Les Etudes
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CONFERENCE IN MONDORF (Novembre 1997)
Auteurs : Yves Chassard
SOMMAIRE
Can the European Union maintain a high level of social protection ?
Social protection in Europe to-morrow : what for ?
Modernising European social protection systems: the key strategic choices
What should the Union do to support and complement the activities of the Member States ?
The conference was divided into four sessions. The first three were devoted to discussing the challenges the European social protection systems currently face, and the way they respond to them. Their common agenda was in fact the search for the characteristics of the European social model. The fourth one debated the question of how the Union should support and complement the activities of the Member States in the social protection field.
The first session, chaired by Mr. Stephen HUGHES, Chairman of the Employment and Social Affairs Committee of the European Parliament, discussed economic issues. Can the European Union maintain a high level of social protection? Does social protection jeopardise European competitiveness? Is there a trade-off between social protection and employment? Mr. Kari VALÏMAKI, Director General, Finance and Planning Department, Ministry of Social Affairs and Health in Finland discussed the two keynote speeches.
Dr. Johann EEKHOFF, former Secretary of State and Professor at the University of Köln, argued that highly developed social protection systems do create a number of distortions in the labour market and are indirectly responsible for the high level of unemployment in Europe. He advocated a deep reform centred upon the idea of targeting benefits on the most needy, which would transfer responsibility to the citizen and leave a greater room for individual savings. Professor Anthony B. ATKINSON, from Nuffield College, Oxford, argued on the contrary that one could find very little evidence of a negative impact of social protection on growth and employment. Before threatening the living standards and security of millions of people, European governments need to be firmly convinced that social protection can be blamed for jeopardising Europe’s competitiveness. The case is at present far from being proved beyond reasonable doubt. At a theoretical level, the impact depends on the institutional structure; the empirical evidence is mixed and can be interpreted in different ways.
If there is no trade-off between social protection and employment, there may be an increasing trade-off between social protection entitlements and workers’ take home pay. Econometric evidence has shown that, in a number of countries, any increase in employers’ as well as employees social security contributions tends now to be offset by a reduction in net wages, rather than by a reduction in firms’ profits or a raise in prices of goods and services. It appears then more clearly than workers do support the burden of any additional cost of social protection. The political consequences of that change could be very important and should be taken into account when addressing the improvement and modernisation agenda.
The second session, chaired by Mrs. Eleonore HOSTASCH, Minister for Social Affairs in Austria, was devoted to a debate on the needs for social protection within European society to-morrow. Dr. Paulo PEDROSO, advisor to the Minister for Social Affairs of Portugal gave some reflections on how to achieve integration of all within society and Prof. Robert SALAIS, from the Institute for Research into Contemporary Society in Paris, presented some views on how to provide security within flexible economies. These two contributions were discussed both by Mr. Karl-Gustav SCHERMAN, President of the International Social Security Association (ISSA) and by Mr. Juan Antonio APARICIO pérez, Secretary of State for Social Security in Spain.
A long-lasting debate tends to oppose two approaches of the European social model and the relationship between the social and economic spheres. The first one considers that it is neither desirable nor possible to try to curve the rules of the market economy, and that there is no way out of accepting the economic change (globalisation, information society....) and adapting social protection to that change. The second one insists on being concerned not only by the requirements of economy but also by workers’ rights and citizenship.
The discussions during that second session have resulted in a large consensus, based on SALAIS’ analysis. To the function of securing a minimum standard of living, which is classically expected of social security systems, the need for economic flexibility adds the objective of maintaining and developing the capacities of people during their life cycle. In a flexible economy, a concern regarding human capital become primary and the only way to achieve economic growth in Europe is to enhance its human capital. Therefore there should be no conflict between economic and social goals, no conflict between social rights and the sustainability of the welfare system.
At the same time, the development of European society leads to new needs for protection and security:
- Longevity is no longer a major risk, but the risk of becoming unemployable after 55 becomes is real.
- The nature of unemployment has changed: it is no longer just an effort of geographical mobility which is expected from those who lose their job; a growing proportion of them has to undertake an effort of skills’ mobility to get a chance to re-enter the labour market.
- New patterns of poverty are spreading out, even in southern Member States, which require the design of specific integration policies.
- And finally, a new genuine risk is appearing: the risk of being unable to perform flexible work, due to a lack of capacity to master the uncertainty of markets and production situations.
To increase one’s capacity to perform flexible work, one has to be able to learn from exposure to events. More than a framework of protection against the consequences of uncertainty, the flexible worker needs a framework of security in front of events, which gives the individual the opportunity at any time to make long-term forecasts. A convention of confidence in the work situation can only work if the worker is guaranteed that his or her life’s ambitions remain feasible.
SALAIS proposes a new path for reducing individual and collective vulnerability in front of economic events: to lead an employment policy centred upon people’s paths of life and work, substituting aids to the individual for aids to the job. He argues that efficient flexibility in European economies must combine the exercise of effective freedom and changes of work. It is in this direction that the still formal development of individual rights guaranteed at a European level may take place. Using a concept already put forward by Alain SUPIOT, he proposes to guarantee some social drawing rights. The individual would build up a credit, the provisions of which he would be free to use at various moments of his or her life. Hence, this approach would permit to reconcile the two above-mentioned approaches of the European social model: the one centred upon the adaptation to the economic requirements and the other centred upon rights.
The contributions to the third session of the conference, chaired by Mr. Franck FIELD, Minister for Social Security, United Kingdom, invited to qualify the outcome of the second session.
If the European model for social protection is still unclear, the anti-model is clear. Prof. Maurizio FERRERA from the University of Pavia described the "maladjustment spiral" and the "internal entrapment" of social protection systems, particularly in southern Europe, where there is evidence of an over-accumulation of insurance benefits on the side of "guaranteed workers", with quasi-tenured jobs, paralleled by inadequate – if not total – lack of protection for those people who are employed in the outer, weaker sectors of the labour market. Hence, standard risks become poorer indicators of needs and families react through a number of perverse adaptations: a frantic search for any possible anchor with the insider world, the exploitation of all possible niches in the black economy and a decline of reproductive behaviour.
Is there a way out of this institutional decay ? FERRERA sees a possible strategy of "risanamento" (restoring to health) which would imply, for example, in the case of pension insurance a shift from "defined benefits" to "defined contributions" formulas. Such a closer link between contributions and benefits, already under way in reforms recently adopted in Finland, Italy and Sweden, would allow de-constructing the logic of automatic entitlement and disactivate the perverse structure of incentives which lock all relevant actors inside the spiral.
This trend towards more contributory programmes is considered as being well suited to the current state of European societies. Prof. Dr. Franz RULAND, from the University of Frankfurt, reported that a tax-financed basic pension has once again been refused in Germany. While those who pay contributions cover themselves, and their dependants, taxes will be paid in favour of an anonymous generality. If the contribution principle was given up, then the flight into black economy would take on greater dimensions, as one would in any event receive the basic benefits independently of tax payment and need. Opportunities to save on tax would gain in significance and the injustice currently discernible in the German tax system would be intensified, if old-age provisions were also financed through it.
Dr. Joakim PALME, from the Swedish Institute for Social research, backed that view, when stating that the contributory principle has gained relevance since most people are employed. However, both contributory and non-contributory benefits should be included in the statutory system of social protection. The social protection budget is not fixed but dependent on the content of the entire system: the better the social protection offered by the system, the stronger the willingness to pay. It is an advantage to combine earnings-related and residence-based benefits. Such a strategy coupled with an individualisation of rights will also support the gender and employment issues.
Nicole KERSCHEN, from the National Centre for Scientific Research, France, discussed the individualisation issue: how to individualise rights while maintaining solidarity? She points that the analysis of recent social protection reforms in Europe shows no clear tendency towards greater individualisation of rights. Moreover, certain recent reforms mark a reverse tendency, e.g. systems based on individualised universal rights being modified by the introduction of a means test.
The general debate, which ended this third session, revealed a large consensus on the most desirable trend for developing European social protection systems. Given both the difficulties to fund the welfare systems and the current rate of unemployment all over the Union, universal non-contributory models are no longer sustainable and tend to be replaced by contributory schemes
completed by means-tested programmes, for those whose contribution records are insufficient.
One can point, however, two difficulties as a consequence of this trend. The first one comes from the magnitude of non-wage labour costs associated to social protection systems based on the contributory principle. There is clearly a contradiction between that trend towards more contributory schemes and the objective of reducing non-wage labour costs. Both the Council and the Commission have proposed such a reduction as one of the key actions of the European employment strategy, which was defined in Essen in 1994 and has been endorsed since then at each European Council. As stated in the Joint Employment Report 1997 (page 11), "while there is evidence that the high tax burden on labour has militated against recruitment of workers… few Member States have undertaken a thorough overhaul of the tax system in order to make it more employment-friendly". This contradiction between the internal logic of development of social protection systems and the requirements of employment policy should be worked out in the future.
The second difficulty comes from the growing need to provide the unemployed with a support for integrating the labour market. Significant proportions of them find themselves in a situation where, due to insufficient contribution records, they turn rapidly from insurance compensation schemes to assistance schemes. This early shift from insurance to assistance may increase the difficulties of the unemployed, if it causes them to be rejected from the labour market and lacking in hope and social confidence. Recent experience in Denmark has shown the effectiveness of an integrated compensation scheme as an element of an active labour market policy.
At the end of his paper, Maurizio FERRERA proposed a far reaching "rifacimento" (re-foundation) of European welfare states, aimed at creating a new institutional "core" based on a universal and unconditional guarantee to a citizenship income, a universal "health promotion" guarantee and a universal package of "human capital" guarantee, offering opportunities for life-long learning, education and training. Starting from a totally different context, his proposal resembles SALAIS’ proposal for social drawing rights. Both of them design a system rather different from those, which are currently being built. They may be worth some further reflections.
The fourth session, chaired by Mrs. Gabrielle CLOTUCHE, Director for Social Policy and Action, DGV, European Commission, discussed the role of the Union in the social protection field. Prof. Jos BERGHMAN, from the University of Tilburg, proposed in his paper an attempt for a valid approach to benchmarking with respect to social protection. Prof. Iain BEGG, from South Bank University in London, looked at the possible impact of the forthcoming achievement of the Economic and Monetary Union (EMU) and Mr. Jean-Michel BELORGEY, from the French Conseil d’Etat, discussed the impact on social protection of establishing a Union of citizens.
The new Treaty of Amsterdam, when it is ratified, will incorporate the so-called "social protocol" adopted in Maastricht. Then, the Community will get explicit competence to adopt, by means of Directives, minimum requirements for gradual implementation in the following fields: "the integration of persons excluded from the labour market" and "social security and social protection of workers". In the latter field, unanimity will be required, while in the former these Directives may be adopted at the qualified majority.
Should there be a greater involvement by the EU in the field of social protection ? It has to be recognised that there is no necessary link between economic integration and social integration. An economic union can, in principle, function without any provision for social integration. EMU will, however, have a wide-ranging effect on the social and economic landscape that will demand new solutions to the challenges of cohesion and redistribution.
To investigate to what extent there is a case for any new action at Community level, one should consider the social consequences of the economic integration process within the Community. At the end of the 80’s, the reflections and discussions based on the "Social Dimension of the Internal Market" had led to the following conclusion: the completion of the internal market - namely, the free movement of goods, capitals and workers and free provision of services - can fully accommodate with each Member State keeping responsibility for the design, the organisation and the financing of its own social protection system; consequently, there is no case for any harmonisation of these systems but the Union should foster the convergence of Member states’ policies in the social protection field.
From the adoption of the Convergence Recommendation by the Council in July 1992, the Commission tried to organise the exchange of information between Member States. This agenda was coherent with the convergence strategy: once common objectives are agreed, common references can be used to assess the outcomes of reforms. However, exchanging experiences - not only information - is a difficult task. It requests a lot of refinement of the raw information in order to extract what is useful for other Member States.
The Commission tried to go further and better integrate this European strategy for social protection into the bulk of the employment strategy, which the Council had endorsed by at the Essen European Council and which led to the new Title on Employment in the draft Amsterdam Treaty. The Commission proposed to open a European debate on the future of social protection (October 1995 Communication), which triggered a lively debate in 1996 and led to the March 1997 Communication "Modernising and Improving Social Protection in the European Union". In this Communication, the Commission proposed a working agenda based on the analysis of the common trends which structure the background in which European social protection systems operate: the change in the nature of work, the ageing of the population, the change in the gender balance within society and the new patterns of workers’ migrations throughout the EU. Doing so, the Commission proposed a framework for improving and modernising social protection in Europe; but this framework, if it tends to be comprehensive, is still too general to feed in practice the modernisation process within Member States.
Should the Commission go further ? First of all, this European framework should be further disseminated throughout the Union, with a view to being actually taken into account in the national debates. A number of Member States have recently set up ad hoc specific committees to investigate the way forward reforms in the field of social security. Both the Commission’s services and the Group of Directors General for Social Security should find practical means for ensuring that reflections made at Community level are sufficiently considered by Member States, when they launch a debate on social security.
At the same time, it could also be appropriate to deepen the convergence strategy and to try to link it more closely with the development of the European employment policy, in line with the provisions of the Amsterdam Treaty on employment. After all, the benchmarking exercise that has been implemented for employment issues is not very different from the promotion of a convergence of social protection policies towards common objectives. Both of them are based on the same principle: to set common objectives and indicators for gradually building a common policy. Should the Union go on with the idea of setting common objectives for social protection policies? One could imagine to embark in a process of revisiting the 1992 objectives, with a view to integrating the reflections that have been developed for two or three years, especially the need to "activate" the social protection benefits, e.g. to provide beneficiaries not only with cash benefits but also with both incentives and opportunities to get fully integrated within society. This idea was already set in the 1992 Recommendation, but it has been worked out a lot since then. Integrating more targeted objectives within a new Council Recommendation would give them a new momentum.
The EU has entered a new phase of integration within Member States economies. After the "objective 1992" period and the achievement of the internal market, another period begun since 1995 and the enlargement to Austria, Finland and Sweden. This new period is characterised by a double perspective. On the one hand, it is pretty sure now that the EMU will be implemented in due time and most probable that most Member States will join since the beginning. On the other hand, the first stage of negotiations for a future enlargement will begin in a few months time with six countries (Hungary, Poland, Estonia, Czech Republic, Slovenia and Cyprus) and the European Commission has already designed a pre-accession strategy.
Neither the consequences of EMU, nor the impact of enlargement to central and Eastern Europe countries (CEECs) on national social protection systems have yet been fully measured. Will EMU increase the magnitude of workers’ migrations within current borders of the EU? Will the enlargement lead to important migration flows from the East to the West? In the past, both the fear of a "tourism of benefits" and the fear of distortions of competition between firms due to unequal rates of social security contributions, have been driving forces towards an harmonisation agenda, while the willingness of each Member State to keep responsibility on its own system acted in the opposite direction.
Will these fears become stronger, once EMU is achieved and the enlargement process is completed ? A common currency will facilitate country to country comparisons between the level of benefits. It may create new incentives for tourism of benefits. The 1990 Community Directives adopted in June 1990 and governing the right of residence in another Member State of the Union have set clearly that a condition for getting that right was to make the proof that one should not be in a position to be supported by the welfare state in the host country. The underlying principle was that of contributory social protection systems, in which each worker can bring his or her acquired rights when moving to another Member State. But this principle is difficult to accommodate with reality. It may happen, for example, that someone becomes unemployed after a durable working spell in another Member State and do not find a new job during the time (s)he receives social insurance benefits in the host country. Will he or she qualify for getting social assistance benefits, and – even more importantly – for benefiting by active measures designed to help the unemployed re-enter the labour market ? What will be the answer to that question, if migration flows within the Union turn to be much higher than they are now?
At the same time, the enlargement of the single market to the CEECs, where labour costs still are much lower than in most current EU Member States, will draw attention to differences in social charges and non-wage labour costs. The fear of de-location of activities may become a highly sensitive issue among European public opinion. Greater attention may be paid to the differences of mandatory social security contributions between the Member States who have kept a highly developed first pillar of social security, and those who have re-structured their social protection system and given greater space to a more flexible second pillar of occupational schemes.
In front of these challenges, a claim for more harmonisation of social protection systems may receive a new impetus in the near future. The European Commission should prepare to that eventuality and explore possible ways of reconciling this claim for harmonisation with the legitimate concern of Member States not to let the dynamic of the internal market hinder their social protection systems.