Supporters of a special European social model claim that what distinguishes the European approach to economic and social policy is the importance placed on “social cohesion”. In its attachment to social cohesion, Europe is often contrasted with the United States and other “Anglo-Saxon” countries (some of which are, of course, European).
Cohesion is almost by definition something that is good. After all, the opposite of cohesion is division, which is likely to lead to dissension and conflict, which are obviously bad. It is as hard to be against cohesion as it is to be against friendship or to oppose helpfulness. The real question, however, is what are the actual policies being proposed to achieve social cohesion, and what effects are they likely to have on cohesion itself, on other social problems as well as the economy in general?
The term social cohesion has in practice been most commonly used in what might be called a social democratic sense. This is based on the belief that, if uncorrected, the free play of market forces will lead to high disparities in income, and that these will in turn lead to intense social conflict. Surprisingly, studies tend to show that the majority of income transfers by government occur within the middle class, and that only a relatively small proportion are transfers from the rich or to the poor. Some flows even go the other way. For example, many pensions systems turn out to transfer money from the poor to the middle class, simply because on average richer people live longer.
Thus what most European countries get for their social expenditure is a lot of state provision of services, and not much reduction in social inequality. As a result, lower levels of social expenditure could involve only a relatively small increase in inequality and social conflict. More important, if we were to target our social expenditure better, we might achieve a greater reduction in inequality than at present with a lower gross level of social transfers. This means that cohesion should certainly not be identified with increasing the state’s economic role through higher taxes and social spending.
Indeed, some policies aimed at achieving cohesion may well reduce it. A classic example of this is the restriction on firing employees; these may well protect people who are in work, but often to the cost of the unemployed, thus aggravating the problem of social exclusion. Dismissal restrictions may even increase inter-communal conflict in those (quite frequent) cases when ethnic minorities are strongly over-represented among the unemployed. And, even where high levels of social transfers actually do reduce inequality (and therefore presumably increase cohesion) they may cause a deterioration in inter-communal relations if ethnic minorities are perceived as being strong net beneficiaries of these transfers.
A far greater problem with this approach is that it is based on the assumption that markets naturally generate levels of inequality that are likely to lead to social conflict unless offset by state intervention. Such situations may occasionally occur, but there are also cases where state intervention – particularly interventions designed to prevent the free play of the market – increases social inequality.
This often interacts with the greatest problem of all in the debate on cohesion: what “society” is it whose “cohesion” we are trying to increase? In the first half of the 20th century, the answer to this question was straightforward enough – in a world of nation states, it was “the nation” whose cohesion should be increased. Even then there were different views about how to achieve it, with those on the left proposing redistribution, while those on the extreme right favoured the strengthening of national consciousness, even if that were to lead to war, as indeed it did on the unprecedented scale of World War II.
European society is now older, and hopefully wiser. The European Union resulted from the tragic lessons of the first half of the 20th century. We learned that giving free rein to national egoism is a recipe for continent-wide catastrophe. At the same time, the globalisation that has followed the collapse of communism has shown that economic, internal, foreign and defence policies are unlikely to be successful when pursued exclusively at national level. Yet we continue to believe that the questions of social cohesion can be limited almost exclusively to the cohesion of the nation.
There are, of course, European cohesion funds, but these are only a fraction of a percentage point of European gross domestic product, whereas typically about 10% of national income is spent on social transfers within nations. I do not mean to suggest, though, a massive expansion of taxpayers’ money channelled through the European Commission to achieve greater European social cohesion. Today there is not enough collective feeling of social cohesion among European nations for such a solution to be politically acceptable to the richer ones, who would have to pay for the undertaking. Nor, given what I have just said about the pitfalls and unintended consequences of social transfers, would such a policy be advisable on its own merits.
But neither can we accept a situation in which vast resources are spent in Europe on national cohesion, while European cohesion lags so woefully behind. So how are we to resolve this dilemma? Fortunately, as I have tried to explain, social spending does not necessarily contribute very much to reducing income inequalities, and in any case one can often reduce inequalities considerably without spending any money at all. In Europe today it would be enough to eliminate the existing national protectionist barriers to migration, movement of capital and provision of services to give a massive boost to the growth of poorer EU member states. Nothing that the European Union or its individual member states can do would have as great an impact on reducing income inequality in Europe as lifting those barriers.
Doing so would not only reduce inequalities between EU member states, but also those within the poorer ones. The poorest of the poor would therefore gain the most. Why is this? During the referendum campaign in France for the European constitution, the “Polish plumber” became a symbol of the threat that further European integration was supposed to pose to French workers’ standards of living. In fact, the impact of free migration (when allowed) on French plumbers’ incomes is minimal, not least because of the smallness of the new member states compared to the whole of western Europe. Workers’ incomes in Britain and Ireland have not fallen measurably, in spite of both countries having been wide open to immigration from the enlarged EU since 2004.
Free migration in the EU means that not only will Polish plumbers be catching up with French plumbers, but also with Polish bankers! Middle class people in Poland such as myself are being hit by the increased cost of the services of skilled workers like plumbers, and also of the less skilled such as decorators, and the highly skilled but low paid such as doctors. You won’t see me complaining about this, however, as I rejoice at the opportunity the EU offers my compatriots, and the potential boost to the economic growth of the whole of Europe that the “new Europeans” are providing.
Why, then, was the European Commission’s proposed services directive, which would ensure freedom to supply services across the Union to all EU companies, vilified (in a play on the name of the then Dutch Commissioner responsible, Frits Bolkestein) as the “Frankenstein directive”? And why was it subsequently fatally watered down by the European Parliament? Why has pressure by the EU’s new member states for freer access to western European markets for services and labour and for the right to compete with “old Europe” for investment been stigmatised by some as social dumping? How is it that policies that would do more than any others to reduce inequality in Europe can be presented as anti-social?
It is hard to avoid the conclusion that what motivates the opponents of free service provision and movement of labour in Europe is not really a desire to ensure social cohesion, but rather the wish to maintain a status quo that protects their own position. It is true that change, and the need to adapt to it, creates discomfort and may even cause tension and conflict. That is a reason for wishing to avoid change, but it does not justify trying to cloak such conservative attitudes by claiming that they are “social”. They are instead anti-social, because they seek to deny the poorest of Europe’s poor a chance to improve their lot. These attitudes are also potentially disastrous, because if they came to be accepted as the guiding principle of European policy the whole structure of our economy would become petrified. And if economic growth were to be frozen, it would soon be impossible for Europe to afford even modest levels of social transfers.