The Political Economy of the European Social Model

Philip Whyman, Mark Baimbridge, Andrew Mullen

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781136286209
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book seeks to analyse the development of the European Union (EU), which was founded upon the principle of the free movement of capital, goods, services and people in 1957. Its central thesis is that, from a practical and theoretical point of view, such a basis is fundamentally at odds with the creation of an interventionist regime that the construction of a social Europe would require.

The authors argue convincingly that - economically: the EU does not currently possess the budget or the economic tools to pursue such a strategy; politically: close to none of the institutions of the EU have backed such a policy; practically: conservative and neo-liberal forces (among member states and the institutions of the EU) have repeatedly thwarted any moves in this direction. In reality, the Single Internal Market, Economic and Monetary Union, enlargement, the Lisbon Agenda and European Constitution projects all prioritise supply-side measures and expanding the scope of the market rather than the boosting of demand and other economic intervention. Consequently, constructing a social Europe in the face of this would appear problematic. Hence, in both theory and practice, the idea that there can be a social Europe vis-à-vis neoliberalisation is a contradiction in terms.

This controversial book will be an educating and refreshing read for advanced students and academics involved with European politics, the European Union, European Economics and Economic instititutions.

1 The European Social Model

Introduction

One distinctive feature of the model of regional integration advanced by the European Union (EU) concerns the creation of a social dimension (espace social européen) or European Social Model (ESM). This is a relatively new phenomenon, having been grafted onto a predominately economic or trade-orientated focus for economic integration. Nevertheless, it is one which has had increasing resonance amongst certain parts of the European citizenry as economic integration has deepened, as it is perceived as a means of counter-balancing the less desirable consequences likely to arise from the unfettered operation of free market forces (Bean et al., 1998). In this way, the ESM sets the EU apart from other contemporary examples of regional economic integration (Vaughan-Whitehead, 2003: 23).

In general discussion, the concept of a ‘Social Europe’ is typically counterpoised against the neo-liberal, free market ‘Anglo-Saxon’ model. Not surprisingly, therefore, it has proven particularly popular amongst social democratic and trade union constituencies. Indeed, it represents a significant reason why these groupings remain amongst the most enthusiastic advocates of deeper European integration (Strange, 1997; Edmonds, 2000: 194; Whyman, 2002, 2007). Nevertheless, there remains a deep ambivalence concerning the precise meaning of the ESM, its importance and how (or indeed, whether) it complements other aspects of policies intended to promote a broadening and deepening of European integration. It is these aspects of the subject matter that this book is intended to evaluate.

Foremost an economic union?

The EU was founded as an economic organization, focused upon promoting integration through trade, and facilitated through the progressive removal of trade barriers between EU member states, whilst maintaining barriers against the rest of the world. As such, the employment and social aspects remained underdeveloped. The Treaty of Rome did include a Title on Social Policy, within Article 117 (later to become Article 136), which committed the organization to ‘promote improved working conditions and standards of living of workers’, however this statement of intent was not accompanied by a consideration of measures to deliver these objectives (EU, 1957). Indeed, the early years of the organization made little impact upon the social and employment spheres, outside the impact arising from economic integration, except in so far as the free movement of labour has an impact upon employment opportunities for European workers and the subsidies extended to rural employment through the Common Agricultural Policy (CAP).

This began to change in the mid-1970s, with the development of the first Social Action Programme, although this aspect remained marginalized until the Delors presidency of the European Commission, when a Charter of Fundamental Social Rights of Workers was established, in 1989, and which advocated the creation of a minimum set of social rights for EU citizens. Yet even this remained a non-binding, political declaration, signed by 11 of the then 12 EU member states (the United Kingdom being the exception) until its evolution into a social protocol annexed to the Treaty on European Union (TEU or Maastricht Treaty) in 1992. Once again, opposition from the UK Conservative administration and their consequent opt-out from the provisions prevented the protocol from being included in the main body of the treaty itself. Nevertheless, it was cited in the preamble and Article 2 of the TEU committed the EU

To promote economic and social progress and a high level of employment and to achieve balanced and sustainable development, in particular through the creation of an area without internal frontiers, through the strengthening of economic and social cohesion and through the establishment of economic and monetary union, ultimately including a single currency in accordance with the provisions of this Treaty.

(EU Commission, 1992)

This, in turn, resulted in the adoption of a wave of directives relating to employment and social policy, including, amongst others, measures to regulate collective redundancies, maternity rights and working time. Moreover, this area was further strengthened by incorporating the protocol into the main body of the subsequent Amsterdam Treaty, where the resulting Article 11 provided the EU Commission new competences in the areas of industrial relations and combating social exclusion (Adnett, 2001).

ESM: a contested ideal

Despite its centrality as a feature of debate relating to the future development of the ‘new Europe’, it is perhaps surprising that the ESM remains poorly defined — including by the EU itself, possibly as a deliberate attempt to obfuscate the political differences between conservative and social democratic groupings likely to surface if greater clarity was forthcoming (Vaughan-Whitehead, 2003: 3). One of the few attempts, arising from the Nice summit in 2000, suggested that the ESM derived from a “common core of values” relating to the provision of a high degree of social protection, the recognition of the importance of dialogue between social partners and the necessity to promote social cohesion as essential elements within the process of European integration (EU, 2000: 4). It is therefore intended to be more than the sum of the approximately 70 directives or legislative tools that seek to influence European social policy, principally in the fields of labour law, equal opportunities within the workplace, occupational health and safety and the free movement of labour.

Despite these attempts, the concept of the ESM remains both unclear and contested territory. For its advocates, the ESM has been viewed as a means to ‘construct a progressive counterweight to an increasingly pervasive global market ideology’ (Kenner, 2000; Watson, 2006: 146). Indeed, it may be argued that it was conceived at least partly as a result of popular dissatisfaction with the shift in economic stance towards a neo-liberal Europe (Mathers, 2007: 49–84). For its most consistent advocates, organized labour, the ESM offers a means of evading declining national influence, establishing bargaining rights in transnational corporations (TNCs) whilst helping to evade the economic logic arising from Economic and Monetary Union (EMU), that wage restraint and reductions in social provision are the most obvious ways to slow cost increases and maintain international competitiveness within a single currency zone (Crouch, 2002: 297; Whyman, 2002, 2008). When combined with a neo-liberal advocacy of deregulation, the absence of an ESM is likely to result in pressure towards a competitive diminution of employment conditions and welfare provision across the European single market (SM).

The evidence is, however, more problematic, as it would appear that the drift of policy has been in the opposite direction, with the creation of a more ‘unsocial Europe’ (Gray, 2004; Mathers, 2007: 2). The removal of barriers to financial flows and increasing integration of European capital markets has led to an increasing dominance of capital market over bank credit financing, resulting in a shift in corporate control and governance across much of the European economic space. This creates a further potential rift with the ESM ideal, as labour market strategy, intended to protect workers from at least certain market vagaries, would conflict more clearly with this new focus upon market-driven corporate strategy, whilst conceptions of employee participation in corporate decision-making and/ or economic democracy, would appear less likely to be accommodated (Watson, 2006). Moreover, the economic architecture surrounding EMU would appear to encourage the consideration of wages and social protection as costs rather than benefits, likely to undermine the competitiveness of a participating nation unable to restore competitive advantage through devaluation and/or changes in monetary policy due to the single currency.

The result is tension over both the definition of what the ESM should be, alongside what Bieler (2006) has termed a “struggle” for a Social Europe — where progressive forces within the European economy press for greater state involvement in economic policy, promoting employment and developing the ESM to the benefit of citizens and workers, against the neo-liberal logic of the single internal market (SIM) and EMU. Thus, Mathers (2007) highlights the consistent critique of neo-liberal solutions to Europe's economic difficulties, and details the various marches and pressure inflicted by a combination of new social movements and organized labour.

Yet, the fact remains that this has failed in its primary mission, namely to arrest the permeation of neo-liberal economics and develop a truly alternative conception of a Social Europe. Indeed, it might be argued that organized labour and progressive political forces remain divided as how to advance a preferred conception of ESM without damaging the goal of deeper European integration, to which they remain committed. Hence, when opposition to neo-liberal permeation led to national labour movements supporting a ‘no’ vote in Dutch and French referendums on the Constitutional Treaty, in 2005, the European Trade Union Confederation (ETUC) announced its disappointment in the result and insisted that the proposed constitution was not, after all, neo-liberal in intent, and therefore trade unionists should support, not oppose, its implementation (Mathers, 2007: 191). Thus, whilst many progressive political forces might wish to utilize the larger European space to extend the ESM such that progressive priorities supersede market determination, there is an equal if not greater argument in favour of the need for national systems to be defended against neo-liberal economic imperatives emanating from the EU (Watson, 2006: 146).

One possible definition (amongst many)

For the purposes of this book, a maximal (or strong) definition of ESM is employed, where it is considered to be a multi-faceted approach encompassing elements of economic, social and labour market policy, including:

1Competitive market economy, but where social institutions mediate between state and market

2Promoting social solidarity, primarily through initiatives designed to reduce inequality and protect worker-citizen rights

3Combining the desirability of universality (through social protocols) with the realisation of the subsidiarity principle through encouraging social partners to complement state activity

Traditionally, the ESM has been associated with the prioritization of full employment, often through Euro-Keynesianism, as advocated by the Tindemans (1976) report prepared for the EU Commission, although this emphasis has markedly lessened amongst leading figures in the EU Commission in recent times (Coates, 1999; Notermans, 2000). This, in turn, is supported by a quasi-corporatist interest in the co-ordination of wage formation — the latter has the ability to promote a stable labour market at internationally competitive aggregate wage rates, whilst preventing high quality producers being undercut by ‘sweatshop’ employers. It has been suggested that the impact of the globalization of production and international freedom of movement of capital have combined to weaken the ability of national governments to pursue progressive policies, and therefore full employment policies may be more successfully re-created on a larger geographical basis. Thus, in the eurozone, trade and capital flows will be of lesser proportionate significance, and hence counter-cyclical macroeconomic policy will have fewer leakages and will be proportionately more vigorous (Coates, 1999; Notermans, 2000).

The social policy element of the ESM is viewed as favouring the extension of universal, comprehensive welfare state provision to cover all EU citizens, and thereby creating a minimum safety net for European citizens across the entire SIM. Social policy aims are considered to include a reduction in the degree of inequality within and between European member states, in order to promote conceptions of equity and social cohesion. Social policy has been, moreover, associated with the decommodification of labour and knowledge; in the process, encouraging investment in human capital (Esping-Andersen, 1990; Teague, 1997). Furthermore, decommodification arguably empowers employees and enables the development of work relationships based upon trust and loyalty, rather than the market nexus; a difference increasingly important in the dynamic knowledge-based sectors of the economy.

In contrast to neo-liberal theorists, this conception of social protection advances the proposition that a trade-off between social equity and economic efficiency is not inevitable, and, rather, the former can enhance efficiency through reducing poverty, thereby reducing constraints upon participation in economic activity (de Neubourg and Casonguay, 2006: 180). Indeed, in the long term, there does appear to be some evidence that reductions in inequality may have a positive impact upon economic growth developments (Wilkinson and Pickett, 2009). Of course, social expenditure must be financed, and this may lead to higher costs for employees or firms, but the net impact upon productivity depends upon how policy design enhances incentives to invest in human capital and the extent to which training opportunities are available (de Neubourg and Casonguay, 2006: 201–2). Hence, generous social security systems do not necessarily result in lower labour market participation rates and higher unemployment if this is supplemented by active labour market measures (de Groot et al., 2006: 175).

The ESM is, furthermore, considered to embrace an employment aspect, whereby European citizen rights and wellbeing is promoted through the enhancement of social partnership between employers and employees — typically, though not exclusively, through trade unions. The emphasis upon the inclusion of workers and their unions in the working of the economy is intended to facilitate ‘voice’ rather than ‘exit’, and in turn, facilitating co-operation in adapting to change, superior morale resulting in enhanced productivity and lower employee turnover, and finally the prevention of low skill, low investment competitive alternatives stimulates productive investment and innovation (Streeck, 1992: 5; Hutton, 1994; Coates, 1999: 654–5). The introduction of European works councils (EWCs), in large TNCs operating within the EU economies, demonstrates an interest in facilitating consultation and enhancing micro-level flexible adaptation. Furthermore, universal employee protection whilst at work forms a core element of the ESM (Strange, 1997).

The broadening of collective bargaining across member states rather than remaining a predominantly national preserve — so-called euro-bargaining — reinforces social partnership as a component of wider integration objectives. However, although advocated by the ETUC, European employer organizations remain hostile to this development. Nevertheless, a large body of the literature has indicated that co-ordinated wage formation produces a superior macroeconomic flexibility in real wages and hence industrial adjustment to external shocks to the economy (Bruno and Sachs, 1985; Calmfors and Driffill, 1988; Rowthorn and Glyn, 1990).

The ESM is, as thus conceived, a variant of the post-war German social market, which has combined a successful, competitive market economy with generous welfare provision, labour protection and an exceptional vocational training system that produced skilled workers of sufficient quantity and quality, thereby rectifying the corporate tendency to under-invest in skill formation (Glasman, 1997: 136; Teague, 1997). Yet, the precise nature of the social dimension remains the focus of political struggle, as diverse opinions seek to realize their preferred interpretation of the concept.

A coherent model?

The discussion of the ESM, thus far, suggests that it is a well considered, internally consistent entity, fully realized in practice across the internal market created by the EU(15) member states, and largely on the way to fulfilment in those new member states (NMS) joining following one of the enlargement phases. However, this is far from the case. There is considerable divergence between the social and employment policies pursued by individual member states, with the Scandinavian and UK Anglo-Saxon models representing two extremes, whilst many of the NMS appear to be pursuing quite a different employment and social policy, in order to maintain economic competitiveness amidst lower productivity rates.

The current form of social dimension being constructed across the EU is, arguably, a minimalist (or weak) version of a fully-fledged system of social protection of the kind idealized in discussion of the ESM (Keller and Sorrieemes, 1997; Whyman, 2001, 2007). This is why critics of the current position describe it as having ‘retarded [the] advancement of European-level political rights’, alongside the ‘almost complete absence of a European system of industrial citizenship’ indicating that there is little reason to anticipate these initiatives will prove particularly successful (Streeck, 1992: 218–19). Consequently, it is a moot point whether the subsidiarity principle informs and reinforces the considerable fragmentation in this area of policy, or is actually an ex post facto attempt to recognize and provide a narrative to justify the divergence in social and employment matters across the EU member states. The contrast between current and ideal type of ESM is illustrated in Table 1.1.

The fact that the ESM is an idealized form of reality does not, however, imply that the concept of creating a ‘Social Europe’ may be dismissed completely. The minimalist version of the ESM that has been created amongst EU nations has still provided notable benefits for workers and citizens in less regulated economies (such as the United Kingdom), whilst other initiatives (i.e. the EWC Directive) have the potential to develop into a more significant form over time. Moreover, the idealized version of the ESM can be utilized by social democrats, trade unionists and other progressives, to argue the case for further advances to be pursued in this area (Bieler, 2006). Consequently, it is of great significance to ascertain how, first, the ESM may impact upon the E...

Table of contents

• Cover
• The Political Economy of the European Social Model
• Routledge studies in the European economy
• Title Page
• Copyright
• Contents
• Illustrations
• Preface
• European integration timeline
• Abbreviations
• 1 The European Social Model
• Part I From liberal to neo-liberal Europe
• Part II Alternative social models to neo-liberal Europe
• Part III The neoliberalization of EU policy
• Part IV What future for a Social Europe?
• Notes
• Bibliography
• Index