European Social Model: Experiences, Reform Perspectives

1. European social model(s): Experiences and reform perspectives Euroframe Conference in Bologna, 8 June 2007 Alois Guger, Ewald Walterskirchen

2. Outline „A new architecture for the welfare state in Europe“G. Esping-Andersen et al., 2002 • Problems of the welfare state • New challenges for the welfare state • How have the various social models coped with these challenges so far? • What can we learn from recent developments? • What are the key elements of a sustainable reform?

3. A European Social Model? „The simplest difference between the USA and Europe is that we have welfare states, and they do not“ ( J.Wickham, National Forum on Europe, 2002:1) • At a broad levelwecan speak of a ‚European economic and social model‘ • Main characteristics: • Relatively high level of taxes, state activity, redistribution and social cohesion • Universal public services (health and education) • Comprehensive social protection (illness, old age, unemployment etc.) • Extensive workers‘ rights and social dialogue • Commitment to macroeconomic stability through monetary and fiscal policy • TheEuropean Social Model was the success story of the post-war period, • but it came under pressure in the last decades

4. Problems and challenges Problems: • Poor economic performance in Europe • High unemployment in the EU • Is the setback caused by welfare state institutions? ChalIenges: • Ageing population and declining birth rates • Changing genderroles and the employment shift to services engendering new inequalitiesand new forms of social exclusion • Globalisation has reduced the room of manoeuvre of national economic policy, such as the scope of taxation and redistribution

5. Catching up and falling back in productivity EU/USA 90% 75% 70%

6. Types of European Models Welfare regimes in the tradition of G. Esping-Andersen (1990): • Scandinavian Model • Continental (corporatist) Model • Anglo-American (liberal) Model • Mediterranean (family-centred) Model

7. Scandinavian Model • Based on equality, comprehensiveness, social inclusion, universality • Generous infrastructure of social services, affordable and of high quality • High employment rates and emphasis on gender equality • Tax financed unemployment benefits and health system • Highest de-commodification, redistributive feature • Progressive taxation, taxes on property and bequests • Low taxes for business • Rather high minimum wages, high replacement rates, pensionswith generous minimum standards & income-related elements • Cooperation between social partners (business, unions and government) • Trade union operates unemployment insurance and training Sweden, Norway, Finland, Denmark

8. Continental Model • Based on preservation of social status, dominance of money transfers • Income-related transfers with low minimum standards • Contribution-based social insurance system for health, pensions,and unemployment • Low re-distributive efforts, regressive tax structure (low wealthtaxation, high taxes on labour and consumption) • Co-operative industrial relations and coordinated wage bargaining Germany, France, Belgium, Netherlands, Austria, Switzerland

9. Anglo-American (liberal) Model • Pre-dominant role of markets, minimal role of the State • Low degree of regulation • High competition, sophisticated regulation of utilities • Selective social transfers; i.e. means tested benefits • Welfare-to-work strategies • Public health system (UK, US only for the poor) and (partly) publicly-financed schools (UK not US) Anglo-American Model Europe: United Kingdom, Ireland Anglo-American Model Overseas: USA, Canada, Australia, New Zealand

10. Mediterranean Model • Important role of supportive family networks • Low transfers • High gender inequality, low participation rate • Some traits of agrarian, paternalistic society remained Italy, Spain, Portugal, Greece

11. Social expenditures and taxes

12. Product and labour market regulation

13. Economic performance

14. Economic indicators

15. Growth drivers: Investment in the future

16. Economic performance • In the long run (1970-2006) there are rather small differences between the social models in Europe, but the differences widened over the last 10 to 15 years • In the last decade GDP per capita and real GDP growth was high in liberal and Scandinavian countries, but low in Continental and Mediterranean countries • Public sector activities and tax rates are much lower in the Anglo-American model than in Scandinavia and Continental Europe

17. Economic performance • The employment rate is the highest in Scandinavia and significantly lower in Continental Europe and the Mediterranean countries • Public services largely explain the high employmentrate in Scandinavia;marketisationof household services (low-wage jobs) largely explains high employment rate in the Anglo-American countries • Unemployment is relatively low in the Anglo-American countries, but the number of persons on welfare is relatively high • Investments in the future (ICT, R&D and education) are high in Scandinavia and Anglo-American countries

18. Indicators of social performance • The political target is not only high economic, but also high social and environmental performance (Lisbon strategy) • Main question: Is good economic performance positivelyor negatively correlated with good social performance. • We choose a number of indicators to explore this • Life satisfaction • Income inequality • Poverty rate • Expectation of life • Infant mortality • Hours worked • Prisoners • Trust in people

19. Social indicators I

20. Social indicators II

21. Social Indicators • The social performance in the United States and in the liberal European countries is worse than in the Scandinavian and Continental European countries: • Poverty rates are significantly higher in the liberal model,this reflects the unequal income distribution • Expectation of life is lower in the Anglo-American countries than in Scandinavia, Continental Europe and the Mediterranean countries • Infant mortality - an indicator of the efficiency of the health system – is substantially higher in the liberal countries. • The share of prisoners is very high in the United States, and also relatively high in the United Kingdom. • High GDP per capita in the liberal countries is largely due to a high number of hours worked • Life satisfaction is the highest in the Scandinavian countries

22. Social model and competitiveness • Blaming the Welfare State for low growth andweak competitiveness is questionable: • The Scandinavian countries with high taxes and large social expenditures performed very well in economic terms • Solidaristic or individual risk-taking is a matter of preferences, not of economics • The trade-off between efficiency and equality or between competitiveness and social justice is shaky • Social cohesion, education, health and cooperative industrial relations are productive resources • Social exclusion and large inequalities are costly in terms of public security and health

23. Key elements of a New Architecture of the welfare state Strategies to meet the challenges of globalisation, skill-biased technical change, demographic ageing and gender • Child-centred and women-friendly social investment • in early childhood development by affordable quality child care • to reduce social heritage and child poverty by • reconciling women’s career preferences and family functions, thus • fostering fertility rates • Higher investment in human capital • Large skill deficits will not be affordable in future (skill-biased technical progress and demographic ageing). • The higher the qualification, the higher are activity rates.

24. Key elements of a New Architecture of the welfare state • Restructuring from transfers to social services • Continental model: reduce monetary transfers but increase infrastructure in care facilities • Shift from passive transfer priorities to activation and reintegration in case of unemployment, invalidity etc. • “Flexicurity” or managed and balanced flexibility • Reduce insider/outsider segmentation between tenured jobs with high security and flexible jobs with inadequate protection • Increase minimum standards (replacement ratios, minimum wages, minimum pensions etc.)

25. Key elements of a New Architecture of the welfare state • Active anti-cyclical macro-economic strategy • “Even the most successful structural reform in Europe will notgenerate growth if the macroeconomic conditions are not right.Weakness in aggregate demand can ruin any economic party.”Baily & Kirkegaard (2004) • Growth and best technologies are preconditions for welfare • Growth enhancing policy • Strife for technological excellence, pro-active innovation policy • Excellence in research and education

26. European Model and efficiency The EU-Model (Lisbon strategy) is most ambitious: efficient + social + environmental responsible It is fostering competitiveness and change, improving incentives, enforcing investment into drivers of growth • The Scandinavian Model meets these ambitions best • The Continental Model is not flexible enough and too much oriented towards the male breadwinner • The Liberal Model is economically efficient, but at the costof social cohesion