It’s the long-term, stupid!

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

In the wake of the coronavirus pandemic there is a temptation to revert to nationalism and close borders. But working together and eschewing damaging short-term measures is the best response to the crisis, writes Henning vom Stein.

In the wake of the coronavirus pandemic there is a temptation to revert to nationalism and close borders. But working together and eschewing damaging short-term measures is the best response to the crisis, writes Henning vom Stein.

Henning vom Stein is Executive Partner at Otone European Affairs 

Short-termism brought us the financial crisis. People driven by quarterly key performance indicators and a blinded egoism to ensure their unbelievable pay checks intelligently used regulatory loopholes to misguide highly volatile financial and capital markets. Somehow strange is the feeling that EU’s single market regulation might have led to the wrong incentives. Society at large had to pay the check for securing arduous established savings of the ‘ordinary’ citizen and the functioning of the economy at large, its long-term investments and millions of jobs.

The crisis around the corona virus shows the same patterns, doesn’t it? In a spirit of ‘too interconnected to fail’ managers in transnational corporations have misallocated risks in a globalisation seemingly perceiving no limits for their action. Key technological know-how and production capacities of crucial importance have been displaced to countries where our societal values are not insured, by this providing their regimes the basis for an increasing political influence at global level.

At present a popular temptation is to search for a correction with more nationalism and to close the frontiers again. No, in today’s Europe this is neither the right nor a possible alternative. On the contrary the European Union has learned how to handle internal shocks (reunification of Germany) and external ones which in future we risk facing more often. In 2011 the European Monetary Union was at the brink of a collapse and that this did not happen is a sign of the Unions strong institutional set-up, its capacity to adapt its governance and to speed-up the cooperation between governmental institutions of the member states and their interaction with the European institutions. Even more important to recognise is the strength of solidarity European citizens have shown on that way. Foundation on which now the construction of a European short-time work scheme can build on.

A capacity to better react to crises is certainly not enough given the multifaceted challenges of the transformation of our economy. We need to further improve the architecture of the decision-making processes and thus the quality of it. This not only Europe’s political governance itself but especially also in the governance of transnational corporations. Given the fact that the global economy with a financial system somehow disconnected from it does not need to care about national borders the EU really needs to set the standards. Its internal market regulation must ensure the quality of the social, the ecological and the economic aspects of the decisions taken.

Empirical analysis has shown that companies with codetermination (i.e. board-level employee representation) were not only more robust during the financial crisis, but also recovered more quickly from its consequences. Companies with codetermination laid off fewer employees both during and after the crisis than companies with no workers participation. A multitude of further studies have shown the positive effects of a strong codetermination on innovation and education, on gender equality and – so importantly – also on the long-term strategic decision making in globally active companies.

Pushed by the power of global investors management structures in transnational corporations always did adapt to an ever more integrated system of value chains around the globe. The codetermination power of workers and their representative organisations remained very heterogenous also in the European Union and thus systematically lost out in the power structure of transnational companies. Therefore, short-termism ever was at the winning side of the permanent conflict of interests.

Structures of national codetermination with their own long history achieve to some degree equivalent results at their levels but are not able to trigger real changes for a better quality of decision-making in transnational companies. There are very good examples that the structures of European Works Councils (EWCs) combined with national structures helped and help to improve this situation. Since their implementation in 1994 EWCs have collected valuable experiences. Today it is obvious that they do not have the powers to really lift further potentials. A recast of the directive is more than overdue. Moreover, we need to set up minimum requirements from EU legislation not only regarding information and consultation of workers but also for their participation and interest representation in company boardrooms wherever EU company law will be used.

The ‘Green Deal’ will be a civic achievement only when workers are able to participate in it actively. Codetermination as a guiding principle for sustainable companies sets the course for decent work, incomes, production locations and, at the same time, for competitiveness and a healthy environment. Research has provided strong evidence of the efficiency and functionality of codetermination. However, there must be political will and support for it. This is the democratic design principle of the social market economy.

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