Protectionism does not pay off. Consumers will incur the costs of regulations, such as the Posting of Workers Directive
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Posted workers, who amount to only 0.9 percent of all the workers in the European Union, are not the real problem. Black and grey zones are. Meanwhile, some western politicians are very vulnerable to the pressure of trade unions. As a result, strong lobbying in the EU institutions led to more protectionist attitudes coming, especially, from France, Belgium, and Germany. Unfortunately, the consequences of this policy which will result in higher prices of basic products will be felt by all citizens, according to Dr. Leszek Cybulski, the economist from the Wroclaw University of Economics and the Main Statistical Office. The history shows that protectionism has never paid off.
Trans.INFO: The opponents of the changes in the Posting of Workers Directive claim that the proposed changes are pure neo-protectionism and break fundamental principles of the European Union, such as free movement of goods, services, capital, and persons. Are they right?
Dr. Leszek Cybulski: They are quite right. When the European Communities were established in the mid-20th century, including the European Economic Community in 1957, it was expressly stated that the aim was to build a common market. And it has been achieved, with some troubles, but even then the fundamental market freedoms were considered as the basis of the EEC’s existence. Nobody thought of an intense cohesion policy. Such things as common defense policy or eurozone also were not considered. Nobody thought of anything else but market.
It was the basis of the European Economic Community. The treaty of 1957 expressed very clearly four freedoms: the movement of goods, services, capital, and persons. Thanks to these four freedoms there is a single market and there should not be barriers in the access to it. A Polish exporter of goods or services should have equal possibilities to act in Germany, Portugal, and Poland. And the other way round. There should be no borders.
If we think about the times when we were outside the EU, we can see a big difference. Now, a truck can freely transport goods without waiting on the borders, across the whole of Europe. It is possible because in the ’80 the amendment to the treaty establishing the EEC, the Single European Act, was adopted in 1986. It assumed that the barriers to the internal market that still existed would be gradually eliminated. The Maastricht Treaty signed in 1992 completed the process of building the internal common market of the EU.
However, there are complaints about some countries using protectionist practices, treating entrepreneurs from other countries unfairly. Usually, such cases are considered in the light of the provisions treated in favor of the complainant.
Now, as regards to the free movement of services, it is quite different.
So, are actions of the politicians who vote for the changes incompliant with the fundamental principles of the EU law?
All the treaties were prepared by the lawyers, aware that certain circumstances could emerge, which would require, for example, to suspend the free movement of people for the reasons of safety or public health.
The Article 57 of the Treaty on the Functioning of the European Union states: “the person providing a service may, in order to do so, temporarily pursue his activity in the Member State where the service is provided, under the same conditions as are imposed by that State on its own nationals”.
The word “temporarily” was not clarified, so it is moved to a lower level, to the level of regulations or directives, which means that these principles will be regulated by secondary law rather than primary law. And, to put it rather colloquially, a row among the countries has just begun. Does “temporarily” mean that it is not an indefinite time, but it can be 5 or 2 years, as it was proposed? As a result, the Services Directive provides for only one year with a possibility (not guarantee) of prolonging it by a half of a year.
And the Article 60 provides that: “The Member States shall endeavor to undertake the liberalization of services beyond the extent required by the directives issued pursuant to Article 59(1) if their general economic situation and the situation of the economic sector concerned so permit.”
Thus, there is a loophole legitimizing the current efforts to introduce changes in the Posting of Workers Directive, but the wording “general economic situation in the economic sector” is so broad and imprecise that it allows finding easy justification for the Directive. I must say that I am personally disgusted by the fact that the countries protecting their services markets usually do not even bother to provide a justification.
So, there is a legal basis to introduce changes. But, does real economic situation of France, Belgium or Germany justify these changes?
On the basis of the analysis of statistical data, I can easily prove that there is no such a bad situation in the EU which would justify limitations for other countries. The real problem is with black labor and grey zone rather than posted workers who amount to only 0.9 percent of all the workers, that is 1 in 110. This is not such a serious problem which could substantiate the proposed changes to the Posting of Workers Directive.
There would be a problem if there was big unemployment, but, currently, apart from the Iberian Peninsula and Greece, the unemployment rate is in single digits. Of course, the French are not satisfied with the 9 percent unemployment rate, but it is not over 10 or over 20, and this rate is not necessarily caused by posted workers.
In Germany, unemployment is less than 4 percent, so it is close to the rate which is described by economists as natural unemployment. In fact, employers have a problem to find workers. It would be natural to hire specialists from other countries rather than to limit their employment.
The European Union was established so that companies and countries would not fight with one another, but to encourage cooperation. The founding fathers wanted the economy of the Community, and now of the EU, to be a single economy, even if including more and less developed parts, but still a single economy. So there should not be any barriers of free movement.
Does protectionism pay off for the country which introduces it?
It is not simple work that makes countries of Western Europe rich. If a country has in its employment structure a high percentage of drivers, farmers, steelworkers, that is workers from the industries with low added value, in the long run it shoots itself in the foot. And the proposed changes to the Directive will lead exactly to that.
Companies and countries make the biggest profit on the export of capital. The diffusion of revenues occurs and they are used for other purposes, such as consumption or taxes. Because the company has exported capital, the country is able to ensure a very high standard of living for its citizens. Not thanks to simple work of these citizens, but thanks to financial activity, innovations and investments.
Western countries have big research centres – and, as the economists, say this is the source of added value. They generate the highest profit margin, offer good salaries, hire employees with high qualifications and obtain a big number of patents – incomparable to our part of Europe. These are the profitable activities, on which their wealth is based.
Unfortunately, politicians are very vulnerable to the pressures of groups and trade unions representing relatively simple professions. This lobbying is visible not only in particular countries but also in Brussels and Strasburg, which results in protectionist tendencies coming, especially, from France, Belgium and Germany.
From the perspective of a steelworker from France who is 40 years old and wants to do the same work in the same workplace until they can retire, a worker from Poland or Latvia steals his job. He considers them as threats. But, from the perspective of the whole country, it is better if this worker is retrained and given work in the industry of higher added value, and the country limits non-competitive forms of activities which drag the whole economy down.
In the long run, what will be the consequences of protectionist practices for the economies of France and Germany?
Protectionism was characteristic for economies of the past centuries: 17th and 18th centuries. Back then, the prevailing view was that if the country isolated itself with duties and other administrative barriers from supplies from other countries, it protected its interest. All the countries applied this rule and all of them were losing. Each economist will say that, for 200 years, countries have been benefiting from mutual cooperation rather than barriers of different nature. As we can see, the history repeats itself, and someone tries to convince us that it is different.
I need to underline that this is an expression of wider worldwide processes because also Trump’s administration thinks that introducing duties will improve the U.S. economy. No, there is no such mechanism. Countries benefit from cooperation, specialization – all the countries should do what they are best at, and everybody will win. But, when we do not have economists, but populists instead, who set the tone for reality, these are the effects.
To translate it into the examples from everyday life of an ordinary citizen, pushing companies from Eastern Europe out of the market will be beneficial for owners and employees of transport companies which will not have competition and start dictate prices even three times higher than the present ones. Thus, the prices of transport will grow, and it is obvious that when the prices of transport grow, the prices in shops will also grow because higher costs are always passed on to the final consumer. This way, the prices of basic goods that we buy everyday will go higher. Therefore, a typical French family, instead of spending 500 euros per month on food, will spend, for example, 800 euros.
So, for sure, the interest of one social group: transport companies in this case, will have a negative effect on the standard of living of all citizens, who, instead of spending their family budget surplus on education or development, will have to spend it on basic products.
Further, dissatisfaction of citizens will grow, the protests will appear, and the ruling party will lose popularity and fail in the next elections because the politicians did not develop the economy, but rather they damaged it. And this is a vicious circle.
See the first part of the interview with Ph.D. Leszek Cybulski about what social dumping really is.