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Jobs, Inward Investment, Peugeot ... & Polish Plumbers.

Munib Tabanni, Sub Editor – Business Commerce & Finance
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We had written earlier about the 10 new member states that had joined the European Union - the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. (See: Care needed in regulating an enlarged EU).   At the time Europe was clearly divided in its approach to these new entrants.  Some countries took advantage of the legislation to restrain the numbers of incoming 'foreign' workers from the state whilst others opened their borders, Britain amongst them. 

We thought it might be interesting to revisit the topic in light of the accession of new countries next year and also the discussions about the entry of Turkey to the EU.

Several of the states had levels of income per head less then half the average of the then current EU15 member states - and employment rates were typically well below the EU15 average. There were fears of a mass migration and the loss of jobs from locals to incoming workers who would work for less.

In anticipation of the advantages of EU enlargement some international businesses had already been investing in the accession countries for over a decade to take advantage of their unique combinations of relatively low labour costs and high skills.  An example is Slovakia where, from a standing start there will shortly be more cars made person in that country than anywhere else in Europe. In Slovakia the example of Peugeot is a salutary lesson for some – at the same time that 2500 jobs are to go in a closure at Ryton, more jobs are being created by the same country at a vast new plant in Trnava.

As someone who has worked in Corby, Teesside, the Black Country and elsewhere helping mitigate the effects of the Thatcher years on employment in traditional British manufacturing (the necessity for much of which I totally accept), I well remember real anger and resistance in those areas to change that, though seeming inevitable to we outsiders, was unacceptable up to the last amongst many of those affected.  Much energy was expended in what was a futile resistance to change. (We unwisely held a meeting for workers in the Board room of one plant.  One worker turned up, openly hostile, unzipped himself and relieved himself in the corner. He then smiled beatifically and left saying – “I have wanted to do that for years!”.

Interesting then to compare how attitudes have moved on. In Slovakia an engineering student was on record as saying "I know how the auto industry works. They're here today - they might not be here in five years. But we can live with communists we can live with that.

Today we can compare the acceptance in Slovakia of the transitory nature of the automotive industry with the real anger felt in Coventry and, in the case of the latter, it is not very different in appearance with that recorded by miners, steel workers and others a decade ago in the old industrial heartlands of the UK.  In short, we find in a former Eastern/Soviet Bloc country an acceptance of the velocity of change and inevitability of re-skilling that will follow.  A 180º difference in attitude here in the UK that made change much more difficult to achieve, then and now.

Inward investment had not only helped raise growth rates but also improved the level of management expertise and provided access to new product and process technologies.  This holds out the promise of future sustained growth in the accession countries (enlargement perhaps adding up to 2 percentage points to the annual growth rate in each country), which will in turn boost demand for the exports of existing EU member states.  But there are fears that this promise might be stifled by EU regulations which could damage inward investment and job creation.

The accession countries are required to adopt the EU acquits - i.e. detailed laws and rules adopted on the basis of the EU's founding treaties - on employment and social policy. The rational is that enforcing EU Employment Directives in these countries will aid capital movement and inward investment within an enlarged EU since investors will face a broadly common regulatory environment.

 

  In addition, existing member states also stress that enlargement must not lead to 'social dumping' in order to allay concerns that the candidate countries will attract investment and jobs away from the more developed EU member states.  The worry, however, is that this might put some of the accession economies under strain. 

A key concern is that in a globalised world economy, additional regulation will be penalised by a loss of investment from accession countries to low cost countries outside the EU.  While this is a potential problem for the EU15 as well, the accession countries, given their current state of economic development, are far more exposed to competition in markets for standardised products where cost considerations are most important.   Concern of this sort does not of course mean that the accession countries should be exempt from EU regulation but does provide additional impetus to sensible structural reforms designed to improve the competitiveness of the EU economy as a whole.

Parallel with the issues of inward investment have been, of course, the issues of economic migration – labour migration - which has somehow become mixed up in the minds of many with illegal immigration, corrupt gang masters, sex slaves, terrorists and the kinds of emotive but baseless claims put about by the extreme nationalist parties.  Polish plumbers being a good example of some of this.

The experiences of the two approaches - open or restricted borders - make interesting reading where there is often more heat than light.  On the one hand there is the view “Member states that have opened up have benefited greatly.  There is no doubt about it.  The UK, Sweden and Ireland confirm it — jobs haven’t been taken away.”

In Britain the arrival of Eastern European workers has been widely seen as a success, providing armies of construction workers and nannies, and beating labour shortages from dentists to bus drivers.  With Britain and Ireland restricting access to the welfare system, there have been very few claims for benefits.

The Bank of England has credited the Eastern Europeans with keeping down wage inflation, a mixed blessing for native workers.  Most economists believe that they have helped to fuel economic growth, although some believe they could be responsible for the rise in unemployment.

Most other West European countries have admitted only a handful of Eastern European workers.  France has given just 875 work permits to Polish workers, while Greece has given 580.  Nearly 500,000 Eastern Europeans already lived and worked in Germany but the number has hardly changed since enlargement.

On the other hand opponents of open borders are likely to argue that countries that did not impose restrictions had a far higher influx than predicted.  The British Government predicted only 5,000 to 13,000 Eastern Europeans would come, but 175,000 came in the first year alone.  Ireland had 85,000 workers from Eastern Europe in the first year.  Inevitably it is the high numbers and the supposition of being taken over by foreigners claiming benefits that has made the headlines with a wilful avoidance of looking at the underlying facts in an open way. 

Countries with strong economies such as Britain and Ireland have not ,in fact, been greatly been disturbed by the new workers; but many EU countries have high unemployment, making the issue far more controversial.  Fears that the “Polish plumber” boosted the “no” vote in last year’s French referendum on the EU constitution.

In the UK it seems that public perceptions are likely to influence thinking and cause this country to set  limits and to use the transition period to control the “flood” that some newspapers are predicting once more and, all too often, in ignorance of the facts.

That said it would, I suppose, help if more of us could have any confidence in either the Home Office or the Criminal Justice system which would go some way towards convincing us that mistakes or transgressions by departments or individuals could be corrected and situations normalised without undue delay in the event of problems or unforeseen events.

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