European Integration and the Welfare State

Imperatives of Efficiency and EU-Social Policy


How can these Issues be Reconciled?

by Shirley Hixson


Within each of the member states of the European Union (EU), democracy is an integral part of the relationship between the citizenry and their government. As such, democracy can be defined as collective self-determination, where government is exercised by the people, usually through their elected representatives. It is a fluid alliance where both participants are continually interacting and, as in any relationship, there are dual responsibilities that must be fulfilled.

Democracy can be further conceptualized as a two-way process. In comparing democracies to an input and output model, we would define as the input factors of democracy the political choices that a government pursues based on authentic preferences that are communicated by the voting public through the electoral process. In turn, elected civil servants -- collectively called the government -- are then charged with governing in accordance with the collective will of the people and are directly accountable to the citizenry whom they represent. The output dimension of the model is, thus, the fulfillment of the promise. Through the electoral process, a population seeks to choose people who will work to create conditions that will ensure factors in their lives such as equality, justice, quality of life and stability. Just as important, citizens seek to preserve these cultural elements for future generations. Governments must be effective in fulfilling the goals society seeks because, without the fulfillment of this promise, democracy cannot function.

International law, which governs the relations between nations, is based on the fundamental principle of sovereignty. Sovereignty is one of the most fiercely protected elements in the psyche of a nation-state because it lies at the core of their legitimacy and authority as a political actor, both internally and externally of their defined borders. A sovereign nation acts with uncompromised independence and exercises the right of self-government. This is significant for the purposes of the following argument because, without sovereignty, a government cannot fulfill the goals that its citizens collectively seek to achieve. In this way, democracy and sovereignty are inherently intertwined.


Those who criticize democracy -- or its lack thereof -- at the European level of governance emphasize the denial of citizen self-determination within the system. The only directly elected EU institution, the European Parliament (EP), plays a relatively minor role in the legislative process, although this power was expanded in the Maastricht and Amsterdam Treaties. Champions of European-level democracy point to the lack of Europe-wide public debates on political issues and policy choices, the absence of competition for government offices, and a serious deficit in the area of democratic accountability. However, defenders of the EU governance counter that a majority criterion by itself may not necessarily express democratic legitimacy. Democratic accountability at the European level, they claim, may also be based on the authority of law and technical expertise. Thus, the EU can be described, not as an imperfect democratic form of government but as a regulatory state that exercises its powers much like the independent regulatory agencies in the United States.

The authority of regulatory democracy is founded on several assumptions. First, that widespread agreement exists among Europeans concerning the validity of certain societal standards and, second, that all Europeans advocate the specific outcomes sought by the EU. These assumptions are also based on the existence of professional standards and dialogue that make it possible to judge, interpret, implement and enforce these societal standards. Regulatory democracy, therefore, does not need the legitimacy of a voting process as long as it acts in the best interests of the collective society.

Critics of regulatory democracy believe its legitimacy suffers from serious limitations that raise significant challenges to its ultimate authority. While the EU has been able to achieve great success in specific areas, critics argue that this occurs only when affected national interests are united or, at the very least, complimentary. Specifically, despite the existence of significant member support for economic integration, widespread disagreement remains over what the standards and criteria of social policy should be. For example, the diverse levels of economic development among EU member states create daunting obstacles for the evolution of national social policy to the European level. Because smaller, less affluent members cannot match the budgets for social programs that exist in more developed nations, the EU welfare state must by necessity be one that is affordable to all members. This, in turn, undermines the established systems that exit in more advanced states.

The harmonization of social policy is further complicated by the structural and institutional differences that exist in national welfare states. Structurally, nations vary widely in the portion of their budget that is apportioned to specific social programs -- such as health care and pensions -- because each assigns different priorities to their importance. In addition, each program is financed through different levels of taxation and contribution. Institutional challenges include the different delivery methods that exist for the redistribution of welfare, of which various combinations exists including social services, vouchers, cash and transfer payments.

Harmonization of social policy at the European level would require, in addition to defining the specific benefits to be distributed, fundamental changes to the structural and institutional welfare states that exist at the national level. While this could potentially create serious social instability and attract a hostile public reaction, other sectors in the public arena would also be severely affected. Such a transition would destroy or fundamentally reorganize large powerful organizations. In addition, hundreds of thousands of civil servants, who depend on their government employment for their livelihood, would become unemployed. Thus, the political difficulties faced at the national level would be overwhelming, especially in member states that had mature welfare programs.


Economic efficiency has been critical to the success of Europe's Single Market and integration has been achieved on many levels. As the EU seeks to further harmonize policies and regulations among its member states, however, conflicts have emerged as nations have increasingly found their autonomous ability to control internal social programs diminishing. The erosion of the national welfare state has come about gradually but pervasively through the regulatory process that governs the EU. For instance, decisions by the European Court of Justice (ECJ) supersede their national counterparts in areas of economic integration. This has allowed integration to be highly successful in providing for the free movement of workers, goods and services throughout the EU and regulations to protect integration are vigorously enforced. This authority indirectly, but consequently, affects social policy within member states because of the economic factors that underlie all aspects of governance.

The ability of EU level economic decisions to negatively impact national social policy can be observed in several areas . For example, capital is now free to move to whatever location offers the highest rate of investment and companies are able to move production to a site offering the most competitive business conditions -- all without jeopardizing access to their home markets. These freedoms, elements of the economic efficiency necessary for integration, remove the ability of national governments to construct barriers to protect their domestic business interests against the competition that threatens from different regions within the EU.

National governments often find they lack the means to counteract the negative impact of economic efficiency. A high degree of restraint must be exercised in taxation or regulation of their domestic capital and businesses because these sectors may also choose to exercise their mobility options. The relocation of production often results in rising unemployment, which increases demands on social programs while, at the same time, diminishing the number of contributors to the system. Nations which invest a high level of vocational training in employees also suffer because of the mobility afforded to workers, who now compete with less-skilled, cheaper labor from other member countries. In addition, when skilled workers relocate to more competitive job markets, the companies that have invested time and money in training receive little compensation for their human investments. Thus, these elements of economic integration, in the form of capital flight and the relocation of production and workers, have placed severe pressures on the budgets that fund national welfare states, while jeopardizing social programs that receive wide public support.

Enhancing the work of the ECJ, the European Commission (Commission) has been effective at successfully setting the EU's agenda -- and establishing the tone and direction of the debate -- in traditional areas of national sovereignty, such as: unemployment; vocational training; women's rights; family policy; health and workplace safety; and the social partnership. However, while the Commissioners are representative of all EU member states, once appointed, their oath of office place their loyalty at the European level, not their individual nation-states. Because these civil servants are not elected and are required to base their decisions on the collective good at the supra-national level, the democratic voice of national populations is superseded in a manner similar to that of their national courts by the ECJ.

These legal, economic, political and administrative factors have combined to create an atmosphere conducive to the expansion of the EU into the arena of welfare policy which has, in turn, reduced once autonomous nation-states into a semi-sovereign position. This, in turn, threatens the ability of EU member nations to fulfill the democratic responsibilities communicated by their respective populations. Therefore, because regulatory democracy at the European level is still in its early stages of evolution, citizens can legitimately perceive that the efficiency required by economic integration has had a negative impact on national democracy and sovereignty.


Within the EU and its member states, a debate continues on the feasibility of the Social Charter contained within the Maastricht Treaty, with some suggesting that even member nations who do not support a strong free-market approach should be able to conclude that, in today's global competitive atmosphere, generous social policies are not possible. Such beliefs are the result of the increasing difficulties experienced by national governments to provide adequate budgets to fund social programs. However, as business and other market-oriented interests lobby to restrict the expansion or modification of national social programs to the supranational level, others see the change in orientation from the national to EU level as the most efficient way to introduce such restraints. Already, in areas of macroeconomic policy, such as trade and currency, national autonomy has all but disappeared and is openly considered the domain of the EU.

At the same time, other powerful lobbies within the EU -- unions, governments of the majority of member states and the Commission itself -- are committed to reconstructing a social Europe on the supranational level. These actors seek a way to create a harmonized social strategy, where the individual European welfare states would gradually merge into one coherent system. A European level welfare state would be implemented and enforced in areas that include the preservation of workers' rights, entitlements, enhancements for increased social cohesion, and solidarity among citizens.

Another major barrier to economic and social policy at the EU level is the lack of resources available to engage in large scale redistributive policies, as well as to introduce new initiatives. While the EU can legislate, or the ECJ can issue regulatory directives to create social policy, it requires significant administrative and fiscal investments to implement, manage and maintain programs. Indeed, as of January 2000, the Common Agricultural Policy (CAP), that subsidizes EU farmers, and the structural funds, which benefits regional development, consumed 80% of the EU's budget.

While the EU seeks solutions to its budgetary constraints, it continues to pursue measures to resolve the daunting challenge of high unemployment that has affected many member nations. This issues is complex in that creative solutions must be designed to balance the often conflicting policies needed to protect employment with those that serve to create it. The Amsterdam Treaty was groundbreaking in that it directly confronted the challenge of unemployment -- previously social policy was only addressed indirectly through economic integration -- and sought to create criteria that would assist members in addressing its widespread presence.

Further conflict is likely to occur between the Commission and ECJ, whose decision-making has pursued increased regulatory measures to encourage integration, and business -- and some member governments -- that seek increased deregulation so that they can better compete in the transnational EU market, as well as the global market. Business justifies its lobbying campaign by stressing that deregulation is needed to increase economic efficiency, claiming employment practices are weighed down by excessive and poorly-conceived regulation. This argument employs the EU's poor record of job creation as a prime example of the dangers of over-regulation. This conflict is most evident in the intricate arena of labor market regulation because, with the diverse array of national systems in use, policy implementation and enforcement would be eminently complex.

At the national level, the agenda for the European labor market is increasingly determined by the dual constraints of market integration and international competition. Participation in the European Monetary Union (EMU) stipulated specific criteria that member nations were required to meet in order to qualify for participation in the new currency. In addition to forcing member countries to implement severe austerity policy that would allow them to meet convergence criteria, EMU also intensified international competition. While in its early stages, the openly competitive relationship between social security systems and labor market regimes has placed a premium on increased efficiency in the work place and the reduction of labor costs for business. The Commission has pursued policies that seek compromise between these twin constraints by placing an equal emphasis on both the consolidation and implementation of advances already made and encouraging greater labor market flexibility.


Conflicting tensions also exist, to a lesser degree, over policies regarding solidarity and subsidiarity. Because subsidiarity takes decision-making to the lowest local level possible, it can create cleavages between communities who have diverging needs and interests, thus harming solidarity. While some analysts believe the issue is unresolvable, others believe diversity can be accommodated by setting a common minimum standard, at the EU level, from which national government can rise above but not below. Another solution would preserve national traditions by creating rules within a framework of EU agreements that can be implemented, through a process of more detailed agreement, at a lower, more localized level.

Considering the diversity of social programs that exist within the EU member states, the task of merging them into one coherent policy will be a daunting undertaking. Some analysts have expressed the expectation that new social policies on the supranational level will come in the form of benefits set at or near those of the least generous members of the Union, which is often called the lowest common denominator (LCD) approach. Other analysts argue that reform of European social policies -- and few deny it is needed in most nations -- will by necessity occur during long periods of incremental changes that are marked by brief explosions of major policy innovation, much like the evolution of the EU itself. Regardless, the sheer size of the combined fifteen member nations ensures that they will continue to retain an influential voice in whatever kind of European welfare state emerges.

In summary, although sovereignty in the arena of social welfare is gradually eroding, it remains one of the few key policy realms where national governments still hold more authority than EU-level institutions. Multi-tiered systems of governance, like the EU, often encourage the fragmentation of policy control that creates an atmosphere conducive to competitive deregulation that inhibits the development of new policies on a national level. However, while this fragmentation of policy carries negative connotations, it also serves to open up new avenues for innovation and emulation. With many national governments experiencing serious budgetary pressures on social programs -- many of which are rooted in both social and financial dilemmas -- the EU may, in the end, prove to be the level at which brainstorming can occur that will rejuvenate "Social Europe" and bring it into the 21st century.


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