Thought Babble

A New European Social Contract: Rethinking Our Welfare State

This article was produced thanks to our partnership with EU Events.
The welfare state is a universal concept in Europe. It is a pillar of society, underlying the idea that in Europe no one should be left too far behind and everyone has the right to a basic quality of life. However, that pillar is fracturing under the weight of new pressures and growing imbalances. Is it time for a new, European welfare state model? What should this look like and how do we really get there? Experts and academics are increasingly facing up to this problem, but it is clear that in spite of the common problems, there is not yet one unequivocal solution for the continent, and there may well never be.

Since the start of the industrial revolution, social challenges and inequalities have been addressed by the ever more complex and comprehensive welfare state. In the face of an increasingly automated workplace, capable of producing 24/7, workers and their unions fought for the 8-hour day. Later, the 1929 stock market crash saw greater attention being paid to the need to address mass unemployment and sustain the workforce until better economic times. Finally, in the wake of the Second World War, European society saw the explosion of the welfare state into a universal safety net for all.

In spite of being a bulwark of the European social contract, the current welfare state model is reaching breaking point. It has expanded and developed to reach into all aspects of our lives, but the system is straining under the multiple pressures of modern society. Globalisation is making the traditional models of fiscal control in states increasingly complex, shaking the foundations of welfare support, simultaneously heightening the unpredictability of economic forces.

Climate change is arguably raising unpredictability further, but it also driving policies that trigger transitions away from old, polluting industries, requiring widespread social support to ensure the transition is fair. But most notably, it is the question of overpopulation and the ageing of society which is placing greatest strain on the current model of the welfare state, highlighting its lack of sustainability in an ever-more uncertain world.

The concept of the welfare state has a long history. It is so interwoven into the fabric of Europe and European culture that it cannot be abandoned. As put by the academic and thinker Chiara Saraceno, “the welfare state shouldn’t just prevent poverty, it should prevent unacceptable inequality and promote equal opportunities for all. Where the market fails to reach this equilibrium, state intervention is needed to address opportunity at the start and inequality in the moment.” How to achieve this though is less simple.

Is it time for a new European social contract, and if yes, what does this look like? What are the real practical steps to get there? These and other related questions are hotly debated by academics and political advisors alike.  

First, there is currently no single European social model and whether or how to introduce one is a question in itself. The rationale of the welfare system and how it functions varies between Member States, as does the culture of the home and family. However, there is an undeniable shared history which has driven the development of the European welfare systems. In a lively debate at the European House of History, academics David Szabo, Jaako Kuosman and Chiara Saraceno were united on one thing: the key challenge across Europe, is how to achieve a fair and sustainable balance in an increasingly unbalanced world.

The welfare state is built around a simple concept: the workers pay for the dependents. For this to work, there needs to be more workers than dependents, or at least enough output to support all who need supporting. An ageing population combined with falling birth-rates across Europe (all countries are below the 2.1 replacement birth-rate per woman), without immigration, means the working age population is declining relative to the so-called dependent population.

Put simply there are too many people benefiting from the welfare system and increasingly few supporting it. To address this problem, we need a new social contract for our welfare model.

Numerous options exist to tackle the imbalance problem of the current welfare state model, but experts are (at best) split on the ultimate solution. A simple but novel answer to address the growing inequalities we see in society is to introduce a basic income for all citizens. This would ensure that everyone has the same basic level of resource, and no-one risks having nothing.

On the other hand, the basic income remains an elusive concept. Experiments have so far not been bold or radical enough to truly uncover the possibilities such a solution could present, running for short periods or only targeting certain economic groups. As a result, many remain unconvinced. David Szabo, head of Foreign Affairs at Századvég Foundation in Hungary, believes that a simple basic income can never work because any reward must be tied to labour, otherwise it loses its value. People would no longer work. However, Chiara Saraceno counters that such a basic income does not necessarily need to be sufficient to live on to reap benefits and to address inequality. Rather, this would serve as a boost to those on low incomes and allow them time to enrich themselves and further reduce the inequality gap.

Another idea is to introduce a European-level reinsurance of the welfare systems. In an increasingly globalised world in spite of overall growth, there is increasing risk of large shocks at the state or regional level. As a result, the risk of shocks should be ever more spread and shared across borders. For instance, unemployment support systems could be reinsured at the European level (the European Globalisation Adjustment Fund works on this principle but in a limited range of extreme cases).

However, the idea faces a high level of resistance from those opposed to further European integration. Arguments also abound that such a system could increase bureaucracy and might only serve to further complicate the current system. It is therefore a political choice, which could have a role in a future European welfare system, but will inevitably face opposition.

A third possible solution is to address the imbalances, arguably at their root. The aim is to increase the resource available to support the welfare system: in other words, to increase workers and productivity. A simple way to do this is to increase the working age population quasi-immediately through migration. In theory, more workers will provide more income to the state, who in turn can provide greater welfare support to the growing population in need of it.

However, certain countries, such as Hungary are taking a radically different (and potentially very risky) approach. Arguing that migrants can cost the state due to the demands of Hungarian-language training or other integration efforts, ‘family policies’ are employed instead whilst borders are closed. More emotional arguments about threat of dilution to culture are probably underlying this strategy, particularly following Viktor Orban’s comments in a recent speech announcing the new policies and “a Hungary for the Hungarians.

In Hungary, women are being encouraged to have more children. A young couple can take out a loan, without interest and which is cancelled after the birth of 3 children. Meanwhile, women will eb exempt from income tax after 4 children. Although this underlines the differences in culture and approach across Europe to the same problems, it comes with caveats that academic are quick to point out in spite of the sensitivity of the population question. Most obviously, imbalances in population lie at the root of the problem in the first place. The new children will not reach a working age for around 20 years and ultimately will fuel another baby boom, mirroring that which has in some part driven the current sustainability crisis. Second, it risks taking women out of the workforce, further exacerbating the problem. Jaako Kuosmanen, an academic working in the field of social welfare policy instead asks whether it would make more sense to incentivise reductions in the birth rate and the population, instead encouraging immigration.

It is clear that there is no single, nor simple no answer to the problems of the current welfare state model. The likely solution will be a combination of multiple options, or in reality, a complete restructuring of the system. We maybe need to stop trying to support only a few and instead ensure that a share of the common good is distributed to everyone, across all generations. The young shouldn’t only pay for the very young and the old. For instance, in the USA, some suggest that free capital be granted to those who didn’t go to college, in order to fund their further education. More general and equal distribution of the common good across generations and groups will inevitably go some way to balancing the system.

The common good also needs to be supported by a much more sustainable system and that may mean addressing difficult sociocultural questions, including population. The system should be more spread out and more even.

The need to rethink our welfare state is looming over us more than ever. It will be challenging, but it must, and will eventually be addressed. We have plenty of ideas, but we need to be bold enough to test them.

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