Europe in the Global Age E-Book

Anthony Giddens

• Herausgeber: John Wiley & Sons
• Kategorie: Geisteswissenschaft
• Sprache: Englisch
• Veröffentlichungsjahr: 2013

Seitenzahl: 460

Beschreibung

Europe's social model - its system of welfare and social protection - is regarded by many as the jewel in the crown. It is what helps to give the European societies their distinctive qualities of social cohesion and care for the vulnerable. Over recent years, however, the social model has come under great strain in many states within the European Union - unemployment, for example, remains stubbornly high. The resulting tensions have fuelled dissatisfaction with the European project as a whole, culminating in the rejection of Europe's proposed new constitution. Reform of the social model is therefore a matter of urgency. It has to go hand in hand with the quest to regenerate economic growth. The weaker performers in Europe over the past few years can learn a good deal from states that have coped more effectively. But more radical changes need to be contemplated in the face of the impact of globalization, rapidly increasing cultural diversity and changing demography. The author argues that the traditional welfare state needs to be rethought. We have to bring lifestyle change into the heart of what welfare means. Moreover, environmental issues must be directly connected to other citizenship obligations. These innovations have to be made at the same time as Europes competitive position is upgraded. This original and path-breaking book will rank alongside Beyond Left and Right, The Third Way and other works by Anthony Giddens that have helped reshape social and political thinking over recent decades.

Leseprobe

Europe in the Global Age

Other Books by Anthony Giddens

Capitalism and Modern Social Theory, 1971

Politics and Sociology in the Thought of Max Weber, 1972

The Class Structure of the Advanced Societies, 1973

New Rules of Sociological Method, 1976

Studies in Social and Political Theory, 1977

Emile Durkheim, 1978

Central Problems in Social Theory, 1979

A Contemporary Critique of Historical Materialism, 1981

Sociology: A Brief but Critical Introduction, 1982

Profiles and Critiques in Social Theory, 1983

The Constitution of Society, 1984

The Nation-State and Violence, 1985

Social Theory and Modern Sociology, 1987

Sociology, 1988

The Consequences of Modernity, 1990

Modernity and Self-Identity, 1991

The Transformation of Intimacy, 1992

Beyond Left and Right, 1994

Reflexive Modernisation (with Ulrich Beck and Scott Lash), 1994

Politics, Sociology and Social Theory, 1995

In Defence of Sociology, 1996

Making Sense of Modernity (with Christopher Pierson), 1998

The Third Way: The Renewal of Social Democracy, 1998

Runaway World, 1999

The Third Way and its Critics, 2000

Where Now for New Labour?, 2002

Europe in the Global Age

ANTHONY GIDDENS

polity

Copyright © Anthony Giddens 2007

The right of Anthony Giddens to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.

First published in 2007 by Polity Press

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Contents

Preface

Glossary of Terms

1   The Social Model

2   Change and Innovation in Europe

3   Social Justice and Social Divisions

4   From Negative to Positive Welfare

5   Lifestyle Change

6   At the Level of the EU

7   Eight Theses on the Future of Europe

Appendix: Open Letter on the Future of Europe

Index

To Alena

Preface

This book was prompted by some comments made by the British Prime Minister, Tony Blair, in a speech to the European Parliament in June 2005. In that speech, he stressed his commitment to the European project and to the European ‘social model’. But what kind of social model is it, he asked rhetorically, that leaves almost 20 million people in the EU unemployed? Europe’s welfare systems stand in need of radical reform.

The speech, which made a great impression around Europe, was given just before the beginning of the British Presidency of the European Union, which lasted from 1 July to 31 December 2005. Working in loose connection with that Presidency, a group was set up to analyse the state of health of the social model and suggest reforms that might be made. The point was not in any sense to propose an ‘Anglo-Saxon’ approach, but to look in a neutral way at the issues. Some twenty individuals from a range of European countries were involved in the project, all of whom contributed papers. Seminars organized by the think-tank Policy Network were held in many countries across Europe, involving political leaders and academics.

Two significant publications have come so far from this endeavour. One is a work edited by myself, Patrick Diamond and Roger Liddle, called Global Europe, Social Europe (Polity, 2006); the other is The Hampton Court Agenda: A Social Model for Europe (Policy Network, 2006). My opening chapter in this book overlaps heavily with chapter 1 in Global Europe, Social Europe, which was written first.

This study has been strongly influenced by the many discussions with colleagues in which I took part. I have drawn extensively upon their contributions in what follows, although this book represents a personal statement, not a collective one.

While my discussion concentrates upon Europe, I believe its implications stretch much more widely. All the developed countries face a range of similar problems, bound up with global social and economic changes and with major transformations in work, family and everyday life. I hope therefore that what I have to say will have some interest to those from elsewhere. I would include also the less developed nations. Countries that do not have effective welfare systems – including the rising world powers China and India – will have to build them if they want to create integrated and inclusive societies. In so doing, they can learn from both the achievements and the mistakes of the more advanced states.

The aims of the book are several-fold. They are first of all to identify cutting-edge economic and social policy in Europe and to draw lessons from it. In looking at this issue, I do not confine myself to the European Union alone, but draw also upon evidence from other parts of the world. A continuing, and sharply drawn, debate is going on about whether the European social model confers competitive advantages or whether, on the contrary, it is an economic handicap. There are in fact many European social models, and some fare far better than others. The evidence shows that countries that have been able to reform have done well in the global marketplace and have sustained high levels of social justice. Far from the one standing in the way of the other, they are mutually supportive. The future of Europe – and perhaps even the continuing existence of the European Union as a major force – depends upon these reforms being generalized.

Vital though they might be, such reforms are still not enough. We have to think more adventurously. The intensive discussion of the emergence of the knowledge-based economy that has gone on in Europe has not been matched by equivalent analysis of social changes. Without such an analysis, we cannot hope to have effective programmes of social justice and social welfare.

Some of the challenges to which Europe has to respond apply to all developed societies. Others are more specific to the European context – especially the demise of Soviet-style society in Eastern Europe. One should stop pretending that the European Union post-1989 is simply an enlarged version of what existed before. The identity of the EU simply cannot be the same as it was when there is an open border to the East – and increasingly to the south too.

The European social model was defined in large part through a contrast with the Soviet Union and Eastern Europe on the one hand and American free-market liberalism on the other. That self-definition does not pertain today. In considering reforms and changes, we have to react not only to 1989, but also to the forces and influences that brought it about, which were connected above all with intensifying globalization. That is why, following Martin Albrow, I have chosen to give this book the title Europe in the Global Age.1 The global age is a state of affairs, a set of social conditions signalling many changes in our lives. Globalization, by contrast, is a process, or complex set of processes, referring to the forces and influences responsible for those changes.

There is today a ‘struggle for Europe’. The phrase has more than one meaning. There is a struggle for Europe in the sense of a clash between differing versions of what the Union represents, and what form it should assume in the future. But there is also a struggle that Europe has to engage in to assert itself in a world of far-reaching transformation. I am a pro-European and I want the Union to flourish, which I believe it can. But it will not be easy and is in no sense guaranteed. If this book makes even a modest contribution to the current debates about where the Union should go from here, I shall be satisfied.

I would like to thank whole-heartedly all of those who participated in the seminars and discussions. Special thanks are due to Anne de Sayrah, who has played a key role throughout. I owe just as great a debt to Jean-François Drolet for his excellent and dedicated work. Many people made comments on earlier versions of the manuscript, including Neil Kinnock, Shirley Williams, David Held, Roger Liddle, Patrick Diamond, Matt Browne and François Lafond. François played the key role in organizing the Policy Network seminars, ably assisted by Johanna Juselius. I would like to thank all their co-workers at Policy Network too. Victor Phillip Dahdaleh not only funded all our meetings, but actively took part in many of them. Sarah Dancy did an excellent job of copy-editing the manuscript. Thanks are also due to all at Policy Network. As always, Emma Hutchinson and her colleagues at Polity Press did a marvellous production job.

1    See Martin Albrow, The Global Age. Cambridge: Polity, 1996.

Glossary of Terms Introduced in the Book

Activating labour market policy Policy concerned with helping people successfully master transitions across the life-course

Active trust Trust based on monitoring the integrity of the other in an open and continuous way

Assertive multilateralism Multilateralism deploying various forms of power, and backed up by the potential use of force

Blocked societies Societies in which vested interests, or structural conservatism, or both, inhibit needed changes

Citizen-consumers Citizens have choice within non-market spheres, such as in health care or education, but the quality and efficiency of service have to be guaranteed by public mechanisms

Consumer-citizens Choice in market contexts is the mechanism that drives quality control, by forcing manufacturers to compete on quality and price

Ensuring state The state seeks to empower citizens, but also provides a framework of guarantees, such as a minimum wage

Euro-hypocrisy The propagation of ‘European values’ without due regard to Europe’s chequered past and current policies inconsistent with those values

Eurorealism Taking a sober but ambitious view of the EU’s socio-geopolitical capabilities (I do not mean realism in the more technical sense it has in international relations)

Everyday democratization The advance of substantive freedoms in everyday life

Globalization Increasing interdependence between individuals, nations and regions. Does not just mean economic interdependence. Involves accelerated and universal communication, and concerns also political and cultural dimensions

Knowledge/service economy An economy in which only a small minority works in manufacture and agriculture; most are in knowledge-based and service occupations

Lifestyle change Positive welfare expressed in terms of changes in harmful everyday habits

New egalitarianism Policies that seek where possible to combine the furtherance of equality with increasing economic dynamism

Passive trust Trust based upon accepted symbols of authority, established by habit or tradition

Politics of second chances Policies providing resources for people to ‘start again’ in various areas of life

Positive welfare Welfare oriented to positive life-goals rather than only the minimizing of risk

Post-industrial society A society marked by everyday democratization, individualism and cultural diversity; and where knowledge or service occupations dominate

Preventative welfare Welfare policies that seek to intervene at source, rather than only coming into play after things go wrong

Social investment state State-provided or regulated investments in human or social capital

Transitional labour markets Labour markets considered from the perspective of transitions across the life-span

‘Youthing’ society A society where the life-habits of older people merge with those of younger generations

1

The Social Model

Europe’s welfare system is often regarded as the jewel in the crown – perhaps the main feature that gives the European societies their special quality. In May 2003 two of Europe’s most distinguished intellectuals, Jürgen Habermas and Jacques Derrida, wrote a public letter about the future of European identity in the wake of the Iraq war. The welfare state’s ‘guarantees of social security’ and ‘Europeans’ trust in the civilizing power of the state’ brooked large.1Most other observers sympathetic to the European Union project would agree. The European social model (ESM) is, or has become, a fundamental part of what Europe stands for.

Cue in ‘ESM’ in Google and 55,800,000 items come up! Such a profusion perhaps reflects the fact that the ESM, like so much else about the EU, is essentially a contested notion. In spite of the fact that it is so central, the idea is somewhat elusive when we try to pin it down. The ESM, it has been said, is not solely European, not wholly social and not a model.2If it means having effective welfare institutions, and limiting inequality, then other countries are just as advanced as states in Europe. For instance, Australia and Canada surpass Portugal and Greece, not to mention most of the new states in the enlarged EU25. The ESM is not purely social, since however it is defined, it depends fundamentally upon economic prosperity and redistribution. It is not a single model, since there are big divergences between European countries in terms of their welfare systems.

There are many different definitions of the ESM around, although they all home in on the welfare state. Daniel Vaughan-Whitehead, for example, lists no fewer than fifteen components of the ESM.3We should probably conclude that the ESM is not a unitary concept, but a mixture of values, accomplishments and aspirations, varying in form and degree of realization among European states. My version of it would be:

•   a developed and interventionist state, funded by relatively high levels of taxation;

•   a robust welfare system, which provides effective social protection, to some considerable degree for all citizens, but especially for those most in need;

•   the limitation, or containment, of economic and other forms of inequality.

A key role in sustaining these institutions is played by the ‘social partners’, the unions and other agencies promoting workers’ rights. Each trait has to go along with expanding overall economic prosperity and (ideally) full employment.

Underlying the ESM is a general set of values: sharing both risk and opportunity widely across society, cultivating social solidarity or cohesion, protecting the most vulnerable members of society through active social intervention, encouraging consultation rather than confrontation in industry, and providing a rich framework of social and economic citizenship rights for the population as a whole.

Stresses and Strains

It is agreed by more or less everyone, supporters and opponents alike, that the ESM is currently under great strain, or even failing. The welfare state is embattled. It no longer offers the stability and security it seemed to do thirty or so years ago. We should begin, however, by putting this situation into context. Some speak of the 1960s and 1970s as the ‘golden age’ of the welfare state, when there was good economic growth, low unemployment, social protection for all – and when citizens were able to feel much more secure than today. From this perspective, the ESM has been ‘attacked’ by external forces, particularly those associated with globalization, and progressively weakened or partly dismantled.

The reality is more complex. For member states such as Spain, Portugal, Greece and most later entrants to the European Union, there was no golden age at all, since welfare provisions were weak and inadequate. Even in those nations with advanced welfare systems, everything was far from golden in the golden age. That era was dominated by mass production and bureaucratic hierarchies, where management styles were often autocratic and many workers were in assembly-line jobs. Few women were able to have working careers; only a small proportion of young people entered further or higher education; the range of health services offered was far below that available now; older people were put out to pasture by a rigid retirement age. In line with the bureaucratic ethos of the time, the state generally treated its clients as passive subjects rather than as active citizens. Some of the changes in welfare systems over the past thirty years have been aimed at correcting these deficiencies and hence have been both progressive and necessary.

The world, of course, has shifted massively since the ‘golden age’. The ESM, and the EU itself, were in some large part products of a bipolar world – a recurrent theme of this book. The fall of the Berlin Wall – Europe’s 11:9, as Thomas Friedman calls it4– more or less completely changed the nature of the EU, giving rise to identity problems that still remain unresolved – and indeed were reflected in the refusal of the proposed EU constitution by the people of France and the Netherlands.

The demise of Keynesianism in the West and the collapse of Soviet Communism were brought about by much the same trends – accelerating globalization, the rise of a worldwide information order, the shrinking of manufacture (and its transfer to less developed countries), coupled to the rise of new forms of individualism and consumer power. These are not changes that came and went; their impact continues to grow apace.

Two decades ago the countries in the developing world produced 10 per cent of the world’s manufactured goods. That proportion has risen to 25 per cent and, if present trends are maintained, will reach 50 per cent by 2020. China has recently overtaken Japan to become the second largest economy in the world as measured in terms of purchasing power. In less than five years it is likely to surpass Japan’s economy in terms of market exchange values as well.5In 1980, the countries that now comprise EU25 produced 26 per cent of world manufacturing output. By 2003 that proportion had become reduced to 22 per cent and is likely to be no more than 17 per cent by 2015.

The larger companies no longer source their goods and services nationally, but worldwide, intensifying both trade and local specialization. In 2003–4 world trade grew twice as quickly as global output. Transnational trade in services is advancing rapidly, with India in the lead. India’s service exports in real money terms grew from a value of $5 billion in 1990 to $40 billion in 2004.

Competition from the developing economies is no longer concentrated only in low-cost goods. China and India have made large-scale investments in technology, especially information and communications technology (ICT), and are each producing four million graduates a year. No one knows how far the outsourcing of services will go, given the fact that it is driven partly by developments in computer technology and by the widening of access to such technology. However, the complexity of the services that can be outsourced is rising rapidly. Financial, legal, high-tech, journalistic and medical services are among those most likely to be directly affected. I shall discuss those issues in more detail in chapter 2.

The social model depends upon overall economic prosperity, to which ideally it should contribute. The EU’s economic performance over the past twenty years or so, however, has given rise to recurrent anxiety. The EU has fallen behind the US according to the standard measures of economic success. (Western) Europe was once in the vanguard of social and economic change; today, the EU risks getting left behind by history. The progress that has been made with consolidating the Single Market, and the introduction of the euro, have not created an economic regeneration.

We know from survey results that the issues which preoccupied voters in the referendums in France and the Netherlands were not in fact primarily constitutional. In France, 75 per cent of those who voted in the referendum and, extraordinarily, fully 66 per cent of ‘no’ voters, still believed a constitution for Europe was necessary. The position in the Netherlands was more complex, since some ‘no’ voters were worried about smaller countries becoming too dominated by larger ones. But in both nations, social and economic concerns were of prime importance – mainly worries about jobs and about the adequacy of welfare. Changes happening in the EU, especially to do with its expansion, were seen as likely to make an already difficult situation worse.

A few commentators tend to underplay the economic difficulties faced by Europe, especially when the EU is compared with the United States.6Europeans, they say, have made a lifestyle choice. They have traded in a certain level of possible growth for more leisure than is enjoyed by most Americans. Nevertheless, productivity in some EU countries rivals that of the US. Precisely because of Europe’s stronger welfare systems, there are fewer working poor in the EU states than in the US.

But these ideas are not convincing, as others have demonstrated.7 Average growth in the EU15 has declined in relative terms year on year since the 1980s. GDP per head has not got beyond 70 per cent of the US level over that period. Not only has the US had higher growth, it has also had greater macroeconomic stability over that time. About a third of the difference in per capita GDP with the US derives from lower average productivity of labour, a third from shorter working hours and the remaining third from a lower employment rate. None of these comes purely from choice, and all affect the viability of the ESM. Unemployment is far higher in the EU than in America. There are 93 million economically inactive people below the age of 60, a much higher rate than in the US.

Very many in Europe, including many young people – and over 60s – want to work but can’t. This comment also applies to immigrants. The US has done a better job of integrating immigrants into its labour market than have the EU countries. The jobless rate of non-nationals in the EU15 in 2002 was more than twice the rate for nationals. In the US the two rates are almost the same. The incorporation of ten new member states has brought with it a series of issues that are very remote from a ‘preference for leisure’. It has increased the EU population by 20 per cent, but GDP by only 5 per cent. Problems of inequality and cohesion have increased, both across the EU as a whole and within the member states.

Globalization

These are all challenges to which Europe can and must react. They have some major implications for the social model. However, in looking at strains affecting welfare systems, it is a mistake to focus on globalization alone. Some of the core problems faced by Europe’s welfare states come from endogenous structural change. These changes are directly connected with globalization (since almost all changes are) but are not wholly driven by it. This point is an important one to register, as some commentators invoke the spectre of globalization to explain away home-grown problems and delay reform.

The changing age profile of Europe is a case in point. In the EU today there are some 70 million people aged 60 and over, making up 20 per cent of the population. Over 30 per cent are aged 50 or more. One factor producing the ageing population is that, on average, people are living longer than in the past. A prime additional reason, however, is the low birth rate. This fact is easily understood if we compare the EU with the US. Following its most recent expansion, the EU has a population of 455 million, compared to 295 million in the US. Yet if current trends were maintained, by mid-century the two populations will be virtually the same.8 In America, birth rates are at replacement level. In the EU25, by contrast, they average 1.5 per 1,000 women, and in some countries the rate is as low as 1.2. If nothing changes in Italy, for example, the numbers of those of working age (19–65) will decrease by 20 per cent by 2035.

The steep decline in the number of those working in manufacture in the EU countries has been influenced by the transfer of industry to the developing world, and thus by economic globalization. But the main reason is not this. It is the impact of technological change, which in many industries has either reduced the need for human labour power or has simply rendered more traditional production processes obsolete. For instance, car manufacture has been almost wholly automated; the coal industry in most countries has shrunk, largely because of a widespread transfer to natural gas. Of course, it is again the interaction between ‘inside’ and ‘outside’ influences that is important. Technological change has accelerated because of growing intensity of competition.

One further example: patterns of poverty and social exclusion, although certainly affected by globalization, are influenced by endogenous changes too, including, in particular, transformations in the structure of the family. In most EU countries, rates of divorce are higher, and rates of marriage lower, than they were in the past. Families are more mobile, and may lack the extended kin relations that were once a source of social support. There is also the rise of the ‘non-conventional family’ – women having children on their own, same-sex partners living together, and so forth. These trends are complex and often difficult to interpret, but they have strongly influenced the nature of poverty and other forms of deprivation. Women and children make up a high percentage of the ‘new poor’ in most EU countries.

What globalization is has to be properly understood. Globalization is often seen solely as an economic phenomenon, even by some of the most sophisticated commentators on the subject. Martin Wolf, for example, defines it as ‘the integration of economic activities, across borders, through markets’.9 The definition is not so much incorrect as too partial. Globalization is so obviously not only economic that it is hard to see how anyone could seriously think otherwise.

Consider, for example, the role of communications media. The world has become interconnected electronically in ways that no one could have even anticipated several decades ago. I would in fact date the beginnings of the global age to the late 1960s or early 1970s, the first time at which an effective satellite system was sent up above the earth, making possible instantaneous communication from any one point in the world to any other. The generalization of the Internet, which dates only from the late 1990s, has added to this process. Many aspects of social and economic life in the EU countries – as elsewhere – have been changed by these developments. Migration, for instance, arguably changes its nature, as migrants can now keep in touch with those in their countries of origin whenever they wish.

‘The EU must respond to globalization’, it is often said. Well, yes, but globalization is a two-way set of processes. The EU cannot just ‘respond’ to globalization, since today it is both an instrument and an expression of it. Globalization – in its diverse forms – doesn’t just come from the outside. Every time I switch on a computer, send an email, look at information on the Internet, put on the television or radio, I actively contribute to globalization at the same time as I make use of it.

Talk of ‘countering globalization’ or creating ‘globalization with a human face’ makes no sense in such a context. Some aspects of globalization need to be managed, often at local, national and transnational levels. But globalization, often increasing globalization, is usually the means of doing so. This observation is as true of the world marketplace as it is of climate change, new-style terrorism, money laundering or organized crime.

Competitiveness in global markets is essential to Europe’s future, and to the survival of the social model too. The rise of India and China and other countries in the less developed world shows definitively that globalization is not just a means for the West to dominate the rest. Yet we have to consider many other ways in which globalization affects, and is affected by, the EU. The economic advances made by China, for example, have a direct impact on geopolitics – and from there to other areas. China’s need for oil, for example, has caused it to have close ties with Iran. Iran looks bent on acquiring nuclear weapons. Largely because of its oil dependency, China is not likely to join other nations in imposing effective sanctions on the country. A nuclear Iran would represent a new power, and perhaps a highly dangerous one, standing close to many of the sources of energy supply to Europe, from the Middle East and central Asia. Individual nations cannot hope to cope with these problems.

Types of social model

It is obvious that there is no single social model in Europe. Many attempts have been made to classify welfare states in Europe into different types, but by far the most widely used is that offered by the Danish social scientist Gøsta Esping-Andersen. He distinguishes three main types of ‘welfare capitalism’.10 These are the Nordic type, based upon high taxation and extensive job opportunities provided within the welfare state itself; the conservative or corporatist type (Germany, France, Italy), based mainly on payroll contributions; and the liberal or Anglo-Saxon type, represented by the UK and Ireland, a more ‘residual’ form of welfare system, having a lower taxation base and using more targeted policies. Others have added a fourth type alongside the three Esping-Andersen originally recognized – the Mediterranean one (Spain, Portugal, Greece), which also has a fairly low tax base and depends heavily upon provision from the family.11 Today we would have to include a fifth type too, the post-Communist one, referring to the countries of former Eastern Europe, struggling to develop Western-style welfare states.

In developing his typology, Esping-Andersen made much of the ‘service economy trilemma’ – a notion originally formulated by Torben Iversen and Anne Wren.12 This ‘trilemma’ is the main reason why Esping-Andersen believes the three types of welfare system he sets out have diverged, since it limits the degree to which common policies can be applied across them. The idea is that it is impossible in a modern economy simultaneously to have balanced budgets, low levels of economic inequality and high levels of employment. Two of these goals can be successfully pursued by governments at any one time, but not all three. The different types of system are distinguished partly because they have chosen varying combinations.

In the Nordic countries, Esping-Andersen says, the welfare state acts as employer, providing a large number of public-sector service jobs, hence helping to lower unemployment. Taxation is high, however, and this situation puts a continual strain on borrowing levels. The Anglo-Saxon countries, such as the UK and, outside the EU, Australia and Canada, have generated large numbers of private-sector jobs, and have maintained fiscal discipline, but are marked by high levels of poverty. In the corporatist type, such as Germany or France, by contrast, there is a commitment to limiting inequality and (at least until recently) to budgetary constraint. However, these countries are dogged by low levels of job growth.

But is the ‘trilemma’ real? Anton Hemerijck and his colleagues have argued persuasively that the empirical evidence for it is ‘surprisingly shaky’.13 The recent history of Scandinavia shows that it is in fact possible to have sound public finances, low inequality and high levels of employment at the same time. Per contra, it also seems possible to have only one of the three. Germany, for example, now has high levels of unemployment and a burgeoning public debt. Moreover, the various ‘types’ are themselves not very clear-cut. Thus Nordic states in some ways differ from one another significantly. It is not obvious that Germany and France belong to a single type. The UK is supposed to be a ‘residual’ welfare state, dominated by markets, but its net taxation levels are now about the same as Germany’s. In the shape of the NHS, moreover, it has the most ‘socialized’ system of medicine in Europe.14 Hemerijck concludes that the welfare states which have adapted best to changing conditions have created ‘hybrid models’, borrowed in some part from elsewhere. It is a case I find convincing, and I shall suggest below that a great deal of mutual learning is possible. Esping-Andersen’s typology remains useful (as will be shown in what follows) – and was only supposed to be a series of ideal types in the first place – but the boundaries between the types are in practice porous and becoming increasingly so.

Good performers, poor performers

Since the early to mid-1990s, some EU states have performed much better than others, both in economic and social terms. It is actually a mistake to say that the welfare state everywhere is failing. Comparison of the good performers with those that have fared less well yields some interesting results. As measured in terms of economic criteria such as levels of GDP growth, inflation and economic sustainability, the most impressive countries in the EU over that period have been Denmark, Finland and Sweden, all of which have developed welfare states. The three least effective have been the large Continental economies, Germany, France and Italy. A detailed comparison between these two groups has been made by the Austrian economist Karl Aiginger.15

Average growth rates in the 1990s and early 2000s in the three Nordic states, Aiginger points out, were 2.9 per cent, very close to the US level. Germany, France and Italy managed an average of only 1.6 per cent. In the Nordic countries over the 1990s productivity increased by 2.4 per cent, compared to 0.5 per cent in Germany, France and Italy. Their employment rate in 2002 averaged 71 per cent compared to 62 per cent in the other group. Budgets have been balanced or in surplus, while the three Continental countries have been running big deficits. In contrast to larger states, the Nordic countries are highly open and market-oriented. Finland and Denmark have regularly topped lists of the most business-friendly countries produced by the World Economic Forum and similar organizations.

A variety of factors seem to have influenced their success. The prime one, however, is the patterns of social investment that the countries have followed. All three countries have invested heavily in innovative forms of technology and education. The Danish strategy involves diffusing IT widely and building successful technology clusters. Finland makes even more extensive use of IT, both in economic restructuring and in government. The country has a higher degree of IT penetration than the US.

Expenditures on R&D in Scandinavia16 are twice as high as in the three Continental countries. Spending on education in general, and higher education in particular, is considerably greater. The Scandinavian countries are also rated very highly in international rankings of educational attainment.17

The Nordic states have the lowest levels of economic inequality in the world and levels of child poverty are very low. They also fare well on most other indicators of well-being and health. These achievements have come not from refusing reform, but from embracing it. All three societies have restructured their labour markets – ‘flexicurity’ (flexibility plus security) has its origins in Sweden but, in somewhat varying guises, has been adopted by Denmark and Finland too. If job search is unsuccessful after a certain period, the unemployed are obliged to undertake retraining and to accept jobs that they are offered.

To achieve balanced budgets, cut-backs were made in state expenditure in the early 1990s, but without creating major increases either in poverty or overall economic inequality. A crucial part of the Nordic adaptation to change has been the promotion of family-friendly policies. Their experience shows that business- and family-friendly policies are not incompatible, especially as long as part-time work preserves much of the status and privileges of full-time work. Although the level of gender segregation in Scandinavia is high, partly because many women work for the state, in general both women and children fare particularly well.

Work has been made a priority – in order to have a high employment rate, but also because having a decent job is the best route out of poverty. This precept applies to women as well as men; in Denmark, for example, 90 per cent of single mothers are in work. Post-school education and training have become extremely widespread. So far as public (state-based) services are concerned, the Nordic states have been not only reformist but also experimental – considerably more so than the poorly performing societies. (Many of the policies involved were initially highly controversial.) Education and health care have been radically decentralized and incentives introduced to improve efficiency. Foundation hospitals – non-profit organizations having a high degree of control over their budgets and their programmes of health care – were pioneered in Denmark and Sweden.

The egalitarian nature of the Nordic countries, Aiginger points out, comes less from direct redistribution as such than from the social investment made in children and in improving the position of women. Patriarchal power has not disappeared, but is more muted than in most other countries. As a consequence – and together with welfare reforms – women and children are less dependent upon a male breadwinner’s wage than anywhere else in Europe. Single mothers or divorced women lose less of their income relative to men than happens elsewhere.

Birth rates remain quite high in Scandinavia, certainly by EU standards. Of the three big Continental countries, only France has a comparable birth rate. France has invested in child care, and has a benefit system that supports mothers regardless of whether they are married or in a relationship (it has not done nearly as well at getting them into or keeping them in work). The system in Germany and Italy, by contrast, depends heavily on the traditional family, which supposedly will pick up the pieces when financial hardship or other problems loom. Yet the traditional family, with its clear division of labour between the sexes, and its various forms of mutuality, is disappearing everywhere. In any case it provided no real place for unmarried mothers or divorced women.

The Scandinavian countries have reformed their pensions systems to make them sustainable in the longer term. They have also instituted measures to encourage older people either to continue working or to come back into the labour force. Sweden, for example, carried out basic pensions reforms in the 1990s. The old earnings-related benefit system was replaced by one of fixed contributions. There is a universal guaranteed pension, but the size of the guaranteed element is fixed in relation to the level of income. The system provides very effective cost controls, while the tie to lifetime earnings creates savings incentives.18

A basic move in Sweden, followed to some degree by Denmark, has been the introduction of choice into the state school system. In policies introduced in Sweden in 1992, independent profit-making and non-profit-making schools were set up alongside orthodox state schools, founded on equal per pupil financial terms. Vouchers are available to parents to select the school of their choice. Studies indicate that the programme has been successful – although it remains controversial. Overall performance in the school system has improved, with fewer pupils leaving without qualifications.19

The Scandinavian countries are not the only European nations to have done well over the past decade and a half. Others include Ireland, the UK, the Netherlands and Spain. They all share some elements in common: an overall orientation to reform, high levels of structural investment, and the liberalization of labour markets. I shall have more to say about these countries in what follows later.

Some have suggested there is little for the rest of Europe to learn from the Nordic states. They are all small – smaller countries might be different from larger ones generically, and in any case are easier to change. Tax revenues are higher than in other EU countries. These points are important, but no one would suggest exporting the ‘Nordic model’ en bloc. The point is to identify policies that can be implemented elsewhere.

Today’s success can become tomorrow’s failure, so the lessons of current best practice should be treated with some caution. After all, it was not long ago that Germany’s ‘consensus capitalism’ was widely perceived to be a way forward for Europe as a whole; now it is at the other end of the scale. However, it would be perverse indeed to say that there are no lessons to be learned by others from the countries that are faring best. Not just the policies, but some of the mechanics of change may be relevant. The union movement in the Nordic countries has played an important role in facilitating change and reform. When the social partners (employers as well as unions) do in fact act as social partners, looking for constructive reform rather than seeking to defend sectional interests, the results can be positive for the labour force.

Lisbon and After

We don’t lack for reports suggesting what should be done to get the underperforming parts of the EU back on their feet again, and generally to make the EU states more competitive. Most centre upon the Lisbon Agenda, to which European leaders committed themselves in March 2000. The EU at that point set itself a number of strategic goals for the next decade: ‘to become the most dynamic and competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment’. Average growth was to reach 3 per cent per annum and employment an average of 70 per cent by 2010. To reach these declared goals, it was argued, member states would have to act in concert with one another. The ‘open method of coordination’ (OMC), essentially a benchmarking exercise, was invented because the EU lacks power to intervene directly in producing most of the reforms deemed necessary. Under the OMC, member states agreed voluntarily to pursue a designated range of targets, customized to suit their specific needs in the relation to the knowledge economy.

The results so far have fallen well short of expectations – so much so that the ambition of becoming the world’s most competitive economy by 2010 has been widely lampooned. The announcement of the Lisbon Agenda was almost immediately followed by two years of recession in the world economy, in which the US was affected, but the EU suffered even more. By and large, the states that took most notice of the Lisbon Agenda were those that least needed it – the ‘best performers’ noted above. In the larger Continental countries it was more or less ignored, at least until quite recently.

Average GDP per head in the EU15 in 2005 was 27 per cent below that of the US – exactly the same as was the case in 2000. Moreover, productivity growth in the US was 1 per cent higher than that of the EU in each of the years 1995–2005.20 Of the EU25 countries, twelve currently have budget deficits at or above the 3 per cent limit set in the 1997 Growth and Stability Pact. In other words, they have little or no money to invest in the areas covered by the Lisbon Agenda.

Some progress has been made since 2000. The average employment rate rose from 62.5 per cent in 1999 to 63.3 per cent in 2004 in the EU15 countries. In the same year, 41 per cent of 55–64-yearolds were in employment, compared to 36.6 per cent in 2000. The female participation rate has grown substantially, reaching 55.7 per cent. These averages conceal large variations between different countries. For instance, only 45 per cent of women are in work in Greece and Italy, and just 33 per cent in Malta. Enlargement means that the targets, at least for the time being, have become even more difficult to meet – although this situation may be compensated for by higher growth rates in the new entrant states. At the point of enlargement, the average employment rate for the EU dropped by 1.5 per cent.

In the light of its slow progress, and Europe’s economic weaknesses more generally, the Lisbon Agenda has been subject to a series of revisions; and has been monitored and criticized in an almost endless range of reports. The most important are those produced by two ‘high-level groups’, one chaired by Wim Kok (Dutch prime minister from 1994 to 2002), the other by the Belgian economist André Sapir.

The Kok Report endorsed the goals of the Lisbon Agenda, and defended the possibility of achieving them by 2010. However, it offered a range of criticisms. The original strategy was too broad, with responsibilities for change too inadequately pinned down. In a much-quoted statement, the Kok Report observed that ‘Lisbon is about everything and thus about nothing. Everybody is responsible and thus no one.’21 The report strongly emphasized the need to complete the Single Market. Continuing to open the market in Europe to goods and services, while resisting protectionist pressures, is fundamental to Europe’s economic prospects. In supposedly liberalized sectors such as utilities, the report points out, national operators are still often accorded a privileged place. Electricity and gas markets are due to be wholly opened by July 2007, and it is expected that member states comply with this obligation, although the prospect looks distinctly unlikely.

The Sapir Report, published slightly earlier, reaches similar conclusions. Growth in Europe overall has been disappointing, likewise job creation – ‘it is as if Europe has become stuck in a rut’.22 The report is a very thorough one, the best that has been produced in recent years concerning the economic prospects of the EU and what can be done to improve them. It concentrates on a six-point agenda for change:

 1   Make the Single Market more dynamic. Services must be opened up to competition, regulation relaxed and competition policy altered to give better market access to new enterprises. A proactive strategy towards mobility of labour in Europe is needed.

 2   Boost investment in knowledge: increase national and EU spending on research and postgraduate education and introduce tax credits to encourage private-sector R&D.

 3   Improve the macroeconomic framework for Economic and Monetary Union (EMU) – basically, create incentives for countries to build up surpluses in good times and provide more flexibility in more difficult ones.

 4   Redesign policies for convergence and restructuring. Convergence funds given to lower-income countries should focus upon institution-building and investment in human and physical capital. There should be EU restructuring support for workers who lose their jobs and need to retrain, as an adjunct to national policies.

 5   Achieve more effective decision-making and regulation by having a clearer definition of the relations between EU and national decision-processes, strengthening the purchase of the OMC.

 6   Refocus the EU budget away from agricultural spending by devolving rural financing to the member states. Spend the budget primarily on growth, convergence and restructuring funds.

A review of the Lisbon Agenda was made by the European Council in March 2005, the halfway point in its development. In accordance with recommendations of the Kok Report, the programme was streamlined and clarified, with the dominant emphasis being placed upon growth and jobs. Other goals, including those of improving social cohesion and reducing social exclusion, were not discarded, but along with environmental goals were given lower priority. Since these aims demand investment, it was reasoned, growth and jobs must come first. The Commission set out new guidelines to make sure that funds allocated to lower-income nations and regions are spent pursuing Lisbon goals.

The budget deal concluded in December 2005, however, incorporated virtually none of these prescriptions, although a thorough review of expenditure was promised for 2008. The budget as it stands means that less than 10 per cent of EU spending over the period 2007–2013 will be on Lisbon priorities. Some of the difficulties of the EU were fully on display in the budget negotiations. Leaders play to their national audiences and defend first and foremost their national interests. There seems little notion of making sacrifices for the collective good; on the contrary, such an attitude tends to be interpreted as a sign of weakness.

It isn’t surprising that Lisbon ‘league tables’ closely match the track records of the various EU nations. Denmark, Sweden, Austria and the UK occupy the top four places in those tables. France is in eighth place, Germany tenth, and Italy a lowly twenty-third. The new entrant states are down near the bottom and have a lot of work to do to catch up.

There are two quite distinct views held across Europe about the reasons for the EU’s poor overall record on job creation and economic growth. The approach of the Lisbon Agenda (and of this book) is that lack of structural reforms, particularly in certain key countries, is the main explanation. Innovation and reform, much of which has to happen at national level, are essential.

The other view is that Europe’s poor performance can best be explained in terms of deficiencies in macroeconomic policy – and that this is the level on which they need to be remedied. The European Central Bank, it is said, has placed too much emphasis upon price stability and not enough upon stimulating growth. Those who take this view argue that Keynesian policies can still work at a European level even though they no longer apply at a national one. Thus there could be a Europe of ‘grands projets’ – for example, large-scale investments in new transport links – which could help generate jobs and restore higher levels of growth. Proponents of this idea also tend to argue that social justice can also be most effectively created by EU-level policies. For instance, the idea of a Europe-wide minimum wage has been widely promoted.23

A Europe of ‘grands projets’ may very well be worthwhile if appropriate sources of finance could be found. But as a way of generating jobs and restoring growth it would fail for the same reasons as Keynesian policies have failed at the national level. Investors today factor in the anticipated consequences of new projects, and hence negate their impact on demand. A European minimum wage is not a serious option, since the levels of prosperity of member states are so different. It could at most be a formula applied as a proportion of the income levels of member states; but the divergences would be so great as to make it largely meaningless.

The current Eurozone banking rules were set up to prevent political interference with the European Central Bank’s decisions, as well as to establish the credibility of the single currency. The EU fiscal discipline framework can certainly be questioned. However, any reform of this framework has to accept that fiscal responsibility is an essential quality of monetary union. The two positions are only mutually exclusive if radicalized, which is surely a mistake. Macroeconomic policy could be oriented more towards helping create the conditions within nations known to be relevant to productivity and growth. It is just such a position that is in fact suggested in the Sapir Report.24 I shall return to some of these issues in chapter 6.

Some implications

Let me at this point summarize the implications of the material discussed so far. The experience of the good performers in Europe, and the contrasts with those that have fared poorly, gives us a framework for policy capable of wide application. The following comments set out some of the policy orientations stemming from this analysis.

First, an effective social model has to put growth and jobs at the forefront, just as the best performers have done, although certainly not to the exclusion of all else. A high level of employment, above a decent minimum wage, is desirable for more than one reason. The greater the proportion of people in jobs, the more money is available – other things being equal – to spend on social investment and social protection. Having a job is also the best route out of poverty. The Lisbon aim of getting an average of 70 per cent or more of the workforce into jobs is not in principle unrealistic. But all depends on the will to reform in those countries where the employment ratio is well below this figure. Many factors, of course, go into creating more net jobs. However, it cannot be accidental that all the countries that have employment ratios of over 70 per cent in Europe have active labour market policies.

Second, those on the right of the political spectrum argue that only low-tax economies can prosper in a world of intensifying competition. Yet the evidence to the contrary seems unequivocal. There is no direct relationship between taxation as a proportion of GDP and either economic growth or job creation. There probably is an upper limit, as is indicated by the case of Sweden, which has for some while had the highest tax rate among the industrial countries, but saw its level of income per head slip markedly in relative terms. However, more important than the size of the state is how effective the state institutions are and the nature of economic and social policies pursued.

Third, flexibility in labour markets is an essential part of the policy framework of the successful states. It does not mean American-style hire and fire. In an era of accelerating technological change, ‘employability’ – being willing and able to move on – becomes of prime importance. ‘Protect the worker, not the job’, the slogan of labour market reform in Denmark, is the core principle in a world of economic uncertainty. ‘Moving on’ often has to happen within the same job, because of the importance of technological change. It has been estimated that in the EU15 economies, 80 per cent of the technology in use over the period 1995–2005 is less than ten years old. However, 80 per cent of the workforce was trained more than ten years ago.

Flexibility has a bad name, especially among some on the left. For them, it means sacrificing the needs of the workforce to the demands of capitalistic competition. But the nature of labour market regulation is at least as important as its extent. Many labour rights can and should remain. They include rights of representation and consultation, the regulation of working conditions, laws against discrimination, and so forth. Ireland has enjoyed phenomenal growth while implementing all relevant EU labour legislation of this sort.25

Many employees in fact want flexible working, and part-time work, in order to accommodate family demands. Flexibility also meshes to a considerable degree with wider trends in everyday life in modern societies. Most citizens are accustomed to a much wider range of lifestyle choices than a generation ago, including, if it is feasible for them, when and where to work and what type of work to do (much more on this point later).

Fourth, the much-touted ‘knowledge economy’ is not just an empty term, an invention of the Lisbon Agenda that lost its relevance when the dot.com bubble burst. It should more accurately be called a knowledge and service economy, because by no means all services demand high levels of training. Only 16 per cent of the labour force on average in the EU15 countries now work in manufacturing, and that proportion is still falling. To put it the other way around, over 80 per cent of people must now get their living from knowledge-based or service jobs.