For advocates of social protection systems, the COVID-19 crisis was a godsend. It was crystal clear there were gaps in access to health care, gaps in income protection and links with environmental policies such as a need for better housing, clean air and drinking water. The current cost-of-living crisis only confirms these same problems.
While Western systems of welfare states have been under attack during the neoliberal offensive, today there is almost a consensus on the urgent need to better protect people in order to make the market economy function better. It is once more a confirmation of Claus Offe’s theory on the contradictions of the welfare state. Capitalism doesn’t want it, but needs it. What is happening today is the re-ordering and re-shaping of ‘new’ welfare states. I extensively wrote about it in the past here, here and here.
The new emerging consensus is very positive news, though it also shows some worrying trends. After the outspoken neoliberal chairmanship of Manuel Barroso at the European Commission, different very positive steps were taken under President Juncker and continue to be taken by the Von der Leyen Commission. Among the most important decisions was the adoption of a European Pillar of Social Rights in 2017, followed in 2021 by an action plan. The European Union also adopted a Recommendation on access to social protection, a directive on the promotion of statutory minimum wages and a Recommendation on adequate minimum incomes. The Commission also made an ambitious proposal for improving the working conditions in platform work.
2024 will be the year of the next European elections. It is an excellent opportunity to take a closer look at the state of play and the possible future.
The High Level group
The European Commission created a High-Level Group of academics to reflect on the ‘Future of Social Protection’, under the chairmanship of a former Commission member, Ana Diamantopoulo. The Group delivered its report in January 2023.
It describes four megatrends that inevitably will influence the further development of welfare states: the demographic changes including increased longevity and lower fertility, changes to family structures and migration. The world of work is dramatically changing with higher employment in quality jobs but worsening conditions for vulnerable groups. Digitalization can, in the medium term, generate job losses but can result in long-term net employment growth. Finally, there is climate change and green transition that has so far not triggered a comprehensive social policy response. The report also has some interesting reflections on the financing of social protection.
Four elements of this report deserve more attention.
First of all, this report is a very staunch defense of a ‘modern welfare state’ with social security, broader social protection (education, lifelong learning, housing, transport…) and another plea for ‘social investment’.
The objective of social protection is made very clear: it is about proactively ensuring human flourishing and well-being. It, therefore, has to go beyond people’s material conditions but has to foster people’s capability to fulfill personal aspirations. The modern welfare state is crucial to supporting economic productivity, providing a strong buffer against economic shocks and investing in ‘stepping stones’ that help people across critical life-course transitions.
It is a confirmation of the new social paradigm, beyond the old ‘guaranteeing the standard of living’ and the newer ‘making work pay’. It combines the subordination of social policies to economic needs with a softer ‘capability’ approach à la A.K. Sen.
A second element is the repeated focus on social investment. What the authors want to make clear is that a life-course perspective can have a double dividend: it reduces future spending on income protection and enlarges the tax base. Social investment is made necessary by population ageing. When there are good provisions for life long learning, investing in young people and long term care provisions, there will be less problems with the increasing of retirement age and there will be less people with inadequate incomes. In short, it is a matter of long term planning of social policies.
This social investment is part of the broader perspective of social protection and is a complement of social security functions. According to the report, the income protection remains a crucial part of the social insurance approach although people should be made able to strengthen their own capacity to deal with risks. The third element to be mentioned is pensions. The EU population is ageing and is expected to reach 75 million by 2050. The biggest net public transfers in the EU go to those over 80, in pensions and long term care. The message here is not positive. For people to remain economically active up until the age of 70, the report says, there would need to be further improvement in their health and life expectancy. To-day, there is a deterioration in the adequacy of pensions.
The report does point to the centrality of pay-as-you-go systems, since private funded schemes suffer from stock market fluctuations and most of the time have higher administrative costs.
Finally, and more positively, the report points to the necessary search for new sources of revenue. The structure of welfare state finances has been relatively stable in the EU and after a declining share of labour in GDP from 1970 to 2000, this is now again rather stable. The role of taxes has been increasing while contributions of social partners are declining.
The report mentions various possibilities for raising more taxes from reducing tax breaks, more progressivity, capital, wealth and excess profit taxes. The ‘race to the bottom’ should be stopped and multinationals have to pay their fair share of taxes. In 2024 the European Commission is expected to make a new proposal for a Financial Transaction Tax. More in general, the EU should have more competences for dealing with these matters. Also, the Stability and Growth Pact should be amended so as not to consider social expenditures as a cost, but as a public investment.
This report is nothing more than a proposal that the European Commission can take into account or not. Although many points can be criticized, it gives a rather positive approach to the future.
It confirms a specific European approach to social protection and differs from the global discourse mainly promoted by World Bank. This does not mean all neoliberal-inspired elements have disappeared. When proposing a social protection system in which all workers are covered by a unitary contributary system with general tax to fill the gap of low work intensity, it comes close to the anti-poverty approach of the World Bank, covering basic income protection and leaving everything above to private insurance systems.
Secondly, when stating the important role of collective bargaining, while coverage of workers has been shrinking and stating the lesser ability to protect and reward work adequately, this can be used to further diminish the role of social partners. Social dialogue can be promoted but it is something very different. On the other hand, in the directive on minimum wages collective bargaining is strongly promoted and even made obligatory in countries where the coverage is too low. Some caution will be needed when looking at flexibility, to be allowed in today’s economy, while strengthening the position of the vulnerable. The report also calls for a new reflection on the faded away ‘flexicurity’.
Thirdly, the focus on social investment will have to be closely monitored, since the potential for a biased implementation is huge. The authors do insist it has to be seen as a complement to income protection, but precisely this income protection is under attack. More and more, individual families are made responsible for care.
Fourthly, the new Recovery and Resilience Facility (RRF) has 150 billion € for social and healthcare spending. From a first and partial analysis of the first programmes by the European Social Observatory, it looks as if the focus is no longer on reducing social spending, but on broadening the tax base of the workforce. Moreover, social investment is centre stage with a focus on the carrying capacity of Welfare States.
Another element, also in the context of the RRF is the increased role of the European Commission in monitoring national programmes. The conditionality has been strengthened, countries will get money for actions instead of for promises. Their plans have to be concrete and fulfill a specific goal. To gain access to the resources, member states will need to show how their plans address the challenges set out in the Country Specific Recommendations.
This is more than simple conditionality but means the European Commission is having more influence on the social policies of countries, without any treaty change and without having treaty competencies. This can be positive for countries unwilling to develop their social protection systems further, but more negative for those countries that have well-developed protections. Resources, at any rate, are limited and a too strong focus on the investment side can jeopardize income protection which, in all cases, is the best buffer against poverty.
In its analysis of last year’s social policy initiatives of the European Union, the European Social Observatory also points to the long-discussed demand of integrating a ‘social imbalance procedure’ in the ‘European semester’ of the Stability and Growth Pact. This certainly would make for a better balance but, on the other hand, would strengthen the subordination of social policies to economic governance.
All in all, one is allowed to say that with the new emerging consensus on the need for social protection, the future does not look too bleak. But one should be aware this is another ‘social protection’, different from the welfare states of the past. It is correct to say that the European Commission broadens its scope, with parts of labour law and new policies called ‘social investment’ into the social framework. However, public services remain unspoken of, that is they are kept under the internal market policies with the inevitable liberalisation and later privatisation. Also, reading and re-reading all different documents, one cannot avoid the impression that the main focus is on work. People will have to work more and longer, all women have to enter the labour market, the tax base of the workforce will have to be strengthened … In other words, even if the report on the future of social protection mentions the many possibilities for new resources, it looks as if it is workers that will have to provide them first.
The European Social Observatory sees a ‘window of opportunity’ with the Commission’s interpretation of the new ‘open strategic autonomy’. This new concept has not yet been made operational but is understood as ‘reducing dependence on others for things we need most, from critical materials and technologies, food, infrastructure, security and other strategic areas. It can include strengthening economic and social cohesion by reinforcing social protection and welfare states.
While the High-Level Group Report on the future of social protection and the analysis of past initiatives allow for a positive assessment of the EU’s social present and future, it is also clear that the announced new social paradigm is being confirmed and strengthened.
Its main features are the subordination of social policies to economic governance and hence the re-formulation of the objectives. Public services remain out of the framework. Social investment is supposed to solve all problems of poverty and care, giving families more responsibilities for coping with risks. New tax revenues are mentioned but are not meant to tackle the growing inequality problem. That is why one will have to closely monitor the attempts of some governments to ‘nationalize’ social protection, that is, to take it out of the hands of social partners.
Finally, there is a focus on work, work, work. Looking at the social protests today, governments will have to accept the deterioration of working conditions and pay is no longer accepted. This can become a threat to democracy.
After all, whether we speak of climate change, a changing demographic situation, digitalization, or changing labour markets, social protection is a human right and social justice is a condition for peace. Work is a central value in all lives but the preservation of dignity is crucial as well. The European Union takes courageous and ambitious steps to preserve the ‘acquis’ of the past, but together with governments, it should be careful to continue to provide adequate protection for people and for societies, in all circumstances.