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Well get this! High morale equals high productivity

Sun, 25th Jun 2006

'FLEXIBILITY' HAS become an economic and social fault-line. On one side, UK governments and bosses lecture their European counterparts about the need for 'flexible' labour markets (lightly regulated, untrammelled by trade unions, with low and strictly conditional unemployment benefits) to boost employment, growth and corporate success. On the other side, continental Europeans read 'flexibility' as 'insecurity', an assault on hard-won gains of the social model. The spectre of domination by 'Anglo-Saxon' hire-and-fire attitudes was a powerful reason why the French voted down the draft European constitution. Flexibility divides Europe as much as Iraq or Turkey's admission to the EU.

Yet views about flexibility are 'shot through with half-truths and downright manipulation of the evidence', according to the Work Foundation's David Coats. In a new study, Who's Afraid of Labour Market Flexibility? , Coats shows that the belief that regulation is the enemy of jobs is wrong (see chart below).

There is no 'European employment problem' caused by soft benefits and managers' inability to sack people - contrary to conventional wisdom, collective redundancies are easier to push through in France than the UK - although not individual ones. And while there are certainly too many jobless in the two largest European countries, economies such as Denmark, Sweden, Austria and the Netherlands have done just as well if not better than the UK in employment terms while enjoying much greater security and 'workplace justice'.

The idea that Europe has to be 'more like America' to cut unemployment and compete with India and China is therefore nonsense. 'Overwhelming evidence,' says Coats, shows that 'countries with very different laws and institutions have performed just as well economically, and have less wage inequality and a higher quality of working life for their citizens'. We have as much to learn from them as the other way round.

Interestingly, the only elements of flexibility the 'Anglo-Saxon' and 'Nordic' models have in common are wage flexibility and competitive product markets. But getting people to adapt wage demands to circumstance can be achieved in two ways. Anglo-Saxons leave it to the free market Nordics use collective bargaining - proving that much-scorned 'corporatist' or tripartite governance can produce favourable outcomes.

Indeed, social dialogue underpins the Nordic model of flexibility, whose other characteristics - strong trade unions, generous but conditional benefits, stronger employment regulation and higher taxes to fund active labour market programmes - are anathema to UK opinion. The Nordic economies demonstrate no incompatibility between a generous welfare state and a dynamic jobs market.

Consider the idea of 'flexicurity'. This horrible word describes the Danish system which combines high unemployment benefits (65 per cent of work income compared with 18 per cent in the UK) with rigorous conditions and active agreed measures to get the jobless back to work. While Danish job tenure is around the same as in the UK, Danes feel markedly more secure. 'Danish workers may know that change is constant (and unavoidable), but they can also be confident that the effectiveness of the system provides a high level of insurance against the worst excesses of restructuring.'

Perceptions of security and 'workplace justice' take on particular resonance when productivity comes into the equation. UK productivity lags behind that of France, Germany and the US. But productivity is not just a matter of investment and skills. It also depends on the morale which governs discretionary effort - the willingness to 'go the extra mile'. This is unforthcoming if workers feel insecure - and if UK workers hold the record in these unenviable areas it is partly due to what Coats calls the 'dark side' of flexibility: growing earnings inequality, declining social mobility and a potential failure to generate enough 'good' jobs to match skilled jobseekers. This is largely a matter of management, something that is left out of Anglo-Saxon prescriptions for flexibility.

Even though the UK is less hardline about the free market than ministers make out (think of the minimum wage, and employment rights for part-timers introduced since 1999), Coats concludes that there is a long way to go before before we can rightfully claim an 'Anglo-Social' model, as some have tried to do. On the contrary, if 'flexibility' is a jewel in our economic crown, it is a tarnished one, based largely on working harder, faster, and devil take the hindmost. But as the Work Foundation study shows, there is a better alternative. Only when we have added social justice and equality to our version will it be something to unite Europe rather than divide it.

The Observer, 25 Jule 2006


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