Despite the achievements of the Single European Market (SEM) programme, a fully integrated market complete with social dimension or external protection has not yet come to pass, nor has a system of political authority and democratic accountability analogous to that of the traditional nation state been developed at the centre of the European Union (Habermas, 1999;
Streeck and Schmitter, 1991). Neither the project of Fortress Europe nor that of Social Europe has come to fruition.
While conforming to neoliberal principles, the creation of the SEM and EMU can also be interpreted as necessary steps in the construction of a politically united Europe. From such a perspective, building Social or Fortress Europe requires the same kinds of integrative steps as were necessary in the formation of the nineteenth-century European nation-state.
Market integration is not necessarily therefore an end in itself and could yet pave the way for further integration in which the distinctive features of Europe’s social model would be enhanced and extended through the whole Union. From here we see the continuing controversy as to what ‘Europe’
is or should be, a controversy represented throughout the EU’s existence in both political and academic debate. Of great signifi cance here, then, is the actual impact of integration on the national models of governance. Is there convergence towards the neoliberal model?
The literature presents anything between two and four stylized models of economic governance (Hutton, 1995, p. 282; Albert, 1993; Esping-Anderson, 1990; Hart, 1992; Coates, 1999; Schmidt, 2002; Grahl, 2001, pp. 140–41).
Arguably three models are visible in the European Union.
1. The Anglo-Saxon model prevailing in the UK and, particularly during and after its high Thatcherite period, holding much in common with neoliberalism and advocating a relatively low-tax–low-social-spending, deregulated market resulting in a market-driven allocation and distribution of resources and wealth (Hutton, 1995; Coates, 1999). Within this more market-driven system, British labour wields less power than most of its continental counterparts and capital has traditionally been composed of more internationalized and transnationalized fractions than other European economies. The role of fi nancial markets as opposed to banks within the UK capital market also implies a traditionally stronger orientation towards money capital than productive capital, whilst the laissez-faire leanings of the model have created similar orientations away from state interventionism. The existence of this approach within the UK – though in a less extreme form than in the USA – is a key factor differentiating the UK from its European partners, and British fears over integration are often related to a perceived threat to the Anglo-Saxon model arising from more statist and social-democratic currents in the EU (Portillo, 2005; Redwood, 2001).
2. The state-led model, normally associated with the Far East but a model with which the French tradition of dirigisme and planning would appear to provide a European counterpart, featuring a strong economic bureaucracy, exercising ultimate control over market access and over the allocation and distribution of resources; and planning these in line with national economic priorities, as defi ned by the élite (Wade, 1990; Hall, 1986; Hayward, 1986). In this system, national capital is largely nurtured and developed precisely through state sponsorship and protection.
However, having successfully developed, and facing an increasingly globalizing environment, this dependence is theoretically open to erosion.
With the arrival of the single market, the traditional protectionist tools
of the state-led approach were simply removed at a stroke from the arsenal of policy instruments available to member states.
3. The social model, a rather amorphous term given to describe the prominence of social partnership within an array of different national contexts across the rest of the EU, but always resulting in tendencies towards corporatist governance and a high degree of social cohesion and equality (Therborn, 1987; Hutton, 1995; Streeck, 1999; Meidner, 1992; Katzenstein, 1985). Within such models the balance between state leadership and social partnership differs. ‘Corporatist’ traditions differ in the extent to which they are ‘top–down’ or ‘bottom–up’, with Southern European models demonstrating more bureaucratized and state-led models than most of their Northern and Alpine counterparts, where the role of organized labour has a longer tradition of institutionalized participation in economic governance and where communist infl uence within the labour movement was less pronounced at an earlier stage.
Indeed, Swedish and Danish Euroscepticisms, in direct contrast to their British counterpart, coalesce around fears that the EU carries a neoliberal threat to the highly developed Nordic social model. Lacking that level of institutionalization, South European variants are to some extent a hybrid of the state-led and the corporatist, making them more vulnerable to neoliberal reform (McVeigh, 1999).
The argument is often posited that under the pressures of globalization and European integration, convergence is taking place between these models, with the second and third models undergoing reform towards the Anglo-Saxon model (Streeck, 1999; Coates, 1999; Dore, 2000; Crouch and Streeck, 1997). It is sometimes alleged that this process, if unchecked, will logically produce a ‘race to the bottom’ as levels of social protection and welfare provision are pruned further and further back to provide the fl exible and competitive labour markets required to attract more mobile and demanding capital (Grahl, 2001, p. 159; Rodrik, 2003; Bauman, 1998, pp. 65–9). Taxes and regulations have to be reduced to allow competition with fi rms locating in ‘cheaper’ model countries. Capital in all locations is pulled into an international- and global-level competition as the search for more markets logically requires penetration of foreign markets and the search for more capital requires interaction with the more ‘short-termist’
circuits of fi nance capital represented by international investors and global equity markets (Grahl, 2003, pp. 28–30).
The opening up of economies since the oil crisis, in which Europe has been centrally involved, is therefore seen as at once essential to the re-launch of ‘exhausted’ organized national models of economic expansion but at the same time removing that critical insulation which allowed a balance
between the goals of growth and those of redistribution, equity, social inclusion and cohesion (Streeck, 1999). With market barriers removed, high- and low-cost models come more directly and systematically into competition with the presumption that footloose capital will then use its
‘exit’ power of relocation to cheaper business environments to undermine existing labour–capital relations at the national level (Grahl, 2003, p. 30).
Organized capital, itself under pressure to produce faster returns in order to secure capital on increasingly integrated and short-termist global markets, presses for reductions in regulation, social charges and labour market rigidity with the implicit threat of relocation (Grahl, 2003, p. 30; Rodrik, 2003; Streeck, 1999).
To what extent this has driven a fundamental reform of social models is less obvious (Schmidt, 2002). In the case of the Nordic countries, in which the social model of capitalism has had its strongest political roots and much success, the literature indicates that aspects of the model have undergone reform but without any wholesale adoption of the Anglo-Saxon/
neoliberal model or substantive abandonment of core principles (Kuhnle, 2000, pp. 213–18). However, Jochem (2000, p. 115) fi nd that inroads have been made into collective bargaining, the centralization of wage setting and social insurance principles of welfare provision, leaving the models in a ‘state of fl ux’.
Likewise, in the French case, Palier (2000) and Beland and Hanson (2000) demonstrate erosion of social insurance principles and an increased focus on policies of (re-)activation in the French labour market (Economist Survey, 1999, pp. 5–10). In Germany, the diffi culties of reunifi cation and the attempt to transfer the German model to the east has produced signifi cant stresses in terms of unemployment, leading to reform of the social insurance system (Streeck, 1991). In several cases the literature points to a shift in the burden of social charges away from business and on to labour and/or the state. The convergence process for membership of the monetary union did create pressures for reforms and reductions of state spending across the EU, with retrenchment of unemployment provision, reforms to pension systems and the privatization of state industries and assets all featuring across the EU in the strategies of member governments as they sought to qualify for membership (Ferrera and Gualmini, 2000; Grahl, 2003; Perez, 2000, p. 445–53; Salmon, 2000, pp. 35–9; McVeigh, 1999).
The organization of capital has also been affected, with traditionally opaque patterns of interlocking, cross-ownership and family holdings, bank engagement and corporate governance all undergoing some (uneven) erosion over the last decade, while the single market also promoted further concentration of capital through mergers and acquisitions (Grahl, 2001;
2003, pp. 42–5; Nolke, 1999; Economist Survey, 2000).
In spite of these common trends in the direction and nature of reform, there remains considerable divergence in the depth and pace of such changes (Schmidt, 2002). This is barely surprising given the sheer number of differentiating variables within national capitalisms. Within economies generally adopting social-corporatist approaches to national wage bargaining, for instance, the density of union membership, the degree of centralization of bargaining, the issues covered in national accords, the existence of bi-partisan or tripartite models of bargaining and the internal organization of the social partners are all variables affecting the evolution and outcome of the social model, and all differ signifi cantly from country to country (Therborn, 1987). With respect to welfare models, there are continued divergences in tax rates, in the degree of universalism and means- testing, the replacement rate, the extent of insurance-funded or tax-funded social provision (Grahl, 2001). In corporate governance there remain differences in the level of worker representation, of bank participation, and of debt–equity ratios which infl uence the nature of national capitalisms (Economist Survey, 2000). For all of these myriad of variables to ‘converge’
is clearly unlikely in a short period of time, particularly as many are deep- rooted both institutionally and culturally; but all do have an impact on the exact nature and outcomes of national capitalism (ibid., p. 159).
This diversity is also refl ected in the process by which reform takes place.
In several countries, social partnership was actually encouraged by the process of monetary union rather than unhinged by it. In Ireland, Italy and Spain national social accords were (re-)discovered in the run-up to EMU as a means by which to ensure that convergence criteria were met (Economist Survey, 2004a, pp. 4–5; Ferrera and Gualmini, 2000, p. 204;
Perez, 2000, p. 445). The Dutch Pohldermodel inspired much optimism about the capacity of social dialogue to resolve the tensions brought about by the collision of global forces on national structures and encouraged the development of Third Way discourse (van Apeldoorn, 2002, p. 183; Green- Pederson, 2001).
It is important to look at the substance and content of such accords. The existence of national accords is by no means inimical to reform, and may enable labour and capital to accommodate to market forces in an organized way though not, in the classic German model described by Streeck (1999), to control, govern and de-commodify market forces. This ‘accommodation model’ of social partnership takes place within the context of a power imbalance between mobile capital and immobile labour, and consequently has necessitated more accommodation from labour than from capital (van Apeldoorn, 2002, p. 183).
Nevertheless, where consensus and social concertation have deep cultural roots and institutionalized bases, they are not quickly or easily torn up
(Katzenstein, 1985; Menz, 2003). Whereas, in France the national model and its ‘de-commodifying’ implications have been deeply rooted in constructions of national identity and as a counterpoint to the brutality of Anglo-Saxon market forces, the pattern of reform is inevitably uneven and gradual (Economist Surveys, 1999, pp. 10–12; 2002, pp. 13–15).
We can conclude that some convergence is taking place in the direction of a more market-based capitalism but that national variations remain an obstacle both to the full economic and social integration of the market (Schmidt, 2002, pp. 141–7, 303–11). In much of the Union, there is considerable resistance to rapid convergence and dismantling of the social model among labour and capital. This is refl ected within political parties and élites; and in the continued commitment, at the very least rhetorically, to a Europe whose model of economic governance is clearly differentiated from that of the Anglo-Saxon model (Portillo, 2005; Economist Survey, 1999, pp. 1–5).
For some this has spurred the search for political integration of the key areas of the social model, perhaps even the construction of a single European social model to be applied across the EU and responding to the need to ensure a social dimension to Market Europe and a means of differentiating European from Anglo-American capitalism. As we argue below, this project faces obstacles in the institutional framework of the Union, implying the persistence of national interests and strategies undermining the thesis of inevitable political union (Atkinson and Divoudi, 2000, p. 442).
For proponents of the liberal intergovernmental thesis, the development of the single European market and monetary union required interstate bargaining whose success depended upon a community of shared interests in the opening up and integration of the European economies (Moravcsik, 1998). Despite and perhaps because of the integration of the European market on neoliberal principles, the achievement of a similar consensus around the social model, considered broadly to cover labour–capital relations, labour market regulation, taxation and welfare provision, seems unlikely.
It is this continuing diversity of national contexts, and its functionality at the national level, which makes both market-led convergence gradual and uneven, and yet an agreed EU-level harmonization unlikely (Schmidt, 2002, pp. 141–7). Having given up key macroeconomic controls through market and monetary integration, states are now more reliant on their powers over tax, welfare and the labour market. These policy areas provide much of the remaining scope for fl exible national-level responses to the threats posed by international market forces. In the context of the competition state, one would anticipate that such micro-level areas of economic strategy and policy in these key areas would constitute critical policy instruments for states in their attempts to attract capital and pursue growth (Cerny, 1996).
It is unsurprising, therefore, that the project of ‘Social Europe’ has not been advanced successfully to date: there are key differences in approach and desired outcome between the member states which make it diffi cult to create the required consensus for further integration in these areas. Underneath this, of course, these divisions refl ect and overlap with the struggle between the competing interests of national and transnational social forces (van Apeldoorn, 2002, pp. 183–4).
Any major initiatives in the ‘social dimension’ would require approval in the Council of Ministers. Even with the progressive extension of Qualifi ed Majority Voting and occasional Commission activism, this is unlikely to occur. We have alluded earlier to the failure of the Delors’ Commission’s proposals in which an activist stance was taken by the Commission in pursuit of building the European Social Model through integration. The failure of the Delors Plan revealed that even among countries committed to the idea of the social model, there was disagreement as to how it was to be attained at an EU level, the French predilection for a centralized, statist solution tending to jar against German preferences for the decentralization of power to the social partners. This latter view has been better refl ected in the social chapter and on issues such as European works councils. Commission activism continued with the working time directive and parental leave legislation, and the establishment of the European Social Policy forum. In spite of this activism, the social chapter did not result in the development of a Commission-engineered social model. The lack of consensus has left Delors’ goals to develop the social dimension largely unmet (Atkinson and Divoudi, 2000, pp. 428–31; van Apeldoorn, 2002, pp. 146–9; Grahl, 2001;
Tsoukalis, 1997, p. 137).
What is striking here is that the mechanisms for decision making on key economic issues in the Union still rely heavily on intergovernmental consensus at the European Council and Council of Ministers and, facing diversity, they often do not yield consensus. The institutional set-up of the Union therefore appears to operate systematically in favour of negative integration through the removal of barriers and against positive integration via the creation of common policies at the European level. The possibilities for development of common policies are further prejudiced by the diffi culties of achieving agreement on fi nancing such policies and creating redistributive mechanisms between member countries beyond the rather limited development of regional and budgetary policies (Tsoukalis, 1997, p. 221). On the one hand, it would seem that the EU remains a union of nation-states where legitimacy is delivered at the national level, placing signifi cant limits on the nature and pace of integration. On the other hand this institutional set-up privileges negative integration and thereby the restricted agenda of neoliberal market integration.
There is no immediate prospect of a signifi cant embedding of Social Europe. Given the even greater diversity introduced by the new members of the EU in terms of social provision, national interests and fi scal and institutional capacities, it is diffi cult to see a coherent EU-level approach emerging. The recent development of employment policy through the Lisbon process is a case in point. Decentralized to the national level and concentrated around an enterprise, opportunity and activation agenda, the process operates through benchmarking, facilitating policy transfer across the Union (van Apeldoorn, 2002, pp. 175–80). It does not involve the mobilization of resources nor the creation of common labour standards, and despite its rhetorical commitment to avoiding the ‘race to the bottom’, does not integrate labour market issues of employment with the wider ‘de- commodifi cation’ agenda of social protection in concrete terms (European Commission, 2003, pp. 8–9). Its results so far have been modest. (European Commission, 2004, pp. 10–11).
Without integration in these areas, there will remain ‘imperfections’ in the single market as well as a ‘gap’ in the European project between the economic and the social. Accommodation to market forces will continue to take place largely at national level, with the possibility of an informal convergence taking place over time, driven by the market but mediated by national state structures and transnational social forces.