Leading Article: Cost of the Social Chapter

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THE French government has reacted with typical and quite indefensible fury to Hoover's decision to close its factory in Dijon and concentrate vacuum-cleaner production in Scotland. The move will mean the loss of at least 700 jobs, with the creation of 400 at the company's Cambuslang plant in Strathclyde. Hoover will have taken into consideration such matters as location, access to markets, infrastructure, education and training and the quality of the potential workforce. But it will also have considered wages, social costs and flexibility in the use of labour.

Pierre Beregovoy, the French prime minister, has ignored this mix of factors and blamed the decision to decamp on the 'savage liberalism' of the British authorities. It is not a phrase that translates easily into this country's political parlance, but presumably it refers to the market-economy philosophy which encouraged John Major to insist that the United Kingdom should be permitted to opt out of the Social Chapter of the Maastricht treaty. This angered the French - as it did the British Labour movement, although the unions are less critical now that the Government's stance is helping to generate respectable and adequately paid jobs.

The French authorities are learning that it is impossible to repeal the economic law of comparative advantage, and that the Social Chapter, which attempts such an exercise, is a job destroyer. The theory adopted by the French is that if some members of the European Community are party to an agreement to impose high and supposedly uniform wages and social costs, jobs will flow, unfairly, towards those unenlightened member states not bound by the deal. If all EC members were to be similarly committed, then investment - and the jobs it creates - would, it is argued, gravitate towards the EC member which (labour costs aside) seemed most attractive to the investor.

This is dangerous nonsense that demonstrates a deplorable lack of comprehension of economic realities. It is, pace Roland Dumas, the French foreign minister, impossible to write the price of labour out of economic equations. An EC-wide acceptance of the Social Chapter would not reward virtuous and efficient EC members. It would rather ensure that investment flowed to countries outside the EC. The French would presumably respond with a stiff dose of protectionism.

Within the Community, those who talk most earnestly about the need for economic convergence tend to be the people who are vociferous in their support of an all-embracing Social Chapter. Yet Community-wide regulations would deny to the less-advanced members, such as Spain and Portugal, the possibility of attracting inward investment as a result of their low wage/low social cost regimes. These nations have already discovered that the cohesion fund, designed to boost the economies of the poorest members, is a less generous body that they were led to believe. Yet, forbidden to exploit their comparative advantage - the only one they have - such nations would be unable to compete.

There is a strong element of hypocrisy at work here. Support for common, high-level social benefits is an easy way of demonstrating concern for low-paid workers in poorer countries. But if translated into binding regulations, its effect is to insulate those in high-cost countries from the challenge of competition.

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