Brussels, 15/09/2011 (Agence Europe) - Following his speech on how to defend the social side within the global economy at a special meeting in the European Parliament on Wednesday 14 September, Director General of the International Labour Office (ILO) Juan Somavia granted an exclusive interview to Agence Europe which we will publish over two days. This first part will deal with inequalities in the redistribution of resources, the responsibility of the banks in the current financial crisis and ways of safeguarding jobs, while reducing sovereign debt. (JK/transl.rt)
Agence Europe: In your speech to the European Parliament you broached the issue of inequality in the redistribution of wealth. You spoke of the situation in Europe, where 60% of the wealth is held by 10% of the population. What measures, do you think, should be taken to reduce this inequality given the low economic growth in Europe at the moment?
Juan Somavia: The first thing to realise is that it is these inequalities which have affected growth. Such a concentration of wealth reduces the amount paid in wages in the economy and, consequently, workers' spending power. Today, however, the main issue is to halt the growth of inequality, to “limit damages”. We need responsible fiscal consolidation: that essentially means, with the resources at our disposal, safeguarding social protection for the weakest and unemployment insurance. (…) The widespread feeling, more or less in all developed countries, is that ordinary people, who are not in the least to blame for the crisis, are the ones bearing the cost. Reassurance has to be given, with action taken to address debt, but we also have to show that there is a very clear and definite concern to protect the weakest. I also believe that it is essential to act in a much more transparent way, with more discussion. Banks have to play a large part, perhaps larger than what is being spoken of at present. They knew perfectly well they were earning more money by taking greater risks. And in the market economy, the idea is that you keep profits for yourself and, when there are losses, the state steps in to bail you out. That's not how things work in reality. The banks have a huge responsibility and they must acknowledge their responsibilities by contributing much more to resolving current problems. Finally, social dialogue has to be used to a far greater extent in times of crisis to discuss such things as wage levels and working conditions. It's clear that in times of crisis, it's possible to talk about some changes. For example, in Germany, it was decided temporarily to restrict working times, but this was done with the agreement of everyone, in full respect for the independence of collective bargaining.
Agence Europe: On the one hand, you criticise the over-indebtedness of states, and, on the other, you call on the authorities to create jobs. How, in your view, can these two imperatives, which, in this time of various austerity plans, can appear contradictory, be reconciled?
J.S.: I believe that the essence is how to change the culture of indebtedness which forms the basis of the growth model which led us to crisis. This culture does not belong to public authorities alone. It's there in households and businesses. It results, in the case of states, in a permanent tendency to reduce taxes and replace them with debt. It's the same thing for households which have seen wages fall progressively in relation to productivity and have gone into debt. (…) The invention of debt is, therefore, consubstantial with the growth model which has failed. What has to be done is base growth on the real income of households, real economy businesses and the state. Such growth should serve investment in the real economy. One of the central problems of the current model is that the profit that can be got from resources put into non-productive financial products is much greater than the profit from traditional investment in business which creates jobs, which is productive. This financial system has run out of resources, which leads to permanent instability - not just in 2008, but over the last 20 years. A change of direction is certainly needed. (…) Nowadays, the central issue is how to create jobs even in conditions of political austerity. And the keystone is to put resources in the hands of small businesses. It's not about subsidies, but creating conditions that allow SMEs to invest. The problem is that politicians currently are pushing big companies and multinationals, even though a great deal is spoken about the importance of SMEs. Public authorities should be making it easier for SMEs to access credit, for example, through state guarantees. If billions can be put into state guarantees for Greece's debt, surely a little money can be put towards promoting the creation of SMEs.