictions on the dismissal of workers. New European rules on sick pay.
All that and more proposals to regulate working time.
That is why I will never sign it. Because one signature on the social chapter would mean ½ million signatures on the dole.
All Britain would gain from the Social Chapter is a less competitive economy and more unemployment.
First stop Social Chapter. Next stop social security.
I have no doubt that if we signed the Social Chapter it would become a Trojan horse unloading on Britain the problems that brought us to a low point in the 1970s. The Social Chapter has the appetite to become one of the most far- reaching provisions in the Treaty covering everything from working conditions to union rights.
And it’s no good pretending that once you’d signed up you could have second thoughts. It’s not some mail order mistake you can send back if you don’t like it.
Once you sign up, you can’t opt out again. In the key areas there is no veto. Britain would be powerless to stop our businesses being burdened with all kinds of unnecessary regulations.
Ever businessman in this room knows what the effect of that would be: one more burden on business, one more reason to set up somewhere other than Europe.
Instead, I want the whole of Europe to wake up to the crying need for an enterprise approach so that Europe can get back to work and we can all prosper.
This argument will be crucial at the IGC at Amsterdam. People will attack me for not signing the Social Chapter, and will question my motives: how can I disagree with the objectives of the Social Chapter – the promotion of employment and improved living and working conditions?
Of course I share those aims: in Britain, we’re actually achieving both. But ill-considered burdens on business act against those objectives – not for them.
To achieve those aims, we have to keep our businesses competitive. And we have to encourage enterprise and job creation and not penalise it.
How is job creation helped by centralised, legally binding agreements between employers and trade unions?
By mandatory works councils?
Compulsory parental leave?
What jobs does that create?
What orders does it win?
None.
Some people try to shrug off the impact of new regulations by saying that large companies can afford the extra cost.
That’s surely the wrong point. An extra 20 per cent or more on employment costs isn’t small change for any business. That money could better be used for fresh investment.
And it’s worst of all for the small business. The owner manager with 10, 20 or even 100 employees. These are the companies that represent future employment. In the UK, for example, over half of all private sector employees are in companies with less than 100 employees.
They don’t have the resources to fund huge personnel departments or employ compliance officers. So how are they supposed to find their way round the jungle of new regulations and absorb the costs? And if we’re throttling businesses like that where on earth do we expect tomorrow’s big companies to come from?
This may be an unwelcome message in some circles. But it is one that is backed up by the IMF and the OECD, both of whom have drawn attention to the weaknesses in the EU’s labour market and the strengths of the UK’s performance. And of course it is backed up by business opinion.
Only recently, the Chairman of Digital Equipment said:
“It is no accident that unemployment in the UK is at a long time low. It is a lot easier to operate in the UK. The workforce is a lot more flexible.’
The President of the German BDI made very similar points:
“We have too rigid labour laws. We have too high social costs and taxes. We work the shortest week in Europe. The German government spends 50% of GDP as opposed to 42% in Britain. No wonder we have a problem”.
The UNICE and the European Round Table of Industrialists want a moratorium on new EU social laws and oppose a new employment chapter.
And a survey of small firms in the EU last year put labour and social laws second only to the availability of investment as the main constraint on expansion.
In Britain, business is assessing the likely impact of the Working Time Directive. A recent survey by the British Institute of Directors showed more than half of their members believed the Directive would cost jobs in their businesses.
The United Kingdom, of course, disputes the legal basis for this Directive, and will require our exemption to be firmly re-established in the current Inter-Governmental negotiations.
But the Working Time Directive itself is not the point. The point is that the Working Time Directive is the thin end of a very large wedge.
Business needs to speak up and say this. The facts are uncomfortable but they cannot be ignored. If Europe is heading in the wrong direction – and on this issue I believe it is- then we must face the problem and change the policy.
Of course, this is difficult. I know anyone who points out the flaws in the social model can expect fierce criticism. But this criticism is generously laced with some contemporary myths. So let me address these myths that stand in the way of an enterprise Europe that could put its citizens back to work.
The first myth is that without the new Social Chapter provisions workers would be open to exploitation.
This is nonsense. Let me illustrate that by reference to Britain’s experience.
Britain has comprehensive laws against racial or sexual discrimination, against unfair dismissal, and guaranteeing the right to trade union membership. Our health and safety legislation has resulted in one of the best safety work records in Europe.
But the State should step in only where it is needed. Over-prescriptive legislation impedes a free labour market and adds to costs and not jobs.
Proper negotiation between employer and employee is the best guarantee of workers’ opportunities and rights. We are now in the 1990s not the 1840s. Companies nowadays send young people on training courses not up chimneys.
The second myth is that social legislation is necessary to protect workers from job insecurity.
This is a simplistic and unrealistic view. In any modem developing economy there are always going to be some people changing jobs as the result of competition and technological innovation. That is just a fact of life.
But what is important is that those who lose their jobs have a good chance of finding one again soon. The best way to guarantee that is to have a dynamic economy where job creation is encouraged.
Making it more expensive for employers to take on new staff hinders, not helps, that process. All social legislation will do is to make it more likely that those who become unemployed stay unemployed. That is in no one’s interests.
The third myth is that social legislation will help increase permanent employment rather than temporary jobs.
Here too the evidence is clear cut. Britain has the lowest level of workers on temporary contracts of any major European country – 7% in Britain as against over 10% in Germany and France, and over 30% in Spain.
And people get of temporary jobs and into permanent ones quicker in Britain too: 25% of employees on temporary contracts in Britain were in permanent work a year later, against just 14 ½% in Germany and only 9% in Spain.
The truth is that it is the social model, not the enterprise model, that encourages temporary contracts. Employers use temporary work to avoid the red tape that comes with permanent jobs.
In one European country, if you give an employee a permanent contact, you cannot dismiss him without first applying to the employment service. In two others you’d need permission from the works council. In yet another, large firms have to produce a “social plan” and may face lengthy appeals that can ultimately prevent restructuring.
And in some other European countries – as many of you know from your own experience – dismissing an employee is virtually impossible. As a result, there is a bias against full-time employees, more are on temporary contracts and more are without jobs entirely.
That is one illustration of the way in which the social model is well-meaning but soft-headed.
Then there is the fourth myth: that without the Social Chapter we will only create low wage jobs and increase inequalities in society.
I’ll let the facts speak for themselves.
Britain has created over 900,000 new jobs in the last four years. Of these, 24% have been in professional occupations and 21% are managerial.
Almost a quarter of a million new jobs have been created for managers, administrators and professionals within the financial services sector.
So the truth is the British economy is producing good jobs. Skilled jobs and well paid jobs.
But because we welcome full time jobs doesn’t mean we should scorn part-time jobs.
Some opt for pan-time work because they want more leisure and can afford to reduce their hours.
Many women or young people prefer a part-time job so that they look after their children or study more.
Once people find work, albeit part-time work in some cases, our experience suggests that they are likely to see their earnings rise more quickly in a less regulated market.
A recent OECD survey showed that in Britain over half of those in the bottom fifth of the earnings distribution had risen out of it within five years – a higher proportion than in any of the other countries surveyed.
This underlines why a minimum wage would prove counter-productive. If it was above market levels it would price many first time jobs and part-time employees out of the labour force. It removes the bottom rung of the ladder. Where’s the social justice in that?
And finally there is myth number five – the all-embracing myth – that a country without the social chapter is a ‘sweat shop economy’.
That sort of overblown language is simply a substitute for real argument and fact.
Yes, it does cost less overall to employ someone in Britain than in many other countries. But that is because of lower Government-imposed costs, lower personal taxes, and because prices are lower here. It doesn’t mean lower take- home pay.
The ‘sweat shop’ economy myth is now so widespread that few people realise that a production worker’s take home pay is higher in Britain- in terms of what it will actually buy than in any other major European economy bar Germany. And of course, you’re more likely to have a job in the first place in Britain.
The message for Europe
So my message is clear.
I am not seeking special arrangements to allow Britain to benefit at the expense of the rest of Europe. Our British interest is for Europe as a whole to succeed. We’ve nothing to gain if our largest export markets hobble themselves.
My message is that Britain hopes Europe will succeed. But I believe it will only prosper in the long term if the enterprise model becomes the accepted way forward. Our arguments are serious. They are based on facts. They deserve careful evaluation.
I believe Britain can help shape a Europe in which business can prosper. We are willing to play that role. It is in our interests to do so – and Europe’s interest as well. But we cannot win these battles alone. We need business across Europe to speak up as well before it is too late. Every day lost makes the battle harder.
The British Government has made up its mind. Our enterprise economy is not negotiable.
To me, the choice for Europe is simple. We can either stand up and be counted or lie back and be counted out.
And that is no choice at all.