Europe's Social Integration: Welfare Models and Economic Transformations

Europe’s Social Integration

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Europe’s Social Integration

Welfare Models and Economic Transformations

By László Andor

Translated from Hungarian by Stephen Anthony

Copyright © 2022 by Foundation for European Progressive Studies

Published by London Publishing Partnership

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Published in association with the Foundation for

European Progressive Studies

www.feps-europe.eu

European Political Foundation – N° 4 BE 896.230.213

Published with the financial support of the

European Parliament. The views expressed in this

report are solely those of the authors and do not

necessarily reflect the views of the European Parliament.

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Contents

Preface vii

The rise and evolution of welfare states 1

Global competition and social divides 23

Currency, crisis, solidarity 51

Eastern imbalance: growth without welfare 77

A digital future: fears and dreams 103

The social dimension and political cohesion 125

Europe’s fight for health and unity 149

Conclusion: the social union imperative 175

References 183

Index 195

Preface

The concept of the European social model has become unavoidable in the spheres of sociology and political economy since the beginning of the 1990s. Why the early 1990s? When exploring the genesis of the concept, this period must be highlighted for at least three reasons.

Firstly, most people historically associated Western European social models built on increasing prosperity and class compromise with post-war reconstruction and the Cold War period, but with the passing of the Cold War the political pillars of these social models shifted and the future of the welfare compromise became uncertain. Secondly, the acceleration of the process of European integration, the introduction of the single market and single currency, and the transformation of the Economic Community into a Union could not have occurred without the definition of the bloc’s social dimension. The promise of a ‘social Europe’ found wide support, giving birth to initiatives at the European level that were immensely diverse in their character and strength. Thirdly, it was in precisely this period – specifically in 1990 – that the Danish sociologist Gøsta Esping-Andersen’s published his landmark work on the models of welfare capitalism, which thereafter became an indispensable point of reference and resource, providing direction and inspiration to researchers in sociology and political economy alike.

Although the concept of the European social model is thus essentially contemporaneous with the inception of the EU, the three decades that have since elapsed have also been shadowed throughout by the debate over the relationship between European integration and the continent’s social models. European integration remains sufficiently opaque and ambiguous for most observers to be unable to easily determine whether the EU is a protector of the welfare systems and social cohesion of member states or whether it is just another factor in a long list of threats.

Treatises on the sustainability of the welfare state, when dissecting the real or perceived causes and processes of its weakening, routinely point to the impact of demographic and technological changes, as well as the challenges posed by globalization and the ecological crisis. It is often very difficult to distinguish between what occurs as a consequence of political decisions and what is part of an independently prevalent megatrend. But though their causes may be unclear, it is an easier task to determine whether trends are improving or harming the societies they affect, thanks to the significant advance and relatively uniform propagation of social indicators.

One of the main players in the development of a uniform methodology is the EU itself. However, the extent to which the EU is able to – or even wishes to – protect, strengthen and develop the welfare systems of member states in accordance with its economic aspirations and its specific form of integration has been an absolutely justified topic of debate over the past ten to fifteen years. This volume – incorporating my previously published writings, of varying levels of detail – may be regarded as a product of such debates.

The outline of the present volume took shape in 2016 – at the time, without the specific intention of serving as the basis for a book – at a conference held in Paris to mark the sixtieth anniversary of the formation of the Council of Europe Development Bank. The panel on which I spoke was convened to address the challenges of European economic and social models. My brief contribution outlined the four factors that seemed the most critical at that moment from the perspective of the sustainability of welfare models: globalization, monetary integration, eastward enlargement and the dawn of the new digital era.

The book’s first edition, published in Hungarian in 2017, relied on the above-mentioned contribution in exploring the relationship between welfare models and European crises, reviewing a quarter of a century of debate over the welfare state and emphasizing the East-Central European, and particularly the Hungarian, aspects of the issue. In discussing the four key challenges, I also saw it as important to examine the attempted responses, ideas and searches for solutions of various governments.

Readers of this English-language edition should also be aware that the question of the welfare state was one of the cardinal problems of social theory concerned with the change of political system in East-Central Europe at the end of the twentieth century. In the 1980s, at a time of chronic financial crisis and economic stagnation in state-socialist systems, it seemed to many that a welfare capitalist alternative existed for the countries of the region: that radical reforms leading towards a market economy might result in the adoption of the Finnish or Austrian models.

Ostensibly, there was no reason to doubt the feasibility of the welfare capitalist model during the period of regime change. The question of whether such an alternative existed at all did not need to be raised before the wider public in 1989–90, since the answer was a priori in the affirmative. Since then, though, the early illusions have been replaced by experience and a much more complex theoretical understanding of the capitalist system and its diverse variants.

Research into welfare capitalism is, therefore, at once a theoretical problem and a practical one closely related to the story of regime change and the questions it poses. How much did the promise of welfare capitalism influence the political forces involved in regime change at the end of the 1980s and into the ensuing decade? What criteria would serve as the basis for judging whether the East-Central European capitalism that came into being in the wake of the transformation of the 1990s was even of the welfare variety?

Moving into the twenty-first century, the questions of the 1990s needed to be supplemented with additional ones. Has capitalism in the west (and in the EU within it) become progressively more welfare-oriented, or are social reforms in the process of being reversed? To what extent can the Western European welfare model be regarded as an evolutionary target in today’s capitalism, looked at as a pattern to follow elsewhere in the world? Does it help create a better society if the EU centralizes more powers in the field of social policy? And how have changes in this sphere impacted the programme of the most significant progressive tendency in Europe: social democracy?

It is impossible to provide exhaustive answers to all these questions in a single volume. However, what must be stated clearly is that the social reform of capitalism (whichever model is concerned) and the resilience of welfare systems continue to be crucial questions for politics and policy in Europe. New developments and challenges such as the digital revolution, successive waves of immigration and the currency union crisis do not replace but rather add nuance to and expand on such questions as the long-term sustainability of welfare institutions and the curbing of income inequalities.

The book’s 2019 Italian edition offered a deeper analysis of the link between European social crises and populism – a link that appeared as a shared concern for Hungary and Italy, even if the origin of this concern was not exactly the same for the two countries. For Hungary, the autocratic degeneration of the political system was a combined product of the failed post-communist transition and the global financial crisis of 2008–9; for Italy, it was the eurozone crisis that triggered the collapse of support for traditional centre-left and centre-right parties and gave rise to new patterns of populism as well as hard-right nationalism.

The 2022 English-language edition has been prepared with a substantial reworking and expansion of the original text. Besides more detailed analysis of the original four problem areas, separate chapters are devoted to reconstruction of the EU’s social dimension following the financial crisis as well as the impact of the Covid-19 crisis on social integration and European solidarity.

The unaltered goal of this enlarged new edition is to urge social scientists committed to the topic to engage in a collaborative exchange of thought and debate, particularly with respect to the connection between social models and European integration. Without questioning, and indeed by emphasizing, that Europe’s welfare models are inherently to be understood within national or smaller regional frameworks, I argue that the prevailing trend – as a consequence of shared global challenges and ever-deepening European economic integration – nevertheless points towards a progressively stronger role to be assigned to the frameworks created by the EU.

This volume also provides additional economic and social statistics in reviewing the development of European social policy over the past three decades, and it discusses the guiding ideas that have determined the progress of welfare policy over this period. I trace the evolution of the EU’s social dimension, looking at how social conditions in European countries developed during a period of major financial and economic crises. I also compare the progress of the principal welfare indicators in various individual regions.

Focusing on four key challenges, this book aims to highlight the objective, rather than the subjective, factors that threaten Europe’s social models. At the same time, I will also stress that policy decisions do influence economic transformations, and in particular the collective response to crises, which is why the word ‘megatrend’ will be avoided as much as possible, whether regarding globalization or technological change.

With some qualification, I will acknowledge the post-World War II growth period as the ‘golden age’ of Western European and North American welfare states, without assuming that any kind of nostalgia would be a good guide either to understanding the key social questions of our time or to shaping progressive welfare policy. The clock cannot be wound back. One of the fundamental transformations guiding social policy and the thinking around it in new directions is precisely the ever closer economic integration of Europe.

The move from an Economic Community to a Union was bound to be connected with ambitions for the EU’s social dimension and with the rise of the sometimes-elusive concept of the European social model. But for too long there was little understanding of the implications of the incomplete realization of the EU social agenda and the inconsistency between the ambition in this field and the architecture of economic governance. Indeed, this problem drove the EU into a situation in which the specific trajectory of macroeconomic governance became a threat to national welfare systems, and in turn the social crises in specific EU member states (and those of the eurozone periphery in particular) started to undermine confidence in EU integration as such.

The combination of objective challenges and hostile policies has become a mortal threat to social cohesion in Europe, giving rise to a generation of literature thematizing the fall, or near death, of European welfare states and the ideal of social Europe. While it will hopefully add further details and observations to the analysis of crises, this book is certainly not about lengthening the list of obituaries of the European social model, not least because in the decade following the crises of the 2000s the EU has indeed evolved to a new stage, drawing conclusions from policy failure, creating a new epistemic framework and responding to the most recent major test – the Covid-19 pandemic – with a much higher degree of solidarity than was the case for previous shocks.

In presenting the period between 2010 and 2014, I naturally draw on my own practical policy experience, accepting that in such cases more careful judgement is required for the observance of professional objectivity. On the other hand, the understanding of policy dynamics and the insights from first-hand expertise within EU institutions represent a privileged position for assessing the potential of the EU to contribute to the maintenance, further development and convergence of the social models of European nations.

My initial studies (and numerous subsequent writings) owe a great deal to material that I have read in Hungarian, which rightly remains in the list of references. The present work largely relies on contemporary literature on the topic, especially on English-language sources, chief among the latter being studies that discuss the correlations and interactions between economic processes and social developments, with a crucial focus on employment and welfare systems.

University courses over the period following 2014 assisted greatly in the systematic arrangement of the literature and the relevant policy experiences, primarily those run at Corvinus University of Budapest, ULB in Brussels, Berlin’s Hertie School, Sciences Po in Paris and the European University Viadrina in Frankfurt (Oder), not forgetting lectures delivered at the College of Europe (Bruges), the European University Institute (Florence) and Cornell University (Ithaca, NY). The author dedicates this book to colleagues and students at the above-mentioned universities.

The rise and evolution of welfare states

The era of social reforms

The institutions of welfare capitalism largely evolved in the period following the Great Depression of the 1930s and World War II.¹ This historical origin served as the basis for early theorists of the welfare state – principally T. H. Marshall² – to advance the ­theory of accumulatively achieved citizenship. According to Marshall (1949), the original eighteenth-century interpretation of citizenship was limited to basic civil freedoms (property ownership, the right of association, freedom of religion, etc.), to which political rights were attached in the nineteenth century, followed by social rights in the twentieth century.

The Great Transformation (1944), the principle work of Karl Polanyi,³ took a somewhat different, fundamentally economically centred approach. Polanyi argued that, to a certain degree, social policy as a defence against exposure to markets – at the minimum level necessary for political stability – was not a later concomitant factor but rather a precondition for the development of a capitalist economy and society, both in England (his main case study) and elsewhere. Nevertheless, the welfare state emerged – in Polanyi’s interpretation – not so much as an extension of nineteenth-century civilization than as a breaking away from it. As faith in the self-regulating market evaporated – accompanied by the collapse of the gold-based monetary system the gold standard and the unravelling of the peace in Europe that had been built on the balance of power – transition to a new era became necessary. Essentially this meant that economic processes that had become detached from their social foundations would be re-­embedded in society, necessitating a stronger presence of redistribution and reciprocity as organizing principles.

Addressing the question of why there was an increasing tendency towards social welfare activity in capitalist states in every region following World War II, an examination of the specific historical circumstances may provide an answer. The global economic crisis of the 1930s shook the societies of Western Europe and North America, while World War II brought fresh ordeals and historic tragedies. Surviving the war and succeeding in the subsequent reconstruction necessitated a rebinding of the ties of social solidarity; national unity demanded new compromises among social classes. Reforms therefore needed above all to lay the foundations for a politically sustainable and functioning capitalist system.

A rethinking of social conditions was also necessary because of the example of the Soviet Union, as the momentum of its industrialization (together with the relative success of its fight against material deprivation and illiteracy) provoked, for a time, strong sympathy for communism among a broad segment of the working class – and a narrower segment of the intelligentsia – in the west. For leading politicians in Western Europe and North America, it became clear that post-war reconstruction could not mean a return to the previous model. Long before the end of the war, recognition of this fact was reflected in the most important document of British welfare policy: the Beveridge Report, published in 1942.⁴ Although commissioned by the coalition government led by Winston Churchill, a Conservative, the document later served as a starting point for the establishment of free healthcare as a civil right, providing a guiding principle of social policy to the Labour government that entered office in 1945.

Besides William Beveridge, the Cambridge economist John Maynard Keynes was another intellectual architect of post-war welfare capitalism. The economic policy recommendations derived from his work focused on the enhanced role of the state and the central budget in the interest of maintaining full employment, ensuring effective demand for goods and services and, by those means, achieving steady economic growth (i.e. growth devoid of major cyclical fluctuations). Keynes made his name, both at home and abroad, with his analysis of the 1919 Versailles peace negotiations, as well as with his later critique of conservative economic policy. The macroeconomic concepts he would go on to present in his General Theory, published in 1936, appeared to be consistent with the principles and institutions of social redistribution subsequently proposed by Beveridge.

In the course of the twentieth century, every political tendency played a role in the development and reform of welfare models, but the effectiveness of these models and their capacity for renewal depended mainly on progressive politics – and, in Europe, primarily on the strength of social democracy. The programme of twentieth-century social democracy called for the social reform of capitalism, and the concept of the welfare state in the middle of the twentieth century carried the promise of substantial reform. Wherever a strong social democratic party did not (yet) exist, the struggles of organized labour, gathered into trade unions, account for the steps taken towards establishing social rights and safety nets.

Although Western European social democracy regarded all forms of the welfare state as part of its own programme, in reality it played a defining role in the formation of only the British and Scandinavian models. In Scandinavia in particular, reforms were regarded as steps on the path towards socialism, which was hardly the direction taken by many social reformers in the rest of the world, such as William Gladstone, Otto von Bismarck, Franklin D. Roosevelt or Ludwig Erhard, or indeed by Keynes and Beveridge, who were both liberal members of the House of Lords.

In the mid twentieth century, despite ideological differences, the consensus that formed regarding minimum social provision contributed to the creation of a unified concept of the capitalist centre. This included the criteria of freedom (in contrast to ‘communist’ systems), a potentially indefinite continuation of regained prosperity and the ability of state redistribution to create conditions of general material affluence wherever market competition served to accumulate the requisite wealth but a political adjustment was required to distribute those assets more evenly.

Economic performance and social welfare

The welfare models that evolved after World War II may have differed depending on which political tendency played the primary role in their development and on which national subsystem the equalizing effect of state intervention had the greatest impact (education, healthcare, taxation, etc.). What is clear,