Tuesday, 27 January 2015


Whose side is the E.U. on? It is a question that would have arisen even without Syriza's election triumph in Greece, since the E.U. has become a divisive issue in the national politics of many member states. Attacks come from across the spectrum: both viscerally anti-E.U. nationalist parties such as UKIP and France's Front National, and radical movements such as Syriza and Spain's Podemos that are not anti-E.U. as such, but strongly oppose the economic policies that are embedded in its institutional structure.

The question may be out there, but Eurocrats would prefer not to think in those terms. The E.U. is supposed to be quite the opposite of political: an institutional counterweight to politicisation, seeking out consensus that is good for everybody. The word “harmonisation” is prominent in its vocabulary, reflecting the aspiration of its founding fathers to efface the historical rivalries that have subjected the continent to centuries of conflict. To take sides, getting “down and dirty” in the rivalries of national politics, would defeat this high-minded purpose.

This strategy has worked well in the broadest sense: jaw-jaw really is better that war-war. But the assumption that the E.U. knows what is good for people must now depend upon something more immediately substantial than the vision of “an ever closer union” of former belligerents. From its inception it has been an economic project, an appeal to self-interest as much as idealism. And since economic issues drive politics, the question is entirely valid: which sections of society does the E.U. best serve?

The debate raging around TTIP provides a powerful focus for this question. It has wrong-footed the E.U. negotiators, for whom the underlying premise of the proposed trans-Atlantic free trade treaty fits closely with the E.U.'s integrationist vision. From that perspective, TTIP is so clearly a “good thing” that opposition to it can only logically arise from people who have not understood it. This explains why the E.U.'s response to a consultation that is overwhelmingly negative is to undertake to go on consulting and explaining until people finally get the point.

In adopting this attitude, the E.U. is in danger of ignoring a sea-change in politics that is convulsing in various degrees the majority of its member states. The economic collapse precipitated by the banking crisis has proved to be far more than a mere cyclical correction. In exposing the workings of the free market system it has shattered the liberal illusion that the interests of corporate investors and worker-consumers are on the same track. This, in turn, creates an existential challenge to the terms of reference of the single market, the completion of which has been the E.U.'s defining economic project.

This point is well illustrated by the multi-nationals who set up shop in Luxembourg to avoid the higher rates of tax that would be payable in the much larger E.U. states where they conduct most of their business. Harmonisation only goes so far: the Luxembourg government does not have to pay the tax credits and housing benefits that are necessary to bring many of the employees of these multi-nationals up to an acceptable standard of living.

Similarly, food processing companies, suppliers of outsourced social care and other low-wage employers routinely exploit differential wage rates in Europe because locally available staff are too much trouble to employ. UK unemployment remains stuck around two million and there is relentless downward pressure on wages because the improved working conditions, wages and training required in a tight labour market can be avoided in this way.

This free market challenge to the conditions of labour is a key issue in the TTIP debate. E.U. negotiators believe that the proposed treaty will cut the price of goods to consumers by increasing competition between producers. Competition, however, forces down wages, which means that the main beneficiaries of unrestricted trade are not worker-consumers but investors.

The capacity of big business to exploit open markets explains why the main focus of opposition to TTIP has been on its provisions for ISDS – Investor-State Dispute Settlement – which allows international investors to sidestep normal legal processes, using secretive arbitration to challenge government decisions that could damage their commercial interests. The banking crisis and its aftermath have taught people to distrust footloose international capital; the 50,000 or so British people who signed up to oppose the ISDS provisions of TTIP did so because they have discovered the hard way that human social interests and those of corporate investors rarely coincide.

Therein lies the heart of the problem. Politicians have fallen into the habit of talking about “business” as if there is no distinction to be made between small and medium-sized enterprises that pump the life-blood of the real economy, and the vast banks, brokerages and multi-national companies that seek to drain that blood into the deposits of their clients and shareholders.

This distinction is between production and extraction. Production means creating new, useful wealth through skill, ingenuity and entrepreneurship. Extraction means deriving wealth from the ownership of assets. This may be literal extraction, such as oil or minerals, but it applies more broadly to the right to extract profit that the ownership of any asset confers.

With productive activity, human input is the ingredient that adds value. It could be as minimal as the exchange of pleasantries that turns a purchase into a rewarding social interaction, or as significant as the performance of life saving surgery. It could be the nurturing of a crop, or the making of a garment or household object. Investment may be necessary to liberate such human potential, but it is not sufficient. The essence of production lie in a person's work.

With extractive activity, the reverse is the case. Here, the wealth already exists, and the investment represents the ownership of it. Often the wealth can be extracted without meaningful human intervention, as digits flickering across a dealing room screen. Where human input is necessary, it is treated by investors as a cost to be minimised. The lower that cost, the greater the wealth that can be extracted from a given investment.

Since the market reforms of the 1980s, governments have sold extractive opportunities to the highest bidders. An investor buys a public service, and proceeds to trim the costs of its delivery (people's wages) to maximise its profit. The private sector is equally vulnerable: investments by a few large companies have monopolised the retail trade, squeezing the incomes of producers and the wages of their staff to maximise their profits. Manufacturing has been outsourced on the same principle – to extract the greatest possible margin from the supply chain that separates producer and consumer. Banks are wholly extractive. They create money by writing loans, then extract a percentage of the productive activity that the loan makes possible.

Is the E.U. on the side of the producers or the extractors? The fairest interim conclusion is that it has not yet woken up to the distinction. The longer it sleeps, the greater is the danger of the debate being captured by divisive forces that will shatter the E.U.'s harmonising dream. To put that another way: if 150,000 people opposed ISDS in its own consultation, and if 1.3 million people have signed a European Citizens' Initiative against TTIP that the E.U. has refused to recognise, then maybe – just maybe – it is worth taking the trouble to find out why.

This article is also published on Huffington Post