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Wither Social Europe

The left needs to respond the neo-liberal reality of the EU and accept that the Social Europe idea is on its knees argues Philip B Whyman and Mark Baimbridge.

Over the past decade the left has increasingly embraced European integration as a bulwark to globalisation. However, the view that the EU provides the potential for realising a progressive social and economic policy is problematic. The creation of a 'Social Europe' is patchy in both coverage and generosity, because at least four variants of the European Social Model (ESM) exist. Moreover, the neo-liberal framework associated with Economic and Monetary Union (EMU) requires the separate formulation of monetary policy by the independent European Central Bank (ECB) from nationally determined fiscal policy, itself constrained by the Stability and Growth Pact (SGP), leading to a lack of policy coordination prejudicial to the construction of a progressive economic framework. Hence, this approach is the antithesis to traditional democratic socialist objectives.

Moreover, the recent neo-liberal drift in strategy espoused by the European Commission implies that, either the Left has to redouble its efforts in a struggle within the EU to realise a fundamental reform of its institutions and policy framework, or else consider other, more nationally-orientated alternatives. However, to facilitate such strategies the nature of membership per se is called into question in terms of alternatives that might produce more egalitarian results. Consequently, we also outline a number of these policy options and evaluate their potential benefits and costs from a broad political economy framework.

One of the main reasons why social democratic and trade union constituencies tend to favour deeper European integration derives from their enthusiastic support for the espace social européen. This vision is typically counter-poised against a neo-liberal, 'Anglo-Saxon' model, characterised by the unfettered operation of free market forces. In the ESM alternative, European citizens benefit from comprehensive social protection, wage regulation and social partnership. Additionally, trade unions play an important part in the management of the labour market, rather than being marginalised by the growth of individual wage formation. Consequently, many adherents dream of corporatist solutions, or Euro-Keynesian macroeconomic policies, even though these have not been realistic alternatives for two decades or more. However, given the prevailing drift towards more market solutions, it is not surprising that those with more progressive inclinations are so attracted by the ESM. Unfortunately, it is only a mirage.

There are a number of reasons for this conclusion. The first relates to the fact that the EU was founded as an economic organisation, focused upon promoting integration through trade. It approached this through the removal of internal trade barriers whilst retaining them against the rest of the world. The founding Treaty of Rome established 'four freedoms', one of which being the free movement of capital, thereby preventing future governments from exercising democratic control over capital movements. This has proven to be a problematic decision, not only in preventing many of the steps that could have been taken to prevent the contagion experienced during the recent financial crisis, but also for those advocating an alternative economic policy utilising Keynesian and/or active industrial policy instruments.

Furthermore, the establishment of EMU amongst a majority of EU member states ties participants to a single monetary policy operated by the ECB; based in Germany, the EU's dominant economy. Its design means that participants, once they become uncompetitive, have little choice but to deflate their economies by squeezing wages and/or cut public spending in an attempt to reduce internal costs. The Lisbon Agenda, adopted by the EU in 2000 and intended to enhance Europe's competitive position, plays lip service to the ESM, but the emerging 'Brussels-Frankfurt consensus' is profoundly neo-classical in nature. It adopts concepts such as pre-commitment to fiscal rules, rather than counter-cyclical discretion and accepts uncritically theories such as the neo-liberal explanation of inflation and unemployment, which places labour market (i.e. wage) issues at the heart of explaining the existence of unemployment, rather than a lack of effective demand in the economy. Thus, if Europe has a weak competitive position, it should create better allocative efficiencies through reducing wages or the social wage and promote market solutions. As such, there is a fundamental conflict between the economic infrastructure and the social superstructure of EU policy.

It is against this growth in EU neo-liberal economic orthodoxy that the ESM is supposed to provide a counterweight. But how? Tax revenues are coming under increasing pressure, as certain EU economies act as tax havens for global transnational corporations. Moreover, social policy becomes less a means of decommodification and more an instrument of reinforcing market solutions; for example, enshrining the work principle, cutting pensions and other programmes to maintain competitiveness. Enshrining trade union participation in decision-making seems a shallow prize, when this has little impact upon economic orthodoxy at the macroeconomic level. This is underlined when firms are increasingly seeking to introduce individualised payment systems within human resource management systems that offer less scope for active trade union representation of their members' interests.

Furthermore, the enlargement of the EU, whilst desirable in many respects, reinforces this position. Since wages in new member states are so much lower than for the EU as a whole, there is no realistic prospect of trying to equalise wages through regulation or trade union supranational bargaining, nor is the establishment of European minimum wages very likely. The unification of East and West Germany demonstrated what damage could be inflicted upon a less productive economy, when wages were equalised too quickly. Unsurprisingly, the new member states could not sustain this solution. Similarly, many new member states have under-developed social and welfare policies. For those former communist nations, where a considerable proportion of social support was dealt with via employing organisations, the shift to capitalism and market solutions have stripped-out most of this former system without, in many cases, replacing it with a system of social support comparable with more established EU nations. Hence, the suggestion that harmonisation of social measures could form the basis for an ESM is unrealistic. Indeed, recent developments in the social protection systems in a variety of established EU member states would appear to reinforce this.

So, where does this leave progressive opinion? If the ESM is unlikely to be enacted in any kind of meaningful way beyond the minimal welfare base line that for most EU nations represents a race to the bottom in social terms, where does that leave support for further integration and support for continual membership of the EU?

One option might be to keep the faith and trust that, if or when new member states catch-up with more established EU nations, the potential for equalisation of social protection and wages can occur. However, this will be a long and painful wait for many EU citizens. Moreover, the concept of convergence is not automatic, as can be evidenced by observing the economic development of Spain, Portugal, Ireland and most obviously, Greece.

A second alternative would be to adopt a 'trade union' approach to EU membership and/or support for further European integration. In any negotiation, each party operates a system of sanctions and rewards; therefore, progressives might wish to consider threatening to remove their support for integration, unless specific elements of the ESM programme were introduced immediately. However, sanctions are not credible if no-one believes them to be real. For example, trade union strike threats only work if managers believe that this has the potential to disrupt productive activity.

A third alternative is to conclude that the European integration project offers little for ordinary working people, as opposed to big business, and opt to develop better national solutions. This will require the construction of sufficient electoral support to make this a reality, but this is what left-of-centre political forces should be doing in any case. Moreover, to the extent that EU rules and regulations impede developing this new approach, creative solutions would need to be identified.

For example, if a more active industrial policy falls foul of the EU's competition law, then if this cannot be changed within EU membership, or support for certain industries cannot provide real support without appearing to offer anything looking like a subsidy, then EU membership itself comes into question. Similarly with macroeconomic policy; if the EU persists with its current orthodox approach, and the UK or any other nation wishes to pursue a Keynesian and/or more regulatory approach, then membership will have to be re-examined.

The Lisbon process has provided the ESM with a problem that may prove difficult (if not impossible) to solve. On the one hand, the EU is committed to developing a more participatory, citizen-friendly form of social and economic governance, involving employees in decision-making within the workplace and creating a form of economics centred upon maintaining a high level of employment. However, simultaneously the EU is committed to an economic agenda seeking to raise productivity through market determination in the social and labour market spheres. One vision of the future takes as its basis a quasi-Keynesian negotiated economy model, whereas the other has supply-side neo-liberal foundations. To prevent cognitive dissonance, the EU needs to either demonstrate how it can square this particular circle, or else decide which approach it wishes to pursue.

Philip B. Whyman is a Professor at the University of Central Lancashire & Mark Baimbridge is a Senior Lecturer at the University of Bradford

The arguments contained in this article are discussed at greater length, in Whyman, P.B., Baimbridge, M. and Mullen, A. (2012) The Political Economy of the European Social Model, Routledge, Abingdon