Social Cohesion and the European Social Model
Kees Vos, Paul de Beer and Erik de Gier*
The notion of a European social model emerged in the early 1990s, mainly generated by a comparison of the European and American welfare states. Now we wonder whether we can still speak of a model of this kind. Or do we need to take the increasing diversity in national systems into consideration? In this article we argue that a convergence towards a European social model has occurred. As a result though of the need to modernise social Europe, the trend towards greater diversity seems only appropriate. It could rein force the development of a multi-speed European Union.
Keywords: social cohesion, social model, enlargement, convergence, divergence
Introduction
The articles in this special issue of the Tijd schrift v oor A rbeidsvraagstu kken (Journal of Labour Studies) address many of the chal lenges the European Union is now facing. The key questions raised here pertain to the sus tainability of the welfare state, the future of in dustrial relations, and the level of labour parti cipation and labour mobility in a knowledge society. How to achieve the objectives of the Lisbon agenda? How to pursue sustainable economic and employment growth while maintaining high levels of social cohesion and social protection ? What kind of European gov ernance is most appropriate? Does the need for social cohesion necessitate the construction of one European social model?
Since the Lisbon summit, some of us have taken the European social model for granted. In March 2002, the Barcelona European Coun cil formally defined the European social model as based upon good economic performance, a high level of social protection and education and social dialogue (High Level Group 2004). Others vigorously deny the existence of a Eu ropean social model and maintain that that
there is only the sum of perhaps widely diver gent national social security arrangements. Unlike the economic cooperation embodied in an organisation like the EMU, the Member States resist the emergence of a European so cial entity and refer instead to the principle of subsidiarity. Which position is more realistic? Do we have to live with a patchwork of holy cows? Or are we inevitably marching towards a real European social model ? And if so, what is it going to look like?
The EU vs. the US: the welfare state
revisited
At the start of the 1990s, welfare state sustain ability was under heavy pressure in the US and Europe alike. In both cases, growing public ex penditures forced the state to find a new bal ance between public and private responsibil ities. In the US the conservative revolution re duced the role of the federal government, espe cially via budget cuts on social expenditures. In Europe obligations to meet the EMU criteria necessitated social expenditure reductions. In either case, it led to system reforms based in
* Dr. C.J. Vos and Prof. P.T. de Beer are members of the editorial board of this journal, and Prof. H.G. de Gier is guest editor for this special issue.
many ways on similar diagnoses and compar able therapies. In Europe as well as the US, ana lysts noted the down sides of the social protec tion system such as poverty or social security traps that could only be remedied by more flex ible labour markets, more activating social se curity schemes, and more tailor-made ap proaches by decentralising social policy imple mentation.
It was in this same period that the European social model was mentioned for the first time. In the 1990s Europe was witnessing wide spread unemployment and the US strong job growth. Social scientists explained the situa tion by focusing on the fundamental differ ences between the social security arrange ments in Europe and the US. The main differ ence was not the level of social protection ex penditure as such but the balance between public and private responsibilities: the accep tance of social inequality in the US versus soli darity in Europe, where maintaining or pro moting social cohesion was considered a pub lic or government responsibility. This implied the notion of a European social model, since the various national systems in Europe ap peared to be based on common values of social solidarity and public responsibility to protect the weak. The notion of social policy as a pro ductive factor was born of this unity in diver sity, which means that an activating welfare state can enhance economic prosperity (e.g. Larsson, 1996).
Social cohesion
Fostering social cohesion and solidarity has been a European ambition ever since the Treaty of Rome, and not only among the Member States (Article 2), but in later years among the regions as well (Article 130A). More recently the European Council of Lisbon has formu lated the European ambition 'to become the most competitive and dynamic knowledge- based economy, capable of sustained economic growth with more and better jobs and greater social cohesion'. The social agenda of Nice has implemented this ambition by underlining the need to modernise and improve the European social model. The agenda not only includes strengthening the role of social policy as a competitive factor, it includes preventing pov
erty and exclusion and promoting the integra tion and participation of all the citizens in eco nomic and social life. Reducing social inequal ity and poverty, raising employment rates and reducing unemployment rates are considered crucial. Key objectives include the integration of people excluded from the labour market and more and better job opportunities for vulner able groups, for example via measures to cor rect regional imbalances in Europe and in the Member States. As is noted by the Commis sion (2000), 'Unemployment is the single most important reason for poverty. Nearly two out of three of those unemployed are at the risk of poverty. This is why a job is the best safeguard against social exclusion. However, employ ment alone does not solve all problems. [...] It is important to focus attention on those at the margins of the labour market, by investing in people to increase their employability and by reducing barriers for labour market entry. Con fronting these challenges requires multi-fa ceted policies that go beyond labour market is sues and aim to increase social inclusion and participation.'
Hence, public responsibility for social cohe sion inside as well as among EU Member States is a common challenge and a fundamen tal value of the European social model.
Unity in diversity
Policy changes in Europe in the sense of great er flexibilisation and decentralisation coincide with similar changes in the US. At the same time a somewhat different movement is emer ging at the EU level in the efforts towards great er social policy coordination. Structural funds have been set up to improve the situation in declining regions. As to quality of work, har monising directives have resulted in a com mon level of protection. By taking measures to improve equal treatment, national approaches to social inequality have been harmonised. Na tional policies have also converged in other areas. The economic growth in the 1990s en abled several Member States to raise their so cial security expenditures and led to a reduc tion in the social protection expenditure var iance (see Goudswaard and Van Riel in this is sue). Income levels have also converged in the Member States. Since they joined the EU, the
GDP per capita in Portugal and Spain rose to 70% and 80% respectively of the European average, and the income level in Ireland rose from 60 to 120%. Only in Greece, with a pro longed period of recession, has the level not ri sen since the time of entry and is it still only 70% of the EU average |Morley 2003). The EMU stimulated the convergence of wage in creases inside as well as outside the euro zone. Purchasing power increases still varied from 2.5 to 7.1% in the 1960s, but fell to between 0.2 and 2.1% a year in the 1990s (EIRO 2000). In addition, the Member States are implementing EU coordinated programmes to boost employ ment, increase labour participation and pro mote pension system sustainability. Moreover, many EU efforts were and still are being made to strengthen social dialogue at the central Eu ropean and sectoral levels.
These developments are the result of two si multaneous policy processes: one of closed co ordination focused on common policy meas ures and one of open co-ordination focused on common policy goals. Conditions on the open market are a good example of closed co-ordina tion. They have to do with directives on peo ple's free movement and free competition as well as obligations linked to binding agree ments, e.g. on the equal treatment of men and women and the EMU. In this field we can speak of spill-over effects of European policy. The second process has to do with the com monly accepted values stipulated in the Eu ropean Convention for the Protection of Hu man Rights and Fundamental Freedoms. The processes both force the Member States to adapt their own systems, thus stimulating con vergence. This in turn gradually results in a European social model based on common val ues and implemented by similar forms of gov ernance. The result can be described in terms of a 'multi-level system of regulated autonomy' or a 'multi-tiered EU social and employment community' (Chouraqui and Kelly 2001, Es- ping-Andersen et al. 2001).
Diversity in unity
Almost simultaneously with the start of the debate on a European social model, Esping-An- dersen contributed to the discussion on social system diversity with The Three Worlds o f Wel
fare C apitalism , which was published in 1990. In his book he draws a distinction that has since become classical between three types of welfare states: the Scandinavian or social dem ocrat model, the Continental or corporatist model and the Anglo-Saxon or liberal one. The three types are characterised by the extent to which they combine essential socio-economic objectives such as a high labour participation rate, a large degree of social equality and a moderate level of public expenditure (Esping- Andersen 1990). However, there is an 'incom patibility triangle' here, since it is almost im possible to achieve all three objectives of social equality, high labour participation, and budget moderation simultaneously (Iversen and Wren 1998). The liberal states fail to achieve a low poverty rate, the social democrat welfare states have a heavy tax burden and the corporatist ones have low employment rates. This incom patibility poses a challenge to the European social model, since it means European coun tries have to choose between sacrificing social equality, high labour participation or budget moderation.
Esping-Andersen's classification stresses the historical diversity of the European sys tems, which might even be increased by decen tralisation and flexibilisation processes and EU enlargement (Biagi 2001). From this angle, it is illusory to speak of one European model. Nor would it be advisable, since it would only stand in the way of adequate reactions to in creased international competition on a liberal ised European market. To respond flexibly to the consequences of regional or sectoral eco nomic shocks, diversity in working conditions and protection arrangements is called for (Den Butter and Hazeu 2002). A European model in the sense of harmonised systems or common minimum standards is unnecessary, since there are sufficient policy options for the sepa rate Member States to safeguard social cohe sion via their own systems (Begg et al. 1993).
Arguably, this point of view bears a similar ity to the idea of a multi-speed Europe to be constructed and institutionalised along the ty pology mentioned above. Perhaps a fourth type of welfare state should be added, since it is likely that the new Member States will grant priority to economic growth over social pro gress.
Common challenges
Despite their diversity, all the Member States are facing comparable challenges. They all face problems like emerging social polarisation due to the transformation of the world of work combined with issues of social protection sus tainability, traditional family structure frag mentation and the pressures of demographic changes. The emergence of what Robert Reich calls 'electronic capitalism' is changing the na ture of the economy. The traditional notion of the company as a community of capital and la bour is no longer as valid as it once was. Grow ing numbers of corporations focus on increas ing their shareholders' returns. Workers are fac ing the demands of a new economy, and the nature of their work is changing. In the new world of work, highly trained and flexible workers are needed who can constantly acquire new knowledge and skills. But in the new as well as the old Member States, numerous work ers are still trapped in the old economy in tra ditional but shrinking mass production indus tries with skills and training that are very rap idly becoming obsolete. The result is a widen ing gap in the working population. As Robert Reich (1996) notes, 'This is a problem for all of us, not just the bottom half of the workforce. Almost three quarters of our national output comes from people; only one quarter from ma chinery. The quality of our labor force is the engine of economic growth.'
As Naumanen demonstrates in his article, not only does the knowledge economy have different implications for various groups in the labour market, there are sizeable differences between countries. Depending on whether the focus is on how people gather information via education and R&D, how they use knowledge in the production process or how they reshape entrepreneurship and the business environ ment, various countries are leading the way or lagging behind in Europe. The differences will also influence the economic and social perfor mance of EU countries in the decade to come.
Labour market marginalisation processes have a wider impact simply because vulnerable workers are also vulnerable citizens and usual ly represent vulnerable families. There might be a threat of polarisation in society due to growing social inequality. According to OECD calculations (2 0 0 2), inequality and poverty
have increased substantially in recent decades in most EU Member States. As is noted in a re port presented during the Belgian EU presi dency, 'It will be far more difficult to construct a competitive, highly productive economy and a sustainable welfare state if, say, a third or a fourth of the population is condemned to mar- ginality' (Esping-Andersen et al. 2001).
A completely new set of challenges pertains to combining paid work and domestic respon sibilities such as child care and a more even distribution of working hours and income over the life course, thus improving the work-life balance (Breedveld and Groot in this issue). This challenge can be tackled by introducing life-course policies supplementing or perhaps even partly replacing the existing social secur ity arrangements. Ultimately, this may result in a fundamental reform of social security if, as Breedveld and Groot suggest, the life-course arrangements are primarily based on indivi dual savings instead of the now dominant pay- as-you-go financing. Alternatively, both kinds of financing can be combined in a three-pillar or three-tier scheme, with the first tier consist ing of a flat rate benefit financed on a pay-as- you-go basis, supplemented by a second-tier benefit financed from collective saving schemes and topped-up by the third tier of in dividual savings.
In the light of these common challenges, it is not surprising that EU Member States for mulate similar social policy objectives and adopt comparable solutions and practices. In many respects, the way forward will simply have to be shaped by European cooperation, which almost automatically leads to the ques tion of whether the challenges cannot be met as well or perhaps even better at a transna tional level. This question will become even more urgent once the consequences of the en largement have been taken into account. Un der the present economic and employment conditions, the old as well as the new Member States have no choice but to comply with the EMU criteria, which enhance the need for bud get control and make the sustainability of ade quate social protection even more problematic. Increasing labour participation is considered the main policy option for solving these prob lems. In times of stagnating economic growth, activating social security and greater labour market flexibility will be the instruments to
achieve this aim. Via the method of open coor dination, common guidelines and objectives have already been adopted in this and related areas of social policy.
In short, all the Member States focus their social and economic policy on the two aims, budget control and increasing labour participa tion. With the exception of Denmark, Finland and Sweden, this appears to coincide with in creasing income inequality and growing pov erty rates. One might speak in this respect of a convergence of social systems, be it that the joint optimalisation of the two objectives is hardly compatible with the fundamental value of social cohesion. This question of incompat ibility could be even more urgent once the EU enlargement is taken into account.
Enlargement
Though the previous enlargements did not oc cur such a long time ago, the EU has recently witnessed quite a substantial new one. Need less to say, in the previous waves of enlarge ment the acceding countries adapted quickly to the European process of convergence. The newest Member States did impressively well in their pre-accession stage. However, there are still several important differences. Without giv ing a complete picture, we would like to men tion a few indicators that could be relevant to the degree of social cohesion in the near fu ture.
Firstly, the new Member States have achieved a steady albeit not always homoge neous pattern of economic growth in the past decade. Despite marked differences among them, their various growth rates exceeded the European average, especially in the second half of the 1990s. Trade with EU Member States also increased significantly in the 1990s. More than half and in some case two-thirds of the foreign trade of almost all the new Member States is now with the EU. Foreign direct in vestment (FDI) accounts for a high percentage of GDP, in some cases comparable to the ex tremely high FDI figures of Ireland and The Netherlands (Kohl and Platzer 2003). From an economic perspective, this might indicate that the new Member States are already fully inte grated into the EU. But despite their striking economic transformation, there are still sub
stantial income disparities compared to the old EU Member States. In this respect Slovenia is a front-runner with a GDP per capita of 72% of the EU average in 2000, followed by the Czech Republic with 60% and Hungary with 53%. But in general, the income gap hardly seems to have decreased in recent years. More over, economic growth has not resulted in sub stantially lower unemployment levels. In many countries they still exceed the EU aver age, again with the exception of Slovenia and Hungary, with a 5.7% unemployment rate, and the Czech Republic with 8% in 2001 (Vos, 2004).
As to the quality of work, in this issue Smulders shows that the dividing line in Eu rope does not run as much between the old and the new Member States as between the northern and western countries on the one hand and the southern and eastern ones on the other. Although the variety within the EU certainly increases with the accession of the new Member States, this does not mean the new states constitute a homogeneous block. There do seem to be more systematic differ ences as regards the law and the practice of in dustrial relations between the new and the old Member States, as Weiss notes. It is not clear yet whether the less developed industrial rela tions in the new states will put pressure on the relations in the old ones or whether the new states will soon imitate the patterns of the old ones. It is nonetheless unlikely that the new Member States will play a substantial role in the further development of the social dialogue at the European level for quite some time. In short, taking the structural differences be tween the new Member States and the EU-15 into account, the question of social cohesion in Europe looms even larger.
Challenged cohesion
Will common challenges ultimately result in common policies? Or should we continue to work on the assumption that a joint approach is only justified if the Member States cannot achieve their urgent goals independently? The Belgian report mentioned above describes the dilemma as follows. 'Does an effective policy for social inclusion call for common European objectives? Would we all be better placed by a
strategy of coordination at EU level? Or, why not simply continue to delegate such to the dis cretion of national policies?' (Esping-Andersen etal. 2 0 0 1).
There does not appear to be much to be learned from the experience of federal states like the US, Canada or Australia in this re spect, as the article by Versantvoort, Peters and Vossen shows. Since the history and federal structure of these countries differ so much from the European Union, no straightforward conclusions can be drawn about policy co-or dination there that would be relevant to how EU policy should be coordinated. The EU seems to be a union of countries sui generis that will have to find its own solution to the problem of policy co-ordination.
Many European documents suggest that a spontaneous convergence will occur. The Treaty of Rome assumes that the common market as such will foster harmonisation of the social systems (Article 117). Closer Eu ropean integration and increasing factor mobi lity are expected to result in a common social policy. As a result of the single market, we see free mobility of goods, services and capital, especially taking into account that 90% of the total European trade takes place within the Union. The mobility of labour is however de creasing rather than increasing. With only 1.5% of the Europeans living abroad in the EU, a sin gle European labour market still seems very far away. Under these circumstances, social spill overs are limited and there seems to be no rea son to harmonise social systems or adopt com mon social minimum standards. Member States do not have any limitations when they follow their own national preferences in terms of income redistribution (Begg et al. 1993).
The question remains however as to whether the far greater differences between the new and old Member States will stimulate migration. Krieger and Maitre note in their article that they only expect moderate numbers of mi grants to move from the new to the old Mem ber States. But even limited numbers of emi grants might support the economic catching- up of the acceding countries and at the same time tax the sustainability of the welfare provi sions in the old Member States (Sinn and Ochel 2003). However, if labour mobility re mains insignificant, labour cost differentiation would virtually be the only possible response
to differences in productivity and regional or sectoral economic shocks (Den Butter and Ha- zeu 2 0 0 2).
This line of reasoning bears a similarity to the prisoners' dilemma: as long as labour mobi lity remains marginal, there is no reason to co ordinate labour costs and income redistribu tion arrangements, but in practice, in addition to cultural barriers, it is precisely these factors that create obstacles to labour mobility. This type of dilemma can become even more press ing if regional specialisation increases as a re sult of the open single market. As a result, eco nomic shocks will be even more region speci fic. This is what is happening in the US on a larger scale and is mainly resulting there in workers' migration. In today's EU, the only pos sible alternative is the relative adjustment of wages between regions. From this perspective, greater coordination at the European level would be counterproductive since it could only result in less regional or national flexibil ity (Hartog and Teulings 1999).
Other authors allude to the risk of competi tive wage moderation, which could be disad vantageous for all the countries involved (Den Butter and Hazeu 2002). Moreover, relative wage adjustment can mainly be expected to oc cur in regions already in a highly unfavourable position due to their economic structure. These regions run the risk of social and regio nal marginalisation. Trends in this direction that are apparently emerging in the new as well as the old Member States could be a severe threat to social cohesion in Europe.
Reconciling diversity
If social cohesion is endangered by these de velopments, the issue of the possible emer gence of a European social model will have to be addressed again. Will it still be possible in the future to meet the challenges with a patch- work of purely national social protection ar rangements? Are we wise to wait for the spill over effects of cross-border consumption, m o bility and free competition to result in a spon taneous policy convergence without inten tional policies? Or should we anticipate a US- type redistribution from public to private re sponsibilities?
mands protection against the dysfunctional ef fects of social exclusion, the European social model is based on the principle of common re sponsibility. This is why social risks should be prevented by collective arrangements (Bergh- man et al. 1998). The more transnational^ so cial risks manifest themselves, the more reason there will be to adopt a transnational ap proach. In the opinion of Vandenbroucke (2001), European integration has reached the point where the abstract notion of a social Eu rope should be made more concrete. For the time being, he sees the open method of co-or dination as the only viable way to achieve this aim. In the course of time though, the objec tive will have to be to give the European social model its final shape. In a multi-speed Europe, its final shape can only be a continuation of di versity by the institutionalisation of three or four more or less competing social models.
We can thus conclude that social cohesion in an enlarged European Union is a challenge for the separate Member States and even more so for the community as a whole. If there is a growing consensus on social policy objectives and joint policy learning results in policy con vergence and the adoption of similar policy in struments, there is all the more reason to re concile diversity by agreeing on the contents of the European social model. A model that not only consists of common fundamental values and common levels of protection, but also in cludes common policy intentions to increase the participation rate combined with joint ef forts towards budget control, which is espe cially important for the sustainability of the social systems.
Lastly, there is the question of what the fu ture significance of social cohesion will be as a core normative underpinning of a European social model. To what extent are the objectives of a high participation rate and moderate pub lic expenditure indeed incompatible with so cial equality and cohesion ? To what extent will it be possible to find a sustainable balance be tween security and flexibility? Between the fundamental value of social cohesion and the objective of social activation? Between equity and jobs? As was recently noted (High Level Group 2004), 'The social inclusion process is sufficiently flexible to allow countries to choose different instruments to achieve the commonly agreed objectives.' This means a
multi-speed European Union will provide op portunities to explore various approaches to welfare state reform, including the American- style transfer from public to private responsibil ities. European normative and institutional traditions should however reconcile cohesion and sustainability. Only if the welfare states' self-transformation succeeds in establishing a new and commonly accepted balance will we be able to speak of a real European social model in the future.
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