How Important In Building European Unity Was The Masstricht Treaty ? Essay, Research Paper

The first foundations of a common social policy within the

European Community were set down in the treaty of Rome, first signed by the six

original member states of the Community in 1957 and subsequently by each new

member state upon joining, with the UK signing in 1973. One of the major social

provisions of this treaty was freedom of labour movement between EC nations,

seen as a prerequisite for a properly functioning internal market, and viewed

by some as having led inexorably to pressures to standardise labour laws within

the Community (Currie 1993). Such pressures prompted the Social Charter of

1989, the main aspects of which would have been enforced by the ‘Social

Chapter’ of the 1992 Maastricht Treaty had John Major’s Conservative Government

not ensured the section’s removal; in the final draft of the treaty the chapter

was replaced with a Protocol and Agreement concerning social policy which

applies only to the other eleven states of the Community (see Duffy and de Cara

1992). As this discussion is about the strength of unity of the ‘Social

Chapter’, social issues, which are also part and parcel of the wider debate

over the chapter, will only be discussed where they have direct bearing on

this. The major economic arguments for and against the ‘Social Chapter’ can

only be understood after the most significant facets of the chapter have been

discussed and the ideological standpoint of the then British Government

outlined.

The ‘Social Chapter’ of the Maastricht treaty was designed to allow for the

formation of a common European social policy with a commitment to "the

promotion of employment, improved living and working conditions, proper social

protection, dialogue between management and labour and the development of human

resources with a view to lasting high employment" (Duffy and de Cara 1992,

335-336). This would have been facilitated partly by way of a widening of

qualified majority voting to proposals on the improvement of the working

environment, working conditions, the information and consultation of workers,

sexual equality and the integration of those excluded from the labour market.

Each individual nation’s right of veto over such areas would therefore have

been removed and Britain could have been forced to adopt measures designed to

‘harmonize’ European labour regulations. Such measures would have inevitably

imposed increased regulation on British industry, possible examples being

maximum limits on working hours and increased standards for the health and

safety of workers. Had the government signed up to the ‘Social Chapter’ it

would also have been stating an official commitment to the co-determination of

workers in the running of companies and to the protection of workers whose contracts

are terminated, although retaining the right of veto over such matters.

The explicit reasons for the government’s objection to common European

standards on these kind of measures are located within a general ideology of

labour market deregulation (Szyszczak 1994). Essentially this is a view that

"labour markets work most efficiently with the minimum of Government

intervention" (COM 1992 [quoted by Szyszczak 1994, 313]), and while the

government concedes that "legislation is sometimes necessary to ensure

effective operation of the market, to protect particularly vulnerable groups or

to achieve a fundamental principle of policy,…(it) should be confined to the

minimum necessary consistent with establishing a balance between the needs of

employers and employees" (ibid). The British government’s contention,

therefore, is that regulatory policies which the "Social Chapter" was

designed to form the basis of would have led directly to significantly

detrimental economic effects, both for Britain and for the EC Union as a whole,

namely unemployment and lack of competitiveness due to reduced flexibility. The

argument for a direct link between regulation and such effects, however, is

hotly disputed by those who claim that it is based solely on orthodox views of

the labour market, some of the presuppositions of which they claim are

inaccurate and misleading. Most significantly those supporting regulation would

claim that complex individual decisions are not best coordinated by price

mechanisms, and that treating labour as a commodity is inappropriate as such a

view ignores the humanity of labour and therefore the complexity of individual

motivations. While it must be stressed that belief in the potential economic

benefits of regulation per se and belief in the economic benefits of the

‘Social Chapter’ are far from one and the same, a discussion of the perceived

merits of regulation and deregulation is vital background to this debate. The

discussion will begin with a brief look at the perceived effects on unemployment.

The government claims that unemployment would be increased by greater

regulation of the labour market both in the short term, due to unskilled labour

being priced out of jobs and lack of employer confidence in their ability to

hire and fire at will, and in the long term, by the general unhealthy state of

the economy. While some degree of likely short term unemployment were the

‘Social Chapter’ adhered to is difficult to deny, the fact that those likely to

become unemployed in the short term are likely to be low skill, low wage

workers not working in the internationally traded sector, whose overall effect

on economic growth is therefore fairly small (Marsden 1994), means that it is

the long term employment prospects which are more significant. The potential

effects of a shared European social policy on competitiveness are therefore

more directly dependent on flexibility.

Flexibility is widely agreed to be essential for competitive businesses

(Marsden 1994) and can be seen as comprising three dimensions (Atkinson 1984).

Functional flexibility is sought so that employees can be easily redeployed

between activities in response to changes in products or production methods,

numerical flexibility is desirable in order to allow optimum workforce size at

any given point in time, and financial flexibility is sought both to allow

wages to adapt to the condition of the external labour market and to allow

"a shift to new pay and remuneration systems that facilitate either

numerical or functional flexibility, such as assessment-based pay systems in

place of rate-for-the-job systems." (Atkinson 1984, 28). Proponents of

deregulation see numerical inflexibility as a consequence of regulations

increasing worker security, and comparisons of job tenures with short term sensitivity

of employment levels to output in UK, USA, Germany and Japan (Marsden 1994)

would seem to vindicate this view. Marsden, however, refutes the suggestion

that functional flexibility should also necessarily suffer in regulated systems

due to external regulations pushing up trainee wages, thereby providing

disincentives for employers to provide training. He uses the example of Germany

to illustrate how strong co-determinational and industrially standardised

infrastructures provide "the basis for a strong, high quality training

system." (p.4). Marsden further argues that regulation may in fact

increase functional flexibility by providing job security for individual

workers, thus necessitating no jealous hoarding of skills and allowing skill

transfer within firms. The argument of those favouring deregulation as regards

financial flexibility is that regulatory policies prevent this by, pushing up

wages and therefore costs to unnecessarily high levels, as well as reducing

incentives for workers to progress or to perform well in higher paid jobs.

Marsden, however, suggests that, though this may well be true in deregulated

systems, in regulated systems where cooperation is facilitated by

co-determination, large pay differentials might actually be harmful as they

would lead to a concentration of rewards on a few key individuals rather than

facilitating a diffusion of responsibility.

Marsden’s arguments, typical of the supporters of regulation, seem highly

plausible. The fact, however, that they draw heavily on the examples of Japan

and Germany, countries with economic, social, historical, cultural and

geographical features often widely divergent from those of Britain or other

countries in the EC, means that they are difficult to prove or disprove. As

Addison and Siebert (1993) noted, the survival of regulatory systems is

"an indicator of their internal appropriateness, not of their

generalisability." (in Szyszczak 1994, 314). Marsden indeed admits that in

this area of theory "good evidence is hard to come by, and

controversial." (Marsden 1994, 2). This must cast some doubt on the

operational validity of his arguments for Britain and the rest of Europe. As

was noted earlier, however, this debate cannot be characterised simply as

deregulation versus the ‘Social Chapter’. Before the debate can be widened

further, the real and perceived relationship between the two must therefore be

discussed.

Regulation and deregulation are political categories; in the real world of

industry there can be only types and degrees of regulation. The significance of

this statement lies in the fact that domestic politics has polarised the

regulation debate in Britain. The Labour party’s commitment to such policies as

a minimum wage, ensuring job security for employees and co-determination as

well as the ‘Social Chapter’ has allowed the government to collectively reject

such policies as regulatory, forming in the minds of the public a strong

association between the chapter and other industrial regulations. For instance

John Major, speaking in 1994, stated, "the ‘Social Chapter’ would create

jobs, but in Japan, not here. A maximum working week would create jobs, but in

the Pacific basin, not here?.(Leathley 1994a). An example of the confusion such

statements have created can be seen in a letter to the Times from Mr P Hayward

(1993) in which he professes worry over possible job security measures he

believes will result from the ‘Social Chapter’. The fact is that, had Britain

signed, the government would have retained their veto over measures relating to

worker dismissal as well as co-determination, and, furthermore, the chapter

contained no provision whatsoever concerning minimum wages. Accusations such as

that from Dr Jack Cunningham who claimed the government were "peddling a

lie that the ‘Social Chapter’ would affect trade union legislation"

(Leathley 1994b) would, then, seem to be reasonably well founded if somewhat

overzealous. In the light of all this, the fact that in June 1994 over

three-quarters of 300 top businessmen interviewed in a Gallup poll believed

that signing the ‘Social Chapter’ would be detrimental to British companies may

be seen as largely an endorsement of deregulation in Britain rather than a

significant statement on Europe.

The ‘Social Chapter’, therefore, is not quite the "farrago of bureaucratic

restrictions on competition" the editor of the Times (1993) branded it.

Indeed Szemery (1993), while describing himself as a Conservative, stated his

belief that political disagreement should not be over what he saw as the fairly

innocuous provisions of the ‘Social Chapter’ itself but over "the detailed

legislation that is or will be based on the chapter." Notwithstanding, the

fact is that the chapter would in itself have imposed some degree of increased

regulation on British industry, any amount of which, it seems, is anathema to

the Conservative party. While their arguments for British deregulation,

supported by British businessmen, are difficult to refute in the light of

available evidence, this issue is not one of Britain in isolation but of

Britain within the European Union. While John Major believed in deregulation,

he was also pro-Europe. This begs the question, can the effective economic

integration seen as necessary for the competitiveness of British and European

companies in the global economy be achieved without the ‘harmonization’ of

social policy throughout the EC, inherent in which must be at least some

industrial regulation?

A major economic argument for a social dimension to the European Community has

been that, in the past, "the lack of integration and coordination of the

Community labour markets has created a social deficit leading to economic

imbalances which in turn may lead to chaotic and inflationary wage-

setting." (Szyszczak 1994, 314). In the absence of some kind of common

European social policy, individual European nations may also seek to capitalise

on low wages, facilitated for instance by relatively low health and safety

standards, in order to provide favourable climates for investment and cheap exports.

Since the signing of the Maastricht treaty, this has in fact occurred. In

February 1993 a dispute arose when the American vacuum cleaner manufacturer

Hoover decided to move production from France to Scotland due to lower wage

levels. The British government was promptly accused of attracting investment

from other EC countries by maintaining low pay and conditions, described by

many as ’social dumping’. John Major, however, was unrepentant stating,

"they can have the ‘Social Chapter’. We’ll have the jobs." (ibid).

Pierre Beregovoy the French prime Minister, however, stated that this was

"not the way of reviving Britain’s or Europe’s economy." (ibid). The

MEP for Greater Manchester East, Glyn Ford (1993) strongly agreed with this

statement, claiming, "our partners do not want us serving as a Trojan

horse to bring ’social dumping’ inside the walls of the Community, and neither

should we, because in seeking to under-cut the wages, health and safety

provisions and working standards in the rest of Europe the government would

succeed only in impoverishing our own economy further." While John Major

might see the attraction of jobs to Britain as a vindication of deregulatory

policies, attempting to under-cut other EC countries, while it may bring some

limited short term prosperity, it cannot possibly aid either British or

European long term competitiveness.

A look at general debates on the theme of regulation and flexibility would seem

to suggest that different systems may be economically appropriate to different

countries depending on diverse social, historical, cultural and geographical

factors. While this is not to suggest that each country will automatically

possess a naturally appropriate labour regulation system, this

non-generalisabilty of labour market theory, coupled with the acquiescence of

British businessmen to deregulation, would seem to make the British

government’s argument that regulation in the UK reduces flexibility difficult

to refute, at least in general terms. The discussion, however, is very much one

Britain within Europe. In an era of supra-national trading blocks, the fact

that Britain cannot hope to compete effectively as an individual power outside

of the EC is accepted by all three major political parties in this country. The

real issue here, therefore, is one of the general flexibility and therefore

competitiveness of the European Community as a whole. A high level of such

flexibility cannot exist where there were social deficits and ’social dumping’,

but is best ensured by healthy debate between all of the member countries of

the Union. The ‘Social Chapter’ was not the rigid and all encompassing document

it is widely perceived to have been and the Conservative government would have

had much scope to prevent over-regulation of European labour markets had they

signed.

The validity of the British government’s argument that adherence to the ‘Social

Chapter’ of the Maastricht Treaty would seriously damage both British and

European competitiveness was always contingent on the existence a fragmented

Europe which, due to social deficits and the possibility of ’social dumping’

would have become even more fragmented and therefore lacked the cohesion

necessary to be effective on the world market. Its contention was therefore

never particularly robust and is, in any case, likely to become irrelevant as

the other nations of the Community grow increasingly impatient with Britain’s

refusal to compromise in the spirit of European integration. Simply, if Britain

is part of the European Union, let us participate fully. BIBLIOGRAPHY Coffey,P (1995) The Future

Of Europe

Currie,E (1993) Taking the social chapter seriously, the Times, 7 May

Dinan,D (1994) Ever closer union? 394-401, Basingstoke, Macmillan

Duffy,P., de Cara,J.Y (1992) European Union: the lawyers’ guide, Guildford,

Longman

Marsden,D (1994) Regulation versus deregulation: which route for Britain’s

labour market?, Employment Policy Institute Economic Report v8 (8), 1-4

Szemery,J (1993) The effect on Britain of accepting the ‘Social Chapter’, the

Times, 12 February

Szyszczak,E (1994) Social policy: a happy ending or a reworking of the fairy

tale? in Legal issues of the Maastricht Treaty 313-327, Chichester, Chancery

the Times editor (1993) A good dumping, the Times, 8 February

the Times foreign staff (1993) Beregovoy rebukes Major for luring EC jobs away,

the Times, 1 March

Windolf,P (1993) Co-determination in the European Community, Economy and

Society v22 (2), 135-158

Department Of Politics And Modern History Europe In The Global System Ian Bates 97/333269