Risks of (Continental) European Social Model for Slovakia Risks of (Continental) European Social Model for Slovakia PETER GONDA Conservative Institute of M.R. Štefánik International Conference on „The Economic and Political Context of Central Europe - European Union Relations.“ (Bratislava, June 14, 2005)

„The Americans work on the job, while Europeans work at their leisure.“ (Bergstrom – Gidehag, 2004)

Risks of (Continental) Eropean Social Model for Slovakia3 1. ESM – what does it mean?  European social model (ESM) - myth or reality? currently there are several types of social policy strategies (Scandinavian, corporatist and residual) - common ESM does not exist However common features exist - mainly highly and widely set of social solidarity = many types of generous benefits and high income security for individual (for long time of life) notion „ESM“ - part of EU summits and strategic documents today – also as weight against USA and/or „Stability Pact“ together with European integration and enlargement: strong pressure to create ESM, in final step as the European Social Union

Risks of (Continental) Eropean Social Model for Slovakia4 1. ESM – what does it mean?  Basis of creating ESM :  continental welfare-states approaches (mixture of Scandinavian approach with generous benefits and corporatist approach models), gradually supplemented by  social integration, including harmonization of social and labour market standards  ! bringing serious current problems in EU (part 2) and future risks (part 3), more for Slovakia as lagging behind economy (GDP per capita circa 50% and price level only circa 46% of the EU-15 average)

Risks of (Continental) Eropean Social Model for Slovakia5 2. Current problems in EU:risks for the future  Main problematic characteristics of welfare states in EU (in comparison with USA) From general point of view (mainly after Great Depression): too high level of government, public redistribution with equalisation aims (even in relation to market, by subsidies, what are not task of government) excessive weight of compulsory, generous and costly social programs and guaranteeing too high social right/eligibilities (including bankrupt of PAYG, but also public unemployment, maternity, childhood, and other public schemes)

Risks of (Continental) Eropean Social Model for Slovakia6 2. Current problems in EU:risks for the future Chart 1 Comparison of public expenditure ratio in selected countries (2002) Source: OECD (2003)

Risks of (Continental) Eropean Social Model for Slovakia7 2. Current problems in EU:risks for the future  Main problematic characteristics of welfare states in EU (in comparison with USA) - continuation over-regulation of labor markets - high level of minimum wage, guaranteed on national level, - regulations (also on European level) limiting working hours (result: lower willingness and intensity to work – Chart 2) and - employment protection (including protection against dismissal)

Risks of (Continental) Eropean Social Model for Slovakia8 2. Current problems in EU:risks for the future Chart 2 Hours worked ratio in selected countries (2000) Source: Bergstrom – Gidehag, 2004

Risks of (Continental) Eropean Social Model for Slovakia9 2. Current problems in EU:risks for the future binding bargaining process on central level = conflict between labour and capital, contrary to the US approach

Risks of (Continental) Eropean Social Model for Slovakia10 2. Current problems in EU:risks for the future  Main problematic characteristics of welfare states in EU - continuation new mutual interlink “social rights“, which are relating to European social integration and creating of ESM: - „social cohesion“ - „social inclusion“ - „antidiscrimination“ – on labour market... attempts to implement same (or at least minimum) set of social standards

Risks of (Continental) Eropean Social Model for Slovakia11 2. Current problems in EU:risks for the future  Consequences of the characterstics (key problems) in EU: pressure on financial resources (tax revenue...), thereby higher cost of economic entities by inreasing taxes and social contributions, mainly tax wedge, respectively non- wage labour costs and thereby low ability of ec. subjects to create new (productive) job places, low economic performance and its relatively decreasing in comparison with US (e.g. comparison between Sweden and USA – Chart 3)

Risks of (Continental) Eropean Social Model for Slovakia12 2. Current problems in EU:risks for the future Chart 3 GDP of Sweden to USA, per capita (in pps) Source: OECD (2003)

Risks of (Continental) Eropean Social Model for Slovakia13 2. Current problems in EU:risks for the future  Consequences of the characterstics (key problems) in EU (continuation): high unemployment, mainly long-term unemployment (much higher than in the USA) relatively low living standard, including poor households in comparison with the USA (Chart 4) low mobility and flexibility of labour force – insufficient attempts to be active, including self-employment deepening „culture of dependency“ of significant part of population protectionist policies (e.g. against countries with lower costs of labour).

Risks of (Continental) Eropean Social Model for Slovakia14 2. Current problems in EU:risks for the future Chart 4 Comparison of dwelling space in selected countries Source: Rector- Johnson (2004), Bergstrom – Gidehag (2004)

Risks of (Continental) Eropean Social Model for Slovakia15 3. Risks of ESM for Slovakia  Main risks of Slovakia followed from long term view of most probable alternative of EU integration towards European political union (ALTERN. 1), including: acceptance of commitment rules of real ESM, relating to harmonisation of social and labor standards and regulations, moreover according to generous continental approaches to welfare state and meeting commitments of EU-Constitution, possible admitted in similar form as its current proposal !high and broad range of universal social (incl. labor and “non-discrimination”) rights (to benefits, a free services, strike...) - rights of individuals against the state

Risks of (Continental) Eropean Social Model for Slovakia16 3. Risks of ESM for Slovakia  Main risks of Slovakia followed from (most probable and also risky) alternative of EU integration towards European political union, including also: conflict between ESM (resp. ESU) and EMU = „wrong track“ (O. Issing, 1997)...“Social union in the European debate means a harmonisation of social standards, at the highest possible level. ESU demands a greater number of and more stringent regulations of the labour market. Monetary union requires opposite: considerable more flexibility in the labour market.”

Risks of (Continental) Eropean Social Model for Slovakia17 3. Risks of ESM for Slovakia  Therefore, risks within this development (ALTERN. 1) are mainly the following: considerable increasing costs of economic entities in SR (more than in “old” EU members) in order to fulfill harmonised level of social and labor standards and regulations limitation of competition and competitiveness of Slovak´s economic subjects same problem as current problem in EU, but in deepening forms, including restorting economic productivity, restricting flexibilty and freezing catching up to the EU level, as far as economic performance and living standard level is concerened.

Risks of (Continental) Eropean Social Model for Slovakia18 3. Risks of ESM for Slovakia  Further risks from (at least) temporary status quo and partial social integration (resp. as altern. 2): higher costs and other impacts from fiscal irresponsibilities and “fiscal free riding” higher costs and other impacts from tension between countries with more regulated and not flexible economies (e.g. “old” continenetal EU members) and others (incl. SR) - e.g. in the form of protectionist policy special tension after admitting EU-Constitution, but before harmonisation of social and labour market standards - tension between EU members, because stronger problems with “social tourism” and “social dumping”.

Risks of (Continental) Eropean Social Model for Slovakia19 4. Conclusions  What do we need for catching up the West? more personal freedom, no centralisation of key political decisions from state to supranational level more flexibility and competition, no rigidities and averaging (e.g. from harmonization standards) more pressures to activities on the market, no generous public benefits and services, leading to more leissure  We should advocate for comeback to free trade zone without harmonisation and regulations and fight against EU-constitution and creating ESM, especially when they are “spiced up” with continental welfare states approaches.