$Unique_ID{COW00353} $Pretitle{370} $Title{Belgium Chapter 3B. Planning and Industrial Policy} $Subtitle{} $Author{Millicent H. Schwenk} $Affiliation{HQ, Department of the Army} $Subject{percent economic regional employment government labor unemployment national industry investment} $Date{1984} $Log{Flanders*0035301.scf } Country: Belgium Book: Belgium, A Country Study Author: Millicent H. Schwenk Affiliation: HQ, Department of the Army Date: 1984 Chapter 3B. Planning and Industrial Policy The first step toward a greater government role in the economy, beyond staving off disequilibrium, was the establishment of an economic planning bureau within the Ministry of Economic Affairs in 1959. The function of the Planning Bureau has been to formulate, after appropriate study, broad guidelines for economic expansion, including public investment, in the form of five-year plans. In 1962 its responsibilities were expanded to encompass regional planning, but since the late 1970s, this responsibility has fully devolved to the regions (see Regionalization, this ch.). Nevertheless, the Planning Bureau, composed of representatives from the public administration, private industry, scientific circles, and trade unions, still makes important medium- and long-term economic forecasts. Planning originally imposed no obligations on enterprises, but a 1967 royal decree included private holding companies in the planning process. Each year they have been required to submit to the Planning Bureau details of their planned investments, including those of their affiliates in Belgium and abroad. Implementation of the plan has, however been indicative for most of the private sector, merely providing a summary of market conditions and an indication of the trend of economic and social development promoted by the government. In actuality, private economic decisions have not been greatly influenced by the plan. Industrial policy and planning objectives in 1984 basically rested on the tenets of the Claes Plan, submitted to parliament by the minister of economic affairs, Willy Claes, in 1978. The paper called for the restoration and modernization of declining sectors, specialization and diversification in products with higher value added (see Glossary), stimulation of technological research, and export promotion. Special attention was to be given to small- and medium-sized enterprises to develop new products aimed at export markets. Such a program would require a long and sustained effort, but the government had numerous tools to draw on. To promote industrial and commercial investment in line with planning objectives, the government has relied extensively on fiscal and financial incentives. Aid has taken the form of interest rate subsidies, capital or employment grants, tax relief, and government guarantees on commercial loans. The scope of the first investment incentive law, the General Expansion Act of 1959, still in effect in 1984, was broad. It provided for government aid to firms whose establishment would stimulate economic expansion or introduce productive industries anywhere in Belgium. The Regional Expansion Act of 1970 provided for broader incentives in specified development zones where economic problems are the most acute, as well as regional aid in new, dynamic sectors outside the development zones. Depending on the project location, grant incentives in development zones (which in 1983 covered areas holding over one-third of the population) could not exceed 15 or 20 percent of investment after tax. In July 1982 the Commission of the European Communities granted approval for most of Wallonia to be covered by these zones, but only the Kempenland coal mining area and the Westhoek area of West-Vlaanderen in the Flemish region qualified. For implementing the incentives legislation, the Fund for Economic Expansion and Regional Reconversion was established, capitalized through the budgets of various ministries and by certain tax receipts. Since late 1982 the government, guided by a more market-oriented approach, has gradually been replacing subsidies and other incentives to stimulate investment in new industries by fiscal measures. These included a reduction of corporate taxes from 48 to 45 percent and increased deductions for investment outlays. In addition, employment zones-T-zones-and coordination centers were developed to encourage foreign investment. T-zones were to be created in geographically delimited areas reserved for the establishment of new industrial or service facilities engaged in advanced data processing, software technology, microelectronics, office automation, robotics, telecommunications, and biotechnology. Those that had their headquarters and facilities inside these zones could be exempted from corporate income taxation for a period of 10 years. Coordination centers offered a similar exemption, but their purpose was to encourage the development and centralization of corporate research, management, and auxiliary activities in Belgium. Both employment zones and coordination centers extended benefits on a nondiscriminatory basis to domestic and foreign firms that met specified size and employment conditions. In addition, foreign executives and researchers would be exempt from work permit requirements and contributions to Belgian social security. Twenty-two coordination centers had been established by the end of March 1984, over half involved in some form of global treasury management. Beyond investment incentives, the government's main instrument for implementing its industrial policy and providing financial aid to high-risk and ailing enterprises is the National Investment Company (NIM/SNI), created in 1962 (see National Sectors, this ch.). In addition to providing public venture capital for the setting up, reorganization, or expansion of both Belgian and foreign companies, the NIM/SNI can conduct all operations in financing and real estate, buy stock in private companies, and even create public companies when the private sector fails to take certain initiatives the NIM/SNI considers desirable. The NIM/SNI is assisted in its operation by many specialized affiliates, including the Belgian Company for International Investments, which deals with financing overseas investments, and the Office for Industrial Promotion, which provides research support to the private sector. NIM/SNI activities are also supplemented by three regional investment companies, constituted by the Law of Economic Reorientation of 1978. The activities of the regional investment companies mirror those of the NIM/SNI, except that they are focused on the regions and are capitalized through the regional budgets. The NIM/SNI has grown rapidly; between October 1979 and September 1982, the value of its investments and public initiatives totaled approximately BFl5.5 billion. Restructuring operations on the part of the state are not included in this total but are much more costly. By 1983 the NIM/SNI had a significant, ongoing stake in more than 120 commercial, industrial, and service firms, employing 22,000 persons. More than three-fifths of the companies that the NIM/SNI aided were export-oriented in recognition of the vital role trade plays in Belgian economic growth, while some 85 percent were small- to medium-sized companies unable to obtain bank capital. Slightly more than one-half were new companies. In choosing candidates for financial assistance, emphasis was laid on productive investments in sectors like energy and high technology. In July 1984 it was reported that the Belgian cabinet intended to raise NIM/SNI resources, despite continuous pleas from Liberals for greater privatization in industry. [See Flanders: Well-tended fields, industry, and historic towns characterize the coastal lowlands of Flanders. Courtesy Belgium Information and Documentation Institute] Regionalization Under political pressure the application of the investment incentive laws and planning has become increasingly decentralized. This has led to the establishment of separate ministerial departments for each region and, after the constitutional reform of 1970, to the recognition of the regions as economic entities through the creation of regional economic councils and regional development corporations. The economic councils were vested with consultative powers on economic problems, as well as the development of regional plans to be forwarded to the Planning Bureau. They included representatives from parliament, the provincial councils, employer associations, worker organizations, and economic experts. The Economic Council of Brabant was organized differently because of the bilingualism of the province and of Brussels; half of the council's members were chosen from Brussels and the other half from the Flemish and Walloon regional economic councils. The councils received annual endowments under the budget of the Ministry of Economic Affairs, equal amounts being allocated to Flanders and Wallonia. The seven regional development corporations, one each for Brussels and Wallonia and five for Flanders, were set up in the form of public utilities. They were empowered to deal with the promotion of economic development within their own areas and to this end could expropriate, sell, or equip property and carry though all manner of public works. Each received an annual government subsidy but could also contract loans and receive financial and technical assistance from the NIM/SNI as well as from the regional investment companies. The process of regionalization was furthered by the two laws passed in August 1980 that established new regional bodies for social and economic affairs and institutionalized the transfer of certain economic powers to the regional authorities. The supreme body in both Flanders and Wallonia is the regional council, whose powers in regard to regional economic expansion and regional plannings are not much more extensive than those assumed during the provisional regionalization period of the 1970s (see The Communities, Regions, Provinces, and Communes, ch. 4). Specifically, the councils are empowered to deal with matters of town planning and land use, housing, water distribution, aid to industrial enterprises, application of the economic expansion laws, market research, investment promotion, aid to the tourist industry, and the granting of subsidies to various sectors. However, the central government still set standards in many areas, such as employment policy; the regions were often merely left with the execution of decisions made at the national level. The regional councils are, in theory, financially autonomous and are granted five means of raising revenue: nonfiscal receipts, transfers from the national budget linked to the cost-of-living index, refunds on various taxes, tax receipts, and assumption of loans. Primary stress is placed on budgetary credit since there is limited fiscal potential at the regional level. Overall, the financial arrangements severely restrict the scope for conducting policy at the regional level; under the August 1980 laws, 10 percent of the central government budget was to be annually allocated to the regional councils. Including the fiscal and nonfiscal revenue that could be raised by the regional authorities, total regional revenue potential has been estimated to be about 15 percent of the national budget. This proportion was low compared with the 40 to 45 percent attributed to local authorities in most federal systems in Europe and North America. Through a hold on the purse strings, the central government has maintained some control of the devolutionary process. Employment and Income Employment patterns have experienced fundamental structural changes, the labor force shifting from self-employed to salaried status and from manufacturing and mining to services and public administration. As of June 30, 1981, the economically active population totaled more than 4 million; some 38 percent were women. Of the total, about 56 percent were employed in service occupations, including the career military. Manufacturing industries, which employed approximately one-quarter of the labor force in 1970, accounted for only 16 percent in 1981; the extractive industries represented only 5 percent in 1981, compared with over 7 percent in 1970 (see table 6, Appendix A). According to data available in 1984, wage and salary earners constituted four-fifths of the labor force in 1977, and the self-employed 13 percent. The proportion of self-employed has declined drastically in the postwar years, mainly because of the reduction of employment in agriculture and handicrafts as well as the rise of large, national distributors and the bankruptcy of small businesses. Public sector employment, which includes teachers, increased substantially, from 24 percent of all workers registered under social security in 1974 to 31 percent in 1982. The regional implications of these developments have been considerable, for neither the demise of coal mining, steel, and heavy manufacturing nor the rapid growth of investment in light industry and office employment has affected the regions equally. Although employment trends within the provincial economies have followed the same path toward an emphasis on light industry and services, diversification in the coal mining provinces initially lagged. Activities such as banking, finance, and insurance have a proportionately greater representation in the north. Brabant Province employs a good portion of the Belgian total in commerce, public services, and the hotel trade. Together, Antwerpen and Brabant provinces accounted for 43 percent of national tertiary employment and 36 percent of manufacturing labor in 1979. Even though these shares have fallen 10 and 5 points, respectively, since 1970, the Brussels-Antwerp axis clearly remained the national economic core. Unemployment Within the last decade unemployment has become one of the most serious problems facing the Belgian economy. The unemployment rate-measured as the ratio between the total number of unemployed, whether or not they received unemployment compensation, and the working population-was 13.9 percent at the end of 1983. Belgium then had the third highest rate of unemployment in the EC after Ireland and the Netherlands. Unemployment first gathered momentum during the recession of 1974-75 but rose very rapidly in the early 1980s (see fig. 9). The seriousness of the unemployment situation has been compounded by the difficulties that Belgian industry has had in adjusting to changes of demand and in meeting the exigencies of international competition. In the 1973-81 period some 298,000 jobs were lost in the manufacturing and processing industries, fully one-third of total employment in these sectors. The combination of lost export markets, increased import penetration, and a rigid system of wage indexation caused most of the decrease. Wage rates surged in the 1970s; real earnings rose 8.5 percent a year in manufacturing from 1971 to 1975 and 2 percent annually from 1975 to 1980. Consequently, Belgian labor costs rose to one of the highest levels in the world. To maintain competitiveness, Belgian firms were forced to increase productivity by reducing labor and eliminating their least profitable activities. To compound problems, since 1981 job losses in industry have not been offset by the creation of jobs in the services sector. Moreover, employment has been growing more slowly than the economically active population because of the coming of age of the postwar baby boom generation and the entrance of more women into the labor force. Government measures to encourage employment have met with limited success, and unemployment has continued to rise since 1981, albeit at a slower rate than before. The average number of compensated unemployed rose 10.8 percent in 1983 to 505,000 persons. In the 1980-81 period unemployment had increased at twice this rate. The fact that fewer jobs were lost in industry was largely responsible for the better performance. Substantial termination payments and legal provisions governing the layoff of workers have, however, proved to be major obstacles in expanding employment in a large number of enterprises, wary of labor problems in periods of downturn. A profile of the unemployed in 1983 indicates that women have experienced nearly double the rate of male unemployment. Among the economically active population, 9.1 percent of men were compensated unemployed compared with 16.9 percent of women. Over 13 percent were foreigners, a slightly greater proportion than their share of the economically active population. Nearly one-third of the compensated unemployed were under age 25, one-half were under 30, and almost two-thirds were under 35. Unemployment among the youngest groups has begun to recede slightly as a result of longer mandatory schooling and a slowing of population growth, but the prospect of a one- to three-year wait for the first job could have social repercussions. The length of unemployment increased substantially in 1983; nearly two-thirds of the compensated unemployed had been out of work more than one year, but about 10 percent of these people had handicaps that reduced their aptitude for work. Wallonia registered a higher regional unemployment rate than Flanders or Brussels, but behind aggregate figures there were large disparities within each region. Neighboring arrondissements in some cases exhibited entirely different employment trends. In general, the most rural zones and those relatively new to industrialization were the least affected (see table 7, Appendix A). The government has been expanding the scope of its employment support measures since the mid-1950s. Apart from wage restraint, policy has concentrated on early retirement, job creation, measures to combat youth unemployment, and encouragement of part-time employment. The institution of early retirement contributed to an appreciable decrease in the number of employed males between 1979 and 1981. In 1982 alone, more than 100,000 persons, or 2.8 percent of the labor force, took advantage of this option. To ensure that early retirement was not being used to reduce payrolls, the granting of early pensions was dependent on proof that the retiring worker would be replaced. Direct employment support measures included job activities created by the government itself or nonprofit associations. Initial programs were aimed principally at youth unemployment, but a new system introduced in 1982, the third or parallel circuit, was confined to those unemployed for more than two years. At the end of April 1984, some 102,000 were employed by various government-financed or-encouraged schemes. Another significant program involved encouraging the unemployed to accept part-time employment while preserving their unemployed status and a portion of compensation. Previously, the system discouraged part-time work; only 6 percent of the labor force was made up of part-timers, as against an EC average of 11 percent. By April 1984 there were 62,500 workers, predominantly women, in part-time jobs. One of the troubling aspects of unemployment has been its cost to the national government. Average annual compensation per unemployed worker in January 1984 was estimated at BF222,543 (US$3,983). Unemployment benefits and employment support programs reached almost 8 percent of current public expenditure and 4.5 percent of GNP in 1982. As a consequence, unemployment insurance coverage has tended to diminish. Although the principle behind it has not been explicitly challenged, linkage of unemployment benefits and previous income has been questioned. The eligibility time for young unemployed school-leavers has been extended and the benefits to non-heads of households reduced. Unemployment benefits were also taxed when income exceeded a certain level. Labor Relations Belgium is one of the most highly unionized countries in the world. Estimates of the number of union members range from 60 to 70 percent of the working population, even though the closedshop system is illegal. The degree of unionization varies, however, from more than 80 percent for blue-collar workers to 37 percent for white-collar workers. The largest trade unions are not organized by professions or crafts, but by industrial branches. The high degree of unionization is partly owing to the links of the most important trade unions with the political parties (see Interest Groups, ch. 4). The political pressure exerted by trade unions has profoundly influenced labor legislation, which is very extensive, covering practically all work conditions as well as social security regulations and other social benefits. It is still rare for employees to be represented on company boards, but the idea had been espoused by various governments in the postwar period. Various forms of worker representation exist mainly at the plant level. They include the union delegation (the equivalent of the shop steward's committee); the works council; and the committee for safety, health, and improvement of the workplace. The works council, organized on a parity basis between employer and employee representatives, is required in every plant employing at least 100 persons. Its competence is largely of an advisory nature, although it has some decisionmaking powers regarding work rules. The composition and competence of the other two bodies is of a similar nature. Employers are principally represented at the national interindustry level through the Federation of Belgian Enterprises (VBO/FEB). It is composed of sectoral associations, representing about 35,000 enterprises in most economic branches excluding agriculture, retail trade, handicrafts, and state-controlled enterprises. About three-quarters of companies having more than 10 employees are members of the VBO/FEB, in order to influence collective agreements, which are often made binding for all companies in a particular industry. Managers of large foreign subsidiaries in Belgium occupy important positions in the metal, petroleum, and chemicals associations, sectors in which multinational enterprises dominate. Bodies for collective bargaining are set up at both the national industry level and the national interindustry level. At the industry level, trade unions and employer associations are represented on a parity basis in joint committees, which were first established in 1919. In 1983 there were 98 joint committees, covering most of the workers in private industry. Bargaining is normally conducted separately for blue-collar and white-collar workers, and coordination between the two is rare. At the national level, the so-called social partners are represented in the National Labor Council, which was granted bargaining powers in 1968 and acts as an advisory body to the government. The National Labor Council concludes such a large number of binding agreements that it has been called a social parliament. Bargaining at the national level may also take place in de facto working groups or in ad hoc "round-table" conferences. Both the major trade unions and the principal employer associations have adapted their structures to the new political and economic realities of federalization. Regional organizations have been set up and are becoming more important, but in the fall of 1984 they did not yet engage in collective bargaining. The Belgian industrial relations system shows a clear preference for autonomous rulemaking on pay scales and work hours through the collective bargaining mechanism. The government, although an important actor, has generally played a supplementary role since it relinquished its position as wage regulator in 1956. Collective bargaining takes place at four levels: national interindustry, national industry, regional industry, and enterprise. High-level bargaining sets only minimum standards for wages and labor conditions, which can then be improved upon at lower levels. The economic crisis triggered by the first oil shock has greatly influenced labor relations and collective bargaining. Between 1960 and 1975 interindustry agreements were concluded at regular intervals, usually of two years, but since 1975 no agreements have been concluded on the major issues. Employers, in particular, have been unprepared to make concessions which could worsen their competitive position. In addition, the specter of unemployment has made it difficult to develop a common position among trade unionists from the stronger and weaker sectors of the economy. As a result of the impasse, the national government has intervened actively in collective bargaining, mainly by trying to induce the social partners to conclude agreements in line with its austerity policy. When these efforts failed, the government took drastic, independent measures in early 1982, imposing a far-reaching incomes policy, which included a selective wage freeze and partial suspension of wage indexation. The autonomy of the social partners was thereby considerably diminished. Wage restraint as pursued by the government has also been based on "work sharing," or the trade-off of lower wages for additional hiring and shorter work hours. In this respect, even though the government restricted the freedom of wage determination, it still obliged management and labor to negotiate on employment schemes at the sectoral and enterprise levels. The Martens V government specifically proposed a 5-3-3 program for application in 1983 to 1984; a 5-percent reduction in working hours and a 3-percent increase in employment, compensated by a 3-percent reduction in real labor costs. In the absence of agreement, firms had to pay the proceeds of wage restraint into a central employment fund, but strict adherence to the 5-3-3 program was not enforced. To ensure that the scheme did not affect industrial competitiveness, the government agreed to offer extra fiscal incentives to companies that signed agreements, including reductions in employer social security contributions. Given the seriousness of unemployment in Belgium, the 40-hour basic workweek has become an anachronism in the hope of creating new jobs. Although many workers in Belgium were already on a 36- to 39-hour week, the socialist unions were pressing for a 35-hour week without reduced pay by the end of 1986. Faced with demands for shorter hours, employers were insisting on the right to deploy workers more flexibly between tasks and adjust the size of their labor force more quickly and easily. A royal order of December 30, 1982, permitted collective agreements to depart from binding labor standards under certain conditions and provided for experimental, flexible shift patterns. The Philips plant at Roulers, West-Vlaanderen, for example, had some workers doing two weekend shifts of 12 hours in return for 36 hours' pay in 1984. This reportedly created 15 jobs, whose cost was offset by the fuller use of equipment. In the past only moderate use has been made of the right to strike. Since 1982, however, rising unemployment, austerity, and the failure to conclude collective agreements have led to increased labor unrest. The longest and most effective strike in Belgium since 1961 erupted in September 1983 after a spontaneous walkout of railroad workers spread through the public service sector into the private sector, causing various service interruptions for almost three weeks. In general, strike activity has been more prevalent in Wallonia. Statistics for 1982 showed a decrease in the number of strikes at the enterprise level but a rise in strikes at the sectoral level. Strikes in 1982 tended to be spontaneous, and they focused more than in previous years on employment guarantees and job security and less on wages and benefits. In 1982 about 10 large-scale plant occupations occurred to protest closures or layoffs. In the future, creation of employment will continue to be a key labor concern as firms seek to control labor costs; introduction of new technologies will likely become another important issue.