The European welfare state: Will it survive?

By Carlos Fortin

In my recent trip to Oslo to give a lecture at the Norwegian Peacebuilding Resource Centre I had a chance to discuss with colleagues there the present difficulties and the future prospects of the European welfare state. The issue is topical in Latin America, where progressive leaders and parties have for some time now argued that the welfare state model offers an ideal combination of market efficiency and societal concern with equity and justice.

The crisis in the Eurozone has given defenders of the neoliberal Anglo-Saxon model of capitalism –who were badly shaken by the subprime crisis in the US and its aftermath- the opportunity to go on the offensive and denounce the shortcomings of the European model as well as predicting its demise.  Typical of this position is the statement in a 2011 paper from the Heritage Foundation, the right-wing U.S. think-tank, which proclaims:

“Europe’s socialist (or “social democratic”) welfare state is collapsing under the load of unsustainable debt. There is no chance European politicians will ever make good on the many costly and unfunded entitlements they have promised their citizens.”1 

The thesis sounds plausible, and it has been eagerly seized by Latin American neoliberals to try and fend off efforts at altering the status quo. The problem is that it is empirically false and conceptually simplistic.

It is not the case that the welfare state be the main cause of the eurozone crisis. As Nobel Prize Economics laureate Paul Krugman wrote last November:

“The nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.”2 

It is true that excessive social spending may have been an aggravating factor in some cases, such as Greece (although even there there are other equally important factors like the high military spending in the period 1997-2003); but empirical data show that the European debt crisis is primarily a function of problems of monetary management and the difficulties of the euro,3 and not of the existence of the welfare state.

But there is a deeper error in the vision of the Heritage Foundation. It is grossly simplistic. The modern European welfare state is not only a set of economic and social policies. It is the expression of a social compact through which, in the aftermath of Second World War, the main economic, social and political actors - business, workers, political parties and movements, various occupational groups, civic organisations - asserted their willingness to share the benefits and the costs of the economic and social reconstruction and of democratic coexistence. It is a covenant for the legitimisation of the institutions and structures of society. A radical departure from this covenant is only conceivable if society can reach a new legitimising consensus. In continental Europe the individualistic and atomistic ideology of neoliberalism does not seem to be able to provide that consensus. And for the time being no other rationale has emerged which can serve as basis for a new European social covenant.

What lies ahead is therefore a long, complex and difficult process of adjusting the welfare state to the new realities of demographics and globalisation. The process can have significant social and economic costs, as can be presently seen in countries such as Greece, Spain or Italy.  But the ultimate goal is not the demise of the welfare state, but its reinvention as a model that combines modernity and efficiency with the basic consensus that is the essential foundation of democracy.4

To paraphrase Mark Twain, it would seem that reports of the death of the European welfare state are greatly exaggerated.

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1 Roberts, J. and Foster, J. D. (2011) Flashing Red: European Debt Crisis Signals Collapse of Social Welfare State, The Heritage Foundation, 16 August 2011 
2 Krugman, P. (2011) 'Legends of the Fail', International Herald Tribune, 10  November 
3 Nelson, R. M.; Belkin, P.; Mix, D. E. and Weiss, M. A. (2012) 'The Eurozone Crisis: Overview and Issues for Congress', Washington D.C. Congressional Research Service, 29 August 2012 (PDF)  
4 For a recent effort at giving substance to this proposition, see Diamond, P. (2012) Governing as Social
Democrats. Key policy priorities for the left in Europe, Policy Network Paper