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Risks of (Continental) European Social Model for Slovakia

Risks of (Continental) European Social Model for Slovakia. PETER GONDA Conservative Institute of M.R. Štefánik. International Conference on „The Economic and Political Context of Central Europe - European Union Relations.“ (Bratislava, June 14, 2005).

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Risks of (Continental) European Social Model for Slovakia

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  1. Risks of (Continental) European Social Model for Slovakia PETER GONDA Conservative Institute of M.R. Štefánik International Conference on „The Economic and Political Context of Central Europe - European Union Relations.“ (Bratislava, June 14, 2005)

  2. „The Americans work on the job, while Europeans work at their leisure.“ (Bergstrom – Gidehag, 2004)

  3. 1. ESM – what does mean? • European social model (ESM) - myth or reality? • currently several types of social policy strategies (Scandinavian, corporatist and residual) - common ESM does not exist However • common features exist - mainly highly and widely set of social solidarity = many types of generous benefits and high income security for individual (for long time of life) • notion „ESM“ - part of EU summits and strategic documents today – also as weight against USA and/or „Stability Pact“ • together with European integration and enlargement: strong pressure to create ESM, in final step as European Social Union Risks of (Continental) Eropean Social Model for Slovakia

  4. 1. ESM – what does mean? • Basis of creating ESM: • continental welfare-states approaches (mixture of Scandinavian approach with generous benefits and corporatist approachmodels), gradually supplemented by • social integration, including harmonization of social and labour market standards • ! bringing serious current problems in EU (part 2) and future risks (part 3), more for SR as lagging behind economy(GDP per capita circa 50% and price level only circa 46% of the EU-15 average) Risks of (Continental) Eropean Social Model for Slovakia

  5. 2.Current problemsin EU:risks for the future • Main problematic characteristics of welfare states in EU (in comparison with USA) From general point of view (mainly after Great Depression): • too high level of government, public redistribution with equalisation aims (even in relation to market, by subsidies, what are not task of government) • excessive weight of compulsory, generous and costly social programs and guaranteeingtoo high social right/eligibilities (including bankrupt of PAYG, but also public unemployment, maternity, childhood, and other public schemes) Risks of (Continental) Eropean Social Model for Slovakia

  6. 2.Current problemsin EU:risks for the future Chart 1 Comparison of public expenditure ratio in selected countries (2002) Source: OECD (2003) Risks of (Continental) Eropean Social Model for Slovakia

  7. 2.Current problemsin EU:risks for the future • Main problematic characteristics of welfare states in EU (in comparison with USA) - continuation • over-regulation of labor markets - high level of minimum wage, guaranteed on national level, - regulations (also on European level) limiting working hours (result: lower willingness and intensity to work – Chart 2) and - employment protection (including protection against dismissal) Risks of (Continental) Eropean Social Model for Slovakia

  8. 2.Current problemsin EU:risks for the future Chart 2 Hours worked ratio in selectedcountries (2000) Source: Bergstrom – Gidehag, 2004 Risks of (Continental) Eropean Social Model for Slovakia

  9. 2.Current problemsin EU:risks for the future • binding bargaining process on central level = conflict between labor and capital, contrary to the US approach Risks of (Continental) Eropean Social Model for Slovakia

  10. 2.Current problemsin EU:risks for the future • Main problematic characteristics of welfare states in EU - continuation • new mutual interlink “social rights“, whichare relating to European social integration and creating of ESM: - „social cohesion“ - „social inclusion“ - „antidiscrimination“ – on labour market... • attempts to implementsame (or at least minimum) set of social standards Risks of (Continental) Eropean Social Model for Slovakia

  11. 2.Current problemsin EU:risks for the future • Consequences of the characterstics (key problems) in EU: • pressure on financial resources (tax revenue...), thereby • higher cost of economic entitiesby highering taxes and social contributions, mainly tax wedge, respectively non-wage labor costs and thereby • low ability of ec. subjects to create new (productive) job places, low economic performance and its relatively decreasing in comparison with US (e.g. comparison between Sweden and USA – Chart 3) Risks of (Continental) Eropean Social Model for Slovakia

  12. 2.Current problemsin EU:risks for the future Chart 3GDP of Sweden to USA, per capita (in pps) Source: OECD (2003) Risks of (Continental) Eropean Social Model for Slovakia

  13. 2.Current problemsin EU:risks for the future • Consequences of the characterstics (key problems) in EU (continuation): • high unemployment, mainly long-term unemployment (much higher than in the USA) • relatively low living standard, including poor households in comparison with the USA (Chart 4) • low mobility and flexibility of labor force – insufficient attempts to be active, including self-employment • deepening „culture of dependency“ of significant part of population • protectionist policies (e.g. against countries with lower costs of labor). Risks of (Continental) Eropean Social Model for Slovakia

  14. 2.Current problemsin EU:risks for the future Chart 4Comparison of dwelling space in selected countries Source: Rector- Johnson (2004), Bergstrom – Gidehag (2004) Risks of (Continental) Eropean Social Model for Slovakia

  15. 3. Risks of ESM for Slovakia • Main risks of Slovakia followed from long term view of most probable alternative of EU integration towards European political union (ALTERN. 1), including: • acceptance of commitment rules of real ESM, relating to harmonisation of social and labor standards and regulations, moreover according to • generous continental approaches to welfare state and • meeting commitments of EU-Constitution, possible admitted in similar form as its current proposal • high and broad range of universal social (incl. labor and “non-discrimination”) rights (to benefits, a free services, strike...) - rights of individuals against the state Risks of (Continental) Eropean Social Model for Slovakia

  16. 3. Risks of ESM for Slovakia • Main risks of Slovakia followed from (most probable and also risky) alternative of EU integration towards European political union, including also: • conflict between ESM (resp. ESU) and EMU = „wrong track“(O. Issing, 1997) ...“Social union in the European debate means a harmonisation of social standards, at the highest possible level. ESU demands a greater number of and more stringent regulations of the labour market. Monetary union requires opposite: considerable more flexibility in the labour market.” Risks of (Continental) Eropean Social Model for Slovakia

  17. 3. Risks of ESM for Slovakia • Therefore, risks within this development (ALTERN. 1) are mainly the following: • considerable increasing costs of economic entities in SR (more than in “old” EU members) in order to fulfill harmonised level of social and labor standards and regulations • limitation of competition and competitiveness of Slovak´s economic subjects • same problem as current problem in EU, but in deepening forms, including restorting economic productivity, • restricting flexibilty and freezing catching up to the EU level, as far as economic performance and living standard level is concerened. Risks of (Continental) Eropean Social Model for Slovakia

  18. 3. Risks of ESM for Slovakia • Further risks from (at least) temporary status quo and partial social integration (resp. as altern. 2): • higher costs and other impacts from fiscal irresponsibilities and “fiscal free riding” • higher costs and other impacts from tension between countries with more regulated and not flexible economies (e.g. “old” continenetal EU members) and others (incl. SR) - e.g. in the form of protectionist policy • special tension after admitting EU-Constitution, but before harmonisation ofsocial and labour market standards - tension between EU members, because stronger problems with “social tourism” and “social dumping”. Risks of (Continental) Eropean Social Model for Slovakia

  19. 4. Conclusion • What do we need for catching up West? • more personal freedom, no centralisation of key political decisions from state to supranational level • more flexibility and competition, no rigidities and averaging (e.g. from harmonization standards) • more pressures to activities on the market, no generous public benefits and services, leading to more leissure • We should advocate for comeback to free trade zone without harmonisation and regulations and fight against EU-constitution and creating ESM, especially when they are “spiced up” with continental welfare states approaches. Risks of (Continental) Eropean Social Model for Slovakia

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