The EU-funded GUSTO project reached a clear conclusion: measures to intensify the role of markets in Europe cannot focus solely on removing barriers. They must also strive to protect society from the associated risks.

GUSTO has produced insights and recommendations for social policy and labour market organisation in an increasingly competitive environment. These results are based on an in-depth analysis of the role of pensions, immigration, European social policy and local territorial governance, as well as a detailed study of people’s decisions regarding employment.

Towards sustainable solutions

“The objective was to find ways in which people’s working lives can sustain security during the economic turbulence of globalisation,” says project coordinator Colin Crouch of the University of Warwick in the UK.

To address this multifaceted issue, GUSTO explored a number of key aspects — such as pensions. “We tried to look at ways in which pension schemes can offer some stability despite the fact that they are increasingly subject to external shocks,” Crouch explains.

There is an overall shift, he notes, from defined benefit schemes towards defined contribution schemes. Defined benefit schemes provide pensions corresponding to a clearly defined proportion of workers’ earnings at the end of their career. Defined contribution schemes, in contrast, are systems where the return on the amounts people have contributed is uncertain, usually because it depends on the investment’s stock market value when they retire.

“However, some defined contribution schemes provide more guarantees than others,” says Crouch. As an example, he points to the Swedish system, which implements retirement funds for groups of people rather than for individuals.

Facing uncertainty together

“Other parts of GUSTO focused more specifically on the need for social policy and industrial relations activities to be working at ways to reconcile flexibility with security,” says Crouch. Coordinated collective bargaining can play a crucial role in this respect.

“When collective bargaining is coordinated across an economy, a sector or a large part of a sector,” he notes, “the bargainers are aware that the consequences will be extensive and may affect their sector’s performance.”

This is an important take-home message at a time, says Crouch, where such large-scale coordination is increasingly under threat. “Coordinated bargaining is likelier to look at the overall effect — on prices, export values and so forth — and therefore likelier to conform with a good market outcome.”

The project’s findings thus highlight the importance of facing change together, an observation confirmed by the fact that trust emerged as a key factor in the workforce’s willingness to embrace labour market risk.

People must be confident that the authorities are striving to facilitate the adaptation, for example by backing retraining schemes, and will support them if things go wrong. In itself, this is not surprising, Crouch says, but the turn towards austerity policies makes governments do exactly the opposite.

Aim higher!

“Making markets tends to make things more efficient,” says Crouch, “but it produces insecurities.” Failure to address these could lead to disastrous consequences, he adds, particularly for countries that are not competing at the high-value end of the economy. The pressure to align with low-cost producers in other parts of the world could cause living standards to collapse.

Societies in this situation must find ways to protect their most vulnerable population and to upgrade their economy at the same time, he notes. “Pure market-making in such cases simply shows you how to go down. You need other kinds of policies — social policy, innovation policy and regional innovation strategies — to move up.”

Meeting this challenge is hardly an easy task. Can it be done? “It has to be tried,” says Crouch.