Critically discuss how global economic trend may impact upon the future policies of the European Union. Identify ways in which this may affect leisure and tourism trends within Europe.

BA(Hons) Tourism Business Management Ken, Van Der Lely

CONTEMPORARY INTERNATIONAL ISSUES

Since 1980s, the world is greatly influenced by the globalisation effects. In a global perspective, advanced economies are more likely to favour the liberalisation theory, which seems to be dominating the world’s economy. In order to compete with other developed countries, European Union(EU) strive to enlarge and synchronise itself. Over the past decades, the globes have witnessed the continuing evolution of the EU, which has been consolidating its integration process with the reality of the common market, such as the Amsterdam Treaty and the adoption of Economic Monetary Union(EMU). In reality, the EU is becoming the best known and example of regional economic integration so far. Beyond doubt, the above movement also influences the leisure and tourism trends as it is the largest global industry, such as universal McDonaldisation. Basically there are infinite issues relating to the relationships between global economic trend, EU policies and tourism, yet due to the assignment constraints, the following discussion focuses on a few important aspects, which include: single market programme, employment and social policies, common policies and technological innovation.

Different authors have dissimilar definitions towards global economic trend. Pilger simply describes global economy as increasing cross-border trades() even as Floyd(2001) defines global economic trend as the freeing up of labour and capital flows. McGiffen(2002) identifies it as changes in telecommunication, transport, in how things are made and the way that people think while Noberg(2003) suggests that the growth of world prosperity is based on capitalism. In fact, the above definitions are all reasonable, but it is apparent that all those explanations are based on the philosophies of ‘Liberalism’. In brief, economic liberalism’s core belief is to trade, to enter into commercial activity aimed at accumulation of wealth, to invest where and in what one wishes, are basic human rights. Also government intervention is considered as detrimental; hence every aspect of freedom is of fundamental importance. Moreover, liberal economic globalisation also has its own institutions: United Nations clearly plays a role in this, but the stars are the International Monetary Fund, the World Bank, and arguably the most important of all is the World Trade Organization(WTO).

A typical liberal economic region is America, which is also the most prosperous nation enjoying the highest Gross Domestic Product(GDP) per capita(Sardar and Davies, 2003). In light of the ideology to affluence, every state is striving to liberalise its market, even though it is contradicted to the nations’ political principles. For instance, China shift its focus from political-oriented to economic construction of four modernizations in 1978 followed by the supports from Deng Xiao-ping(Lew et al., 2003). Then, Soviet Union opened up its centralised economy under the leadership of Gorbachev in the Geneva Summit 1986(McIntosh et al, 1995). Undoubtedly, EU also realises the benefits that liberal economy can bring up. From the Treaty of Rome to the Maastricht Treaty, EU aims to promote harmonious development of economic growth and the accelerated increase of welfare and the standard of living in its Member States(Somers, 1994). As to achieve these objectives, the community decided on ‘free and single market’(FSM) as its main instrument.

EU favours a large, free and competitive market. FSM is expected to create improved efficiency of production, more economies of scale, and a higher level of income and employment, which is exemplified in the European Single Act 1985. According to Somers(1994), the real community GDP would rise by an extra 5 to 7 % with 2 to 5 million additional employment under FSM. In consequence economies of scale and competition will push the emergence of real, large European corporations, thus able to compete with America and Japan counterparts. In order to originate a competitive market, EU reinforces liberal economic principles by advocating free movement of goods, services, people and capital.

Even though the Treaty of Rome decrees fundamental mobility of workers, free movement of people was significantly initiated through FSM and Social Character at European Trade Union Confederation. EU citizens are eligible to work within Member States of one’s choice with certain social rights and protections(Nicoll and Salmon, 2001). Indeed, the Community has engaged in several policies aimed at enhancing worker mobility, such as launching comparable vocational qualifications, beginning with hotel and catering(Dearden, 1999a). Accordingly, labour force in EU is comparatively more flexible than those in Japan or America. Dearden(1999a) also suggested that Eastern nationals can reside in any member states and seek employment accompanied by their family through EU enlargement which can induce both positive and negative impacts. On one hand, rural-urban migration is facilitated, which benefits the rural residents to look for jobs in stronger economies and improve their income as well as living standards. Yet, population pressures and migration may result in surplus Eastern population absorbed into Western cities. These populations who are generally worse educated may look for hospitality jobs in stronger western economies, since employment in tourism industry is always regarded as low skill occupations(Cooper et al., 1998 and McIntosh, 1995). In leisure aspect, EU citizens can travel easier than before, since no visa is required. The travel barriers within member states have weakened, thus encouraging the domestic travel in EU basis. Furthermore, those wealthier western citizens may travel more often to the Eastern nations, starting up businesses over there, buying second home and assisting Eastern States to achieve economic growth. Nevertheless, it may lead to inflation of land price, which reduce the local’s ability to purchase their own house(Tribe, 1999).

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In 1991, EU started to consider working time with a view to protect the health and safety of workers with the concerns of maximum working time and paid holidays during the Social Protocol(Dearden, 1999a). By 1993(Directive amendment in 2000), Member States shall ensure all citizens have not less than four weeks’ annual paid holidays, an average weekly working period of not more than 48 hours(). Accordingly, EU citizens are entitled with more leisure opportunities. However, European Travel Commission reported that modern society exerts increasing pressures on people’s lives that stimulate more relaxation and leisure desires(). Tourism, with elastic demand, may vary in two directions under this drift. Undoubtedly, more disposable time with salaries will push up travel rates. On the contrary, tourism may have to compete with other entertainments(i.e. shopping), since both activities necessitated money. Providing that more money is spent on shopping, the real disposable income for travel will reduce, and vice versa. European Travel and Tourism Action Group prospectively recommended that if European tourism industry seek to survive, it is necessary to supply additional low-cost tourism products, offering relaxation and shortening of the longer main holiday in favour of more short ones in the future(). In the employer’s view, additional costs are imposed upon firms in response to the mandatory welfares and regulations. As to become more cost effective, firms can actually move from EU to other hardworking continents in Asia, such as Hong Kong(HK) and China. For illustration, the Employment Ordinance of HK stated that employees should have at least 12 annual holidays, whereas there is neither any guideline nor legislation for working hours(). Nowadays, a hotel receptionist in HK needs to work for at least 9 hours per day and overtime is expected with no extra salary(personal communication, 30/10/04). Noberg(2003) also proved that one dismissal in America or EU will offer three job opportunities in developing countries, thus TNCs will relocate themselves accordingly in terms of productivity and costs effectiveness, for instance: Hong Kong Shanghai Bank Corporation has re-allocated 4000 jobs from United Kingdom(UK) to Asia, mostly to India(). With HSBC staff face the axe of job cuts, it shows a trend of sweeping western firms in tourism sector are shifting jobs to low-wage and low-welfare nations.

This phenomenon is known as ‘off-shoring’. According to BBC News, off-shoring is now part and parcel of doing business in the global economy(). Inevitably, the current social policies act as a pull factor for EU economy, discouraging future investment. How should EU states cope with these challenges? In UK, John Major government, opted out from the Qualified Majority Voting of EU welfare policies(Dearden, 1999a) as to avoid losing investment incentives. Undeniably, it is due to the conservative party of Major, which tended to fall into the right wing idea of liberalisation, thus welfares to the citizens should be diminished to a minimal level. After Blair government, the labour party that is tending to be more left-oriented than Major government, won the election, it tried to favour the foreign investments by public interventions, legislating preferential policies for American TNCs, such as Morgan Stanley, as written by Hutton(2002). However, EU has its own way to solve the problem: establishing other policies to attract foreign investments, such as introducing single currency to provide business stabilities.

The introduction of single currency, Euro, in 1999 is an imperative backbone of European single market. Prior to launching Euro, EU has implemented different monetary policies to minimise currency uncertainties and maximize economic growth, such as Exchange Rate Mechanism(ERM) of European Monetary System in 1979. Without any convergence, ERM caused serious problems in early 1990s. For illustration, the exchange rate crises of 1992 and 1993, which drove UK out of the system(Artis and Bladen, 2001). At Maastricht, the European Council formed an EMU with the ultimate aim to replace national currencies, 11 Member States adopted Euro, and entrusted monetary policy to European Central Bank(Ongena, and Winkler, 2001). Definitely, there are numerous benefits of single currencies. EU citizens can travel more easily within euro area without the hassle of changing currencies, and with price transparency, travellers can easily analyse value for money (). In the contrary, foreign exchange business in the tourism industry will experience a loss of income following Euro introduction. For example, Hutton(2002) suggested that the City of London will experience a loss of income from its foreign exchange business and Connor(1998) also projected that this decrease will have consequential multiplier effects on UK aggregate demand. The same also applies to the local foreign exchange firms, such as Thomas Cook. However, UK tends to diversify its economy through introducing more services related jobs. According to the National Statistics, UK GDP growth in 2004 is approximately 0.4%, which is mainly attributed by services sectors, including luxurious leisure and tourism products().

In business view, elimination of exchange rate fluctuation provides a more stable environment for international firms to trade, thus companies are better able to plan due to reduced uncertainties. Besides, assorted transaction costs are removed, such as hedging operations that intended to protect companies from adverse exchange rate movements. Additionally there are more opportunities for foreign direct investment with minimal risks; but it can cause leakages and reducing the multiplier effects. Although easier price comparisons enhance competition and lower prices benefit EU tourists, it can also threaten local businesses and small enterprises through vigorous competitions with Trans-national Corporations(TNCs). Positively, WTO proposed that TNCs in leisure and tourism industry or other sectors may demonstrate new technologies, train workers and managers who may later be employed by local firms(). On the other hand, local firms may not be able to compete with the superior technological skills. Young et al.(1994 – cited in McDonald and Dearden, 1999, p.398) mentioned that the demonstration effect of Japanese management and labour practices on European firms is widely recognized across EU. Furthermore, some consider TNCs can provide more job opportunities to Europe(e.g. Inter-Continental Hotel Group and Hilton Group), which has a relatively high unemployment rate. Whereas if the incoming TNCs are investing for efficiency-seeking motives by acquisition, then direct job losses may occur through downsizing the labour forces(Cross, 1999). Undeniably, the level of investment is a factor helping to determine the success of a region. In spite of that, it is significant to monitor the merger and acquisition occurrences as well as the shares of foreign, regional, national and local investments, no matter it is in the tourism industry or other sectors, since any dominance of the above will be unhealthy to the economy.

Next, Common Transport Policy(CTP) is a further perquisite of the setting of a ‘united Europe’. CTP was founded in 1957, but was strongly reinforced when FSM introduced. Nicoll and Salmon(2001) suggested that expansion of trade and movement of persons call for the common development of large-scale communication facilities. As a result, the notion to improve transport is a cornerstone of FSM. For illustration, Trans-European Networks(TENs) is a plan for railway enhancement within Europe. Inevitably better accessibility for the travellers is an outcome of TENs, nevertheless who is willing to pay for the huge costs of infrastructure improvement? It was estimated that 250 billions Euros was needed if TENs was being implemented during the 1990s. Thus, EU regressed to call on privitisation, which was supported by the right wing German Presidency. So is privitisation being the only way to success? There are two extreme answers. Beyond doubt, privitisation can reduce government spending, which then decreases tax burdens of residents that further raise their disposable income to leisure. What's more, privitised operations are likely to be more effective due to profit-making attitudes. Nonetheless, France and Belgium determinedly against privitisation and citing the failure of private railway ownership in Britain, hence the plan made no headway(Nicoll & Salmon, 2001). Because of member states attach different degrees of importance to TENs, four sources of funds are available to the national development encompassing: The Union budget, the Structural Funds, the European Investment Fund and the European Invest Bank(Davidson, 1998). If it is necessary to measure the effectiveness of rail improvement within the member states, it was obvious that British Rail was less effective and efficient than French system in terms of delays, price, operations and so forth. However, there is an apparent enhancement in Britain, which can be illustrated by Virgin’s success. Thus, whether privitisation is the right choice for development is always controversial.

Moreover, the idea of liberalising aviation came up too. Comparing with the high cost European air journeys as against America internal flights, which is characterized by the international air travel policies, EU attempts to negotiate with International Air Transportation Association(IATA) as to open up EU routes with full cabotage. EU Open-Sky Treaty launched in 1997. The reason for taking so long to open up is due to the binding force of Air Services Agreement(ASA) and freedom of air identified in Chicago Convention(). The disappearance of ASA(i.e. deregulation) from IATA significantly influenced Europe’s aviation industry. Firstly, it inhibits merger and acquisition as well as encourages alliances that can improve carriers’ competitiveness and strengthen co-operations(Kinnock, 1996). For example, British Airways(BA) has swallowed Dan Air, taken stakes in Air Liberte, Delta Air and Qantas. BA also has its one-world alliance to improve its competitiveness in the market. Following the successful low cost carrier, Southwest Airline, experiences in America, the same happens to Europe. Cheap flights are now available and greatly welcomed within EU, so what do the above incidents imply?

It is competition. Definitely, state subsidised carriers, like BA with normal fares would be driven away if there is neither any protectionism nor subsidies from the state. Previously, the total revenue passenger kilometers(RPKs) within Europe were dominated by BA, Air France and Lufthansa, which accounting for 46% RPKs(Dearden, S.,1999b). Being forced by the competitive environment in the tourism industry with low cost carriers, such as easyJet, their revenues dropped dramatically. In result, national governments have to subsidise more through increasing tax in accordance to protectionism. Another victim during this global competition is the employees of the carriers. These workers face wage freezes, diminishing welfare, layoff and so forth, which lead to further industrial actions, collective bargaining and strikes with the airlines. In 2002, BA announced another 5800 layoffs(i.e. 13000 layoffs in total) that lead to strike threats(). By contrast, the EU citizens are far more joyful to the cheap flight offers, since their travel expenses decrease and more disposable income can be used during their trip. Also, these offers further motivate the citizens to travel more frequently and contribute more to the tourism industry. Moreover, advanced travel bookings through internet can save their time to visit the travel agencies too.

Technological changes lie at another core of liberalisation. In 1997, Organisation for Economic Co-operation and Development(OECD) found that by increasing the size of the market and trade, economic globalisation provides firms with greater incentives to innovate as well as realizing technological developments through economies of scale. Besides, Cooper et al.(1998) suggested that improvement in technology can boost up efficiency and productivity that deliver cost advantage as well as differentiation and positioning, which bring value advantage. Firstly, technology allows diagonal integration in terms of production, distribution and delivery of a combined tourist package by Global Distribution System(GDS) or the Internet at macro level. Truitt, Teye and Farris(1991) and Sheldon(1993) stated that GDS is the single most important facilitator of tourism globalisation. GDS is an inexpensive and accurate way of handling vast quantities of data and inventory, allowing airlines to have a wide distribution network and facilitating yield management. Well known GDSs include Galileo in Europe and Abacus in Asia. Nowadays, GDSs further enhance global safety and security. According to European Commission, Galileo is now used as a satellite navigation system to improve safety of travel(). Next the widespread of technology enable database marketing allows personalised treatment and launch of initiatives in business operations, such as frequent flyer schemes by airline. McIntosh et al.(1995) also noted that hotels create guest history databases, reward frequent guests and store information of guest preferences for future marketing and alliances. Obviously, the leisure and tourism sectors are benefiting from yield management to manipulate demand. In addition, Internet is also another backbone of globalizing tourism trend. For illustration, Internet plays a significant part in easyJet’s ongoing success. The airline now sells around 95% of its seats online every week and the remaining seats are sold through telephone reservations (). Direct sales reduce easyJet’s operational costs significantly, since no commission will be given to the travel agent. Furthermore, easyJet utilise the availability of internet and integrating all other travel related business into the website. Through conglomeration with hotel reservations, car hiring, insurance purchases and so forth, easyJet.com is rewarded as the web’s favourite airline with huge profits().

Beyond doubt, the practices of E-business allow travellers to access easily, with better price comparisons. Yet it has exerted certain pressures to the leisure and tourism companies too, in which retail travel agency is one of the serious injured parties. Potential travellers are increasingly searching out information on the Internet and making their own reservation online(Poon, 1993), travel agents suffered from loss of principals’ commission(e.g. airline and cruise), which forced them to focus more on tailor-made travel packages and niche destination marketing. On one hand, technology enhances company’s performances and effectiveness. By contrast, McIntosh et al.(1995) regarded technology as a job killer, since skilled and non-skilled staff may be replaced by innovative technologies. With the high unemployment rate in Europe, technology may further worsen the current situation. Tourism, renowned as a ‘people industry’, should focus on the human interactions and provide quality services as well as remarkable experiences to the customers instead of relying much on technological service encounters.

In brief, EU proposed approach to tourism is through Euro introduction, liberalisation of transport and tourism contribution of employment strategy with innovative technologies. To some extent, these common tourism policies may benefit the community in general. Nevertheless, regional co-operation is the prerequisite of any further community growth. Europe’s identity is differentiated by diverse languages, cultures and practices. With the example of British opted out, it is obvious that harmonization is not achieved yet since there is resistance among nations; they have become more cautious and sceptical. The way ahead should focus on promoting cooperation among member states in the tourism arena that will mobilise the available resources of the stakeholders and eliminate the incoherent or contradictory actions. Also, there should be a political recognition of the European tourism as one of the future activities, with an enormous capacity to provide new opportunities to satisfy vital political objectives, such as economic growth, well-being of populations, employment and regional development, with a consequent creation of a more favourable framework for the tourism sector interests. If all members can shift into the same directions with the ultimate aim to improve regional economic growth; national governments are able to accept the fact that their economic growth will slow down; Britain is not favouring the right wing America’s cultures and only sneaking benefits from EU; then the targets established in the 1957 Treaty of Rome can be accomplished very soon.

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Critically discuss how global economic trend may impact upon the future policies of the European Union. Identify ways in which this may affect leisure and tourism trends within Europe.

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