EU Business and Cultural Environment

Winter School 2015

January 5, 2015

Oil Prices have decreased a great deal in 2014

Source: 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/