Abstract
Europe has good reason to be proud of its achievements in the area of social policy, and indeed, Europeans are happy to hold up their social model as a reference point. In reality, though, there is no such thing as the European social model. The various national systems for social security are the products of historical change, and resemblances among them tend to be patchy. There is of course a common denominator: virtually all citizens of the European Union benefit from a safety net that protects them against undue hardship in the event of illness, age or unemployment, and shields them from abusive employment practice with collective wage agreements, social security law and labour law. This is what is generally understood to constitute the European social model (ESM). These accomplishments deserve to be protected. However, that does not mean that we can dispense with the need for change. The ESM was developed in recent decades by each country following its own approach to providing its citizens with social security, which took different forms. Until now, economic growth, while uneven, has been sustained sufficiently to finance the rising costs. When growth alone has proved inadequate, countries have run up debts to pay for social security, ultimately as an expression of their confidence in economic growth and the associated increase in purchasing power of future generations. Can this system, cobbled together over decades, continue to work in the future?
Keywords
Fraternity, solidarity, social justice
The pithy formula ‘freedom, equality, brotherhood’ invoked by the revolutionaries of France during the storming of the Bastille remains a part of the universal canon to the present day. Admittedly, ‘brotherhood’, with its chauvinistic undertone, has become dated, its place taken by the gender-neutral ‘solidarity’, although in the process the connotations of generosity and loving one's neighbour have been lost. The contemporary notion of ‘solidarity’, sometimes appearing as the more provocative ‘social justice’, invariably carries with it implications of state-directed redistribution of wealth.
The 2000 Charter of Fundamental Rights of the European Union brings the three ideals from 1789 up to date:
The result of the Charter is a catalogue of basic rights which, in addition to the classic civil and political rights and the rights of EU citizens, includes social and economic rights; that is an essential demand of the European social and political model, which considers that as they are constituted from the right to liberty and equality, they are an integral part of the dignity of the human being in a democratic society and are not to be separated from civil and political rights. [14], 37).
What should have been a mere formality–-after all, over 200 years have passed–-became the subject of heated debate, described by íñigo Méndez de Vigo, one of the European Parliament representatives involved in the drafting of the Charter. The chapter dealing with social and economic rights naturally presented the biggest number of problems and the most serious ones, because there were differences of opinion about whether they should be included in the Charter and what scope they should have, given that some of those rights have a clearly programmatic character and do not lend themselves to being enforced by law directly. There were also problems due to differences in the models of employment and in the policies that the Member States of the Union follow for economic and social matters.
There were fears that the ‘constitutionalisation’ of these rights at the EU level in a document that was intended to have legal force of law could undermine the policies aimed at making the European economies more flexible in order to make them more competitive in a globalised world market. As already mentioned, an equally strong fear was that the Charter would create new financial obligations that the European Union and its Member States could hardly bear if a patently unrealistic increase in public spending were to become necessary or the stability goals associated with the common currency were to be questioned. [14], 39).
Still, if one looks only at the wording, solidarity has fared rather well in the Charter. A single sentence ‘recognises’ entrepreneurial freedom, 1 which after all is the basis of a market economy, whereas the niceties of solidarity among workers, including the right to collective bargaining and strike action, are spelled out at length. 2
Article 16, Freedom to conduct a business: ‘The freedom to conduct a business in accordance with Community law and national laws and practices is recognised’ (Charter 2000, p 12).
Article 28, Right of collective bargaining and action: ‘Workers and employers, or their respective organisations, have, in accordance with Community law and national laws and practices, the right to negotiate and conclude collective agreements at the appropriate levels and, in cases of conflicts of interest, to take collective action to defend their interests, including strike action’ (Charter 2000, p 15).
The European social model has thus become a favourite rallying cry against the resurgence of free market rigour, even though the present crisis has caused it to recede into the background somewhat.
Rallying cry
Jacques Delors, President of the European Commission from 1985 to 1995, is said to have coined the notion of the ESM in the mid-1990s to emphasise a possible long-term foundation on which the citizens of the EU could build a European identity [1], 204). The model represents an attempt to balance the image of the EU as the supreme authority in matters of competition and regulation by highlighting something that brings it closer to the citizen. The internal market, the ‘frame’ of the European house, is in place; it has withstood the upheavals occasioned by the introduction of the euro and the expansion of the EU, and appears to have weathered the crisis for now. The residents now want the social conveniences to go with the house frame: the European Parliament has recognised that in order to ‘[restore] citizens’ confidence in the EU project,’ the EU must ‘renew [its] commitment to a social Europe [sic] … which provides jobs, growth and prosperity’[9].
However, in the report that is behind its change of emphasis in favour of social policy, the European Parliament avoids specifics. The authors content themselves with emphasising loftily that ‘the European social model reflects a common set of values, based on the preservation of peace, social justice, equality, solidarity, the promotion of freedom and democracy, and respect for human rights’ [9].
A uniform, universal European social model can of course only come into existence if allowed by subsidiarity, or citizens’ self-determination, which is part of the EU bedrock. As the pro-market EU parliamentarian Alexander Lambsdorff writes,
There is a troubling tendency, especially in the Commission, to tolerate a creeping shift of competency in social policy from the national to the European level, with activist initiatives like the ‘Globalisation Fund’. The responsibility for social policy has to reside as near to the ordinary citizen as possible, in accordance with the principle of subsidiarity, which is enshrined in the Lisbon Treaty, after all. Allowing a shift to the European level would work against the weak and disadvantaged in our societies. Such a concept of interpersonal solidarity requires the kind of grassroots proximity that European-level policy, by definition, can never have. The best we can hope for at the European level is solidarity between the Member States, giving them a framework within which they can construct their own policy on social security. [12], 139).
Another objection, and one that may prove even more decisive, is that there may simply not be enough money for a European social model. Indeed, it is not so much a question of the funds needed, but rather how they are to be distributed. The fact is that social security accounts for the lion's share of the national budget in every country. 3 Then there are political considerations, as Alain Lamassoure has argued: if the Council wanted to set up a common policy to fight unemployment, with major funding, there would be a reaction. The parliaments in those countries which are governed by pro-market governments and oppose such intervention; those from the rich countries, which have the largest net contributions to pay; and those which do not suffer from unemployment, and so do not see the need for such an action–-will all be tempted to nip the initiative in the bud. And all of them will invoke subsidiarity! [13], p 60).
According to Eurostat the average in 2004, for example, was around 27, or 33% in Sweden. See http://www.sozialpolitik-aktuell.de/datensammlung/2/ab/abbII5.pdf.
Clear–-when seen from a distance
A single European social model is therefore a sort of rhetorical mirage. It was in any event never a very specific idea. Everyone has some idea about what might be meant when talking about the European social model, by contrast to the practices in the United States and in Asia, decried as a ‘hire-and-fire’ mentality. The Belgian economics professor Andre Sapir argues that the European social model is clear when seen from a distance: Europeans are quite reliably protected against the worst social risks. How that is achieved in each particular case, what fraction of GNP is used and to what extent these measures represent intervention in the labour market–-all of that varies from country to country [15].
In 2003, on behalf of the UK Presidency of the Council, Sapir studied and catalogued the different European social models and measured efficiency and welfare benefits [16]. (One of his conclusions is that the Anglo-Saxon model performs worse than the Scandinavian one, which may be one reason why the UK Presidency of the Council changed the theme of the autumn conference of European social policy stakeholders, planned for October 2005 in Hampton Court, from ‘sustainability of Europe's social model’ to ‘dealing with the consequences of globalisation’ [6].) Sapir is not alone; an entire school of researchers is searching for the European social model (including Tito [1], p 8) and the ‘Network Social Europe’ around Detlev Albers and Stephen Haseler 4 ).
This group presented some (admittedly vague) suggestions at a conference of the Christian Democrat fraction in the European Parliament on 14 February 2008, in Brussels.
All EU countries have in common a model for social security (illness, age, unemployment) based on contributions, collective bargaining and legislation on social and labour market policy [15]. Beyond this common base, the European social systems can be distinguished into four types, according to Sapir 5 :
Main sources used: Bartz 2004, Rolff 2006, [6].
The Continental model (France, Germany, Luxembourg): high intervention, high social standards. Also known as the corporatist model, it is characterised by welfare provided by public social security systems, limited market influence on social protection, relatively high unemployment benefits and pensions, strong labour unions, tough anti-firing legislation, and social security contributions that make up some 30% of national income (France and Germany), in addition to fiscal contributions to the social security system. State intervention in transportation, health care, the residential housing market, local government and the labour market. Taxation rates approximately 10% higher than in the Anglo-Saxon model, growth rates significantly lower, unemployment twice as high.
The Mediterranean model (Italy, Spain, Greece): emphasis on old-age security. Characterised by high pensions, strong employee protection, low unemployment benefits.
The Anglo-Saxon model (Ireland, Great Britain, Portugal): pro-market, minimalistic. There is limited state coordination of social benefits, and most risks are covered via the market. The major portion of the budget goes to unemployment insurance and assistance in finding employment, along with low-wage subsidies. Low unemployment, weak labour unions, low taxes, social security spending a small portion of GNP, strong growth.
The Nordic model (Denmark, Finland, Sweden, the Netherlands, Austria): the overall winner in all comparisons. The Danish version, known as ‘flexicurity’, is the darling in reform debates throughout Europe, with an economic policy that is favourable to the free market despite strong unions, combined with a highly efficient system of social security and low unemployment (strong state support for continuing education, vocational retraining and assistance in finding employment), high growth. In comparative terms the highest taxation rates of all, which are broadly accepted thanks to the relatively strong solidarity typical of the sparsely populated Scandinavian countries. The applicability of this model to more populous countries is a matter of conjecture.
For education, against barriers to firing
Sapir and Boeri have examined the success and risk factors of the European social systems and have concluded that redistribution via taxes and transfer payments [2], lying at around 42% (Scandinavia), 39% (Continental and Anglo-Saxon) and 35% (Mediterranean), are not all that different, whereas poverty rates vary considerably. In Scandinavia the proportion of people whose take-home pay is less than 60% of the mean income of their fellow citizens is around 12%. Continental Europe is almost as successful at levelling, while in the British Isles and in the Mediterranean some 20% of the citizens fall through the safety net.
The Western world has two remedies against the risk of unemployment: protection against firing, and financial assistance for the unemployed. The studies by Boeri and Sapir show clearly that tough anti-firing provisions are a much greater hindrance for job creation and mobility than even quite comfortable transfer payments. This becomes clear if one compares the magnitude of anti-firing measures, the level of unemployment benefits and the employment figures (cited by [1], p 204). At 72% employment, the British and Scandinavians, who generously support the unemployed while providing only moderate protection against firing, perform much better than the Continental Europeans at 63% and the Mediterranean Europeans at 62%; the latter provide scant support in the event of loss of employment, but have strict protection against firing. Also in the north, unemployment among young people and those over 55 is significantly lower.
The Sapir report also shows the enormous importance that education has in the fight against poverty, compared to the relatively ineffective attempts at corrective redistribution of income: countries with a higher education level (in Scandinavia, some 75% of the population has completed some form of higher education) have less poverty.
The overall conclusion of the Sapir study is that Scandinavia is a clear leader in terms of efficiency (resources versus results) and social justice (containing the risk of poverty, as defined with respect to mean income level); this has been achieved through high taxes and transfer payments, low barriers to firing, generous unemployment benefits, negligible trade barriers and a high level of education.
What to do with the findings? Flexicurity and the open method of coordination
The study results are clear enough, so where is the concrete proposal for the single European social model? Europe views itself as a democracy of democracies which learn from each other; as an amalgamation of states possessing outstanding characteristics and building on historical achievements; and as a federation with social responsibilities–-and a social market economy. Given the difficulties in agreeing on a common definition for the European social model, the EU deliberately leaves a variety of ways open. The European Council recommends the open method of coordination (OMC), under which every country seeks its own customised solutions, seeking to benefit from the experiences of the others.
The term ‘flexicurity’ is frequently invoked in this context. The security of the European model of living, combined with the flexibility needed for a global distribution of labour: that is the dream of social policy experts who think in terms of economics, and economic policy experts who care about social policy. The following are the essential elements:
conditions pertaining to the employment contract
security in the event of loss of employment or desire to re-enter the workplace
income replacement during periods of unemployment
coverage against illness, workplace accidents, old age and so on
active labour market policy, vocational and continuing education
salary negotiation systems [1]
The Sapir report itself says, in the introduction: ‘What is needed now is more opportunity for new job market entrants, greater mobility of employees within and across firms, more retraining, greater reliance on market financing, and higher investment in both R&D and higher education. This requires a massive and urgent change in economic policies in Europe’ [16], p 4).
Sapir and his co-authors list six subjects on which the EU will have to do its homework:
Making the Single Market more dynamic;
Boosting investment in knowledge;
Improving the macroeconomic policy framework for the European Monetary Union;
Redesigning policies for convergence and restructuring;
Achieving effectiveness in decision-taking and regulation; and
Refocusing the EU budget. [16], 11)
That sounds very different from the traditional formula whereby a paternalistic state provides protection against the effects of old age, illness and unemployment. The individual is expected to make an active contribution. However, the agreement of the EU members on the principle has not led to many concrete results. Rather, the consensus about the need for reforms to adapt the European model to changed global conditions has shifted to the left, towards the conservation of social legacy measures. Thus, a declaration from the Council's committee for social, health and consumer affairs dated 5/6 December 2007 states the following:
Eight common principles for the flexicurity model
Flexicurity is a way of reinforcing the implementation of the Growth and Jobs Strategy and strengthening the European social model.
Flexicurity implies a balance between rights and responsibilities, in the form of a combination of flexible and reliable contractual arrangements, comprehensive lifelong learning strategies, effective active labour market policies and modern, appropriate and sustainable social security systems that must be found.
Flexicurity should be adapted to the specific circumstances, needs and challenges of the Member States.
It is necessary to reduce the division between workers in non-traditional, frequently precarious employment and those with long-term full-time positions (includes those seeking employment).
Internal flexicurity and external flexicurity are equally important and should be promoted. There should be a balance between flexible forms of employment and security.
Flexicurity should support gender equality and promote equal opportunities for all.
Flexicurity requires a climate of trust between social partners, public authorities and other players.
A fair distribution of the costs and benefits of flexicurity measures must be assured, along with a contribution to a well-founded, affordable budget policy. 6
See the Bundesministerium fuür Arbeit, Soziales und Konsumentenschutz (Federal Ministry of Labour, Social Affairs and Consumer Protection) website under ‘Flexicurity’ at http://www.bmsk.gv.at/ (last accessed July 2008).
In contrast, the 27 June 2007 Communication from Vladimír Špidla, Commissioner for Employment, Social Affairs and Equal Opportunities, entitled ‘Towards Common Principles of Flexicurity: More and Better Jobs through Flexibility and Security’ formulates the concept quite simply as follows: ‘Rather than job security, flexicurity focuses on “employment security”. Employment security means staying in employment, within the same enterprise or into [sic] a new enterprise. The philosophy behind flexicurity is that workers are more prepared to make such moves if there is a good safety net’ [4].
Seen in that light, the ‘Hartz IV’ labour market reforms in Germany represent a step back from the flexicurity model, because they aggravate insecurity, reduce the level of benefits and increase the risk of poverty in old age (by requiring that savings and providential schemes be depleted) without touching what the Sapir report identified as the gravest hindrance for employment: firing barriers [7]. It was therefore an encouraging signal that the ministers for social affairs sent at an informal meeting in July 2008 when they recognised that the priority, even before old-age security, mobility within the EU and lifelong learning, has to be given to combating exclusion from the labour market. 7
Still, the public impression is that the European Union, battered by Ireland's ‘No’ to the Treaty of Lisbon, has retreated from the concept of a common European social model. However, the appeal to the Member States remains to conduct trials on their own approaches to flexicurity at the national level, under the open method of coordination. Austria has made the attempt and boasts some successes in mobilising the workforce. Germany continues to tinker with methods of financing the status quo, while France, in attempting at least to reduce the barriers against firing the most junior employees, and thereby pave the path for them to find gainful employment, has suffered a stinging PR defeat. The notion of coordinated efforts to set the European house on sound foundations and at the same time prepare the residents for global competition appears to be off the public agenda. Flexicurity remains entirely compatible with the demands of globalisation. The need to adapt the national social models has become urgent. If the internal market is to continue to prosper and the workforce is to remain mobile within Europe, then that alone is reason enough to define the necessary framework at the European level wherever possible.
Social security in a time of crisis
Sitting out is not an option. Otto Graf Lambsdorff of the German Free Democratic Party has hammered the point home: you can't blame the crisis for everything. ‘Chancellor Merkel recently claimed that we need to rethink our social market economy if we want the country to move forward, because the markets ruined it. She is wrong. Markets don't ruin anything, it's people who are responsible, and often enough, it's politicians. A market is neither good nor bad. Or, as Gertrude Stein might have said: a market is a market is a market. It's the policy that governs the market that is good or bad’ [12].
Until now, the social safety net was supported by constant economic growth and a growing debt burden, in other words, advances on the work of later generations. It shouldn't take a financial crisis to ring the alarm bells when one hears some of the numbers being circulated, as when the political scientist Ludger Kühnhardt observes: ‘The population of Europe will get older and smaller … The age group of Germans born between 1995 and 1999 is 47% smaller than the group of those born between 1970 and 1974. By 2020 the number of people aged 20-25 years in the EU will have shrunk by 20% overall. Experts predict recessions caused by ageing’ [10].
If the following generations continue to shrink, if there are limits to the amount of debt that we can accumulate, then we will have to act urgently: our social system must be adapted if it is to survive. We require a new focus in the debates that seeks to preserve the legacy but avoid new debts. We have to redefine ‘social justice’ and treat our children and grandchildren in a fair way. This process has to encompass all groups in society. The corollary, though, is that no group can withdraw from the process.
The simplest solution is to bet on continued growth. A distinguished commission headed by Nobel laureate Michael Spence has conducted a study on the conditions for continued growth. 8 They showed that economics itself does not have a proven definition that could be used to say what instruments and what conditions are needed to ensure consistent growth. The Growth Report does not provide a magic solution, and it's not for want of political will: ‘If there were just one valid growth doctrine, we are confident we would have found it’ [5].
For a list of the 22 Commission on Growth and Development members, with portraits and a description of their functions, see http://www.growthcommission.org/index.php?option=com_content&task=view&id=19&Itemid=59.
So there is no patent solution. However, Spence and his fellow researchers name a whole series of conditions that are necessary if growth is to have a chance. In addition, the objectives have to be prioritised, because, as was pointed out, you can't have everything all at once. Still, in a common market you need, in the medium term, some common goals, basic principles and basic conditions to act as guidelines for the future. With a jointly coordinated economic policy, the pillars of solidarity can be consolidated. Old age security, health care, unemployment benefits, freedom of collective bargaining and a stable rule of law have to be anchored within each individual state, even though the emphasis will vary from country to country in accordance with their respective traditions.
The solidity of the traditional national social policies that are known as the European social model is in danger. In the past, insurance against the effects of old age, illness and unemployment was financed by growth and debt. A new European social model has to work under different conditions: lower growth, no debt and a demographic shift that rules out the option of counting on the young feeding the old (‘pay as you go’). Citizens will have to take an active part in ensuring their own coverage. That may be bad news for social politicians who have made it their business to dole out debt-financed welfare and for politicians who look only to economic governance for growth-based salvation.
The new model will require that the social budgets, despite national sovereignty, start to converge in their structure over time. According to The Growth Report, progress will be conditional on:
property law, free prices, the principle of freedom of contract, necessary for foreign direct investment
market allocation of resources
pragmatism
an economic policy intended to ‘stabilise, privatise, liberalise’
high priority for training and education
an inheritance-friendly law
On the other hand, The Growth Report cautions that the following goals have to be prioritised, as they cannot all be realised equally:
new job creation
high investment rate
competition
social protection
lifelong learning
balanced distribution
This is bad news for politicians who look exclusively to social policy or to economic governance. But the basic truth remains: whatever system one may prefer for allocating fiscal revenues or re-distributing the national product, that money has to come from somewhere.
Conclusion: we need a European social model that will be fair to all generations
The European social systems have many things in common, but each of them is supported by its country. Similar concepts and approaches can be seen, albeit in different forms. So while there is no single European social model, there are many different models with similar natures. One might say they all have a common piece of DNA called ‘solidarity with old age, illness and unemployment’.
None of the individual national models is ready to face the future; all of them place an unfair burden on future generations. That is because their funding model is based on continued economic growth and new debt. It would be a major challenge to fashion these national components into a European social model worthy of the name. However good and effective the individual systems may be, the sum of the parts will not give a European whole.
To do that, we need a completely new definition of ‘social model’ that covers all the main points–-old age, illness, unemployment, freedom of collective bargaining and a stable rule of law–-but remains affordable. How can a European social model be made affordable without mortgaging our children's future, without assuming endless economic growth, and taking into account the negative effects of a shrinking population?
However, if the thinking about the internal market is taken to its logical conclusion, a consensus on social policy will be essential, one that makes mobility possible and thus contributes to a European social market economy.
In the light of demographic developments alone, continuing past practice would amount to negligence. Realists have long been warning about the collapse of social systems. With a financial crisis in which debt is no longer a risk only for future taxpayers, but also threatens to asphyxiate our budgets today, we clearly need to rethink the concept of social justice. The new concept has to be fair towards our children and grandchildren, and that means foregoing new debt in an attempt to reach a balance. We have to abandon the model of distribution with debt and high growth rates, and move towards a European social model that allows all citizens to stand on their own two feet and leaves no one behind.
Naturally, we have grown comfortable with the old model. The changed parameters we are facing are not our invention, but they are undeniable and they lead in a direction that will be unpopular. The realisation that a change of direction is inevitable has not penetrated everywhere. The political leadership will have to win acceptance for something that no one wants (for the time being, anyway), with the exception of the young generation. The new social policy has to pursue a reorientation that is not popular. That will be the test for the development of a new European social model that will be worthy of the name in the future.