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European Commissioner responsible for Employment, Social Affairs and Inclusion
Speech: The role and responsibility of private capital in creating smart, sustainable and inclusive growth
Responsible Investment Summit 2013
Brussels, 29 January 2013
Ladies and gentlemen,
I believe I need not dwell on the gravity of the employment and social crisis facing the European Union today.
We are all aware of the rising numbers of jobless people across Europe, the increase in poverty and social exclusion, and the serious social unrest this is causing.
Over 26 million people are unemployed, nearly 8 million young people are neither in employment nor education nor training, and the risk of poverty and financial distress of households are rising.
We see people begging on the streets. We see and meet people protesting at austerity measures.
But solving the problem is another thing.
A lot has been done at European Union level in terms of coordinating strategies to consolidate public finances, strengthen governance and boost competitiveness.
A lot has been proposed and implemented to reorganise funding programmes, improve training and labour market access, make labour markets more dynamic and inclusive, and encourage active ageing.
What is lacking, however – especially for companies in so-called peripheral Member States or for young people – is fresh money to invest. And as you probably know, no agreement has yet been reached on the EU’s future funding in the negotiations with the Council and the European Parliament. We hope that next week's European Council will make a deal on a strong investment budget that Europe needs.
The EU budget provides vital funding for economic and social development of disadvantaged regions, development of human capital, economic inclusion of people as well as innovation and infrastructure development.
But at around 1% of EU GDP, this budget is very modest compared, for example, to the US federal budget.
And with national governments needing to consolidate their budgets, the public sector cannot be expected to take care of all socially important investments in the years ahead, even if governments prioritize expenditure in a smart way.
That makes private investment all the more important.
Ladies and gentlemen,
The issue today is what private capital can do to create job-rich growth and to bring millions of economically and socially excluded people back on board.
Of course, private capital aims to recover the resources invested, and depending on the investor's appetite, to achieve a certain level of profit.
In the classical paradigm, investors allocate their resources where they expect the ratio of financial return and risk to be most favourable. In alternative paradigms, various economic, social and environmental variables influence the decision-making process. That is why we speak about social, ethical and other types of investors.
But in any case, sustainable investment can only go hand in hand with a prosperous, cohesive, inclusive society — one where unemployment, social exclusion and social unrest are reduced to a minimum.
The former US Ambassador to Rome once called Italy a poor country full of rich people.
Now, I’m not specifically interested in Italy here, but this seemingly paradoxical statement is worth thinking about.
Perhaps a poor country can be full of rich people, but can a country prosper and develop if it is full of people who barely make ends meet?
I would say not.
And last week, this was also one of the main messages of Christine Lagarde, the head of the International Monetary Fund, at the World Economic Forum meeting in Davos.
She said that “Excessive inequality is corrosive to growth — it is corrosive to society”.
And she reinforced this by saying that “a more equal distribution of income allows for more economic stability, more sustained economic growth, and healthier society with stronger bonds of cohesion and trust.”
That is why socially responsible investment, together with government action, is so necessary.
Today, I want to mention four areas where social responsibility of investors can make a great difference for the benefit of the economy and the society.
The first is social economy and social business.
The second is occupational health and safety, or the broader concept of workplace wellness.
The third issue is youth employment.
And the fourth is social dialogue and cases of company restructuring.
Let me start with social business, and social economy more broadly.
You are no doubt familiar with the Social Business Initiative which the European Commission put forward in 2011. We said we wanted to create an ecosystem conducive to social business, and to help this innovative market segment grow.
Among other things, we have proposed legislation establishing the label of a European Social Entrepreneurship Fund, and we have been promoting social business as a funding priority in the next cycle of the EU budget.
Because social economy and social enterprises play an important role in reducing poverty, improving social inclusion and developing workforce skills.
They deliver social goods that the public sector is often not able to deliver, and that profit-driven investors often do not care about. And they do it on the basis of a viable business model.
In Europe today, the social economy sector — made up of cooperatives, associations, mutual societies and foundations — represents at least two million companies and employs over 11 million paid employees. That is equivalent to 6% of the entire EU workforce.
Social business is governed in a participatory way, and therefore also often creates jobs that are more sustainable and of better quality than those in mainstream business.
A UK survey recently suggested that while they can be affected by the downturn, “social enterprises employed more people relative to turnover than mainstream small business” . And also in other countries, there is evidence that social economy enterprises were more resilient against the crisis.
Social business improves social inclusion by employing people from disadvantaged groups or providing goods or services to vulnerable people.
And social business can drive social innovation. For instance, it can find new ways to reduce emissions and waste or to use energy more efficiently.
That is why the European Commission wants to facilitate greater investment from responsible investors in social enterprises – both through regulatory and budgetary initiatives.
Ladies and gentlemen,
The second question I want to focus on is this: Can a society can be prosperous if its workforce suffers from a high rate of accidents or job-related illness?
The answer is obviously not. But the issue is increasingly important as Europe's workforce ages and shrinks. Unless we want living standards to decline, we need to achieve both higher employment and higher productivity in the years ahead – but we need to achieve this with a workforce that is smaller and older than before.
That is why health and safety at work is an important issue for Europe's competitiveness. But it is much less an issue of regulatory cost than an issue of investment that pays off through increased employment and productivity.
Studies have shown that investments in occupational safety and health generate benefits and boost competitiveness at both micro- and macro-economic level.
And the cost of poor health and safety at work is a heavy burden on workers and employers. It's an issue of absences due to illness or injury, but also an issue of worker motivation and company image.
Recent data from the European Agency for Safety and Health at Work put the cost of poor health and safety at between 2.6 and 3.8% of EU GDP.
That is especially worth remembering at a time of economic hardship, when companies and the public sector may be tempted to cut spending on health and safety.
Last week I happened to participate in a discussion on workplace wellness in Davos, and it was certainly refreshing to hear that CEOs from all kinds of industries are aware that workplace wellness is an important investment with clear returns.
The main problem seems to be that many companies – and investors – simply have workplace wellness too low on their lists of priorities, and they do not make those investments.
The third question I want to highlight is youth employment.
Unemployment and economic inactivity of young people are huge problems for Europe, and unfortunately a lot of damage has already happened that will be difficult to reverse.
In December, we have proposed to Member States that they should all develop schemes ensuring that every young person gets a quality offer of a job, continued education, apprenticeship or traineeship within four months of becoming unemployed or leaving school.
This would represent a Youth Guarantee, which we consider crucial to prevent further worsening of young people's opportunities.
What I would expect responsible companies and investors to do is to think what they could do on their side to help.
I would invite responsible investors and companies to engage with governments and schools at the relevant level and to develop offers of employment or at least quality apprenticeships or traineeships so that young people can get that first experience.
I believe this will be ultimately good also for the companies and investors themselves, but it requires an enlightened and proactive approach.
In some countries the Youth Guarantee already exists, while in others a lot of effort will be needed to make it happen.
But it is precisely in those countries with high youth unemployment and inactivity where failure is not an option, and where everybody, including the private sector, has great responsibility to give young people real chance.
Ladies and gentlemen,
Let me finally address the fourth and last topic, namely relations between the social partners in the context of economic change.
Can the economy function efficiently if employers and workers are at loggerheads over the terms of employment?
Can the Single Market work if at least broadly similar conditions do not apply throughout?
Once again, I would say not.
That is why the EU has been supporting social dialogue, socially responsible restructuring, and information and consultation of workers when companies are in difficulty.
That is why we have been promoting solutions based on internal flexibility, like reduced working hours combined with training, or negotiated pay cuts combined with training.
Resilience is a key concept in the context of a protracted crisis, and it is both companies and the labour market as a whole that need to be resilient.
Social dialogue is a great European tradition and asset, and it is something that an enlightened and responsible investor should in my view embrace if he or she is interested in resilience.
A big concern of people across Europe nowadays is the threat of companies relocating abroad.
If capital can move freely across borders, will it stay within our own country? they ask. Or even within the borders of the European Union?
I do not believe investors should necessarily be asked to show “economic patriotism”. But stability in the country and familiarity with local conditions speak against relocating too easily. And as the example of cooperatives shows, social dialogue can be a successful method in ensuring a company's adaptation to a new economic reality.
What responsible investors should do is take a longer-term view of the sustainability of their investments.
It is in their interest for unemployment, accidents at work and work-related disease to fall. For company morale and workers' well-being to go up.
It's in the interest of an enlightened and responsible investor for young people to find work, or in other words for the workforce of the future to have the skills needed for the jobs of the future.
They can do this — for instance — by supporting traineeships, taking on apprentices, or offering older workers the chance to stay on and mentor younger colleagues.
In other words, the interest of a responsible investor is the sustainable future of our societies.