This Friday the EU’s national leaders are meeting for a Social Summit in Porto. A previous social summit was held in Gothenburg four years ago, where leaders and the European Commission and parliament proclaimed a “pillar” of social rights. This was an effort to balance the intense focus the eurozone debt crisis had put on public finances and “competitiveness” with a recognition of Europe’s social model — which many citizens felt had suffered from the crisis policies.
Why a second social summit? A simple answer is that in Gothenburg, the EU and its member states decided that their bloc needed a social agenda, but that a declaration of rights does not implement itself. As a good overview paper from the Institut Jacques Delors explains, the road from Gothenburg to Porto is about moving from aspiration to implementation. In addition, the pandemic has brought inequality and the need for social protection to the fore.
Portugal, which holds the rotating Council of the EU presidency, and the commission are pushing for just that, hoping for an endorsement of Brussels’ new action plan to implement the social pillar. The plan sets quantitative targets in three areas: employment (raising the employment rate of 20- to 64-year-olds to 78 per cent, from 73 per cent before the pandemic), skills (ensuring 60 per cent of adults engage in some training every year), and poverty (reducing by 15m the number of people at risk of poverty and social exclusion).
Moving from aspiration to action — if that is the outcome — is a good reason to bring top leaders together. Getting them to commit to quantitative targets is also a good idea, since making something be counted is often a prerequisite for making it count.
A more probing answer to the question “why a summit”, however, would start from a more contrarian perspective and ask, from first principles, why the EU should have a social agenda at all. And thinking along those lines helps to see why Europe’s leaders are in danger of missing a trick.
While the European social market economy in some form or another is an indispensable component of an EU leader’s credo, the “social” part has often been seen as something strong economies can buy — a nice-to-have, indeed, a very-nice-to-have, but ultimately more of a luxury good than a must-have. Recall German chancellor Angela Merkel’s remark in 2012 that Europe has 7 per cent of the world’s population, 25 per cent of its gross domestic product, but 50 per cent of its social spending. The percentages have probably only got starker.
The implication is that the economy must come first, because, as one often hears, without a strong economy, there can be no welfare state. And, in particular, the social pillar of the social market economy cannot be designed in such a way as to detract from economic growth and the ability to compete in a cut-throat global economy. We must, as some politicians will put it, make tough choices.
The reason why this misses a trick is that it ignores the fact that the “social” in “social market economy” can itself be an economic strength. As Laszlo Andor and Robin Huguenot-Noël point out in a timely piece on the ambitions for implementing the social pillar: “Contrary to long-held beliefs, there is now extensive evidence that expanding social provisions in the form of gender empowerment, active labour market policies, or life-long training boosts employment growth . . . at long last, social protection is no longer seen as a drag on jobs and competitiveness.”
It is worth reflecting on the reasons why, far from a trade-off, the social pillar and more narrowly economic considerations can go hand in hand.
First, Europe’s social model is an instrument for economic resilience. In the pandemic, countries with more meagre social safety nets — the US and the UK — rushed to put together temporary schemes where the pre-existing welfare state was dramatically shown up as insufficient. In continental Europe, in contrast, the existing system could, to a larger extent, do the job with scaled-up funding. The current global trend is of others wanting more of what Europe’s social model has, not of outcompeting Europe by going without it.
Second, it is becoming increasingly clear that a solid social model is an engine of productivity. The Nordic countries show that a strong social pillar — encompassing all the dimensions of labour, skills and social protection — can underpin the characteristics that make a market economy work well: trust, high employment, productivity increases and quick adoption of technology, and flexibility in shifting labour and capital from low- to high-productivity uses. A case in point, not sufficiently well known, is that Sweden and Denmark have the highest rate of job-to-job moves in the EU — as well as spending the most on active labour market policies.
Someone may accept these two arguments as reasons for national governments to build strong social market economies but reject as irrelevant any role for the EU’s institutions. But there is a third argument for seeing the social pillar as an economic policy, which is the EU’s single market. A country may well wish to drive productivity growth by pushing up minimum wages in an effort to encourage businesses to shift into more capital-intensive production practices. But in a unified market, the result could simply be that its employers are undercut by competitors in other EU countries which choose to win the race to the bottom.
This, after all, is a reason why social and environmental considerations are increasingly included in the EU’s trade deals. The argument is much stronger for its own single market, the most integrated international trade area in the world.
If the Porto summit can reorient the conversation from seeing the social pillar as a nice-to-have to seeing it as an essential contributor to productivity, it will have been a big achievement.
Other readables
European governments have started submitting their plans for spending EU recovery funds to the European Commission. I explain why this could be a game-changer.
Justin Sandefur and Arvind Subramanian forcefully cut through the fog and explain how to end the “vaccine apartheid” that is set to leave billions of the world’s poor unvaccinated against coronavirus for too long.
Two of Europe’s few women central bankers call for more action against hidden barriers to women’s advancement in economics jobs. Last year I wrote about economics’ “identity crisis” and why racism and misogyny should interest economists.
Numbers news
The price of emitting a tonne of CO2 has hit €50 in the EU’s emissions trading system.
Source: Economy - ft.com
