ATTAC -European Economists for an Alternative Economic - Full Employment with a Strong Social Constitution

Full Employment with a Strong Social Constitution
Alternatives for a New Economy in Europe

Declaration of European Economists for an Alternative Economic Policy in Europe

Contact:
Prof. Miren Etxezarreta, Universitàt Autónoma de Barcelona, fax +34 93 581 22 92
e-mail: Miren.Etxezarreta@uab.es
Prof. John Grahl, University of North London, fax +44 207 753 50 51
e-mail: J.Grahl@unl.ac.uk
Prof. Jörg Huffschmid, Universität Bremen, fax +49 421 218 45 97
e-mail: Huffschmid@ewig.uni-bremen.de
Prof. Jacques Mazier, Université de Paris 13, fax +33 1 49 40 33 34
e-mail: Mazier@seg.univ-paris13.fr

This declaration is the short version of a more comprehensive “Memorandum” entitled “Alternative Economic Policy Guidelines for Full Employment and Social Cohesion in Europe” which is circulated simultaneously. Both are the result of joint efforts and discussion of a group of European economists at a conference in Brussels at the end of September this year. It is planned to make such alternative economic policy guidelines a regular publication, as critical counterpart to the official economic policy and employment guidelines published by the EU.

The declaration is circulated with the aim of collecting supporting signatures from profes-sional economists, thus demonstrating that there is wide spread concern and criticism about the current situation and the economic and social policy orientations of the EU authorities. Declaration and memorandum will be presented to the public in the member states of the EU shortly before the summit in Nice.

1. In spite of very optimistic presentations in the public, the economic and social situation in the EU must give rise to great concern: the current recovery is fragile, unemployment con-tinues to remain on intolerably high levels, roughly four times higher than in the 1960, and inequality in all forms is increasingly spreading all over Europe: inequality in income dis-tribution, precarious working conditions, rising poverty, the persistent gender gap and the new dimension of inequalities between Eastern and Western Europe.

2. The economic and social policy is criticised because of its uniquely narrow view and ap-proach. On the macroeconomic side the exclusive fixation of monetary policy on price stability and the obsession of fiscal policy with deficit reduction have contributed to the current high level of unemployment and are likely to do so in the future. At the same time social policy, under the heading of an “activating welfare state” is thinning out the social content of full employment, eroding social cohesion and solidarity, increasing inequality in many forms, while at the same time imposing more elements of compulsion and repres-sion onto the weaker parts of society.

- a more efficient and more democratic macroeconomic policy for sustainable growth and more socially rich employment on the way to full employment. Ways to this end are a more expansionary fiscal and a co-operative monetary policy as well as control over exchange rates and financial markets;

- a stronger social policy with the aim of creating a social constitution which gives every individual living in the EU the unconditional right to a dignified life. Ways to this end are on the one hand measures to improve the conditions for progressive na-tional policies and on the other hand specific European measures like the adoption of minimum standards for social expenditure in general and for specific purposes like health or child care in particular;

- more balanced structural policies with particular emphasis on a more pragmatic view in competition policy, a stronger research and a strategic industrial policy, a better tar-geted regional and a more active trade policy;

- a better and more determined preparation for Eastern enlargement: the completion of institutional reforms should be dropped as precondition for enlargement, generous transition periods should be negotiated for mutually sensitive areas, and transfer pay-ments should be substantially enhanced in order to facilitate the accession.

- The development of conceptions for a more radical restructuring of the economy and society, where not growth but welfare of the people is the central point of reference and individual and collective reproduction will be organised in new ways.

At the end of this year the economic and social situation of the EU is presented to the public by politicians and the media in the most positive and optimistic terms. Overall the economy is seen in a state of strong recovery and continuing growth which has created more than two million new jobs in one year. This dynamic development will, like the New Economy in the USA, continue and resolve the problem of unemployment. The summit of Lisbon declared even full employment, which for more than two decades had been banned from official EU terminology, a key objective of European economic policy. It shall be achieved within the current decade, based on the diffusion of the “knowledge society” and the “modernisation of the social systems” in Europe.

We are not convinced by this simplistic picture of the future which underestimates the risks of failures and does not stress that institutional changes and determined policies are required to secure economic development and social justice. We are worried about the continuing high levels of unemployment, growing inequality and the regional disparities within the EU and between the EU and eastern Europe; and we have strong criticism with regard to the current economic and social policy in the EU.

First we think that the EC does not correctly assess the strength and sustainability of the cur-rent recovery. In our view it remains rather fragile and depends strongly on external factors like the continuing boom of the US economy driven by a surge in consumer demand (to some degree fuelled by a rising stock market) which has led to unsustainably low (sometimes nega-tive) savings and high balance of trade deficits. We criticise that the EU in her economic pol-icy positions does not provide the necessary European instruments and co-ordination mecha-nisms to support sustainable growth and socially rich jobs when the positive external factors become weaker. We also criticise that the EU does not undertake enough endeavours to shape the upswing in a way which corresponds to the necessities of a better distribution of income and wealth and ecological restructuring.

Second, we are particularly concerned about the social content which is currently attributed to the concepts of full employment as well as welfare in the context of the much publicised transformation of the welfare state into an “activating welfare state”. We observe that much of the content which characterised the post war concept of full employment – i.e. sufficient wages, social security and freedom – are increasingly paralysed or even dropped in the recent stampede for deregulation, flexibilisation and “social modernisation”: full employment shall be achieved through lower and more dispersed wages, more insecurity and a good deal of pressure upon the unemployed to take on any job offered to them. Employment is seen mainly as a good procedure to achieve the highest possible rate of competitive growth but the quality of that employment is totally disregarded. The rhetoric of the “activating welfare state” while certainly containing positive elements like the creation of more and better job opportunities also comprise a clear tendency towards social compulsion via cuts of benefits for those who do not display enough capacity, skills, adaptability and flexibility. In a situation of still very high unemployment we find it counterproductive when the EU embarks on a policy of sanc-tions against early retirement and incentives to keep the elderly longer on the job.

We are also concerned about the tendency in the Commission to privatise, under the pretext of making people more responsible, increasing parts of the collective system of social security. Such privatisation is good for the large institutional investors on the financial markets, but it exposes the majority of the people to increased risk and insecurity, which they can, if at all, only cover individually at high additional cost.

Third, with regard to macroeconomic policy we criticise that the Commission while introduc-ing into her Broad Economic Policy Guidelines 2000 full employment as a new key objective for economic policy is obviously planning to achieve this objective without any accompany-ing change in her narrow economic policy approach, the neo-liberal design of which was codified in the Treaty of Amsterdam and reinforced in the Stability and Growth Pact. In this framework monetary policy retains the status of complete independence, elevating price sta-bility to an unquestionably superior objective which is not accessible to democratic discussion and decision-making. Fiscal policy remains subordinated to the primary imperative of budget consolidation, concretised in rapidly balanced or surplus budgets. Thus the responsibility for employment is exclusively assigned to wage policy as the third pillar of macroeconomic pol-icy, and the Commission, while in general approving “wages to increase in relation to labour productivity growth” recommends at the same time “to strengthen, where necessary, and sub-sequently maintain, the profitability of capacity enhancing and employment creating invest-ment”, in other words further redistribution of income in favour of profits, when the profit share has been rising for the last decades in an unprecedented way ! This suggests a trade-off between wages and employment, which we reject as theoretically and empirically unfounded. Wage lowering will not improve significantly the price competitiveness of firms competing with countries where wages are five times lower than in Europe, but it will certainly depress internal demand for products made in Europe and therefore employment in Europe.

The Employment Guidelines 2001 contain a more differentiated approach. The new inclusion of the social partners and the emphasis on lifelong learning as horizontal objectives as well as some reinforcing of the gender issue indicate progress. However, here too we see dangers and threats to what we regard as ultimate goal of employment policy: This is not the increase of the numbers of employed persons at any price but the enhancement of social welfare via the provision of a sufficient number of socially rich jobs. The achievement of the envisaged benchmark, the rise of the participation rate from 62% to 70% in 2010 will only mean pro-gress of European welfare if the additional numbers of employed persons are voluntarily at work, decently paid, protected from insecurity or arbitrariness of the employers and can de-velop their professional and creative capacities on the job. There can be no serious doubt that there is enough economic potential for such advancements of social welfare, but we know that it will not be developed only through the interplay of market forces and we have serious doubts that the European institutions have really taken on the political challenge of enhancing social welfare and ecological sustainability in Europe. Instead we see a continuing drive for sheer growth without any social and ecological qualifications and ambitions. In some of the passages of the BEPG and the declarations of Lisbon more employment appears as instrumen-tal for the promotion of the ultimate goal of growth and competitiveness instead of sustainable growth serving as an instrument for the creation of employment and welfare.

On the theoretical side the guidelines of the European Commission are based, even if this is not explicitly expressed, on the concept of the non-accelerating inflation rate of unemploy-ment (NAIRU), which ironically has been so powerfully criticised for its adhocery in its coun-try of origin, that it is rarely used any more in the USA. According to this concept, in a given institutional (labour-market) setting, inflation accelerates if unemployment falls below the NAIRU. Given the economic policy priority of fighting a rise in inflation, monetary policy then has the task to bring employment back to the NAIRU level – even if this means causing a recession. If the NAIRU-level of unemployment is regarded as too high the way to lower it is – according to this view - not an expansionary employment policy but a restructuring of the labour market towards more flexibility, which usually means the reduction of workers rights and wages and the increase in the effective supply of labour by cutting unemployment bene-fits and by other forms of pressure upon the unemployed. Leaving aside the productivity im-peding side-effects of increasingly less paid and precarious work, the focus of the theory is misplaced, because it, first, misinterprets inflation as the consequence of high wages instead of low capacity and, second, neglects the essential role of effective demand for the determina-tion of employment. The reduction of wages, workers protection and social benefits will not lead to higher investments and more employment, if firms do not expect that there will be enough demand for the additional products which they can produce at lower costs. The policy of internal constraints makes a country increasingly dependent on export surpluses, which are increasingly difficult to realise, and even if realised, contribute to the overall instability and vulnerability of the world economy.

The Commission has during the last one or two years considerably expanded her public ap-pearance in areas like employment and economic policy. She has much more than before em-phasised social objectives like full employment and social cohesion. However, behind the new rhetoric, that we certainly welcome as it reckons that welfare issues cannot be left to free market forces, we see – not everywhere but to a worrying extent - the old neo-liberal and fundamentalist spirit at work. We observe a disquieting tendency to paralyse and undermine the social achievements of the last 40 years under the pretext that they are no longer afford-able. This argument is difficult to sustain when it is well known that our rich societies produce currently much more wealth than 25 years ago. We cannot regard this as mere intellectual errors but see strong interests of powerful groups behind the campaigns to deregulate the la-bour markets and privatise the social systems. This tendency reinforces the drive towards more inequality, which has been at work for more than 20 years in Europe as in the US.

In our view the most worrying tendency in the EU is the long-lasting increase of inequality. Even if for the majority of the population income and standards of living may appear to be adequate we still live in a socio-economic environment of very high unemployment and in-creasingly more precarious employment, leading to uncertainty and vulnerability of living conditions for many and poverty for a substantial part of the population. We regard this ten-dency not as the inevitable impact of globalisation but as the consequences of neo-liberal economic and social policy: Deregulation and liberalisation on the one side and obsession with price stability and balanced public budgets, on the other hand, are undermining the tissue of social cohesion and the conditions for socially sustainable and employment intensive growth. The rise of this policy orientation reflects in our view not only a new economic ideol-ogy but a deep shift in the social relationship between labour and capital and in the last in-stance in the power structure of contemporary capitalism.

On the macro-economic side the last 25 years have been marked by a general shift in income distribution in favour of profits at the cost of wages; the wage share in GDP has fallen in all EU countries. This has been closely associated with weaker growth and very little employ-ment creation. Consequently effective demand has been depressed and unemployment has risen in the 1990s to unprecedented levels of more than 10% of the civilian labour force. Even if figures of joblessness have fallen slightly during the last two years, it should be remem-bered that for the European average they are still four times higher than in the 1960s and twice as high as in the 1970. This is to a considerable extent due to an economic policy which has laid almost exclusive emphasis on the fight against inflation instead of pursuing a bal-anced strategy for good employment and social welfare. This policy was successful in that it has brought down inflation to negligible levels. But the price for this was very high: persis-tently more unemployment and less social cohesion. In our view the price was too high – and it was not necessary. It could have been avoided through a different economic policy for more and better jobs, more welfare and more social justice – without leading to excessive inflation.

Unemployment is still the most important factor of inequality and social exclusion. The drastic fall in income of the persons concerned can never be offset by unemployment benefits, which during the last years have been cut and restricted in many ways in almost all member states of the EU. Beyond the income loss unemployment tends to depreciate professional skills and to isolate and exclude the unemployed from many social contacts. This is particu-larly true for those of the unemployed who are since more than one or two years without work; their share was 45% and 31% respectively in 1999.

Deterioration of working conditions: Unemployment is also exerting pressure on wages and working conditions of the employed in two ways: First as general downward pressure and second as pressure for more dispersion and inequality. The number of part-time workers has risen everywhere and in the second half of the 1990s more than half of the new jobs were on a part-time basis. Although no exact figures exist, several surveys reveal that many part-time workers would prefer a full-time job but cannot find one. Also the rise in temporary work, compulsory self-employment – when factual wage workers are required by employers to reg-ister as entrepreneurs - and informalisation of work all reflect of increasing insecurity, risk precariousness of work and employment. In many activities modernisation has brought a new kind of pressure, more strain on the job to meet the requirements of tighter organisation as a response to stronger competition.

Income Poverty: Unemployment, poorly remunerated work and other kinds of precarisation lead to high and widely rising levels of poverty, whereas profits and income from financial investment – which is on a large scale only open for high income individuals – are rising con-spicuously. It seems that the number of millionaires is rising at the same pace as the number of kindergartens is falling In the midst of the 1990 about 18% of the population in the EU lived in conditions of poverty (income below 60% of median income). In the UK (20%), Greece and Ireland (21%) and Portugal (24%) the proportion was even higher. On an EU-average the incidence of poverty is three times higher for single parents (i.e. women!) with one or more children than for the rest of the population; in the UK the poverty-risk for this group is five times higher than for the population.

Public Impoverishment - private enrichment: High unemployment, low wages and income poverty are even more depressing when accompanied by progressive public impoverishment. This is the current drive. The combination of the obsession with balanced budgets and the equally intense obsession with tax reductions mostly for firms and finance has led to budget-ary pressures which are subsequently met by radical cuts on the expenditure side. The lions share of these cuts is falling on the social policy side: unemployment and sickness benefits, child care and local welfare, the whole network of social services, upon which the socially weak and the poor are particularly dependent. Reduction of welfare benefits and tightening of requirements for them is of course also a measure of workfare, to reduce unemployment with-out enhancing public spending. Infrastructure like public transport and education are also sub-ject of new restrictions and cuts, while at the same time other infrastructure facilities like water and energy supply and social services are privatised, exclusively in order to cut costs and without improving the quality of such infrastructure and services. Expenditure for public education and cultural facilities is reduced while private and expensive schools are promoted – and subsidised, which all contributes to increase a cultural divide which fuels the dualism in the future knowledge economy.

Regional inequalities: Although per capita income disparities have on a national basis slightly decreased, they have remained unchanged on a regional basis and regional disparities in unemployment rates have increased over the last 15 years. Structural policies of the EU have not been sufficiently effective to meet the challenge if regional disparities. The planned reduction of resources for such policies in the EU threatens to further deteriorate the situation.

Gender inequality: In spite of a continuous improvement in the participation rate of women in most countries over the last few years the gap between men and women is still intolerably high: On the basis of full-time equivalents, the male participation rate is still 26 percentage points higher than that for women. The gap is particularly wide for people with low educa-tional levels and for women with children. A second pillar for gender disparities is persistent wage discrimination. Across the EU hourly wages for women in the private sector are only 73 % of those for men, with marked differences between countries. It seems that policy measures like the introduction of minimum wages are particularly needed, and where introduced have contributed to the reduction of the pay gap. Single women with children are in a particularly unfavourable position since they are simultaneously exposed to unemployment, low wage and poverty risks.

East-West-inequalities: A completely new dimension of inequality has been opened up with the enlargement perspective. Europe as a whole presents herself even much more unequal than the EU; and the overall-European inequality has risen sharply over the last decade. For whereas GDP, industrial production and services have continued to grow, although moder-ately, in the West, they declined dramatically in Eastern Europe and in some cases the level of 1990 has even now not yet been reached again. Therefore the gap between East and West, which was already rather broad in the 1980s has not diminished but widened strongly in the 1990s, unemployment has risen and polarisation has started to undermine social cohesion in the eastern European countries. Although some of the ruptures were due to the breakdown of the previous system and are therefore costs of societal transformation, the extent of regress and impoverishment was not unavoidable. They were mainly produced by the policy of trans-formation which in return was not developed by the new parliaments and governments but largely imposed by the West and particularly by IMF and Worldbank. The triad of privatisa-tion, liberalisation and deregulation combined with restrictive macroeconomic policies - the so called Washington consensus – gave the rest to already weak eastern economies. As a con-sequence all kinds of inequalities and polarisation of the West are now imported into the hith-erto more socially egalitarian societies.

3. Full employment and a strong social constitution for Europe – Alternative economic policy guidelines

The drive for more inequality in an environment of high unemployment and increasingly pre-carious working and living conditions is not without alternative. There are even within the current institutional setting several possibilities to alter the policy course. We propose to make full use of the macroeconomic, social and structural policy instruments in order to get this change underway. At the same time it is necessary to engage in the process of a democratic redesign of the European economic, structural and social policy institutions so as to facilitate the creation of a strong social model in Europe, based on “full employment in a free society”, and including the new eastern European countries.

We propose to assign the task of a rapid reduction of unemployment to all three instruments of macroeconomic policy – monetary, fiscal and wage policy.

As immediate steps we propose that the EU recommends concrete and quantitative short term objectives and macroeconomic policy measures to reduce unemployment. In countries, where unemployment is still higher than 6%, it should be reduced by 20% per year, and the reduc-tion should at least be 10% per year for member countries with relatively low rates. This re-duction must be achieved without any deterioration in working or wage conditions. By way of co-ordination agreements should be reached that country-specific situations and institutions require specific approaches, which may include public investment programmes, the expansion of public services like education, health or welfare services or publicly financed employment opportunities, and various forms of working time reduction. It should also be agreed that the limit on budget deficits should be removed where higher public expenditure is necessary to reach the established employment objective. Furthermore we propose an immediate standstill agreement against further reduction of corporate and capital taxes in order to halt sharper tax competition. – With regard to monetary policy we regard it as essential that the ECB supports a more employment oriented fiscal policy by a more accomodating monetary policy. This includes at least the abstention from any further increases and more positively a modest reduction of interest rates. Attempts to neutralise the impact of oil prices hikes on the rate of inflation via monetary policy could, if at all, only be successful, at the unacceptably high cost of leading the EU into outright recession. – Wage policy is of course primarily a matter of the social partners. We support the result of the conference of Doorn, in which trade unions of the member countries envisaged to follow a line of productivity oriented wage increases. This does not preclude an active participation of policy makers and the public in the discussion about wages.

For the medium and long term policy we propose a more ambitious agenda including institu-tional reforms for more democracy and efficiency in macro-economic policy. Basic elements of such reforms are:

a. A more democratic co-ordination between monetary and fiscal policy. This requires on the one hand a reformulation of the mission and structure of the ESCB: the mission should not be exclusively focused on the maintenance of price stability but also include responsibility for growth and employment. The structure should be changed in a way that independence of the ECB is confined to day-to-day business while the bank should at the same time be transparent and accountable to the European Parliament and the Council. More democratic and efficient co-ordination between monetary and fiscal policy requires on the other hand the installation of an economic policy authority on the level of the monetary union, which can act as partner and counterpart to the ECB. Concretely it is necessary to increase the reach and competence of the EURO11 council (from 1.1.2001 the Euro12 council), while submitting its recommen-dations and decisions to public debate and stronger control in the European Parliament. .

b. A more democratic and binding co-ordination of economic policy between member states. Economic policy co-ordination as reflected in the Broad Guidelines for Economic Policy should firstly drop the hitherto inappropriately restrictive approach and extend its focus to employment and social and ecological sustainability. Scondly the recommendations of the BEPG should get a more binding character of directives or regulations. The compliance should be monitored and failures in reaching certain employment objectives should lead to more efficient planning and support.

c. A gradual increase in the EU budget. If the EU wants to become a stable and coherent space of full employment and social cohesion, her central economic agencies must be able to spent more than the current 1,27% of EU-GDP which have been fixed as limits to the EU budget. A higher level of expenditure is in general necessary for the stabilisation of asymmet-ric shock as well as for redistribution purposes in a union with persistently high and even ris-ing disparities. In particular higher EU-spending is indispensable in order to support the ac-cession of the eastern European countries. This accession is regarded as the main political but also the main economic and social challenge of the current decade, but financial provisions to meet the challenge remain very insufficient – and they are taken at the cost of the weaker re-gions and groups in the current EU. We therefore propose a gradual increase of the EU budget to reach 5% of EU-GDP in 2005.

d. Reform of the revenue system of the EU. Such reform is necessary in two way: Firstly in order to end the harmful tax competition in the EU a tight co-ordination of the tax system and the eventual harmonisation of the taxation of corporate and capital incomes are very desir-able. Secondly, in order to finance the higher EU budget, new revenue sources should be pro-vided. This would at the same time be an opportunity for more fairness of burden sharing, for the pursuit of more ecological sustainability and for better protection against financial market turbulence. We therefore propose to introduce

and to assign the proceeds of harmonised taxes on corporate profits, interests, dividends and capital gains to the EU budget.

e. A European Employment Stabilisation Fund. The fund should have the function of an automatic stabiliser in that it organises rapid transfers to countries with a distinctly worse-than-average variation in the employment/unemployment performance. It can be financed either out of the EU budget or by separate contributions of the member states. On a member state level the same function would be served by the provision of contingency budgets, which would be spent upon the transgression of a certain performance threshold.

f. Control of financial markets. In order to curb financial speculation the EU should raise capi-tal requirements for financial institutions for all risky activities like trade in derivatives and other short-term paper. Business with offshore centres should also be restricted through eco-nomic or administrative sanctions. A tax on securities and foreign exchange transactions can help to decelerate the velocity and volatility of financial markets. Excessive inflows or out-flows of capital, which impede the functioning of the EMU, must if necessary be prevented by temporary capital controls.

g. Reassertion of control over the exchange rate policy. This is of strategic importance to pro-tect the European economy from speculative attacks and financial market turbulence. We pro-pose to shift the control over the exchange rate from the ECB to the Council which should of course act in tight co-ordination with the central bank. At the same time we favour and pro-pose the establishment of flexible target zones between the euro, the dollar and the yen in or-der to avoid excessive exchange rate instability with harmful misalignments.

The EU embodies many different models of social protection, welfare systems and social policies. This diversity should be recognised as strength and not be destroyed by the current drive to market-led homogeneity, which has already weakened all systems. Diversity should also not be the starting point for a competitive “race to the bottom” between social models, at the end of which Europe would be left with more inequality and less cohesion and welfare. On the contrary: It should be EU policy to encourage member states to strengthen their social policy without relinquishing their specific national models. For that purpose the EU must im-prove the climate and expand the room for manoeuvre for stronger social policy on the na-tional level by loosening the restrictive limits on public expenditure and pursuing a more ex-pansionary macroeconomic policy.

But the EU can and should do more. It should take the diversity of social models as a starting point to build a European social constitution as the binding framework for the implementation of basic social rights throughout the Union. This constitution should get the same legal status and political importance as the charta of basic rights currently under consideration. The over-arching idea to be implemented in such a social constitution should be that every person living permanently in the EU shall have the guaranteed and unconditional right to a level of income, to social protection and welfare as well as to democratic participation in social life which are necessary to lead an independent and dignified life. This right can be maintained in different ways which should be discussed and monitored on EU level. As is already the case for work protection standards and for some further provisions in the social protocol, which is now in-corporated in the Treaty, the EU should formulate minimum standards which every member country should fulfil, and after discussion, specific targets for different countries. This proce-dure is similar to that used in the Luxembourg process for employment policies, but it should be made more binding.

As a general approach to such minimum standards we recommend the idea of a country-specific bottom line for the share of expenditure for welfare and social services in GDP. These bottom lines together would form a European corridor of social expenditure, and it should be agreed that those shares should not fall but tend to rise. In this process the otherwise frequently used methods of benchmarking and best practices can be applied in a progressive sense as a starting point for the formulation of concrete social policy targets. Where the share of social expenditures falls this should be discussed at EU level and appropriate measures should be taken in the country concerned and supported by the EU.

Beyond this general minimum for social expenditure the EU should adopt minimum social standards in specific areas as e.g.:

European structural policies are characterised by several weaknesses: the priority accorded to EU competition policy; the logic of the single market which favours the pursuit of scale economies through the breaking down of barriers to national markets; the weakness of re-search and innovation policy at EU level; the absence of industrial policy and the lack of stra-tegic vision for Europe as a whole; the weakness and lack of a clear direction for trade policy in response to US activism. In principle, the diversity and differentiation of European prod-ucts are major advantages but the logic of uniformity within the “big market” prevents these advantages from being utilised to the full. In practice, priority is given to increasing labour market flexibility and to reducing wage costs. All these tendencies make for an underestima-tion of the non-price elements in competitiveness and make it more difficult to sustain the medium term development needed to restore full employment. Finally, reinforcing competi-tion and pursuing economies of scale are potent factors of polarisation, which exacerbate re-gional inequalities.

Public interventions with a structural character should be renewed in order to promote stronger and less unequal development. These interventions, while in principle at national level, are often not sufficiently co-ordinated or even severely constrained on the European level. For instance in many cases European competition policy imposes increasingly tight constraints. In accordance with the dominant free-market doctrines, restrictions are being im-posed on national interventions without being compensated by any widening of interventions at European level.

It is therefore desirable to bring about a more balanced situation by putting more emphasis on the objective of ecological sustainability, taking a more pragmatic view of competition policy, by promoting a more active research and innovation policy, by introducing an industrial pol-icy at community level, by strengthening regional policy at the same time as making it more selective and, lastly, by preparing a more assertive trade policy.

Eastern enlargement is generally regarded as the main political challenge for the EU in this decade. It also implies a number of economic and social problems and raises serious eco-nomic policy challenges. If these are not met in an appropriate way, reservations against enlargement will grow on both sides and can take the form of open hostility, rejection, na-tional chauvinism and xenophobia, which will pose serious threats to the historic project of comprehensive European unification and peace and democracy for Europe as a whole. Such developments are already visible and should be a matter of great concern. Therefore the EU should resolve uncertainties concerning enlargement policy in the next summit and set in force a concrete program of eastern enlargement and widened economic co-operation with countries of the East in general.

A determined integration strategy requires an elaborated long-term concept and many transi-tory and flexible policy instruments. In preparing for accession the EU should apply the fol-lowing guidelines:

The foregoing proposals for economic and social policy aiming at full employment and more social cohesion comprise immediate steps and more medium term institutional reforms. But even the latter they remain largely within the framework of a capitalist society based on pri-vate property of the means of production, and on the control of production and distribution through profits, competition and markets. The proposals for reform concern the quantity and quality of public intervention in this process. In a narrower economic sense they are based on the concept of macroeconomic growth which must on the one hand be stimulated in order to create enough jobs and on the other hand be restricted and shaped in order to avoid intolerable and destructive ecological and social consequences. We can take this apparent contradiction, which is unavoidable for the time being, as a point of departure for a reflection on a broader perspective of economic and social development, which may suggest broader and more entic-ing proposals for policy aiming at a more profound transformation of these societies.

In this perspective it is social welfare which has to be placed at the centre as the ultimate ob-jective of economic and social policy. This welfare is ever less based or dependent on overall economic growth and even less on constant growth rates implying an ever rising amount of production and services. The issue of distribution of wealth and income becomes more rele-vance than growth. Social welfare becomes also less dependent on individual private con-sumption once income poverty has been eradicated. At this stage collective consumption, uni-versal public goods and public services will play a much greater role. In such a perspective working time can be reduced far below the present level without any reduction of individual and collective welfare. Also the connection of income to gainful employment, which has al-ready been loosened in various, sometimes very problematic and negative ways, can be sys-tematically de-coupled by the introduction of an unconditional basic income for everybody. Such a perspective would in the long run focus on a non-capitalist co-operative society in which the process of individual and collective reproduction is regulated and organised in en-tirely new ways, giving more opportunity to the individual for the full development of her or his creative capacities and aspirations.

Although this is a long-term perspective of social development we can and should engage in such explorations with the aim of further conceptual clarification. Such clarification can also contribute to the development of political energy and strength necessary to implement new models of society. Even the more modest proposals of our memorandum cannot be realised without strong and determined political pressure based on social mobilisation and movements. For the strong and increasing inequality, which we have shown as the current structure and policy tendencies of the EU, is neither fate nor has it only losers. It is the result of policies which are implemented in the interest of a minority of beneficiaries who want to sell them to the public as generally beneficial or at least unavoidable. If this position is refuted and alternatives become plausible in the public mind, there will be hard political counterattacks to defend the privileges of a minority against the interests of the majority. The question of democracy and of democratisation of the economy is therefore the bottom-line of all – immediate, medium-term and very long-term – aspirations for economic and social al-ternatives to neo-liberalism.