Adjusting to globalisation

Early in March the European Commission published its detailed proposal to set up a European Globalisation adjustment Fund (EGF) with an annual budget of €500 million. This proposal has been drafted on the basis of a decision taken by the EU heads of state or government during the European Council meeting last December.

The Commission's proposal is in the form of a draft regulation for consideration by the European Parliament and the Council. It is the role of the Commission to propose new initiatives but it is the prerogative of Parliament and the Council to sanction such initiatives and to adopt the necessary legislation for their implementation.

In introducing the proposed fund, it is first of all very important to explain what it is not. Namely: it is not a measure to subsidise ailing enterprises to ward off the effects of globalisation. This would amount to a waste of scarce resources in a pointless effort to postpone the inevitable, without making any contribution to the creation of viable alternatives. Postponing the issue would only render the eventual adjustment that much more drastic and painful.

What the EGF proposes to do, instead, is to cushion the negative effects of globalisation while facilitating the required changes to exploit its positive potential. Hence, it is first and foremost, a mechanism to assist the retraining of individuals who lose their jobs as a result of globalisation so as to facilitate their re-absorption into the productive economy.

Quoting from the press release by the Commission: "The new EGF will provide one-off, time-limited, individual support to help workers affected by globalisation". This assistance could take different forms, even including individual wage allowances during retraining, but its ultimate and overriding objective will be to provide concrete assistance to these individuals to find new jobs.

I have already had the opportunity to mention the subject of globalisation in some of my previous articles. The point I have always made is that globalisation is not an option but a fact of life. It is the direction in which the world economy is going and there is no way to stop it. Nor would it be a good idea to try to block it, even if we had the means to do so.

Admittedly, we generally link globalisation to its negative effects which are job losses in the 'higher-cost' countries as enterprises move their manufacturing facilities to other locations where production costs are lower.

However, there is the other side of the coin to globalisation. First of all, the shift towards locations with lower cost-of-production means that goods will become available internationally at cheaper prices. Secondly, the resulting expansion in the economies of those countries where enterprises relocate provides an enlarged market and new opportunities for trade in other goods and services in which the 'developed' countries have the competitive edge.

Although it might not intuitively appear to be so, the expansion in world trade could and should be a win-win situation. The problem lies in the required transition, which is rarely smooth and never painless. This problem is clearly highlighted in the Commission's proposal: "There is significant asymmetry between the overall benefits of openness, which is diffuse and often takes some time to materialise, and its adverse effects, which are more visible, immediate and concentrated on specific areas and individuals."

In most situations in life there are those who gain and those who lose. Even where the former predominate, it is no consolation to the latter. For those who lose their jobs as a result of shifts in world trade, it is not enough to know that others, who are active in other areas, may have benefited in the meantime. What they want and need is some active assistance to help them reintegrate themselves within the labour force, thereby safeguarding their identity as full members of society. From this perspective, the proposed EGF is intended to be a practical manifestation of solidarity.

Vladimir Spidla, the EU Employment, Social Affairs and Equal Opportunities Commissioner, has commented thus: "The EGF is about people. In a globalised economy, some workers in particular sectors regrettably lose their jobs. As the EU takes external trade decisions, it is logical that it takes responsibility through this new fund to ensure that workers who lose their jobs due to such trade changes are neither forgotten nor ignored in a changing economic environment."

A specific argument for setting up the EGF is elaborated within the Commission's proposal which identifies certain reasons why workers who lose their jobs as a result of changes in world trade patterns often face more serious adjustment problems than workers who lose their jobs in other sectors or other situations, such as when individual companies go out of business as a result of internal factors. The principal consideration in this regard is that 'trade-dislocated' workers find themselves jobless in a context where their whole sector is facing problems, which makes it that much more difficult to find another job in the same line of work.

Furthermore, the Commission's proposal contends that: "Several empirical studies indicate that adjustment costs can be higher for trade-dislocated workers than for other job losers. Workers made redundant in internationally highly competitive sectors experience longer unemployment spells - and larger wage losses once reemployed - than workers in other sectors. This is generally due to the fact that trade-displaced workers tend to be older and more likely to have educational qualifications and skills not entirely suited to emerging employment demands."

Also providing a sign of solidarity at the EU level, the EGF will complement existing initiatives within the individual member states. The EGF will provide support to individual workers and not to companies. The type of initiatives that could be funded include job search assistance, personalised retraining and the facilitation of self employment.

The EGF also contemplates the provision of special temporary 'in-work supplements' such as allowances for those undergoing training as well as complementary wage allowances for workers above a certain age. Various measures could be funded under the EGF, although the relevant regulations will clearly define what is allowed and establish who could be eligible. The relevant actions supported through the EGF could extend for a maximum of 18 months.

The Commission's proposal reiterates the intentions of the European Council whereby: "Activation of the Fund will be subject to strict criteria relating to the scale of economic dislocation and its impact on local, regional or national economies." EGF intervention will only be activated at the request of the member states. The proposed regulation would establish procedures on how this would be done, the principle not being that different from the mechanism used by member states when invoking assistance in the aftermath of some natural disaster. It is planned that the EGF becomes operational from January 1, 2007.