Letter: Social Chapter: beggar-my-neighbour nationalism, wage differentials

Sir: Your leading article 'Cost of the Social Chapter' (3 February) used the transfer of Hoover jobs from Dijon to Cambuslang as a springboard to attack the Social Chapter of the Maastricht treaty as a 'job destroyer': something of a tour de force, given that the Social Chapter is not in operation and has no impact on the mix of factors which the editorial itself argues determined Hoover's relocation decision.

The editorial does, however, raise two fundamental political issues and gets them both wrong. The first is the choice between a common European solution to the problems of recession and mass unemployment, and a solution based on beggar-my-neighbour nationalism. To the extent that the Hoover decision was about cost, it is not the Social Chapter, but British devaluation that has given a temporary competitive edge to Cambuslang. But if France and our other EC partners choose to play the same desperate game of competitive devaluations as Britain, the exercise would be self-defeating and profoundly damaging.

The second underlying issue concerns the relationship between market forces (good) and regulation (bad). The Social Chapter, so the argument runs, destroys jobs because it raises wages and social costs above the level they would 'naturally' find in the free play of market forces. But this argument is wrong, because it is through laws that society is able to give expression to common values and purposes, to set the limits to what is acceptable in pursuit of greater efficiency and competitiveness. Through laws, a few fortunate societies have determined that neither child labour nor unsafe and unhealthy working conditions are acceptable. The biggest political battles of the coming decades will be over our attempts to define what levels of environmental destruction and economic exploitation are necessary in the cause of competitiveness.

You are most wrong in your nave text-book understanding of how markets work. There is no such thing as a wholly free-market solution to problems of economic organisation. Economic choices are steered and channelled in a thousand ways by the institutional and regulatory framework within which they are made; and this setting determines the competitive strategies of enterprises.

Competition can be channelled as the British government has chosen, into cost-reduction, low wages, erosion of social costs; or a competitive edge can be sought through better skills, better product design, more rapid innovation, and increased research and development, as in our most successful competitors, such as Germany and Japan.

The strategy of the British government leads to a dead end. The spectacular advances of the emerging industrial powers of the Pacific Rim make clear that Britain can find no long-term salvation as a low-wage economy, unless we are to match Korean or Philippine wage levels.

It is also divisive in the European context, as it undermines the Community's attempts to place limits on the ability of multinational companies to play off one investment-hungry country or region against another. And it is an obstacle to the emergence of a relevant industrial policy, based on improvement of infrastructure, education, training, research and innovation and backed by an active, enabling state and adequate levels of public expenditure.

Yours faithfully,

GLYN FORD

Leader, European Parliamentary

Labour Party

DEREK REED

Economic Adviser to the Socialist Group, European Parliament

Brussels

8 February