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Europe reexamines social welfare costs as economies slow down

By David FouquetSpecial to The Christian Science Monitor / December 26, 1980



Brussels

With economies stagnating at a near-zero growth level and unemployment at postwar highs, Western Europe's welfare states are facing fundamental decisions over policies of austerity or retrenchment.

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After one of their worst years on record, virtually all countries in the European Common Market have been calling into question social and economic standards which took decades to develop. In policies and recent declarations, such as the one at the EEC December summit in Luxembourg, governments have placed the emphasis on combating inflation rather than trying to cope with unemployment trends.

There are also numerous warning signs on the horizon that the public systems of social spending and services which have successfully defused unemployment discontent in the past are breaking down as these activities become more and more costly and revenues fail to keep pace.

One noted private French economist recently remarked that "Europe is turning away from the Swedish model" and more toward the current British monetarist approach to economic planning. A recent article in the publication of the Organization for Economic Cooperation and Development (OECD) in Paris obserbed that "It is tempting in these circumstances to call a moratorium on social development and, indeed, governments appear to be trying to limit the growth of public expenditure on a case-by-case basis."

While they tend to shrink away from the campaign rhetoric more common in the United States which calls for a halt in runaway public spending, government leaders in Europe are in effect beginning to see no alternative to reining in formerly generous government programs.

Victually every European national social-security system is in trouble, other services such as mail, garbage collection, police, or education are being scaled back and few of the European members of the North Atlantic alliance will be able to meet their pledge of trying to reach an annual growth of 3 percent in defense spending.

More and more strains are being put on these systems as major industries are disgorging workers, output declines, and energy and other costs increase inexorably. Between 1974 and 1979, the steel industry in the nine Common Market countries lost between 120,000 and 125,000 jobs and a 13 percent cutback in production is being implemented. The textile, automobile, and other industries are also undergoing a painful readjustment to increased international competition and a slump in demand. In just one day last week, auto manufacturers in two European countries announced layoff plans affecting some 4, 000 workers and more seem inevitable.

All told there are some 7.5 million unemployed in the EEC countries, slightly less than recorded in the United States, and economists expect economic and demographic trends to result in even larger numbers up to 1985. Figures from the OECD forecast that in the next 18 months there will be an additional 1 million unemployed in Western Europe, but a gain of about 4 million in North America and Japan.

Experts were somewhat relieved at the recently announced oil price increase by the OPEC meeting in Bali and they feel their economies will be able to withstand the shock of the series of price increases announced in 1980 better than the 1973-74 ones. Yet it is becoming widely evident that governments in virtually all countries can no longer bear the burden of the elaborate welfare, social, and industrial subsidy systems erected in better times.

For instance, despite the boost from North Sea oil, the British government, which has been setting a trend of austerity for other European nations since the arrival of the conservative Thatcher team, has announced cuts in educational and local spending.

Even the powerful West Germany economy, which was regarded as the locomotive for Western Europe and also much of the industrialized world, has just introduced an extremely modest budget for the coming year. The government has also programmed a cut in subsidies and an hike in oil taxes and has asked organized labor to moderate wage demands.

This latest assault on the purchasing power of the labor force is the second arm of the thrust that also includes the cutback on social services.

Similar efforts have been undertaken by governments all over Europe and in some countries, notably Belgium where manpower and social-benefits costs are deemed to be uncompetitive, there are wage freezes and pay cuts.

By and large trade unions in Europe have responded by moderating their pay demands and tacitly acknowledging that traditional requests for more pay and benefits would be unrealistic or be at the cost of more jobs lost in hard-pressed industries. The French Nouvelle Economiste magazine noted recently that "1.5 million unemployed don't make a revolution. In September, the French passed that point without even noticing."

Instead unions there and elsewhere in Europe seem more resigned to preserving jobs and creating new ones than in trying to improve their incomes and benefits.