EU Business and Cultural Environment

Winter School 2015

January 5, 2015

Oil Prices have decreased a great deal in 2014Source: http://money.cnn.com/2014/12/02/investing/oil-fight-opec-us-shale-boom/

Despite high prices, there is a reluctance to

extract shale oil and gas reserves

• France, Bulgaria and the Netherlands banned shale gas

exploration in 2011 due to powerful environmental

opposition

• The UK tried it in 2011 – but stopped after it caused

earthquakes near Blackpool in northern England

• European reserves would cost twice as much to extract as in

the US, and the expertise and equipment is non-existent

Source: http://www.naturalgaseurope.com/

germanys-shale-gas-potential-threatened

The ‘European Social Model’

The fundamental assumption is that the state is responsible for the welfare of its citizens, including often:

- Health care

- Free primary and secondary education, and cheap (in many cases nearly free), public universities

- Free or cheap childcare, tax breaks for large families, and often money for having more children

- Long-term unemployment benefits

- Long paid vacations

- State-paid retirement

- Labor laws in favor of workers backed up by powerful unions

Why was this model chosen?

• European states looked at some of the New Deal proposals

made by Roosevelt in the 1930s as a partial basis, though

individual countries started implementing similar models as

early as the 1880s

• After World War II – social conflicts in the inter-war years

were seen as partially to blame for the war, and there was a

tentative alliance between the left and the anti-fascist right to

set in place a social system to avoid a repeat situation

• With the end of post-war rationing in the 1950s, and the start

of an era of relative prosperity, Western European states

could afford to spend more on social programs

Scandinavia is seen as the major success story

for the European Social Model

Companies pay for worker benefits – the

example of French labor taxes

• The OECD figured in 2005 that in France, about 44% of income on average goes to taxes (Eurostat arrived at a similar figure – 46% -in 2012)

• This is much higher if you make more than a million euros (salary + investments), as the government has imposed a 75% tax

• Labor taxes are very high, and the French government is often accused of being uncompetitive, especially by the IMF – the government, with around 20% approval rating, is trying to reform this – the so-called ‘responsibility pact’

• The other side of the coin is that to have all of the social security benefits that France provides, you have to pay a great deal of taxes, and companies operating in many parts of the EU need to understand that issue

Workers and Unions

• Labor laws will be much more strict in the EU than you are

used to – it is difficult to hire and fire workers

• Most hiring and firing (outside of the UK) will be based on

contracts – fixed or long-term

• Public sector jobs are often guaranteed for your whole

lifetime, but southern Europe and the UK have fired large

numbers of public sector workers during the recession

• Unions are very powerful, will battle for workers’ rights, and

can often keep people from getting fired

• Collective wage bargaining is often the rule, including in

Germany – where it is very important

The right to strike is very important in many of the EU countries,

especially in Western and Southern Europe.

Source: http://www.dailymail.co.uk/news/article-2219583/Greeks-stage-anti-austerity-strikes-Angela-Merkel-calls-Brussels-national-budgets.html

Company Ownership – State-Owned

Companies

• In European countries – there are a large number of

companies where the state is the majority shareholder –

especially in transportation, energy, and utilities

• France keeps a strong hold on its state-owned companies to

make sure they maintain acceptable employment levels

• The European Commission is trying to force states to reduce

the size and dominance of their companies in certain sectors,

but has had relatively little success thus far

• Eastern Europe has a greater concentration of state-owned

companies, as privatization attempts were largely halted or

reversed by the 2008 financial crisis

Europe: the Stakeholder Model

European companies are not generally owned by a large and diverse group of shareholders, but are often owned by only a few people (a large majority of companies are family-owned) – and are responsible to their stakeholders

Stakeholders may include (but are not limited to):

- Banks - Customers

- Employees - Suppliers

- Unions

- Representatives of the local community

- Government

- Family

An Example of the Stakeholder Model – Metso

Finland (Mining Technology and Services)

Source: http://www.metso.com/reports/2012/sustainability_results/sustainability_at_metso/stakeholder_dialogue/

Corporate Social Responsibility: Scandinavia

and Germany

• CSR is a priority for the Scandinavian countries and Germany –

they take it very seriously

• One aspect of this is a preference for organic and fair trade

products – producers say that they have difficulty keeping up

with demand in Scandinavia

• Environmental issues are also taken seriously by many

companies in Germany and in Scandinavia

Effects of the Eurozone crisis on EU companies

• Banks are still nervous about the instability, and it is harder than before for businesses and individuals to get credit

• Consumer confidence dropped a great deal in most of southern Europe, reducing demand, but it seems to be going back up slightly

• Despite economic and social systems designed to keep companies alive and people employed, many corporations have been forced to close due to the lack of orders and fire people – others have begun more aggressive outsourcing

• The increase in unemployment and the freezing of public sector wages has put a lot of pressure on the social systems in Europe

A surprise: one study says that the countries that

spend the most on social programs may not be the

ones with the most problems in their economies

Source: http://www.theatlantic.com/business/archive/2012/06/the-myth-that-entitlements-ruin-countries-busted-in-1-little-graph/259056/