Tackling inequality an EU priority but national governments hold the key
Inequality is an inescapable risk in a fast-changing economy that has fuelled populism in recent years, but be wary of asking the European Union to fix it because it has less influence in the area than national governments, top policy makers and experts warned at the Brussels Economic Forum.
European Commission Vice-President Valdis Dombrovskis, said that economic inclusion had leapt to the top of the policy agenda, pointing to surveys showing that eight out of 10 Europeans think the EU should prioritise unemployment, social inequality and migration. “These perceptions reflect a sense of anxiety about the resilience of our social model,” he said.
Mr Dombrovskis’s broad responsibilities include the euro, the social dialogue and financial services. He said the long economic crisis had exposed a growth model that was not fully sustainable, even if EU growth is expected to recover to reach 1.9% this year and next. “But growth in itself is not enough. We need to combine economic and social convergence. We need targeted policies,” he said.
The Commission, Mr Dombrovskis said, was mainly able to address inequality through recommendations for national economic and social policies and had little power over social transfers, one of the most important tools and a closely guarded domain of national governments.
He said globalisation, including offshoring and automation, has raised the pressure on companies, workers and governments to adapt. “We need to do better at equipping all our people with the skills and training to compete in open and changing markets,” he said. “Even the most basic tasks in our economy will increasingly require a broader set of digital, service and people-oriented skills.”
Alexander Stubb an MP and former Prime Minister of Finland, warned about an expectations gap concerning inequality. “The EU budget is about 1% of EU GDP. Most action is national,” he said. “We look to Europe for an answer, when the answer is in the member states. People are looking at Europe to help. My answer: it probably can’t.”
Indeed, Mr Stubb warned strongly against broken promises. “We will have a whole batch of populists bashing Brussels if we promise to resolve this.” He was particularly wary about predicting future policy results given that new technologies were changing how we tax. “Facebook does not produce content; AirBNB does not own properties; Uber does not own cars. How do you redistribute when you don’t know what to tax?” he said.
François Bourguignon, director of the Paris School of Economics noted that more than 80% of French fear falling into poverty over the next five years. “Inequality is about much more than income. It is about jobs, vulnerability, social mobility, our children’s future,” he said. Mr Bourguignon, a former World Bank chief economist, said that although the EU does not have the budget resources to intervene in the market, it could still play a role, by promoting structural reforms, he said. “I don’t think Europe has a limited capacity, but its role is not through the usual channels,” he said.
Kélig Puyet, the Director of NGO coalition Social Platform, said social policy should be seen as an investment rather than just a positive outcome of a functioning economy. “What is important is the political will and the new rhetoric is very promising,” she said, urging policy makers to take action from the bottom up, and to look at what people really need. “There cannot be a strong Europe without a strong social Europe. Social investment is key for economic growth and our democracies. A strong Europe needs a strong social Europe.”
Luca Visentini, the Secretary General of the Europe Trade Union Confederation (ETUC), said European countries had failed to address the social market inequalities. “We have created massive inequalities in a welfare system,” he said, challenging EU Member States to adopt and promote the EU’s Pillar of Social rights to tackle inequality. “We stopped investing in the economy. Public and private investment collapsed. We destroyed collective bargaining in many countries. And now the only political parties addressing inequality are populist ones.”