Europe's Pay Attack


February 27, 2006 21:35 | by Brian Denny

How the European Union's single internal market is being used to force down wages. Following the accession of eastern European states to the European Union in May 2004, Ireland, Britain and Sweden allowed unrestricted access to their labour markets. As a result, migrant labour has been rapidly moving west, while east European countries are experiencing population falls and an inevitable brain drain.

In Latvia alone, over 50,000 migrants have left a country of less than two million people. This has led to a loss of skilled labour and young people and an uncertain future of underdevelopment. In the three western states, meanwhile, wages have been dragged downwards in a process known as "social dumping," as cheap foreign labour replaces the indigenous workforce and trade union bargaining power is severely weakened.

A Swedish case that is currently before the EU European Court of Justice (ECJ), highlights how EU diktats use cheap foreign labour to batter down national standards. Latvian company Laval was refurbishing a school in Vaxholm, outside Stockholm, using its own workers. The Swedish Building Workers Union (SBWU) demanded a collective agreement with exactly the same conditions as those that Swedish building firms normally sign. Laval refused and referred to a Latvian collective agreement instead. Latvian workers were being paid about a third of the Swedish wage without adequate insurance. As this was a clear case of social dumping, the SBWU, with the support of other unions, began industrial action.

Laval argued that this action was not in compliance with EU law and brought the case to the Swedish labour court, which decided to ask for a preliminary ruling by the ardently eurofederalist European Court of Justice. The court is to decide if industrial action in support of demands for a collective agreement is in compliance with European law, notably Article 49 on freedom of movement to provide services as well as the posting of workers directive.

While visiting Stockholm, EU internal market Commissioner Charlie McCreevy made clear that the Commission fully backed the Latvian company and the "social dumping" that it had created. "If member states continue to shield themselves from foreign company takeovers and competition, then I fear that the internal market will begin to dissolve. The question here is whether or not Sweden has implemented Article 49 in the treaty on free movement," he said.

Understandably, the main Swedish trade union federation (LO), which backed euro membership in a 2002 referendum when the people rejected it, has indicated that it would withdraw support for Swedish EU membership altogether if the court rules against collective bargaining legislation.

LO vice-president Wanja Lundby-Wedin points out that industrial action is, by its very nature, an obstacle to the activities of a company and free movement. "However, the right to collective action is, together with freedom of association and the right to negotiate and conclude collective agreements, recognised as a fundamental right in international conventions," she says.

As a result, if the ECJ finds that the industrial action taken in Vaxholm is against EU law, it would have serious consequences and not just for Nordic industrial relations systems. "What, until now, have been regarded as fundamental rights of workers in all democratic states would be undermined in the name of free movement," says Lundby-Wedin.

These problems have also arisen in Ireland, most notably in the Irish Ferries dispute, when the company announced plans to replace nearly 600 Irish seafarers with sweated labour from eastern Europe at considerably lower rates of pay. This provoked huge protests across Ireland and even Irish premier Bertie Ahern was left wringing his hands about the injustice of the situation. Yet the Irish government is supporting the introduction of the EU services directive which would actually accelerate "social dumping."

Around a quarter of a million migrants, mainly from Poland and Latvia, now work in Ireland. Often, this is for cash pay considerably below the legal minimum wage. Ireland is now facing the problems that arise from merging an Irish labour force of just two million with an east European labour force of over 70 million. The Irish Congress of Trade Unions is demanding measures to protect particularly unskilled workers where social dumping is threatening jobs. "It is an iron law of economics that an abundant supply of labour pushes down its cost. It is insulting people's intelligence to pretend otherwise," it says in a statement.

This theme was a source of satisfaction for Bank of England governor Mervyn King last year, when he declared that immigration from eastern Europe had "reduced wage inflation" in Britain. "In an economy that can call on unlimited supplies of migrant labour, the concept of output gap is meaningless," he said. This phenomenon will be exacerbated when Romania and Bulgaria join the EU in 2007 or 2008.

A recent US congressional budget report also triumphantly declared that increased immigration of low-skilled workers from Mexico and central America had pushed down wages.

Across Europe, it is clear that we are witnessing large movement of capital eastwards as labour heads west. This is happening in accordance to the principles of the single European market, which allow the free movement of goods, capital, services and people, regardless of the consequences. The single market is a mechanism to remove the powers of nation states to control the movement of capital and people in the pursuit of corporate profit. At the same time, it truncates all forms of democracy, including rights to fair wages, working conditions, social protection and collective bargaining by trade unions. These policies also ultimately feed the poison of racism and fascism, the last refuge of the corporate beast in crisis.

EU commission president Jose Manuel Barroso also plans openly to "lure talent" from the South and to "capitalise on the lucrative international education market" by offering top African students instant EU citizenship. Leading South African MP Kader Asmal slammed the plans as "another form of discreet colonialism."

"EU countries assist in developing higher education in the South and then wish to take the cream of the PhD students by seducing them with the offer of citizenship. This is not a brain drain, but a destruction of the intellectual capital of the South," he said.

It is clear that, to reverse this increasingly perverse situation, all nation states must have democratic control over immigration policy and to apply national legislation over employment. This includes the right to introduce laws in defence of migrant and indigenous workers as well as the removal of legislation restricting trade unions taking solidarity action.

The need for these measures was very evident in the recent Gate Gourmet dispute, when British Airways baggage handlers struck in support of Gate Gourmet workers. In the end, hundreds of Gate Gourmet workers, mainly British Asian women, were made redundant and replaced by eastern European workers on much lower wages.

Brian Denny is a spokesman for Trade Unionists Against the EU Constitution.