“A policy of freedom for the individual is the only truly progressive policy,” said F.A. Hayek, Nobel Prize winner in economic sciences. He argued that an economic policy based on free unhampered exchange is economically sound, and the most beneficial one for society. Today in Europe, the free exchange of goods and services and the exploitation of competitive advantages has already won the debate against protectionism and put the EU on the path to a single common market.
Now is the time for a free labour market to accompany it.
Europe made the choice for free movement of labour fifty years ago. Recently, the Competition Commissioner of the European Commission, Neelie Kroes, reiterated this commitment: “one internal market is at the end of the day beneficial for everyone - for every member state and for the consumer and for the business world.”
The Commission is not just committed to free movement of labour: it has an obligation to push economic integration forward. The best way to do that is to speed up the creation of a unified labour market. In a recent report, the Commission concluded that migration has had a positive effect on the EU-15 economies, since it increased employment in the receiving countries. It also admitted that the EU-10 workers have a complementary role in the labour market and do not burden the social security systems of the EU-15. The commission concluded by recommending the lifting of all barriers. “Be proud and take advantage of the sheer energy, dynamism and hard work that people from the new member states bring to Europe” Trade Commissioner Peter Mandelson said.
The Commissions opinion is supported by the economic reality of Europe today.
The existing protection of local workers against foreign competition results in higher prices for goods and services paid to the local high cost service providers and producers. Furthermore, such protectionism removes the dynamism from a country. Shielded from foreign competition, companies have little motivation to improve. The people of UK, Sweden and the other countries who decided not to introduce transition periods in 2004 are already happy with cheaper and higher quality construction workers from the east. Finland, Spain and Portugal will also be happier from 1 May 2006, when will open their labour markets to Central and Eastern European workers.
It is not just the European consumer who benefits. The current protectionist barriers are shielding a small group of select workers from the realities of the market. In doing so, they are forcing illegal immigrants to pick up the slack from a malfunctioning state system. Since they become engaged in illegal labour, they cannot use healthcare or social security schemes. Opening the barriers means all this labour can come within the jurdistriction of the state. Keeping the barriers is a politically attractive, but economically unsound policy.
It’s the economy, stupid
Some countries in Europe, such as Italy, Germany and France, are still unwilling to remove the barriers, yet still admit the problematic nature of their labour markets and take necessary but unpopular measures, like the Hartz IV in Germany, which made it more difficult to access unemployment benefit, or the first contract law, which was withdrawn in the face of massive protest in France.
Both measures aimed to boost employment and growth – they increase labour market flexibility and reduce incentives to remain unemployed. This liberating of the labour market must also include lifting the restrictions on migrants to the EU-15 countries. These countries realise the necessity of these reforms, but face difficulties in carrying out them out. This was acknowledged by Luxembourg’s Prime Minister Jean-Claude Juncker: “we know exactly what to do, but we do not know how to win the next elections after we have done it.”
Politicians must have the courage to carry out these reforms. Praising the free market of goods, while at the same time fearing the superficial threats posed by the movement of workers, reveals a short-sighted approach to economic integration. As the European Court of Justice paved the way for the free movement of goods in the 70’s, today it should look into the spirit of the treaties of Europe and push through the courageous decisions that would allow a unified internal market for labour.