European Social Model vs Directive Bolkestein

PANOECONOMICUS, 2006, 1, str. 65-77 UDC 339.923:061EU European Social Model vs Directive Bolkestein Srđan Redžepagić∗ Summary: In this article is elaborated the actually question which is developed and dis- cussed it the European Union is the European Social Model (ESM). It is a vision of soci- ety that combines sustainable economic growth with ever-improving living and working conditions. This implies full employment, good quality jobs, equal opportunities, social protection for all, social inclusion, and involving citizens in the decisions that affect them. As the Euro-zone is struggling to move away from a dramatic slump in its econ- omy, and while the Lisbon Strategy and its potential for economic growth, strongly needs reactivation, the debates over the Europe have raised again the issue of a sustain- able social agenda for the European Union. Recently, Europe’s political leaders defined the ESM, specifying that it “is based on good economic performance, a high level of social protection and education and social dialogue”. An important topic of the discus- sion nowadays is the Directive of the European Parliament and of the Council on ser- vices in the internal market so called “Bolkestein directive”. The importance of this arti- cle is to give us the answer to the following question: would we have French goods available in French supermarkets all over Poland and no Polish services allowed in France? The EU would be unthinkable without the full implementation of the four free- doms. This is a good directive, going in the good direction. Key words: European union, Social policy, Labor, Services, Enlargement JEL: E24 1. European Union and the modernization of the European Social Model A political question: is there a European social model? The European Social Model1 is a vision of society that combines sustainable economic growth with ever-improving living and working conditions. This implies full employment, good quality jobs, equal opportunities, social protection for all, social inclusion, and involving citizens in the decisions that affect them. In the ETUC's2 view, social dialogue, collective bargaining and workers' protection are crucial factors in promoting innovation, productivity and competitiveness. This is what distin- ∗ Institut ekonomskih nauka, Beograd; Ekonomski fakultet , Univerzitet u Nici – Sophia Antipo- lis. E-mail: sredzepagic@gmail.com 1 The European Trade Union Confederation gives this definition.http://www.etuc.org/a/111, 2 European Trade Union Confederation Srđan Redžepagić guishes Europe, where post-war social progress has matched economic growth, from the US model, where small numbers of individuals have benefited at the expense of the majority. Europe must continue to sustain this social model as an example for other countries around the world. Inevitably when trying to define the notion of a European Social Model one must refer to the transatlantic debate, and the simple contrasting statement that European states have welfare systems while the United States (US) does not. In fact, this notion stems from the broad acknowledgement of three common features, shared by every European state: a certain public commitment to social justice, however differently defined in ac- cordance to national traditions, the theoretical approach that social justice is not opposed to economic efficiency, and should eventually contribute to it, and the value of interest representations and negotiations between the social actors - with, there again, a various degree of appreciation, from the pattern of conflict- ing societies such as Italy or France to the Scandinavian model of comprehen- sive negotiations3. The whole could as well be summarized in the versatile but significant notion of a social and economic dimension of citizenship4. As the Euro-zone is struggling to move away from a dramatic slump in its economy, and while the Lisbon Strategy and its potential for economic growth, strongly needs reactivation, the debates over the Constitution have raised again the issue of a sustainable social agenda for the European Union (EU). The suc- cessive and ominous failures for the ratification of the European Constitutional Treaty in France then the Netherlands, two major, founding, members, may or may not endanger Europe's integration process, yet they undoubtedly questioned the current state of the European project in the very name of a European Social Model. In many aspects, the debates have reviewed and revolved around con- trasting visions, and around the bitter statement that a common vision for Europe was definitely missing. Moreover, in letting the argument focus on the confron- tation between “liberal” and “social” dimensions of the project, as if the two op- tions had to be mutually exclusive, scores of traditional supporters of the Euro- pean integration felt at odds with the Treaty and drawn to vote it down. To be sure, the temptation to see the European Social Model as the expression of a truly European essence is entirely and foremost political. For some, the Social protection Systems remain an indefectible “civilization acquis”5 which should be preserved, even at increasing costs; others would emphasize the link between social cohesion agendas and an overall citizen support, for any further step in the 3 Hemerijck Anton (2000) The Self-Transformation of the European Social Model(s). International Politics and Society, 4 4 Wickham James (2002)The End of the European Social Model: Before it began?” in EurUnion, Irish Congress of trade union, p.3-5 5 Kouchner Bernard. Systèmes de santé et de protection sociale en Europe, un aquis de civilisa- tion”, Document presented by the Chair of European Civilization, at the College of Europe, Nato- lin, 02 April 2004. 66 European Social Model vs Directive Bolkestein European integration process6. Yet at the bottom of these political questions lies a rather strictly economic issue. Namely the sustainability of many welfare states, notably in the western part of the EU is jeopardized by the current eco- nomic and demographic trends: increasingly ageing population, low participa- tion rate in the labor market or too generous social benefits, to name just a few. Furthermore some drastic discrepancies between the systems of “old” and “new” member states are pleading for a further integration in the different labor mar- kets and increased cross border mobility of workers. This is why the issue of a European Social Model could stand today as a priority, as a need to embed the future legitimacy of the European integration in a strengthened European social cohesion. Europe’s political leaders recently defined the European social model, specifying that it “is based on good economic performance, a high level of social protection and education and social dialogue”7. This definition authenticated a process which initially peaked in the Lisbon strategy8, launched in March 2000, when the EU’s Heads of State and Government defined Europe’s strategic goal “to become (by 2010) the most competitive and dynamic knowledge based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion”9. The paradigm10 of the European Social Model is that economic, employment and social policy form a policy “triangle” in that they should mutually reinforce one another. This positive interaction should create a virtuous and sustainable cycle of economic and social progress. With the Lisbon strategy on economic and social renewal, employment and so- cial affairs became firmly anchored in the core business of the EU, validating the gradual shift from being a complementary issue of European economic integra- tion to operating in the centre of EU policy making11. In the context of the Lisbon process which intends to root future growth into a knowledge-based economy, the five following items should be given full dedication: 6 Bot Bernard, Minister of Foreign Affaires of the Kingdom of the Netherlands. Towards a Euro- pean Social Contract, Speech at the Humboldt University Berlin, 02 June 2004. 7 See paragraph 22 of the Presidency Conclusions of the March 2002 Barcelona European Council 8 Lisbon strategy launched in 2000 sets out a number of key objectives on the employment and social front to be archived by 2010: Reaching an employment rate of 70% Reaching an employment rate for women of 60% Reaching an employment rate for older workers of 50% Making a decisive impact on the eradication of poverty 9 Presidency Conclusions of the March 2000 Lisbon European Council 10 Rodrigues Maria J. (2002). The New Knowledge Economy in Europe: A strategy for Interna- tional Competitiveness and social cohesion, Cheltenham: Edward Elgar. 11 Wendon Bryan (1998) The Commission as image-venue entrepreneur in EU social policy”, Journal of European Public Policy, Volume 5, Number 2, pp. 339-353 67 Srđan Redžepagić ƒ more restrictions on public expenditures ƒ reform of social security systems - foremost of a pension system ƒ financial balance, with namely limits on health expenditures ƒ lower tax rates but with less exemptions ƒ more balanced mix between public/private services During the Presidency of the Netherlands of the European Union in 1997, the concept “social policy as a productive factor” was presented, succinctly sums up the rationale: “If social cohesion and stability are thus recognized as produc- tive resources, then surely the contradiction between social justice and economic efficiency breaks down. Social policy can then no longer be perceived as leading to consumption related benefits, taken out of an efficient economy by distribu- tive politics. Social policy itself becomes a productive resource which, instead of countering economic policy by protecting or “decommodifying” labor, comes to play a part in improving the economy’s performance potential. From this per- spective, social policy and economic performance are closely, perhaps even in- dissolubly, interconnected”12. The 2004 enlargement was unprecedented with regards to the number of new countries entering the EU as well as the large gap in the standard of living between the EU-15 and the new Member States. The average income per head of the ten new member states13 was well less than half of the average income level in the EU-15. Also the employment rate, still low with 64.3% in 2002 for the EU-15 was reduced to 63% for the EU-25; as the ten new Member States reached an employment rate of 62.4%, taking the enlarged EU even further from its 70% employment target. Therefore also the enlargement itself, which in- creased diversity in the EU, inspired a rethink of the Lisbon strategy and its pol- icy orientations, to ensure that the goals meet the ambitions of all Member States14. The data in graph 1 show the employment and unemployment rates for EU countries. The gap to be bridged to meet the headline Lisbon goal of an overall 70% employment rate remains large. The total employment rate in the EU in 2003 had reached 63%, while the employment rate for women had increased to 55.1% (with 60% as Lisbon target) and the employment rate for older workers (55-64 year olds) went up to 40.2%, a far stretch from the 50% target. Unem- ployment has reached more than 9%, which equals close to 20 million people. As the table shows, the aggregate data conceal the wide-spread variety between 12 The Netherlands’ Presidency of the European Union, Social Policy and Economic Performance, The Hague: Ministerie van Social Zaken en Werkgelegenheid 1997, p. 17 13 Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Czech Republic, Slovakia, Slove- nia. 14 Bailly Olivier (2005) La relance de la stratégie de Lisbonne ou la quête d’un partena- riat politique. Revue du Marché commun et de l’Union européenne, Number 489, pp. 357-361 68 European Social Model vs Directive Bolkestein countries and suggests that sluggish economic or poor employment performance cannot be brought back to a simple comparison between for instance the EU and the USA. It also shows the scope to learn from one another’s experiences and practices in the EU. Graph 1 – Employment and unemployment data Employment (wide column) and unemployment (narrow column) rates 2002 Source: Eurostat 2. Directive Bolkenstein in the internal market of the EU: facts The Directive of the European Parliament and of the Council on services in the internal market so called “Bolkestein directive”15 is evidently an important topic of the discussion nowadays. It is important to answer to the following question: 15 COM 2004 2 final – 2004/0001 COD, Brussels, 13 January 2004. 69 Srđan Redžepagić would we have French goods available in French supermarkets all over Poland and no Polish services allowed in France? The EU would be unthinkable without the full implementation of the four freedoms. This is a good directive, going in the good direction. The Directive on services in the internal market (commonly referred to as the “Bolkestein directive”) is an initiative of the European Commission aimed at creating a single market for services within the EU, similar to the single market for goods already present. Drafted under the leadership of the former European Commissioner for the Internal Market – Frits Bolkestein, it has been popularly referred to by his name. It is seen as an important kick-start to the Lisbon Agenda which, launched in 200016, is an agreed strategy to make the EU “the world's most dynamic and competitive economy” by 2010. With the proposed legislation, the Commission wants to reduce the barriers to cross-border trade, principally by doing away with the service industry regulations of individual EU member states, unless those regulations are non-discriminatory; objectively justi- fied on the grounds of public interest; and proportionate. The Commission ar- gues that regulations which do not meet these criteria are unnecessary and pose a barrier to service providers wanting to provide services in other member states in addition to their country of establishment. The “Bolkestein directive” was harshly criticized by the left wing, who stated that it would lead to competition between workers in different parts of Europe – hence the expression “Polish plumber” — resulting in social dumping. Unfortunately, the debate has some- times taken on xenophobic and protectionist overtones, such as the noise about “the Polish plumber”, which became connected not only to EU enlargement, but to the Directive as well. This leads us to a number of questions, namely, what people propose instead and how the EU without the Directive would resolve the problems of labor disparities. The directive, which would remove barriers to the provision of services be- tween member states, is most often criticized for its “country of origin princi- ple”. Under this principle, companies which are registered in any EU member state may not only provide services in any other, but also can employee workers to perform such services abroad remaining subject to the law of the country in which they are registered. It is feared that businesses will utilize this law to take advantage of less strident labor and environmental standards in countries with more relaxed standards. An inevitable race to the bottom is bound to occur. The Bolkestein directive would mean that a firm registered in an EU mem- ber state could operate in another member state and yet follow the laws of the country in which it was registered, leading to competition between workers from different parts of Europe. Major employers see big advantages in this in terms of the downward pressure it would exercise on wages and social provision. The fact 16 As mentioned and clearly explained before 70 European Social Model vs Directive Bolkestein that so many people took to the streets of Brussels makes it clear that trade un- ions will not tolerate the neoliberal policies emanating from that same city, poli- cies based on “economic progress, social decline”. The Directive proposes several important changes in the EU services mar- ket. These can be grouped into three interrelated pillars: ƒ “freedom of establishment” – this means that if a company or individual is able to provide a service in one EU country, should they wish to pro- vide the same service in another member state, there should be little, if any, legal or administrative restrictions on them doing so i.e. they should be free to set up shop in any other member states in the same way as a company or individual is able to in his/her member state of origin. ƒ “country of origin principle” – this is a rule that would facilitate the free movement of service providers on a temporary basis to encourage cross-border competition or, more specifically, to encourage individuals or companies to test other markets without first having to establish. What makes this different from the “freedom of establishment” is that the company or individual may provide services to consumers in an- other member state on the basis of the laws of its country of establish- ment (origin) and without registering with the regulators in the host member State. In practice, this would mean that a company providing services in France (established there), for example, would be free, for a limited period, to provide services in the UK under French laws; or, as discussed at length in France, a Polish Plumber could work in France under Polish labor laws. ƒ “mutual assistance” – this third component is designed, in part, to sup- port the first two pillars: particularly the country of origin principle. Proposals include measures to promote “mutual assistance” between member states for enforcement purposes; harmonization measures with respect to consumer protection and other measures to promote and up- hold the quality of services. In order to transpose the Directive, member states must: ƒ simplify the administrative procedures and formalities ƒ eliminate from their legislation a number of requirements listed in the Directive that hamper access to and the exercise of service activities ƒ guarantee in their legislation the free movement of services from other member states and adapt any rules that would difficult such movement ƒ evaluate the justification and proportionality of a number of require- ments listed in the Directive which, where they exist in their regulations, may significantly restrict the development of service activities. Main points: 71 Srđan Redžepagić The European Commission's controversial draft Directive on Services aims to remove all barriers to the cross-border provision of services in the EU. In do- ing so, it will reduce member states' control over working practices, open the door for companies to bypass labor and environmental standards, impose barri- ers to state regulation, and put private pressure on public services. The Directive is wide-ranging, including all types of service sector. It effec- tively treats all sectors of the services industry the same - regardless of whether they are protected, public services monopolies in some member states. The freedom of establishment for service providers and the so-called 'coun- try of origin' principle will undermine regulation of the labor market in the ser- vice sector. It would c