Opinion of the Committee of the Regions on the 'Forthcoming Economic Policy Guidelines` (1999/C 51/11)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission on Growth and Employment in the Stability-oriented framework of EMU - Economic policy reflections in view of the forthcoming 1998 Broad Guidelines (COM(98) 103 final) and the Commission's Recommendation for the Broad Guidelines of the Economic Policies of the Member States and the Community (COM(98) 279 final);

having regard to the decision of the Commission on 27 February 1998, under the first paragraph of Article 198 c of the Treaty establishing the European Community to consult it on this matter;

having regard to its Bureau decision taken on 13 May 1998 to draw up an opinion on the subject and to direct Commission 6 - Employment, Economic Policy, Single Market, Industry, SMEs - to undertake the preparatory work;

having regard to the draft opinion (CdR 110/98 rev.) adopted by Commission 6 on 20 July 1998 (Rapporteur: Mrs Bresso),

adopted the following opinion at its 26th plenary session of 18 and 19 November 1998 (meeting of 19 November).

1. Introduction: summary of the Commission document

1.1. The Commission document maintains that the current economic upturn brought about by the fall in interest rates, in turn the result of convergence and austerity policies, could evolve into a lasting process of investment-led growth. However, faced with an increase in EU GDP of 2,6 % in 1997 and 3 % in 1998, only minimal increases in employment rates have been recorded and unemployment remains the EU's thorniest issue.

The EU's employment problem can only be solved in the medium to long term and all will depend on whether lasting investment-led growth actually materializes. This objective is within reach, as there is untapped production capacity to favour non-inflationary growth.

In this respect, EU economic policy must fulfil a number of basic requirements: it must maintain monetary stability and market confidence, apply the convergence measures to the full, contain wage increases and carry through structural reforms.

1.2. There are two sides to the EU's employment problem: on the one hand, in 1997 there were 18 million people out of work (with an average unemployment rate of 10,7 %); on the other hand, the ratio of employed people to the working-age population is 60 % in the EU as opposed to 74 % in the USA and Japan.

The EU's objectives are both to reduce the unemployment rate to normal levels, and to bring the employment rate back to the 1961 level (67 %) or closer to that of the US and Japan (72 %), supplying the labour market with an employment potential of 22 to 34 million people.

The second objective should be furthered by promoting both salaried employment and self-employment and business creation. In addition, new initiatives must be found in the non-profit sector, and attempts made to promote a more flexible attitude among young people towards certain jobs that are generally perceived to be unattractive.

The limited supply of female labour, especially in southern European countries, is particularly problematic; higher numbers of women on the labour market would give a considerable boost to the EU's activity level.

More generally, policies are needed for training and upgrading human resources, including retraining schemes; these should be accompanied by active labour market policies and structural measures to compensate for the insufficient rise in the number of jobs available.

Furthermore, the process of substituting capital for labour that began two decades ago must be stemmed. Technical and organizational advances will continue, but with wage moderation, it should also be possible to put a brake on the labour to capital substitution rate and bolster growth.

1.3. The establishment of a lasting process of investment-led growth and a non-inflationary rise in employment will require a stability-oriented monetary policy, the continued consolidation of public finances in Member States, nominal wage trends consistent with price stability, and real wage developments compatible with productivity gains.

In this respect, EMU will have a positive impact on growth, since by removing exchange-rate fluctuation risks and stability conflicts it will also curb investment risks. It will therefore play a vital part in sparking a virtuous circle of growth and stability.

1.4. EMU monetary policy will be the responsibility of the ECB and the ESCB. If long-term interest rates are to remain low, the ECB must obtain and preserve independence and credibility. The central objective of monetary policy will be to maintain price stability, but it will also back up economic policies for growth and employment.

Budgetary policy will remain the responsibility of national governments, but will be subject to the constraints of the Stability and Growth Pact, for EMU and non-EMU countries alike. Budgetary policy objectives will include the introduction of interest rate cuts to encourage private investment and the reduction of public debt, redirecting public spending towards investment (in production activities, infrastructure, human resources and active employment policies) and controlling public consumption (pensions, healthcare, unemployment benefits, social expenditure) with a view to reducing the tax burden and social security costs borne by companies.

1.5. In this context, it is essential to keep wage rises under control, in order to ensure continued consolidation and a high level of employment: increases in real wages should therefore be linked to increases in productivity, so as to boost investment and purchasing power. Nominal wage increases, meanwhile, must be consistent with price stability. Clearly, wage moderation must also include the public sector.

To be achieved, these objectives require a climate of social dialogue, and collective bargaining must reflect the productivity differentials associated with levels of skill, sectors and regions. With regard to the completion of the single market, special attention must be given to the sometimes major differences in labour costs between Member States, generally owing to varying insurance and social security systems.

1.6. Providing they are compatible with sound macroeconomic policies, structural policies play a primary role in spurring economic growth, promoting competitiveness and increasing employment levels. However, up to now, progress on structural reforms designed to increase the flexibility and adaptability of product, service and, above all, labour markets has been insufficient in almost all Member States.

In the context of EMU and the objectives of a lasting reduction in unemployment, the structural reforms should eventually strengthen market efficiency and social cohesion, providing Member States make the necessary efforts.

The primary goal of the structural policies should be to complete the single market, finalizing the harmonization of national standards and promoting the dissemination of new technologies, innovation, the creation of hardware and software networks and enterprise culture.

Second, the service and product markets must be reformed, to step up competitiveness (removing needless burdens on firms and state aid to sectors in decline), to simplify and accelerate legislative processes for SMEs and to eliminate all obstacles to the integration of the financial markets.

Finally, the labour market requires further active employment policies (reforming employment services, investing in training), a lighter tax burden on employment, and welfare reform to boost motivation to find jobs and reduce disincentives to work.

2. General comments

2.1. The general picture presented in the document is undoubtedly positive for local and regional development policies, although it avoids going into any detail on the subject. In reality, on the global market, economic competition is increasingly a contest between regions and local networks of companies.

Decentralization, as laid down in the principle of subsidiarity, is vital for policies aiming to reform the product, service and labour markets. When it comes to the national harmonization of EU directives in the area of market regulation, local and regional authorities are best equipped to prepare and implement ad hoc programmes, as they have the best knowledge of the characteristics, constraints and potential of their regions.

Both the EU structural policies and the National Action Plans (NAPs) for employment must therefore be negotiated, adjusted and applied in accordance with local and regional development and social cohesion, using procedures that comply with the competition principle and the objectives of consolidation.

Meanwhile, the virtuous circle of stability/growth triggered by consolidation, will give local and regional authorities new opportunities to increase and improve investment in development support schemes. In this respect it is crucial that they be given the means to work independently in their particular spheres of responsibility and without too much red tape.

2.2. To provide effective support for local and regional development, policies must be focused and must reap consensus. In other words, they must be based on an in-depth knowledge of local situations and defined with the consensus of the social partners.

Each of the three institutional levels common to most Member States (regions, provinces and communes) has a specific role to play. Closer cooperation, based on the subsidiarity principle, is vital.

2.3. Structural policies for product, service and labour market reform must include a strand that is drawn up and implemented locally.

At EU, national and also regional level, structural market-reform measures centre largely on legislation and are aimed at reducing unnecessary burdens on firms and enhancing their adaptability and flexibility with regard to single market and global market forces.

At local and regional level, however, and in view of the fact that global competition is increasingly marked by competition between regions, local and regional authorities have a good deal of scope for taking action to bolster market efficiency and social cohesion, owing to their more precise knowledge of local conditions.

First and foremost, as the document states, action must target the non-profit and cooperative sector, but it must also focus on the four pillars of active labour market policy (increasing the 'employability` of labour, promoting entrepreneurship, encouraging the adaptability of firms and workers, and strengthening equal opportunity policies) and measures to make the product and service markets more flexible and adaptable, while complying with the competition principle.

2.4. Giving local and regional authorities a central role in structural market reform and social cohesion policies does not imply that it should be their sole preserve. On the contrary, local and regional authorities have a critical part to play in motivating, coordinating and working together with the other operators in the region, be they public or private.

The municipalities' and regions' role in boosting employment is not confined to merely correcting so-called market failures. Their own areas of activity are also important to the labour market, not least as regards child- and health care, etc.

Local and regional authorities must not replace the other operators, but rather create the conditions that will enable private firms to become more efficient and competitive. They should act indirectly as driving force, coordinator and facilitator, while their partners should include private firms, public bodies, training institutes, operators from the non-profit sector and cooperatives.

2.5. In this respect, the territorial pacts can be taken as a working model and methodology for local and regional development policies in most Member States.

The pacts seek to exploit local knowledge and entrepreneurial resources by setting up integrated local projects, which aim to promote social cohesion and partnership between the public and private sectors.

Although they are still in the experimental phase, the wealth of results from the pilot pacts conducted in Italy and other Member States would seem to indicate that, in addition to their specific mandates, the pacts generally aim to promote economic flexibility and adaptability, greater local market efficiency and increased competitiveness.

The scope of the pacts is therefore potentially much wider than the document suggests (environment and consumer services) and is bound to encompass policies to support SMEs in the manufacturing and producer service sectors.

3. Specific comments

3.1. Market policies falling within the responsibility of local and regional authorities centre mainly on three areas: bureaucratic procedures, the profile of service markets, and the coordination of local development projects.

Red tape poses considerable problems for SMEs, whether up and running or just beginning; speeding up procedures, setting up a one stop shop and establishing advisory services are all measures that fall within the local and regional authority remit and can reduce the costs and operating hurdles facing firms.

There is no doubt that one of the greatest difficulties for SMEs in almost all Member States is the profile of service markets. The directors of small businesses rarely have the necessary time, skills and resources to obtain information on the local availability of services that could be extremely useful to them in terms of innovating and sharpening their competitive edge. Local and regional authorities could and should step in here, particularly where there are no appropriate national agencies or ad hoc bodies, as there are for instance in France and Germany.

Lastly, when local development coalitions (such as a territorial pact) are launched, they often come up against mutual mistrust between the various local operators. By acting as coordinator and guarantor, a local or regional authority can trigger a virtuous circle of equally shared responsibility between the various public and private operators, for the purposes of development and employment.

3.2. Active employment policies

3.2.1. Increasing the employability of the workforce: this type of scheme should endeavour to match labour supply and demand, while bearing in mind the workers' views (e.g. young people's needs).

There are two particular spheres in which local and regional authority action can be especially important: policies centred on young people and policies for the long-term unemployed.

Through training, accurate information and cultural measures, young people must be given the means to map out their own career paths as self-employed workers or employees, taking account of local opportunities while making the most of their abilities and educational background.

For the long-term unemployed, while applying the non-welfare instruments existing in certain countries (such as community work), local and regional authorities can take action to raise awareness of opportunities and, where possible, to restore skills and abilities to the production system.

With regard to training in particular, local and regional authorities alone are in a position to implement decentralized training policies that are closely geared to local and regional requirements. Working from the essential basic all-round training, local and regional authorities, cooperating with firms and training colleges, can devise highly specific training and retraining courses, to match the immediate needs of the production system rather than the latest fad.

Finally, and again cooperating with the other players active in the field, local and regional authorities could prepare a series of cultural measures designed to increase the poor mobility of young people on the European labour market. Partnership agreements between local and regional authorities in different countries, with support from appropriate EU programmes, could be particularly productive.

3.2.2. Promoting entrepreneurship: this concerns both business start-up schemes and services that foster the survival and growth of new businesses.

It is important, especially for small and very small enterprises, that entrepreneurship be promoted by local and regional authorities, since they alone can reach every corner of a region.

Furthermore, specific measures should be taken to boost female entrepreneurship, as this is the labour force category with the highest number of people unemployed (or remaining outside the labour market).

Workers who are technically self-employed but who work for only one customer are a separate case. Generally speaking, external insurance networks should be set up to give these workers the same rights as full employees (there have been some interesting examples of this in Finland). In some cases, ways could be found of encouraging such workers to set up fully-fledged businesses, and to highlight the particular character of cooperatives and the social economy in general.

3.2.3. Encouraging the adaptability of firms and workers: this aspect covers all those programmes that improve the working environment for firms and publicize the services on offer, in which local and regional authorities should act as regional coordinators and facilitators. This has already been referred to under point 3.1.

3.2.4. Strengthening policies for equal opportunities: the document should be more explicit, not least because those projects that can be set up at local and regional level, in accordance with structural policies, have a far wider scope than employment policies (for instance, more flexible services for families, incentives for scientific and technical training, policies on working time).

Local and regional-level initiatives are especially important for female employment and, above all, female entrepreneurship.

Firstly, at this level, solutions can be found for problems associated with families and small children; secondly, women must be protected from terms of employment (working from home, teleworking, part-time work) which when left to private bargaining can often conceal less qualified and more poorly paid jobs.

The availability of child-care should also be mentioned as an important factor in giving men and women equal access to the labour market.

3.3. As for wage moderation, the idea of widening wage distribution downwards is generally unacceptable in Europe; it is feasible only in areas where the cost of living is lower, providing it is part of a mutually approved plan to develop/revive the area in question (as with the Italian 'area contracts` for instance).

In any event, minimum pay levels should not be set artificially, but rather they should be based on the market and reflect productivity differences relating to qualifications, sectors and regions.

Furthermore, it must be decided on a case by case basis whether wage control that penalizes only the weaker sections of society is justifiable or fair.

3.4. When it comes to tackling these issues, local and regional authority officials in Europe are still at a professional disadvantage, caught between their usual workload and new European demands.

The Committee of the Regions is of the opinion that the role of these officials in the near future will be critical in linking and harmonizing EU structural policies with local development and employment projects.

For that reason, local and regional authority officials in Europe should be given access to appropriate training programmes, internships and information pooling schemes. The 'Eurotraining` programme has been well received and it is hoped that it will be extended to cover economic and employment policy issues. Local and regional authority officials must be assured the possibility to take part in the European Social Fund's new programmes so that they can develop their professional skills and thus local administration.

It should also be borne in mind, however, that the usual workload of local and regional authority officials generally gives them less time to take part in training programmes that are too lengthy or complex.

It might therefore be helpful to devise a training course, like the one recommended for local and regional government officials but aimed at young people. The aim would be to create a new 'European` job profile, for advising officials and assisting with participation in EU programmes and the dissemination of good administrative practice, while also promoting partnerships and cooperation between local and regional authorities in other Member States.

The Committee of the Regions hopes that the Commission will take these recommendations into account and translate them into specific EU measures.

Brussels, 19 November 1998.

The President of the Committee of the Regions

Manfred DAMMEYER