Must European countries converge to one single social model?

By: Stefan Collignon, LSE and Harvard University

Must European countries converge to one single model? The question seems to be at the core of the legitimacy of the European integration project.

 

Social models in Europe are highly diversified. Each country has developed its own long history of mechanism for providing social protection to less privileged groups and classes. Nevertheless three basic models may be distinguished, as Esping-Anderson has shown. These three models are the liberal anglo-saxon model, the social democratic Scandinavian model and the conservative model at the centre of the European continent. In addition there are some variations in Eastern and Southern Europe that are different, but may be converging to some of these three basic models over time.

 

1.      The social democratic model dominates Scandinavia. It is an institutional welfare state financed by taxes. All individuals have equal access to social services and are equally entitled to welfare claims. The fact that the welfare system is financed by taxes prevents economic distortions in terms of relative cost. At the same time it contributes to a fairly equal distribution of income.

2.      The conservative model dominates Continental Europe. It is most prominent in Germany, France, Belgium and Netherlands. It has evolved from a corporatist welfare state, whereby individuals are protected by a benevolent public authority, although the financing or the nature of claims are not equal across all citizens. Social security is essentially financed by contributions that are added to wage costs, thereby strongly distorting the economy and establishing classes of different social protection. The conservative model has been characterized by catholic social ethics with a paternalistic interpretation of society rather than by political equality, which marks the social democratic model.

3.      Broad social protection in the liberal model, which is predominant in the UK, Ireland as well as in the US and Canada, is subject to private insurance and individual initiative. These insurance models usually make social claims dependent on accumulated contributions or, more generally, on individual efforts. However in most of these countries, there are also politically decided minimum standards, such as statutory minimum wages, or state welfare programs by the state, such as National Health in the UK or Social Security and Medicare in the United States.

 

How much do these different social models cost?

 

Figure 1 shows the social expenditure in terms of GDP. Not surprisingly, the social democratic countries are spending the largest percentage of social expenditure followed by the conservative model and quite clearly the countries with the liberal model spend less. Southern European countries are more closely following the conservative model, Eastern Europe is between the conservative and the liberal model.

 

Figure 1

Source: European Commission, Ameco

 

 

What are the results and what is the effectiveness of these different models?

 

Figure 2 compares income distribution measured by the Gini-coefficient with the relative poverty rate. Not surprisingly, the social democratic model produces the most equal societies with the lowest level of poverty. Also quite interestingly, the relative income distribution is not very different in conservative and liberal countries. Political discourses in conservative countries attacking the unfairness of the liberal model are not supported by the evidence. However, the liberal model produces significantly higher level of poverty than the conservative model. Southern Europe is a group apart, with relatively high levels of poverty, although less than the liberal model. Income inequality varies significantly from one country to the next in the south. Turkey, quite visibly, is not part of any European social model. To summarize, the social democratic Scandinavian model seems the fairest social model, the conservative model combats poverty but not inequality, while the liberal model is fairer than the performance in some Southern and Eastern European countries, although it accepts high levels of poverty.

 

Figure 2

Source: European Commission, UN and CIA Fact Book.

 

 

What do these different models imply for other promoters of economic efficiency?

 

Comparing levels of unemployment and economic growth indicate that the social democratic model is at least as efficient as the liberal model in producing economic growth.  A real problem appears in the conservative social model of Central Europe, where economic growth is low and unemployment high. Figure 3. shows per capita growth rates of real GDP in the three models and the unemployment rates. The u-shaped distribution of growth rates and the inversely shaped trend line for unemployment confirm that the hierarchical corporatist model of France and Germany have performed least well between 1999-2006 than either the social democratic models of Scandinavia or the liberal Anglo-Saxon model, even if the evidence is stronger for unemployment than for growth.

 

Figure 3

 

What is the answer to our question about the convergence of systems? According to the widely shared policy consensus in international organisations, one would expect that Europe must converge to the liberal model. Yet listening, for example, to French election debates, one has the impression that the conservative model deserves to be saved by all means. Neither of these options are imposing themselves by necessity. The Scandinavian social-democratic model is clearly an alternative.

 

Policy debates in Europe should focus on the (non-)sustainability and desirability of the conservative model. Low growth and high unemployment are hardly conducive to creating legitimacy for economic policy making in Euroland. The directions of reform should be either a more liberal or a more social democratic model. Increasingly, we witness that these are the directions taken by countries that are starting to reform the conservative model: Germany is moving more in the direction of Scandinavia, the Netherlands more in the direction of the liberal model, and France, so far, has not been able to make up its mind.

 

Stefan Collignon is professor of European Political Economy at the London School of Economics and visiting professor at Harvard University.

www.stefancollignon.eu

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