A Social Dimension For A Changing European Union: The Irish Case

David BeggThe problem with the concept of ‘Social Europe’ is that there is no one social model that applies. Moreover, there is a collective action problem for member states even if they wish to achieve a single model – a point discussed later. But without a social dimension as a counterfoil to monetary and economic integration the European project will increasingly lose the support of the people as recent research by the Pew Centre (2013) suggests.

There is an extensive literature outlining a typology of social models in Europe (Esping-Andersen, 1990; Huber and Stephens, 2001; Pontusson, 2005). The seminal work in this area is that of Gosta Esping-Andersen (ibid) in which the degree of decommodification – the extent to which social security systems allow a person to survive outside the labour market – is the principal criterion for judging welfare regimes. However, there is broad agreement on categorising the Nordic countries as having a social democratic model with a high degree of universality of benefits and public services delivered by the public sector. Continental countries are characterised by an insurance based, male breadwinner type model based on Christian democratic values. As liberal market economies Ireland and Britain have lower levels of universality and rely on means testing for many benefits with attendant lower decommodification achievement.

In Ireland’s case particularly, welfare effort tends to compare unfavourably with the Nordic and continental models not least because public spending is lower.

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Ireland also has what is sometimes described as a ‘mixed economy of welfare’ meaning that a high percentage of services in health and education, although funded and regulated by government, are delivered by the community and voluntary sector. This is mainly for historical reasons associated with the role of the Catholic Church.

There are a number of challenges to the sustainability of Ireland’s welfare regime. The most formidable is an unemployment level of 14.2 per cent overall and a youth unemployment component of 30 per cent. The structural element is particularly worrying as long-term unemployment now stands as 62 per cent. The construction industry in particular was badly affected by the onset of the recession with employment falling from a peak of 286,000 in 2006 to 102,000 in 2013. Employment trends for the different economic sectors are set out in table 2 below:

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Although the demographic profile of Ireland’s population is generally more favourable than the rest of Europe the country is still facing an increasing population of over 65s, living longer, with implications for pensions, health and eldercare. Even now the country’s occupational pension funds are in tatters with 80 per cent of defined benefit schemes being underfunded.

Childcare is regulated and subsidised by grants to parents to a limited extent but is totally provided by the private sector. Recent investigative journalism has revealed serious shortcomings in the quality of care provided and in the standard of regulation. Care of the elderly is being progressively privatised and similar problems have arisen in this sector. In a nutshell, the state decided on market solutions to care as female labour force participation increased in the ‘Celtic Tiger’ years (1994-2008) and it is not a successful model.

With regard to labour market institutions Ireland pioneered a very sophisticated and inclusive model of social partnership from 1987 to 2009. A discussion on this model and the reasons for its collapse would be beyond the scope of this article. Unfortunately, judicial activism at Supreme Court level has, since the onset of the recession, more or less unravelled all the labour market institutions for wage setting apart from the Labour Court itself. It did this by declaring a 1946 Industrial Relations Act Ultra Vires the constitution in important respects. Taken in conjunction with the fact that unions have no legal right to collective bargaining this further erosion of rights is highly debilitating to the achievement of equality in society through collective bargaining.

This course of events cannot be realistically separated from the fact that Ireland is a programme country under the control of the EU/ECB/IMF Troika. The policy pursued has been to engineer an internal wage devaluation to restore ‘competitiveness’. The social consequences of this programme, especially its impact on public services, have been very severe.

The truth about EMU is that, absent the ability to devalue the currency, and in the event of a macroeconomic shock, the whole burden of adjustment falls on labour markets.

For Europe this poses some dilemmas. Because there is no social institution to match the power and independence of the ECB there is no balance between the social and the economic. Yet globalisation constantly throws up new social risks. The further European economic integration progresses, the more it infringes upon the basic rights, provisions, and redistributive functions of national welfare states. At the same time, member states are collectively unable to further social integration in return. It is a dilemma well captured in the following passage from a recent publication:

The more European economic integration deepens and widens, the more it infringes upon the basic protective and redistributfve functions of national welfare states. Moreover, as price stability and sound fiscal policy are constitutive pillars of the EMU architecture, economic and monetary integration have been granted institutional privilege, through the Maastricht Treaty, over national and supranational social policy repertories. In other words, European economic integration is not just about a ‘functional decoupling’ between EU economic integration and national welfare states but also about ‘hierarchical subordination’. Even if EU member governments would wish to collectively step up EU social policy integration to counterbalance market and monetary integration, their hugely different levels of economic development, variation in development generosity, financing and service provision make it extremely difficult to find appropriate solutions for all twenty-seven member states to agree upon. Moreover, following the Treaty, any expansion in the scope of ‘positive’ social policy interaction critically depends on unanimity (or qualified majorities) within the Council of Ministers. Unanimity, in the shadow of extreme diversity and divergent political preferences, thus conjures up a situation of ‘joint-decision trap’(Hemerijck, 2013:294)

One solution would be to change the remit of the ECB to require it to focus on issues such as employment and not just on the narrow focus of price stability and inflation below 2 per cent. In other words to make it more like the Federal Reserve Board in the United States. Actually without making that kind of institutional adjustment it is hard to see how social Europe will ever become a reality.

But here is another dilemma. Changing the remit of the ECB requires Treaty change. It can be argued that the decision to engage in outright Monetary transactions (OMT) is already pushing the boundaries of the ECB’s remit. Indeed that is what the Bundesbank is currently arguing before Germany’s Constitutional Court. So a willingness to change the Treaty to make ECB more like the FED would possibly prompt the German Government to seek to specifically limit its powers to engage in OMT (Steen, 2013).

The final dilemma for Europe is that to resolve the financial crisis it must complete the institutional architecture of EMU thus embarking on the most ambitious phase of integration at a time when Europe’s citizens don’t want it. And they are unlikely ever again to want more integration until they see it bring social progress, not just economic hardship.

References

Duffy, David and Timoney, Kevin (2013) Quarterly Economic Commentary. ESRI. Spring 2013.

Esping-Andersen,Gosta (1990) The Three Worlds of Welfare Capitalism. Cambridge.  Polity Press.

Hemerijck, Anton (2013) Changing Welfare States. Oxford. Oxford University Press.

Humber, E and Stephens, J.D (2001) Development and Crisis of the Welfare State: Parties and Policies in Global Markets. Chicago. University of Chicago Press.

Pontusson, Jonas (2005) Inequality and Prosperity: Social Europe versus Liberal America.  New York. Cornell University Press.

Steen, Michael (2013) “BundesBank Chief Backs Further Curbs on ECB Powers! The Financial Times. June 13 2013, Page 6.

The New Sick Man of Europe: The European Union’ Pew Research Centre. May 13 2013.

This article is part of the EU Social Dimension expert sourcing project jointly organised by SEJ, the ETUCIG Metall, the Hans Böckler Stiftung, the Friedrich-Ebert-Stiftung and Lasaire.