Austerity

This acute pressure on the welfare state comes on top of a longer-standing debate about whether the relatively high level of social services in continental Europe is tenable in a globally integrated economy. International competition and capital mobility are seen as curbs on the taxation of labour and capital, and hence on the social services financed by this taxation. Due to the logic behind this “external pressure”, discussion on welfare state reform is framed as a question of austerity. Besides the “external pressure”, internal factors are also hotly debated: are the traditional arrangements of the welfare state compatible with the far-reaching changes taking place in society, in the labour market? Examples of these internal factors are demographic ageing, the increasing participation of women in the workforce, and the rising proportions of workers in flexible employment contracts or self-employment. This issue too is sometimes framed as a question of affordability: “we don’t have the money to keep paying state pensions to the growing mass of retirees.” But this is too narrow a standpoint, for the discussion ought to be about the outlook on the ideal society of different political parties. What basic principles underlie the reform measures that politicians propose? What views do they hold on the role of the family, on gender equality etc? The present article aims to provide a rough sketch of a welfare state based on green principles, for which I would like to coin the term a Sustainable Welfare State (SWS).

Sensible discussion of an SWS will only be possible, however, once it is clear what external forces are really acting on the welfare state. I will therefore first try to address the question of whether austerity is inevitable in a globally integrated economy. Here is a spoiler: the answer is an unequivocal no. Global economic integration does not have to lead to austerity, just as a full-fledged welfare state is not necessarily detrimental to growth and employment opportunities. Next I will discuss the connection between current social services and the changing society and labour market. I will also discuss the principles that must underlie reform of the welfare state from a Green perspective: room for individual diversity and a laidback society. Together this will provide the contours of a Sustainable Welfare State, for which I will build on the discussion that took place within GroenLinks last summer.

Straightjacket

The economic logic behind external pressure is relatively simple to explain, and at first sight it looks convincing. Social services are funded by taxation, so an advanced welfare state inevitably means higher taxes. In a world of free trade and high capital mobility, it is attractive to import cheaper goods from countries with a relatively low fiscal burden on production factors, and to outsource manufacturing to those countries. This produces an unsustainable situation for a welfare state: the country must either cut the level of benefits to match the shortfalls in tax income; or pull out of the global economy altogether. The journalist Thomas Friedman called this quandary the “golden straitjacket” of globalisation. If we are to pluck the fruits of global economic integration, he argues, then government policy options are bound to be severely limited. In reality the situation is more complex, however, as Prof. Brian Burgoon argued earlier this year in his inaugural address to the University of Amsterdam.

The main traditional social services are the outcome of compromises made between the classic political families before the greens became a political force.

First of all, public expenditures on social services have been reasonably stable in industrialised countries since the 1980s, a period of progressive global economic integration. For the OECD countries social expenditures amounted to 15.5 percent of GDP in 1980 and 19.7 percent in 2005. This has several causes, but there is thus no obvious sign of widespread retrenchment of the welfare state. Looking more specifically at the connection between free trade and social expenditure, we may even observe a positive correlation (Burgoon 2013). The reason for this must be sought in politics, which functions as a mediating variable. It is a political choice whether to cut back, or to offer citizens continuing protection in a globalised economy.

Related to this is the question of whether the choice is in fact illusory, considering the supposed negative economic consequences. Doesn’t a high level of social services automatically lead to lower growth and higher unemployment? Here too, the facts do not provide an unequivocal answer. Differing socioeconomic models can produce similar economic outcomes. Hall & Soskice (2001; Table 1.1) looked at the period 1985–1997 and calculated that that there was no great difference in per capita income and unemployment in the Anglo-Saxon countries (Liberal Market Economies in the typology of Hall & Soskice) and in continental Europe plus Japan (Coordinated Market Economies). The comprehensive welfare states of continental Europe can thus stand up perfectly well to international competition.

But doesn’t the on-going crisis in the European Monetary Union at least make austerity necessary at present? Didn’t public finances in continental Europe, and especially in the European periphery, get out of control because of generous social benefits? Not at all. Mark Blyth’s recent book Austerity: The History of a Dangerous Idea magnificently trashes this notion. The real cause of the crisis in Europe was the implosion of the financial sector. In Ireland, Portugal, Spain and Cyprus, the structural basis of government finances was not problematic. (Greece is the sorry exception here.) Only when the banks collapsed did governments ran into fiscal problems. The idea that the European crisis was one of national debt (and hence of excessive government expenditure) simply distracts attention from its real cause, and has the cynical consequence that the cost of rescuing the banks is shifted onto the recipients of social benefits – precisely during a recession, when social security is a necessity. It would have been better to let automatic stabilisers do their work (i.e. through the fiscal deficit), if necessary with support from the European Union. Furthermore the impact of the bank rescues on the fiscal balances of Member States could have been reduced through forcing the banks’ private financiers to share a bigger part of the burden, as has reluctantly been implemented in Cyprus.

Change

The conclusion must be that external pressure does not have to lead to the slashing of social services. However, there are changes taking place in society that make a reform of European welfare states desirable. I will mention three of them: the ageing population, changing gender patterns and increased flexibility of labour contracts (see also Hemerijck 2013). The ageing population is due to rising life expectancies and fewer children per family. The rising number of elderly people will put pressure on pension systems and will also lead to a further increase in the demand for health care. The second societal change concerns the desirable (but still far from complete) tendency towards the equality of men and women. The labour market participation of women has increased steeply since the 1970s (from roughly 30 percent in the Netherlands in 1970 to roughly 70 percent in 2010). In the process, new ground has been won for self-fulfilment, which is a good thing. This means simultaneously that the sharing of care duties within the family must be renegotiated. The third societal change concerns increased labour market flexibility. The level of dismissal protection began declining as long ago as the mid-1980s in continental Europe (Hemerijck 2013). Figures from Statistics Netherlands show a steep rise in the number of flexible jobs in the Netherlands since the start of the millennium, largely as a result of temporary contracts. (As an aside: this contradicts the idea that more people would be able to find permanent jobs if it were easier to sack them later). A consequence of greater flexibility is thus that people change jobs more often.

Green welfare

Reforms of the social services in response to these societal changes bring with them the additional opportunity to base the welfare state on green principles. The main traditional social services are the outcome of compromises made between the classic political families (social democrats, Christian democrats and liberals) before the greens became a political force. It is therefore worth looking critically at the welfare state from the viewpoint of the green political tradition. Reforms ought to lead to a Sustainable Welfare State which not only keeps social services up to scratch but also takes account of the sustainability of economic developments.

From the standpoint of the green political tradition, we can state two important principles: room for individual diversity, and a laidback society. The former principle means, in this context, having room for a diverse range of lifestyles (for example in an employment relationship, as a volunteer worker or as an informal caregiver) and family structures. To achieve this, the greens traditionally strive for empowerment of the individual in relation to employer, government and collective arrangements. The second principle emphasises that maximising income and material consumption are not the sole keys to happiness, and that a job is not the only way of contributing to society. The industrialised countries are a long way along the curve of diminishing marginal utility from income. Not only does the environmental pressure created by our consumption probably decline when more time is devoted to culture, leisure and spending time with friends and family; it may also contribute to our happiness (as Dunn & Norton 2013 suggests). These two principles for a green reform of the welfare state are mutually complementary and reinforcing. They can form the basis of a coherent social model: the Sustainable Welfare State. In that respect they satisfy the core condition for a successful Hall & Soskice social model, namely institutional complementarity.

Reforms ought to lead to a Sustainable Welfare State which not only keeps social services up to scratch but also takes account of the sustainability of economic developments.

Autonomy

Reforms based on these principles seem at first sight perfectly consistent with the actual changes taking place in society. For example, a laidback society would imply the state aiming for a shorter working week in the labour market. Less time at work makes it easier to share domestic duties better within families, and to provide informal care to the elderly. A shorter working week might also facilitate delayed retirement to cope with the greying population. Furthermore, good child day care facilities give those who have care duties more opportunity to study or do paid or volunteer jobs. This enables them to develop in areas other than those of a parent.

Room for individual diversity means that people gain more autonomy with regard to jobs on the labour market (ranging from “traditional” fixed contracts to self-employed individuals). Social security benefits should therefore not be based solely on employment: if people contribute to society in some other way (for example volunteer work) they should not be forced onto the labour market. In this manner we can create room for diversity. Giving employees more say in how they spend their time through a legal entitlement to flexible work allows the creation of made-to-measure jobs. Empowerment with regard to power blocks such as the state and industry can mean that employees can more often make their own decisions about social services. A change of job would not mean moving from one collective agreement to another, if pension accounts are linked to individuals instead of employers. That makes it easier for someone to opt for a different job.

These are just some concrete examples of reforms that would be apt to a Sustainable Welfare State. They are not merely utopian green answers. Now that youth unemployment is rising rapidly due to the crisis, shortening the working week could give young people opportunities to gain work experience, so preventing them from becoming scarred with respect to the labour market. So when greens across Europe think about the future of the welfare state in the face of the crisis, I would suggest them to keep the principles of room for diversity and the laidback society at the front of their mind and from there develop and propose concrete agendas for reform towards a Sustainable Welfare State.

References

M. Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press 2013.
B. Burgoon, Political Economy of Re-embedding Liberalism, inaugural lecture to the University van Amsterdam, 6 June 2013.
E. Dunn & M. Norton, Happy Money: The Science of Smarter Spending, Oneworld 2013.
P.A. Hall & D. Soskice, Varieties of Capitalism: The Institutional
Foundations of Comparative Advantage, Oxford University Press 2001.
A. Hemerijck, Changing Welfare States, Oxford University Press 2013.