Europe's Empty Pockets

WILLIAM PFAFF

August 05, 1993|By WILLIAM PFAFF

PARIS — Paris.--The currency storm that swept through Western Europe last weekend was one more grievous blow to European cooperation, caused by an arrogant assumption that governments can control economies, hence that they can dictate the values of their currencies.

The crisis was not due simply to speculation. Speculators are the vultures of the fiscal marketplace, but they are nonetheless useful in their way. The carrion upon which the speculators fed was the determination of France and certain other countries to attach their currencies' value to that of the German mark, at a time when the needs of German economic policy directly contradicted the policies appropriate to the situation of the other countries. This course was being pursued at the cost of extremely high and rising unemployment and consequent domestic social tension.

The speculators correctly assumed that this was not a sustainable policy course. That is why the markets will not be entirely calm until unemployment begins to drop in Western Europe and business activity picks up, allowing reasonable expectation that the worst European recession since the war can be brought to an end. That will come when interest rates come down and more expansionist policies are adopted.

In this affair, as in the controversy over protectionism, we see the same problem. A commitment has been made to a theoretical proposition, plausible in itself, which in practice proves to penalize employment, working standards and the obvious well-being of the public.

The theory claims that these difficulties are temporary, and that eventually working people and families -- the voting public -- will be much better off than before. But these eventual benefits fail to come.

The new head of the GATT organization, Peter Sutherland, has recently criticized me (in the International Herald Tribune, Aug. 3) for columns that raised certain questions with respect to free trade. I am not a protectionist, but I see that the present consequences of trade competition include powerful pressures for lowered wages and labor protection and depressed social standards in the advanced industrial countries.

People say that the eventual result of free trade will be greater efficiency with better jobs for all. My question is when? Can it be convincingly argued that this will really happen, or that it will do so in a time frame relevant to people now in the labor market?

The evidence is mixed. Mr. Sutherland's arguments obviously have merit. But the social dimension of trade liberalization has in my experience consistently been neglected.

Competitive industrial efficiency has tended to be sought in the most vulnerable area, which is that of wages and labor standards. If managers can cut their wage bill by forcing wage and benefit reductions or longer hours onto a labor force terrified by unemployment, the nominal productivity of their enterprise can be transformed in a flash.

However, this is not true productivity increase; it is a way to disguise an actual loss of productivity. The society that practices this will eventually pay a price in international competitiveness, as well as in social peace.

What are industry and trade all about if they do not benefit the mass of people? We are not in this simply for corporate profit. Should trade liberalization not have certain social guarantees attached to it?

The Western countries long ago imposed minimum labor standards inside their countries. Should GATT's effort not include extending higher standards of protection to workers in the countries with whom the West conducts free trade, rather than permit, indeed encourage, the reduction of Western

standards to accommodate those of poor countries with weak governments and populations desperate to work under any conditions, however degrading?

I am aware of the arguments that say all boats rise in generalized prosperity. But is this really true in time frames relevant to people now alive?

The currency crisis in Europe reflects the need to make a comparable choice. Unemployment and recession are the principal problems Western Europe faces today. Inflation was the challenge in the past and is a threat in Germany today. But elsewhere in Western Europe the demands of currency stability have been allowed to produce neglect of the social dimension of the present recession.

Again, the argument for strong and stable currencies has great merit. A regime of competitive devaluations in Europe or in the industrial countries generally would simply hurt everyone. But persistent and steadily rising unemployment hurts not ''everyone'' but specific groups and families in society, denying not only social justice but the demands of social order itself.

Governments that neglect this will eventually find themselves in difficulties much greater than a currency crisis. It is perfectly true that economic and social orders are intimately linked. But in recent years we have neglected the one for the other. The time has come to take account of this.

William Pfaff is a syndicated columnist.

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