Social Europe vs. Market Europe

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ASK214F, CURRENT CHALLENGES IN EUROPEAN INTEGRATION, DAVIS VILCANS 1

Social Europe vs. Market Europe

Davis Vilcans

University of Iceland

2012




Social Europe vs. Market Europe

Couple of years ago the global economy was shaken by a recession and till this very day the

adverse effects are still present. It is hard though to predict whether the worst is over or is it just ahead

of us. When describing the current state of European economy Krugman (2012, Feb. 26) paints a rather

grim picture, “Things are terrible here, as unemployment soars past 13 percent. Things are even worse

in Greece, Ireland and arguably in Spain and Europe as a whole appears to be sliding back into

recession”. In the times of economic hardships people look up to the institutions more then ever – some

hope for effective, long-term measures to be taken for improving the situation, others however desire

for solutions with instant effects. Some authors (Sapir, 2006, Scharpf, 2002) believe that in order for

the European economy to be more stable and sustainable there has to be certain changes made in the

fields of social and market policies. The aim of this paper is to reflect ideas concerning European social

and market policies, more specifically the possible reforms of these policies and to discuss how recent

developments concerning these two policy areas may affect the future development of European

integration and the European Union.

The Notion of Social Europe

When it comes to the notion of “market Europe” the very conceptual context is pretty obvious –

the Single European Market, which however is not the case of “social Europe”. The social dimension

though has been present in the very first documents of the EU, the objectives outlined in the Treaty of

Rome state that leaders of the European countries will work towards ensuring, “the economic and

social progress of their countries by common action to eliminate the barriers which divide Europe”, and

the essential objective of their efforts will be, “the constant improvement of the living and working

conditions of their peoples” and most importantly the leaders expressed determination, “to lay the

foundations of an ever-closer union among the peoples of Europe” (European Union, 1957, p. 2). The

social dimension has nevertheless played an important role in the treaties of the EU ever since but a

slightly interesting turn concerning this particular policy area came in 1994 with the introduction of a

white paper on European social policy which, in a sense, can be interpreted as EU's intention of

becoming more involved with social policies of the memberstates, though the whole idea was

approached very carefully as not to emphasize the possible future move towards supranationalism




because of the sensitive character of this particular policy area, “Many of the challenges are for the

individual Member States to face, but the Union can and must play its role” (European Union, 1994, p.

1). The message that pervades the white paper emphasizes the importance of employment.

Employment is seen as a key to social and economic integration, “For the Union to reconcile high

social standards with the capacity to compete in world markets, it is therefore necessary to give highest

priority to creating new jobs, enabling everyone to integrate into economy and society” (European

Union, 1994, p. 4). This serves as a brief illustration of the interaction between the two forces – the

concept of employment bridging the gap between social and market areas, therefore, to proceed, it is

worth describing this interaction in greater detail.

“Social vs. Market”

The two areas are indeed closely related – social dimension concerns market dimension in the

sense of employment. As believed by Scharpf (2002) the process of European integration has shaped

these two forces in asymmetric manner, the market area being highly Europeanized while social area

has remained mostly a national matter. Memberstates are responsible for labor market regulation and

fiscal policy however product and capital market regulation and monetary policy (for the states of the

Euro area) is managed by the EU (Sapir, 2006, p. 382). Nevertheless there have been attempts made at

harmonizing these two policy areas with the European Employment Strategy (EES) being presented in

1997. These were non-binding guidelines intended to help govern the reforms of national laws,

institutions and policies in order to make them more employment friendly. The strategy included a

system of indicators, reporting, surveillance as well as mechanisms for peer review and exchange of

best practice. It is also important to note that this was the first step towards a new form of governance

which is now known as “open method of co-ordination” (Sapir, 2006, p. 383). The non-binding

character of the EES does not strictly oblige memberstates to follow the principles laid out in this

document, reforming social policies is still purely the responsibility of the memberstates however the

surveillance and feedback mechanisms outline the “good examples” which can be quite helpful.

Despite the efforts made concerning this so called asymmetry issue it is believed that Europe is still

facing a serious challenge.




Europe's Challenge

The current state of world economy has marked the economic issues the number one priority on

the agenda of European institutions. One way of addressing the economic issues is through social and

market policies. Herein the challenges concerning social and market policies will be discussed in detail.

When talking about the challenge that Europe is facing, Sapir (2006) emphasizes the role of

globalization, “Globalization brings changes that create both threats and opportunities. The Challenge

for Europe is to become flexible in order to avail of the opportunities this brings and overcome the

threats” (p. 369). Sapir believes that in order to achieve this labor markets and social policies have to be

reformed because EU's economic system is increasingly failing to deliver a satisfactory growth

performance which he explains as a, “symptom of an economy stuck in a system of mass-production,

large firms, existing technology and long-term employment patterns that is no longer suitable in todays

world characterized by rapid technological change and strong global competition” (p. 369). Sapir sees

growth as Europe's number one priority in the economic sphere and believes that failure to deliver a

satisfactory growth performance can endanger the whole process of European integration in a sense

that two of its most crucial policies could face jeopardy – the single market and monetary union (p.

370). As a probable reason for the poor economic performance Sapir names outdated labor market and

social policies on the grounds that changes at the EU level have not been accompanied by changes at

the national level (p. 373). This exact problem is described by Scharpf as “constitutional asymmetry”.

The main problem concerning social Europe as seen by Sapir are ineffective social models.

Sapir believes that particularly continental and Mediterranean models are ineffective and therefore have

to be reformed, an argument supporting the importance of these reforms is the fact that combined GDP

of countries with ineffective social models accounts for two-thirds of the entire GDP of the EU and

90% of the Euro area (p. 381). The problem with the Continental and Mediterranean models, as seen by

Sapir, is connected with the way how the employment is being protected – both models have rather

strict employment protection legislations that Sapir sees as a great disadvantage within the current state

of world affairs. The strictness of the employment protection legislations is preventing the labor

markets from being more dynamic and flexible.

Scharpf however does not go into such great detail as Sapir, instead Scharpf emphasizes the

need for the EU to overcome the “constitutional asymmetry” between these two policy areas. Scharpf

believes that there has to be a constitutional parity established and at the same time it has to be,




“sufficiently differentiated to accommodate the existing diversity of national welfare regimes” (p. 666).

Both Scharpf and Sapir find the very notion of a common European social policy ambiguous, as

Scharpf puts it, “ European social law should allow different types of welfare states to maintain and

develop their specific institutions in response to different understandings of social solidarity” (p. 663).

Without a doubt it can be said that Scharpf has succeeded by defining the problem with the concept of

“constitutional asymmetry”, so now question arises – how to deal with it?

Addressing the Problem

Sapir believes that there should be serious reforms made concerning labor markets and social

policies, the efforts made till this point are seen as unsuccessful cause coordination of labor market in

Sapir's view is rather an obstacle than a catalyst for a positive change because it tends to blur the

responsibility between national and EU authorities (p. 384). Therefore Sapir proposes two reform

scenarios, the first one can be clearly deemed as a neo-functionalist's perspective – “concentrate all

energy on the EU level. Secure product market and capital market liberalization and hope that this will

trigger labor market reforms” (p. 385), The second scenario proposed by Sapir suggests acting

simultaneously at the EU level with product and capital market reforms and on national level with labor

market reforms (p. 385). Sapir believes that the second scenario has several advantages over the first

scenario, in a sense that it would be more efficient and less painful because labor market reforms would

benefit from the effects of product and capital market reforms and vice versa (p. 385).

The reforms proposed by Sapir are in a no way simple and easily accomplishable, because of

the already mentioned sensitive character of social policies which stems from the reluctance of

accepting the pooling of sovereignty. As Sapir points it out, countries share not only a single market but

also a single currency, so structural reforms in one country affect the average inflation rate of the Euro

area, for this reason co-ordination of structural reforms is seen as crucial (p. 385). When addressing the

possible co-ordination the role of European Central Bank (ECB) is discussed because the possible

effects that these reforms may have on common interest rates of direct concern of the ECB. However it

is pointed out that ECB is unwilling to co-ordinate reforms of such a large scale because there is no

evidence that supports the determination and the commitment of the memberstates (Sapir, 2006, p.

386). Sapir thinks that the memberstates should introduce a co-ordinated structural reform as a

demonstration of commitment so the ECB would feel more like engaging in this co-ordination process




(Sapir, 2006, p.386). Also it is important to note that the reforms proposed by Sapir may have some

adverse effects before actual improvements could be observed, labor market reforms may increase

unemployment before lowering it and product market reforms may depress growth. It is believed that

these reforms would be more easier to implement when accompanied by a monetary expansion, that

would in a way offset its effects on aggregate demand (Sapir, 2006, p. 385-386).

Contrasting opinion on possible solutions on the problem of the existing “constitutional

asymmetry” between the social and market policies is offered by Alex Gordon. Gordon believes that

there is a sort of a downward pressure on social conditions and rights in the EU because capital tends to

move east while labor moves west. Gordon also notes that there has emerged an accountability issue –

because of European rules and regulations national governments do not feel responsible to their voters.

Gordon even goes as blaming the EU and European Court of Justice (ECJ) for contributing to the

emergence of social dumping. Gordon's solution is simple but unlikely, Gordon believes that

memberstates should be in charge of their immigration policies and have the right to enforce national

legislation to protect indigenous as well as migrant workers. In closure Gordon dedicates some harsh

criticism towards the EU, “all governments must have the democratic powers to control the flow of

capital, jobs and people even if it offends neo-liberal EU rules, laws and directives designed to favor

corporate capital”.

The Solutions and the Future

Its hard not to agree with Scharpf's notion of “constitutional asymmetry” that can be observed in

the EU and it is more than clear that this issue has to be addressed and there has to be some

harmonization between social and market policies, failure to do so would further contribute to the

escalation of problems pointed out by Gordon – social dumping, brain drain, etc. While Scharpf does

not come up with any concrete suggestions for improving the matters apart from very abstract ones,

emphasizing the need of greater co-operation, Sapir implies that there have to be reforms made and

describes ways for accomplishing these reforms.

The problem here however may hide within Sapir's choice of indicators. Sapir advocates the use

of GDP as a measurement for social progress, however this approach is being more and more exposed

to criticism. It is believed that GDP goes up, “as nations mobilize their economies to recover, make

repairs or go on the attack”, as well as, “many sorts of costs, ranging from environmental degradation




to deep social inequities, more often result in additions to GDP than they do reductions” (ISHES, 2012,

p. 14). Based on this argument a question arises – if similar reforms as proposed by Sapir, with the

main objective defined as increasing the GDP growth rate and reducing the unemployment are

exercised in practice, would that really introduce more harmony between the social and market policy

areas and improve the overall quality of life within the EU? If it is assumed that GDP as a measurement

for social progress is defective then the reforms as proposed by Sapir can be viewed as irrelevant and

reforms of much larger scale (fiscal policies and monetary policy) would have to be discussed. At first

glance this may seem unrealistic however there is a promising alternative to GDP measured social

progress – “Gross Domestic Happiness” (“GDH”) which is already being actively measured in Bhutan

with the King of Bhutan being an active promoter of this new concept. The Economist described the

rising interest in “GDH” the following way:

Academics interested in measures of GDH (gross domestic happiness) were once forced to turn

to the esoteric example of Bhutan. Now Britain’s Conservative-led government is compiling a

national happiness index, and Nicolas Sarkozy, France’s president, wants to replace the

traditional GDP count with a measure that takes in subjective happiness levels and

environmental sustainability (The Economist, 2011, May 12, as cited in ISHES, 2012, p. 15).

The above extract and the recent outbursts of declining public support for neo-liberalism (as expressed

by the members of the Occupy movement) is all together very thought provoking about the possible

future development of European integration and European Union itself. The recent developments

(troubles in Greece, high unemployment rates, social dumping, brain drain, etc.) may be contributing to

the public desiring a step back – towards a more intergovernmental Union (as expressed by Gordon), so

it seems that for the sake of integrations continuity the Commission and the Parliament has to come up

with a good strategy (upon which consensus could be easily reached) that would set a whole new

direction in addressing social and market policies and maybe the concept of Gross Domestic Happiness

is the answer.

If Gordon's proposed scenario materializes and the Four Freedoms are compromised it would be

the end of European integration and probably the European Union itself however that seems unlikely to

happen – too much effort has been put into developing the EU as it is at its current state and the belief

that the benefits outweigh the costs still seems present among the leaders of the big memberstates.

A possible way of addressing all the different issues that arise because of the asymmetric state

of social and market policies could be embedding “a culture of prevention” in the European society, as




discussed in one of the Friday lectures in the context of “norm enterpreneurs”. Norm enterpreneurs are

states that engage in translating an idea to a norm and putting norm in practice. “A culture of

prevention” however is a strong sense within the society to prevent inequality and injustice. This would

not eradicate the adverse effects of the asymmetry between the social and market policy areas however

it may alleviate them in order to make any further discussion concerning these matters more objective.

Finding the best solution can be a tricky task however it is not impossible. The issue addressed

in this paper is complicated in a sense that to a great extent it involves the interaction between

supranational and intergovernmental dimensions. A good starting point for approaching these issues

could be by promoting an EU-wide public debate since it may outline a good direction for any future

efforts.




References

European Union (1957). The Treaty of Rome, European Union, accessed 2 April 2012,

<http://ec.europa.eu/economy_finance/emu_history/documents/treaties/rometreaty2.pdf>

European Union (1994). European Social Policy – A Way Forward for the Union. A White Paper ,

European Union, accessed 2 April 2012, <http://europa.eu/documentation/official-docs/white-

papers/pdf/social_policy_white_paper_com_94_333_a.pdf>

Gordon, A., n.d., 'Social Europe' is a con, No2EU.com, accessed on 3 April 2012,

<http://no2eu.com/militerisation.html>

ISHES (2012). Life Beyond Growth. Alternatives and Complements to GDP-Measured Growth as a

Framing Concept for Social Progress, Institute for Studies in Happiness, Economy and Society,

accessed on 3 April 2012, <http://www.isisacademy.com/wp-

content/uploads/LifeBeyondGrowth.pdf>

Krugman, P. (2012, Feb. 26). What Ails Europe? The New York Times. Accessed 2 April 2012,

<http://www.nytimes.com/2012/02/27/opinion/krugman-what-ails-europe.html?_r=1>.

Sapir, A. (2006). Globalization and the Reform of European Social Models. JCMCS 2006 , 44, 369-390.

Scharpf, F.W. (2002). The European Social Model: Coping with the Challenges of Diversity. JCMS

2002, 40, 645-670.

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Social Europe vs. Market Europe