Is globalisation a threat to Europe’s social model(s)?

George Alogoskoufis, Minister of Economy and Finance of Greece

Globalisation has boosted European economic growth over the last 20 years, but is “not a tide that raises all boats at the same time,” George Alogoskoufis, the Greek Minister of Economy and Finance, told a select audience in Brussels last week. Speaking at the breakfast policy briefing organised by one of the leading think-tanks, the European Policy Centre, Alogoskoufis said that many “argue that globalisation contributes to economic benefits for everybody.

They suggest that poor countries and low income groups come out as winners from globalisation in absolute terms, even when they may lose out in relative terms.” On the flip side, he said, “There is an influential opposing school of thought arguing that the benefits of globalisation are not shared equally among countries or citizens ...that poor countries and low skilled workers in rich countries are left behind.” But, he stressed, “There is no doubt that without broad support across the population, no economic or social model can be sustainable. If globalisation does indeed result in growing inequality, continuous social and economic dislocations and social unrest, it is bound to be undermined.”

Asking the question if globalisation has made a positive contribution to European economic growth over the last 20 years, the minister said he believed it had, given that EU growth rose from two percent in 1989-1998 to 2.5 percent in 1999-2008, while in the US it fell from three percent to 2.6 percent and in Japan from two percent to 1.5 percent. Figures show that in an increasingly-globalised world, average incomes are rising faster in emerging and developing countries than in advanced economies, said Alogoskoufis.

At the same time, inequality within both emerging and developed economies has grown, as higher-skilled employees benefit most from technological changes, thus increasing their earning power. While the level of those at risk of falling into poverty before welfare benefits in the EU-27 rose by two percent to 26 percent between 1997 and 2006, welfare benefits reduced those at risk to 16 percent in 2006, although the picture differs from country to country – in Scandinavian countries, they reduce those at risk from 29 percent to 12.5 percent, with lower reductions in the Mediterranean countries of Italy, Spain and Portugal.

Pointing out that there was no single “European Social Model”, Alogoskoufis outlined that Europe has developed in four distinct ways: l Nordic: based on social welfare, social protection and high taxes l Anglo-Saxon: limited collective provision and flexible labour markets l Continental: social assistance through public insurance schemes and high social protection l Mediterranean: high legal employment protection with lower levels of unemployment benefits Although these differences exist, the minister said that these approaches share some common features: government intervention to reduce poverty and social exclusion, a fairer income distribution, social insurance and the promotion of equality of opportunity.

This rests on three basic pillars: pensions, health and long-term social protection for the poor/disabled, and redistributive taxation. The sustainability of the European Social Model depends on two key factors, said Alogoskoufis. First, whether it can be reconciled with sufficient (nonfinancial) incentives to help reduce unemployment in the face of competition from emerging countries; secondly, whether social security systems can remain sustainable in the face of an aging population. Addressing the issue of reforms the minister underlined the need to ensure the European Social Model is sustainable and reiterated that the Lisbon Process - with its emphasis on growth, employment and competitiveness - is the key to implementing these.

The success of the Lisbon Process is that it is a coordinated but decentralised process: it relies on national reform programmes that are monitored and assessed by the European Commission and the European Council, he said. Any reform of the European Social Model cannot take a “one-size-fits all” approach, but must reflect the diversity of EU Member States - for example, the Nordic model, with its high levels of taxation and flexicurity, would not be acceptable to those embracing the Anglo-Saxon model of greater labour market flexibility. Reform must embrace all these elements, with better funding for the welfare state coupled with social security reform, more flexible labour markets, and greater emphasis on education, training, research and development, he explained.

Turning to the Greek experience, Alogoskoufis said the government had been following an ambitious reform strategy based on fiscal consolidation and structural reform, and tax reform and liberalisation of the economy had ensured “robust” growth and employment. The government is now embarking on a second phase which includes reforming social security, improving the efficiency of welfare benefits, integrating digital technologies, improving education and training, reducing tax evasion, and increasing the transparency and effectiveness of public expenditure. Alogoskoufis said he was confident that all EU countries would find ways to improve the functioning of the European Social Model to make it more sustainable. Globalisation is not a threat, but a challenge and an opportunity, he said.