The European Social Model: different typologies under a single term

1. The European Social Model: different typologies under a single term Karl Aiginger, Thomas Leoni Madrid 09.06.2009

2. Contents of the presentation • Definition of the european socio-economic model(s) and clustering of countries according to typologies • Differences in performance (in terms of economic and social indicators): • Between Europe and the US • Within EU15 – different typologies • Investigation of causes for success/failure • Flexibility and capability to adapt • Reforms and fiscal prudence (to find resources) • Investment in human capital and in innovation • Outlook and perspectives: new risks • Conclusions

3. The European socio-economic model Definition of the European socio-economic model in terms of: • Responsibility (health, sickness, unemployment, old age, education,…) • Regulation (institutionalised industrial relations, regulated product markets, …) • Redistribution (monetary transfers and in-kind benefits, inclusive policies) • The European model is the most ambitious attempt to keep together economic, social (and ecological) goals • From an insider perspective, we observe the great institutional and socio-cultural differences within Europe Following Esping-Andersen’s well-known classification of welfare models, we can cluster European countries in groups (Scandinavian, Anglo-Saxon, Continental, Mediterranean)

4. European socio-economic models

5. Scandinavian Model • 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 • High replacement rates with generous minimum standards • Cooperation between social partners (business, unions and government) • Generous social-services infrastructure Sweden, Finland, Denmark, (Norway)

6. 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

7. Anglo-Saxon 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) United Kingdom, Ireland (and USA, Australia, New Zealand)

8. Mediterranean Model • Important role of supportive family networks • Low level of social transfers • High gender inequality, low participation rates • Strong insider-outsider dynamics Italy, Spain, Portugal, Greece

9. Central and Eastern European countries • Heterogeneous welfare state mix: • elements of institutions that were in place before the Soviet era • universalistic values that were in place during communism • new post-communist consensus (market-based schemes) • Comparatively low levels of social expenditure • Low levels of taxations • Absence of strong employer and employee representations Baltic States, Slovakia Slovenia, Czech Republic, Hungary, Poland, Bulgaria, Rumania

10. The European growth problem Source: EUROSTAT (AMECO); WIFO-calculations

11. Economic performance Source: EUROSTAT; WIFO calculations

12. Employment indicators Source: EUROSTAT; WIFO calculations. Figures for the US employment rate of women and older person (in light blue) refer to 2006.

13. Product and labour market regulation 0 ... unregulated, 6 ... regulated Source: EUROSTAT; WIFO calculations

14. Indicators of social performance Source: Eurobarometer; EUROSTAT; UNDP; WIFO calculations

15. Indicators of social performance - continued Source: Eurobarometer; EUROSTAT; UNDP; WIFO calculations

16. CEE countries – a brief overview Source: EUROSTAT; WIFO calculations

17. Main results of social models comparison • Substantial differences between Europe and the US and between socio-economic typologies in Europe, especially over the last 10 to 15 years • Large Continental countries and Scandinavian countries provide the starkest contrast in terms of their ability to cope with changing circumstances. • Since 1990 the two “extreme” types of socio-economic models have had the best economic performance: • the Anglo-Saxon countries with flexibility, openness and a service-oriented economy • the Scandinavian countries with a strategy aimed at reform and adaptation of the welfare state • In Scandinavian (and to a lesser extent Continental) countries social performance and indicators show the better picture (poverty rates, infant mortality, social inclusion)

18. Elements of the Scandinavian success story • Many of the distinguishing features of Scandinavian economies were in place long before they started to represent a model for other countries • Scandinavian countries developed their success story after painful reform processes following their crisis at beginning of the 1990s • Reforms of the 1990s were based on the following cornerstones: • Balanced flexibility (“flexicurity”) • Active labour market policy based on “sticks and carrots” • Reform, not demise of the welfare state • Investment in innovation, education and lifelong learning • Fiscal stability => Scandinavian countries are now in a better position and have more room for adjustment than other EU countries

19. New risks: gender inequalities Source: EUROSTAT; WIFO calculations

20. New risks: child poverty and exclusion Source: EUROSTAT; WIFO calculations

21. Investment in the future Source: EUROSTAT, EITO; WIFO calculations.

22. A few conclusions • The Scandinavian states offer good examples of best practices in combining inclusive social institutions and well-functioning labour markets with incentives for education and employment. • The welfare state can be considered a productive force (rather then being solely a financial burden) for the development of a competitive, knowledge-based economy. • The question is not whether to allow collective risk sharing, but rather how to do it while maintaining the right incentive structure and the capability to adapt. • The welfare state of the future will have to be more service oriented, guaranteeing equality of opportunities at early stages of life rather than equalising income at later stages. • Fast technological change and international competition demand a proactive role from government and public institutions in promoting competition, innovation and structural change.