The EU’s plans for a ‘social sustainability’ taxonomy are a dangerous intervention
A few weeks ago, there were heated discussions in the European Union about the so-called “taxonomy,” which will give the EU Commission and European authorities the power to determine which investments are good (i.e. green and sustainable) and which are not. The classifications issued in Brussels would then steer investors’ money in the “right” direction. The main bone of contention was whether nuclear energy and natural gas should also be deemed “sustainable.” The French and the Eastern Europeans were in favour, the Germans against.
Now the EU Commission led by Ursula von der Leyen has proposed a new idea: this time, European politicians are focusing on “social sustainability.” Once again, companies are to be classified, but this time not according to environmental aspects, but according to a catalogue of “social” criteria.
Specifically, this means that if politicians and civil servants feel that a company is not paying its employees the “right” wages, they can classify the business as harmful to society. If, for example, EU politicians feel that members of the board of directors are earning too much compared to an average employee, this would be interpreted as another indication of social perniciousness. If politicians and officials believe that the rents a real estate company charges should be lower, there is a risk that the company will be classified as detrimental to society.
The EU wants to assess the overall benefit of a company for society, i.e. whether the company serves the “public interest” or not. In the case of some companies (e.g., cigarette manufacturers), the answer will be an automatic “no”; for other types of companies, the EU will create classification systems and the question of whether they serve the “public interest” or not will no longer be decided by the market, but in political committees. I think lobbyists will be delighted, because they now have a whole new area of business: convincing politicians why their company is “socially beneficial” after all.
Of course, none of this has anything at all in common with a market economy. It is typical of state-planned economic systems that politicians are the ones to decide how money should be distributed in an economy, what should and should not be produced – and in what quantity it should be produced. In a market economy, companies decide – and whether a company is “beneficial” or not is determined every day by consumers via their buying decisions. Therefore, there is nothing more democratic than capitalism.
Friedrich August von Hayek, winner of the Nobel Prize for Economics, has called the “presumption of knowledge” the central error of all socialists. State-planned economies have failed time and again because they were based on the belief that politicians and civil servants know what is good for people rather than companies and consumers.
The planned economy is celebrating its rebirth in Brussels. Politicians, not the despised market, will once again decide what is “socially beneficial” and what is “socially harmful.”
There have been at least 24 socialist experiments in the last 100 years – and all of them, without exception, have failed. But as more and more years pass since socialism failed, the ideas that guided these experiments are enjoying a renaissance. It is no longer called “socialism” but, for example, “fleet targets” (politicians in Brussels determine which cars should be produced) or now, social taxonomy.