Minimum wage issue: resolving inequality in Europe

At the end of 2020, the European Commission took an important step towards securing adequate minimum wages for all workers in the EU. These ideas were included into a draft Directive aimed at reversing the growing polarisation of incomes and the increasing actions in eliminating the in-work poverty. These cardinal steps are to change the whole course of the Union’s social market economy concept in order to convince the middle class and lower socio-economic groups that the EU is able to reduce inequality, protect the lass-fortunate people and, at the same time, secure eights of wealthy citizens. Important part of these ideas is a re-direction of modern political economies

The general European Commission’s idea of the present moves is to “change the course” of the European integration in a way to convince the middle class and lower socio-economic groups that the EU institutions can deliver on the pressing issues of reducing inequality and protect the interest of all Union’s citizens.

Securing an income sufficient for a decent standard of living will require substantial increases in minimum wages in virtually all EU member states – a medium-term objective that, according to the Commission’s calculations, would deliver clear social benefits. Transformation of the modern socio-economic systems in the EU states towards implementation of the global challenges has turned modern governance to revitalise basic elements of social democracy, including progressive taxation of income and wealth, as well as changes in corporate strategies, including social-security systems.

These big EU’s policy shifts in the post-pandemic situation have shown the EU’s institutional ability to take resolute actions at difficult time to allow a future-oriented “new thinking” entering the present governance in establishing new forms of socio-economic systems in the member state, i.e. new political economies oriented towards more equitable and more sustainable development.  

 

Present situation

More than 25 million workers in the European Union member states are expected to benefit directly if statutory minimum wages rise to either 60 percent of the median wage or 50 percent of the average wage. In Germany alone, where 60 percent of the median wage would equate to a minimum wage of €12.00, some 6.8 million workers would see increases in their pay.

Source: Lübker M., Schulten Th. Report on the WSI-Minimum wage report, 2021; WSI Report, Düsseldorf, – 20 pp. 

 

Table. Highest minimum wage in the EU states/per hour, in euros

  • Highest: Luxembourg – 12,73; Netherlands – 10,34;
  • Middle: France – 10.25; Ireland -10.20;
  • Lowest: Belgium – 9.85; Germany – 9.50.

 

Certain number of tax decisions shall be adopted in the EU: e.g. aimed to create a common tax on the profits of large corporations, on large carbon emissions and on high-income of high-wealth taxpayers.  

However, to begin with, all EU states –according to the Treaty provisions- have to agree on these taxation transformations, if the EU-27 wants to move in this direction; some say that the “cost of unanimity might be enormous”. For a long time, the EU institutions cherished the idea of having the welfare states among the EU members; whereas the EU would just be in charge of enforcing the common market and the free flow of goods, peoples, services and capital.

This idea is still a long-term dream; as we know dreams are not enough to harmonise tax legislation. The states’ governance needs common public policy guidelines to regulate “modern capitalism” through a revised political economy in order to reduce inequality: otherwise the dream is just a dream… 

Some suggested that the first resolute step in the right direction would be arranging a European Assembly made up of national parliament members (a kind of German-French parliamentary assembly created in 2020 as part of a new bilateral treaty between France and Germany) This example illustrates a clear possibility for two or more states to stay in the EU and have a treaty-like agreement on some specific co-operation issues to move ahead towards more political and fiscal integration.

Reference to: https://socialeurope.eu/manifesto-for-the-democratization-of-europe -11.xii.2018

 

However, public opinion could be a tricky and misleading issue: thus looking at numerous referenda in western European states (e.g. the UK, France, Italy or Denmark), it is always the bottom 50 or 60 percent of income, wealth or high-education groups which vote against Europe and only the top 10-30 percent which vote for Europe. This is not a coincidence: some think that the bottom 50 or 60 per cent group are so nationalist and they don’t like internationalist ideas – which are just wrong; there are many historic examples that the more disadvantaged socio-economic groups are more internationalist than the elite.

Germany in 1952 introduced quite unpopular at a time but very ambitious and exceptional, progressive wealth tax (applied up to 1960s) implied that very wealthy taxpayers had to pay a large share of their fortunes to the national budget. It was a very successful that policy both in the sense that it helped to reduce public debt (the collected amounts was used for public investment in infrastructure) and as a vital part of a very successful post-war German growth model.

Source: https://socialeurope.eu/capital-and-ideology-interview-with-thomas-piketty/23.xii.2020; published in the “Social Europe” newsletter.  

 

Revised political economy

The need for a creating a modern-type of political economy, based on a sort of symbioses of its “socialist” and “capitalist” modelling background, has become a vital necessity in the present post-pandemic socio-economic development. It has become evident that presently none of the two main mentioned models can provide a complete and positive approach for the national governing institutions in dealing with numerous existing global/regional challenges. Only a fruitful combination of two scientific disciplines in a constructive mode, i.e. politics and economics can provide for a desired, long-term and positive development structures.

As a rule, scientists and researchers approach perspective growth models separately: it is obviously easy to take either a political or an economic component in growth models, though instead a dialectical combination of both is needed.  

For example, some contemporary researchers, taking an economic side, often argue about the need to introduce a system of so-called participatory socialism; one of the theory’s advocates, French scientists T. Pikkety described the approach in a popular book “Capital and Ideology, 2019”, though others would prefer a sort of “new model” called “social democracy” of the 21st century*). Scientists postulate that, however, “participatory socialism” is better as it would be a continuation of what was successfully done in the 20th century, which includes equal access to education, to health, to a system of basic income, which to some extent is already in place but needs to be made more automatic; educational justice needs to be more real and less theoretical, as it is too often the case.

*) Piketty, however, sees inequality as a social phenomenon, driven by human institutions; the latter’s structure reflects the ideology that dominates society as inequality is neither economic nor technological, it is ideological and political. Methods for redistributing wealth proposed in the book include the “inheritance for all,” a payment distributed to citizens by their country at the age of 25.

Source: https://en.wikipedia.org/wiki/Capital_and_Ideology.

 

At the core of disputes concerning the modern political economy (in fact, about socialism and capitalism combined) has been always the economic side: i.e. the system of property and acquisition of wealth. Two main aspects were involved: one, of so-called co-determination, through change in the legal system and the system of corporate governance; and the other is about progressive taxation and the permanent circulation of property. Regarding co-determination, argued T. Pikkety, a number of European countries, e.g. Germany and Sweden, starting around the 1950s, have had a system where half of seats on the big companies’ governing boards went to elected representatives of employees and workers (even if they did not have a share in the capital of the company), while the other half of voting rights went to shareholders.

This system provided for big shifts in politics and economics (compared to the usual rule of “one share-one vote), which is a basic definition of a “shareholder capitalism”; however, in France, Britain, the US and other countries the system was not emulated or extended, i.e. by obvious reasons, the shareholders did not like the idea…

 

The suggested system should not be idealised; there could be several other ways to a “participatory socialism”. No doubt, that the system can make it possible the workers’ involvement in the formulation of the company’s strategy: the approach was used in Germany and/or Sweden (somehow with less effect) but were slightly better in France, Britain and the US.

Advocates of the co-determination theory (as part of the participatory socialism) suggest extending the system to all EU states, as well to other countries in the world and to SMEs and big companies.

As to the political side of the modern political economy’s stance, a so-called “sharing power” is elaborated: the general idea is that in a modern political system the “sharing” of interest and solutions is needed. In modern governance it is either a bi-polar system (with, generally two main political parties fighting for power), or a coalition of parties (often 5-8) to share power. Popularly the “participation” is everywhere, including decision-making at all levels: in education, in trade/labour movements, in management and governance, as well is in corporate activities and entrepreneurship (as a corporate democracy in the latter).

 

“Socio-democratic capitalism” and modern political economy

Bottom line: in the “participatory socialism” a co-determination system is to be applied and extended; in dealing with inequality a progressive taxation would be a remedy: in some countries (with the US as a vivid example) the progressive taxation was dramatic but quite successful – top income tax rate at the time of Roosevelt was 91 per cent and on average between 1930 and 1980 it was over 80 per cent to avoid excessive concentration of wealth at the top.

Large-scale progressive taxation – not only of income and inherited wealth but also of a wealth of a country on an annual basis, is closely connected to the minimum wage issue and inheritance. French scientist Piketty suggested paying a minimum inheritance for all at the amount of €120,000 by the age of 25. Although it is far from equality, but theoretically is quite possible to publicly deliberate in order to transform existing economic system. The system of participatory socialism, of course is different from the welfare or “social-democratic capitalism”, but it could be a factor of perspective knowledge transformation towards a new vision of modern political economy.

 

Reaching for a modern concept of national welfare, turned into “socio-democratic capitalism”, according to some scholars, expected to be a long-term development process to overcome numerous present challenges on a way towards more equality, as well as popular justice and people’s wellbeing; essential part of the latter is a minimum wage’s requirements in all countries. Besides, it all comes with the restructuring of the existing political economies along a more balanced distribution of economic and social benefits and eliminating rifts between elites and ordinary people, with a just regulation of ownership and transformation of property relations.

Inevitable present policy’s evolution is to be in line with, for example, the EU’s recovery and resilience ideas and calls for national transformations in digital sphere and sustainability. However, civil society needs continuous discussions about the ways to re-evaluate existing political economy models, and turning the dialogues towards choosing proper priorities adequate to increasing wellbeing.

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