Risks of Continental European Social Model for Slovakia

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Risks of (Continental) European Social Model for
Slovakia
PETER GONDA Conservative Institute of M.R.
tefánik
International Conference on The Economic and
Political Context of Central Europe - European
Union Relations. (Bratislava, June 14, 2005)
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The Americans work on the job, while Europeans
work at their leisure. (Bergstrom Gidehag,
2004)
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1. ESM what does mean?

• European social model (ESM) - myth or reality?
• currently several types of social policy
  strategies (Scandinavian, corporatist and
  residual) - common ESM does not exist
• However
• common features exist - mainly highly and widely
  set of social solidarity many types of generous
  benefits and high income security for individual
  (for long time of life)
• notion ESM - part of EU summits and strategic
  documents today also as weight against USA
  and/or Stability Pact
• together with European integration and
  enlargement strong pressure to create ESM, in
  final step as European Social Union

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1. ESM what does mean?

• Basis of creating ESM
• continental welfare-states approaches (mixture of
  Scandinavian approach with generous benefits and
  corporatist approach models), gradually
  supplemented by
• social integration, including harmonization of
  social and labour market standards
• ! bringing serious current problems in EU (part
  2) and future risks (part 3), more for SR as
  lagging behind economy (GDP per capita circa 50
  and price level only circa 46 of the EU-15
  average)

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2. Current problems in EUrisks for the future

• Main problematic characteristics of welfare
  states in EU (in comparison with USA)
• From general point of view (mainly after Great
  Depression)
• too high level of government, public
  redistribution with equalisation aims (even in
  relation to market, by subsidies, what are not
  task of government)
• excessive weight of compulsory, generous and
  costly social programs and guaranteeing too high
  social right/eligibilities
• (including bankrupt of PAYG, but also public
  unemployment, maternity, childhood, and other
  public schemes)

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2. Current problems in EUrisks for the future

• Chart 1
• Comparison of public expenditure ratio in
  selected countries (2002)

Source OECD (2003)
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2. Current problems in EUrisks for the future

• Main problematic characteristics of welfare
  states in EU (in comparison with USA) -
  continuation
• over-regulation of labor markets
• - high level of minimum wage, guaranteed on
  national level,
• - regulations (also on European level) limiting
  working hours (result lower willingness and
  intensity to work Chart 2) and
• - employment protection (including protection
  against dismissal)

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2. Current problems in EUrisks for the future

• Chart 2
• Hours worked ratio in selected countries (2000)

Source Bergstrom Gidehag, 2004
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2. Current problems in EUrisks for the future

• binding bargaining process on central level
  conflict between labor and capital, contrary to
  the US approach

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2. Current problems in EUrisks for the future

• Main problematic characteristics of welfare
  states in EU - continuation
• new mutual interlink social rights, which are
  relating to European social integration and
  creating of ESM
• - social cohesion
• - social inclusion
• - antidiscrimination on labour market...
• attempts to implement same (or at least minimum)
  set of social standards

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2. Current problems in EUrisks for the future

• Consequences of the characterstics (key problems)
  in EU
• pressure on financial resources (tax revenue...),
  thereby
• higher cost of economic entities by highering
  taxes and social contributions, mainly tax wedge,
  respectively non-wage labor costs and thereby
• low ability of ec. subjects to create new
  (productive) job places, low economic performance
  and its relatively decreasing in comparison with
  US (e.g. comparison between Sweden and USA
  Chart 3)

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2. Current problems in EUrisks for the future

• Chart 3 GDP of Sweden to USA, per capita (in
  pps)

Source OECD (2003)
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2. Current problems in EUrisks for the future

• Consequences of the characterstics (key problems)
  in EU (continuation)
• high unemployment, mainly long-term unemployment
  (much higher than in the USA)
• relatively low living standard, including poor
  households in comparison with the USA (Chart 4)
• low mobility and flexibility of labor force
  insufficient attempts to be active, including
  self-employment
• deepening culture of dependency of significant
  part of population
• protectionist policies (e.g. against countries
  with lower costs of labor).

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2. Current problems in EUrisks for the future
Chart 4 Comparison of dwelling space in
selected countries
Source Rector- Johnson (2004), Bergstrom
Gidehag (2004)
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3. Risks of ESM for Slovakia

• Main risks of Slovakia followed from long term
  view of most probable alternative of EU
  integration towards European political union
  (ALTERN. 1), including
• acceptance of commitment rules of real ESM,
  relating to harmonisation of social and labor
  standards and regulations, moreover according to
• generous continental approaches to welfare state
  and
• meeting commitments of EU-Constitution, possible
  admitted in similar form as its current proposal
• high and broad range of universal social (incl.
  labor and non-discrimination) rights (to
  benefits, a free services, strike...) - rights of
  individuals against the state

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3. Risks of ESM for Slovakia

• Main risks of Slovakia followed from (most
  probable and also risky) alternative of EU
  integration towards European political union,
  including also
• conflict between ESM (resp. ESU) and EMU
  wrong track (O. Issing, 1997)
• ...Social union in the European debate means a
  harmonisation of social standards, at the highest
  possible level. ESU demands a greater number of
  and more stringent regulations of the labour
  market. Monetary union requires opposite
  considerable more flexibility in the labour
  market.

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3. Risks of ESM for Slovakia

• Therefore, risks within this development (ALTERN.
  1) are mainly the following
• considerable increasing costs of economic
  entities in SR (more than in old EU members) in
  order to fulfill harmonised level of social and
  labor standards and regulations
• limitation of competition and competitiveness of
  Slovaks economic subjects
• same problem as current problem in EU, but in
  deepening forms, including restorting economic
  productivity,
• restricting flexibilty and freezing catching up
  to the EU level, as far as economic performance
  and living standard level is concerened.

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3. Risks of ESM for Slovakia

• Further risks from (at least) temporary status
  quo and partial social integration (resp. as
  altern. 2)
• higher costs and other impacts from fiscal
  irresponsibilities and fiscal free riding
• higher costs and other impacts from tension
  between countries with more regulated and not
  flexible economies (e.g. old continenetal EU
  members) and others (incl. SR)
• - e.g. in the form of protectionist policy
• special tension after admitting EU-Constitution,
  but before harmonisation of social and labour
  market standards - tension between EU members,
  because stronger problems with social tourism
  and social dumping.

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4. Conclusion

• What do we need for catching up West?
• more personal freedom, no centralisation of key
  political decisions from state to supranational
  level
• more flexibility and competition, no rigidities
  and averaging (e.g. from harmonization standards)
• more pressures to activities on the market, no
  generous public benefits and services, leading to
  more leissure
• We should advocate for comeback to free trade
  zone without harmonisation and regulations and
  fight against EU-constitution and creating ESM,
  especially when they are spiced up with
  continental welfare states approaches.