With its so-called Bidenomics, the US is leading the way in linking subsidies to social conditionalities, an approach that the EU has both criticised due to its impacts on competition and been reluctant to integrate into its industrial policy.
The US Inflation Reduction Act (IRA), an attempt to further green the transition through subsidies for domestic energy projects, includes some social conditionalities – workers’ protections, or social or economic rights – necessary for companies to receive funding.
For instance, businesses seeking IRA subsidies need to ensure builders working on their facilities are paid no less than the local prevailing wage, determined by the US Department of Labor. They are also required to employ apprentice workers to complete a minimum number of labour hours on the project.
These social conditionalities are part of “Bidenomics”, a term that generalises the Biden administration’s industrial legislation, with an emphasis on “home-shoring” production to the US and providing social support for American workers and consumers.
Bidenomics is motivated by both growing internal pressure for more government intervention in workers’ lives and an intention to compete further with China.
Similar conditionalities around a prevailing wage exist in the American CHIPS and Science Act and the Bipartisan Infrastructure Investment Act.
These conditionalities won Biden the support of major American unions during his 2020 run.
“By focusing resources, regulations, and enforcement where workers have historically been mistreated and stripped of dignity, industrial policy can be a power-building tool for those workers,” said Janelle Jones, an economic analyst, in a recent report on American industrial policy for the Roosevelt Institute.
While having a history of strong welfare states, EU industrial policy has so far lacked these same conditionalities and the bloc has adopted a critical view of the US approach.
Commission’s distaste for Bidenomics
The EU has previously been critical of US plans to tie subsidies to social conditionalities, arguing that they provide discriminatory incentives.
In a letter to American lawmakers over social provisions in the Build Back Better plan in December 2021, the European Commission criticised protectionist conditionalities that required consumer credits to only be used at US electric vehicle manufacturers with a unionised workforce.
“The unionization condition effectively discriminates against EU car companies’ assembly plants in the U.S., harming the tens of thousands of American workers they employ and the communities that have benefitted from their investment, as well as their extended supply and distribution chains (which include unionized workplaces),” the letter reads.
European car manufacturers such as BMW and Volkswagen operate such plants in the US. Some plants are located in “right to work” states like North Carolina and South Carolina, where employees must opt-in to joining their unions and paying dues. The states have the lowest rates of union membership, with less than 3% of the workforce unionised in each.
While these companies have unionised workforces in Europe, they can keep labour costs lower at American plants without worker representation.
After reaffirming their support for furthering unionisation and underlining the rights of workers in all EU member states to unionise, the Commission’s letter further reads:
“However, the proposed consumer tax credits […] could instead provide a discriminatory incentive to purchase cars from manufacturers where workers are already unionized.”
The letter concludes by requesting that US lawmakers remove the offending portions of the legislation – a request the lawmakers did not fulfil.
The EU’s response to the IRA, watered down from the expected European Sovereignty Fund to the announced Strategic Technologies for Europe Platform (STEP), does not include any similar provisions on social conditionalities.
At the same time, some social conditionalities exist at the member state level across the EU. For instance, according to the German coalition government agreement, public procurement contracts should only be awarded to companies that comply with the working conditions laid down in collective agreements.
Towards EU conditionalities?
Overall, EU industrial policy is some way away from linking social conditionalities to subsidies.
At the same time, the EU is moving towards including social conditionalities in other EU policies. For instance, they were included in the EU’s agricultural policy 2021-2027 (CAP), which linked payments to the respect of certain EU labour standards with the aim to improve working conditions on farms.
More recently, socialists (S&D) within the European Parliament were recently victorious in including social conditionalities in the EU 2023 Financial Regulation establishing the rules for the EU budget, but it remains to be seen whether such provisions will remain following negotiations with member states.
S&D plans to make social conditionalities a priority going into the 2024 EU election season.
Referring to the EU minimum wage directive, a law which aims to boost the share of collective agreements across the EU, socialist MEP Agnes Jongerius said “it’s now time to put your money where the law is” in future EU-funded projects.
[Edited by Silvia Ellena/Jonathan Packroff/Nathalie Weatherald]
