Friday, April 22, 2005

Europe's changing social order

In 1848 Europe was gripped by revolutions and the world that Metternich had restored after the Napoleonic wars was turned upside down. There was a new social order emerging in Europe that even Metternich, and those of a like mind were powerless to prevent. In 1848 one of the biggest underlying drivers of change was industrialisation.

Today the existing social order in Europe, and indeed the old socio-economic model, is under threat. The communications and technology revolution that has been taking place in the past 20 years has revolutionised almost every sector of the economy. The change of political and economic system in Central Europe after the collapse of the Iron Curtain, followed by EU Enlargement, has given many businesses the opportunity to capitalise on cheaper labour and preferential tax regimes. The rise of the Asian tiger economies, along with the development of the economy in India and the opening up of China in recent years, have brought unprecedented competition as well as the relocation of manufacturing and service centres. Labour in Europe is finding itself unemployed as it is being undercut by cheaper, and more flexible labour elsewhere. Either it must reform or it will make itself unemployable.

On top of this the demographics in Europe are changing fast; the population is aging and government is increasingly challenged as to how it will meet the cost. Allowing immigration is mooted as one answer. This too means fundamental changes to the nature of the existing social order, and is meeting stiff resistance from those who are finding their economic well being more insecure - immigrants tend to work longer for less. To make matters worse the safety net traditionally provided to labour by munificent governments is now under threat as budget deficits rise and public spending cuts become de rigour.

And, as if the forces of economic change were not enough, there is the revolutionary change that has been brought about by the institutions of the European Union at breakneck speed. In 2002 much of Europe found itself with a new currency and monetary system in the form of the €uro. Only last May the EU enlarged from 15 to 25 member states. On top of this the people of Europe are now being asked to approve a Constitution. In the face of so much change coming so fast within the space of three years, at a time of profound economic change, it is no wonder that people are starting to resist. The European Institutions would have been better to consolidate after enlargement rather than propose more of the same, and a Constitution.

The existing social, economic and political order in Europe is under intense stress today and yet politicians, and heads of state, appear to be hoping the problem will go away.

To pander to populism, as Jacques Chirac has done, and claim that challenges to the old existing socio-economic order are some sort of "new communism" is as misguided as it is dangerous. Preserving the old social order will mean higher taxation, increased state intervention, inflexible labour, and trade protectionism – business will resist this and vote with its feet thus ensuring the continuing hollowing out of such economies and very possibly pushing them into terminal decline. One might well wonder why people like Mr. Chirac are not marching and protesting against globalisation because effectively that is what is being implied.

The future for the EU and Europe is that of the emergence of a new social order and it is up to the political leaders to ensure this inevitable transition is peaceful; they ignore and resist the challenge at their peril.