Year XL, 1998, Number 3 - Page 236
THE WELFARE STATE AND THE FUTURE OF EUROPE
For several years now, the economies of the United States and Great Britain have been healthier and more buoyant than those of continental Europe. Yet while these two countries have been recording higher growth rates and lower levels of unemployment, the higher unemployment rates in the countries of continental Europe are, to an extent which it is not easy to quantify, offset by the greater wage disparity which is found in the Anglo-Saxon world, by the more widespread incidence in these countries of precarious, insecure and underpaid jobs and, in more general terms, by their more frequent, and sometimes shocking, situations of violence and social decay.
Most commentators tend to focus only on the positive aspects of the economic growth recorded in Anglo-Saxon countries, ignoring its downside. The overriding view is that the economies of continental Europe are held back by the existence of an excessive number of constraints linked to the hypertrophic expansion of the welfare state. As a result of this, it has become routine to call into question the “Rhine model”, i.e. the social security system which in various forms is (with the partial exclusion of Great Britain) in force in the countries of Europe and which channels into the health service and into funds for the payment of old-age and disability pensions and unemployment subsidies a far higher proportion of its gross domestic product than that which is set aside for the same purposes in the United States (and in Great Britain). Furthermore, this system, in the countries in which it is applied, grants workers a series of rights and guarantees far superior to those that can be enjoyed by their Anglo-Saxon counterparts. However, the prevalent view is that this philosophy burdens the economies of the countries which adopt it to such an extent that they are rendered unable to withstand the international competition and it thus gives the United States (and Great Britain) a competitive advantage which is threatening to become impossible to reverse.
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There are no real grounds for doubting the fact that in Europe, (and particularly in those European states where the structures of democratic life are less deep-rooted and the civic consciousness less widespread and more fragile), the degeneration of the welfare state has often allowed cronyism and corruption to thrive, and led to a senseless waste of resources. Wherever they have manifested themselves, these phenomena have, without doubt, constituted a serious obstacle in the pathway of development, and the countries affected must necessarily address the problem of unemployment also through a rationalisation of their social security systems and a reform of their public administrations.
In the same way, it is surely obvious that, in view of the ageing of the population (and the vast improvement in the average state of health), adjustments must be made to the minimum pensionable age (and/or to the size of the pensions paid to those who decide to take early retirement). Likewise, it seems fair that a reasonable ceiling should be placed on the pensions received by those in the medium-high earning bracket in accordance with the supposition that such individuals have the means of supplementing their pensions through private insurance schemes. What is certain is that the welfare state must never be used to channel resources away from the poor, diverting them towards the rich. This is not, however, the proper context in which to examine problems which have predominantly technical implications (problems such as the nature of the improvements and minor changes which need to be made to Europe’s present social security systems).
Instead, the thing that must be debated here is the very philosophy of the welfare state, in other words, whether or not the citizens of a modern and civilised state should be required to sacrifice a considerable proportion of their income and be subject to various constraints — all in the pursuit of public solidarity.
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At this point, two different kinds of question emerge. The first is of a strictly philosophical nature and concerns the balance which politics must aim to establish within a given system between the amount of freedom of enterprise and the amount of solidarity. Clearly, there can be no question that in today’s industrialised world, the need for solidarity emerges in a context in which the fundamental rights of freedom are largely guaranteed, and these rights of freedom include freedom of enterprise, without which political freedom would inevitably be lost, as shown by the experience of so-called “real socialism”. The question is posed, therefore, in the framework of the liberal-democratic state of which the countries of continental Europe and the Anglo-Saxon world represent two different forms. In this context it would not be easy to argue in an abstract manner that the ideal of society which is inspired by social Darwinism, and which orientates the Anglo-Saxon model, is preferable to the ideal based on solidarity which inspired the “Rhine model”. After all, solidarity represents the opposite of the war of everyman against everyman which it is the function of the state to overcome. And, while it is true that the prime — and eminently liberal — function of the state is, by defining clearly the limits of the various spheres of freedom and by enforcing abidance by the same, to permit the peaceful resolution of conflicts between citizens, it is also true that the task naturally completing this function is to prevent the very onset of conflicts in the first place. This is done by allowing all citizens to take part in the management of power and by guaranteeing them, through a fair distribution of resources, secure and dignified living conditions.
From this standpoint, and in the face of the terrible instances of poverty and social outcasting still evident even in the richest European countries (to say nothing of the far more difficult and prominent problem of international justice), it seems outrageous even to suggest that the resources used, within these political systems, to improve the living conditions of the least fortunate strata of society are excessive. On the contrary, it is quite clear that the resources channelled in this direction by the countries inspired by the “Rhine model” are still vastly insufficient, and that there must be a considerable evolution of the civic consciousness before an acceptable level of social justice can be achieved.
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It is necessary, at this point, to get down to realities and respond to the objection — and here we move onto the second kind of question — that the “Rhine model” in fact constitutes a constraint which, in the countries which apply it, slows down the growth of wealth (a view substantiated by the great problem of unemployment in the countries of continental Europe) thus provoking, in fact, greater social inequalities than those produced by a system in which the forces of production are allowed to expand, unfettered by the constraints which result from the need to provide adequate protection for the weakest and poorest sections of society. Social Darwinism would appear to be the means by which the “invisible hand” can in fact intervene, creating the conditions needed to generate an increase in the collective wealth and, therefore, to make it possible to realise the highest possible level of social justice.
In this regard, it must first be remarked that the wealth o fthe countries of continental Europe, despite, in recent years, not having increased at the rate of that of the Anglo-Saxon world, has actually never stopped growing in that time and, in other periods, has even maintained a growth rate higher than that of the United States. Caution is needed, therefore, not to confuse a serious analysis of the facts with those arguments which constitute political propaganda or are put forward in support of corporative interests. The countries of continental Europe can boast economies which are, in spite of all their shortcomings, solid and well balanced and which allow the citizens of the continent to enjoy a quality of life which, year by year, is tending to improve. It would therefore be most unwise to allow oneself to be taken in by superficial projections like those which have, in the recent past, led many commentators to see first Japan, and then the so-called “tigers” of South East Asia as providers of the models which the whole of the industrialised world should strive to emulate.
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What does remain indisputable is the gravity of the unemployment problem in Europe, a problem which the macroeconomic policies followed by the continent’s governments in the recent past have done little or nothing to alleviate, let alone solve. There does, however, seem to be a sound basis for the argument that this failure has nothing to do with the “Rhine model” of social security. Rather, it would appear to be due to the restrictive policies of the governments of Europe — these policies being determined by the control exercised over the governments by the financial markets. This state of affairs is reflected in many ways: it can be seen in the uncertainty provoked by the wildly fluctuating exchange rates between the various European currencies, (which have made accurate predictions impossible, upset trade and discouraged investment); it is evident in the high level of interest rates provoked, on the one hand, by the need to protect the individual currencies from the dangers of the speculation which their very weakness stimulates and, on the other, by the need of Germany (abandoned by its European partners to the mammoth task of rebuilding the economy of the new Länder), to lure in capital from other markets by offering high incentives; it is reflected in the fact that the governments of Europe have, as they strive to meet the convergence parameters established by the Maastricht Treaty, found themselves obliged to channel almost all the resources available to them from the increase in productivity into reducing their budget deficits, in order to counterbalance the effects of the currently high interest rates; it can be seen in the increased cost of labour generated by the failure of the governments of Europe to harmonise their fiscal systems in a setting characterised by complete freedom of capital movement, thus allowing capital to escape taxation, and leaving labour as the main taxable asset.
Clearly, all these factors can be attributed to a single cause: the monetary and political division of Europe, although, having said that, this cause has now been removed, in part, by the launch of the single European currency. The countries of the EMU will form one large economic and monetary area in which the gross domestic product will be affected very little by foreign trade and in which, therefore — in the same way as the economy of the United States is largely unaffected by the exchange rates of the dollar — the general economic trend will be largely independent of exchange rates between the Euro and other currencies. The danger of speculation on national currencies will disappear as they themselves are phased out, and the European Central Bank will enjoy a considerable measure of freedom in the setting of interest rates. In Europe therefore, the conditions are emerging in which politics will be able to recover its supremacy over the financial markets, and in which governments, freed from many of the constraints that have determined their actions in this post-Maastricht period, will once more be able to structure their welfare systems in the manner they consider most appropriate.
However, while a large unified monetary area is necessary in order for all this to come about, it is not, on its own, enough. Monetary union is, by its very nature, fragile and incapable of dissipating the climate of mistrust and rivalry that has always coloured relations among the member states first of the Community, and latterly, of the Union. There do not, as yet, exist the right conditions for the launch of a bold policy on investments, either at European or at national level — a fact which is borne out by the Stability Pact which was signed by the governments at Amsterdam, and whose aim is to perpetuate the restrictive policies which have paved the way for the birth of the single European currency. In the same way, monetary union cannot, by itself, create the conditions necessary for the implementation of a serious programme of fiscal harmonisation, destined to increase the taxation of capital and reduce the taxation of labour. Politics will never effectively win back its supremacy over the financial markets until a European power emerges which is founded on the democratic consensus of the citizens of Europe, a power which accepts responsibility for protecting the interests of Europe as a whole and which, endowed with the necessary fiscal and budgetary competences, has the capacity to implement a true European economic policy and to restore a situation of financial equilibrium whenever divergent trends should emerge among the member states.
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This is the only way in which Europe can free itself from the constraints which, in the last decade, have slowed down its economic growth and led observers to call into question the welfare state. Moreover, it is important to note that this does not mean that a future federal government of Europe will be directly responsible for social security policies, except perhaps in a peripheral manner. Rather, the task of such a government would be to guarantee the general political and financial conditions needed to allow the member states, in a climate of confidence and serenity, to develop their own welfare policies, designed to benefit the citizens (particularly the most underprivileged), without however, losing sight of the crucial need to keep their budgets balanced. And there is more to it than this. Social security will become an important area in which the new federalism of which Europe is destined to constitute the first example can be put to the test: a federalism organised not on the traditional two-tier system (based on the European Union and the states) but on many different levels of government, right down to regional and local levels. This federalism will represent the framework within which the forms of federalism already existing in Germany, in Belgium, and to some extent, in Spain, as well as the federalist vibrations which are being felt in countries like Italy and Great Britain, may be allowed to evolve, and within which their institutional designs may be refined. Unless they can be built into a solid European political context, the federalist models and trends mentioned are, with the exception of the tried and tested federalism of Germany, destined to degenerate into secessionism and, in Italy’s case, into primitive forms of tribalism. Solidarity will always be more efficient and less likely to degenerate into systems of patronage the closer the levels of government in charge of it are to the needs of the citizens, (and provided a fair territorial distribution of resources is guaranteed). Indeed, the closer they are, the better they are able to identify and prioritise areas of real need, eliminating the waste and abuse of resources and giving tax-paying citizens the possibility to play a direct role in the decision-making process which determines how the resources which they make available to the community are used, and to ensure the correct application of the decisions reached. Once again, however, in order to avoid giving rise to institutional chaos and to the disintegration of the very structure of the state, all this requires the existence of a central power strengthened by the democratic consensus of the people.
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In fact, it is on the degree of democratic consensus that the extent of the resources that can be channelled into the pursuit of solidarity (in other words, the extent of the sacrifice that the people can be asked to make to relieve the suffering of the most underprivileged) depends. And if, in Europe, the conditions for this consensus can be created, it can be expected that, in the future of the continent, the level of social solidarity will tend to increase, and will certainly not decrease. Having said that, this level will, of course, always vary according to the changing requirements of a rapidly developing society.
Quality of life is a function of many factors, essentially the level of private incomes, the quality of work, the amount of free time one has, the level of environmental protection and the quality of, and the degree to which it is possible to benefit from, public goods and services and the social security system. And quality of life can, in any case, only increase in proportion with the increase in resources made available by higher productivity in the workplace. After all, the Industrial Revolution in its various phases (albeit in different ways, and not always following direct routes) transformed the lives of men, leading to larger real incomes, improved working and environmental conditions, shorter working hours and the growth of the welfare state. Today, the revolution that is taking place in the sphere of information and communication is, as far as the prospect of increased productivity is concerned, opening up broad new horizons. Europe has the human resources, the educational structures, the cultural traditions and the material infrastructures needed to take on a leading role in this process — and it is a role which it will indeed be in a position to play, provided it manages to unite. It will fall to politics and social forces to determine the proportions in which the increased resources produced shall be assigned to different possible uses, and in particular, to what extent they shall be used to enrich the most enterprising and fortunate members of society and to what extent channelled into the pursuit of public ends and social solidarity. And in a political framework like the one which will characterise the future European federation (freed as it will be from the dependence on the financial markets to which the current member states are, on account of their division, condemned), these are decisions which they will be able to take quite independently. And it is difficult to imagine that the European political class will turn its back on the values and traditions by which it has always been guided, and pursue the realisation of a model of in which the rich grow ever richer and the poor ever poorer.
Francesco Rossolillo
