EU Rushes Ahead, Mindful of Workers

It has long been fashionable in U.S. business circles to dismiss the European Union as an economic museum, where unemployment and taxes are high, productivity and growth are low and technological development is all but nonexistent.

As one American CEO put it recently, “I suppose they make cheese.”

But that characterization of the 15-nation EU may well be about to change.

Slowly but surely, Europe is embarking on an earnest restructuring of its economy, as it seeks to reduce costs and boost output. At the same time, the EU will expand dramatically on May 1 when it admits 10 more countries, including Poland, Hungary, Bulgaria and other Eastern European states. The move will add 75 million citizens, or 21%, to the market’s current population of 350 million.

This is why firms such as Merrill Lynch are suddenly taking a fresh look at the continent, figuring that it may not be such a bad place for people to stick their money.

“They foresee that European companies will now be able to make the kind of productivity gains that U.S. companies have achieved over the last decade,” says Rockwell Schnabel, a former Los Angeles investment banker who serves as U.S. ambassador to the EU in Brussels.

One way that Europe is improving its economic efficiency is by using a tool now sparking considerable controversy on this side of the Atlantic: outsourcing.

Indeed, many government agencies and companies in Europe are turning to U.S. firms to help them manage their information systems. These public and private entities need “to lower costs so they are beginning to outsource to us,” says George Bell, president of European operations for El Segundo-based Computer Sciences Corp. CSC, in turn, offshores some of its programming work to cheaper locales such as Bulgaria.

This is a major departure from the past. Strict European labor codes, enforced by powerful unions serving on corporate boards and in councils of government, would have nixed earlier attempts at outsourcing.

But not anymore. “The general trend now is to make labor law more flexible, to try to reform the economies in France, Italy and Germany,” notes Bell, whose company is under contract with British communications firm Marconi, Norwegian insurance company Tryg Vesta Group and many others.

Pat Cox, president of the European Parliament, puts it this way: “We have done a gear shift in social policy.”

In many ways, Europe has no real choice. Despite the restrictive work rules, laborers haven’t been shielded from the harsh realities of the global economy. Joblessness in Germany, France, Spain and Belgium has been running at 10% or more.

Meanwhile, growth is lagging badly. While U.S. gross domestic product is expected to rise 4.7% this year, according to a survey of analysts by the Economist magazine, Europe’s economic output (not including Britain) is forecast to rise only 1.8%.

With competition intensifying around the world -- especially in Asia -- the only way for Europe to prosper for the long term is to endure the pain of restructuring in the medium term.

“It’s not easy politics, asking fellows to work longer for less pay or to retrain for other jobs,” acknowledges Cox, who represents a section of historically poor Ireland in the European Parliament. “But we accept it as inevitable for adapting to a global economy.”

Notably, the EU isn’t galloping into the new world without a sense of responsibility for those who may find themselves trampled in the rush. Unemployment insurance is available for up to a year or more in some countries of Europe. That compares with six months in the U.S.

What’s more, the European Social Fund -- with a budget of $45 billion a year -- is being tapped to retrain the long-term unemployed in Britain’s Midlands. It’s also being used to train Finnish workers in audio-visual services. And it’s being drawn upon to help Sweden educate and integrate African and Middle Eastern immigrants into its labor force.

“Europe has much stronger job training systems than the United States,” says Stephan-Gotz Richter, publisher of The Globalist, an online newsletter covering economic issues.

The amount in the Social Fund comes out to $129 per EU citizen annually. By comparison, U.S. government expenditures for retraining employees (including grants to technical and community colleges) total just $14 billion, or $50 per American.

It’s clear that Europe has much to learn from America about the ruthlessness needed to make it in the modern marketplace. But when it comes to extending a helping hand to those workers left behind, America would be wise to learn a thing or two from Europe.

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James Flanigan can be reached at [email protected]. To read previous columns go to latimes.com/flanigan.