3 February 2019

Social Europe and social justice: three steps to save Europe

Against the market optimism of recent decades, European austerity has exposed the social class divisions of capitalism. Now we need three steps to save Europe.

*Graham Room is Professor of European Social Policy at the University of Bath.


The European Pillar of Social Rights (EPSR) was launched with much fanfare at the end of 2017. It followed on the heels of the European Commission White Paper on the Future of Europe, earlier in the same year. Both documents can be viewed as signs of optimism; a decade on from the financial crisis of 2018, it was possible to look to the future and to reaffirm social as well as economic priorities. At least as significant, however, has been the political crisis enveloping many of the member states, with rising levels of popular hostility to European integration and a resurgence of nationalism. This has been evident most dramatically in the UK, with its decision to leave, but it has far wider ramifications.

Any appraisal of the EPSR (set as it is within a larger debate about the future of the EU) and the ESU (to whose development the EPSR might in due course contribute) must, therefore, depend on our understanding of the economic and political challenges with which Europe is struggling.

It is not obvious that Europe’s leaders have learned any lessons. In the face of the economic challenges, the Maastricht criteria for sound public finance in the eurozone countries remain firmly in place. In regard to social rights, the EPSR retains the Lisbon (2000) principles of the OMC, with the Commission monitoring progress according to general common standards, while member states shoulder all responsibility for delivering those rights. (Nevertheless Vandenbroucke, in his contribution to this forum, notes that at the very moment the Council endorsed the EPSR, national ministers were disputing whether this responsibility would henceforth be shared with the EU.) In regard to the future trajectory of the Union, the white paper of 2017 offered fast lanes and slower lanes for the journey, but no real debate over alternative directions and destinations of travel.

It is therefore not evident that the EPSR, launched with an eye on the upcoming European Parliament elections, will provide a clear and compelling message sufficient to bind European citizens together in a common cause.  And it is not evident that the political leaders responsible for the EPSR have listened sufficiently to what those disaffected citizens are saying.

The economic challenge

It is now widely recognised that ordoliberalism and ‘sound money’ will not suffice as a macroeconomic policy for growth and for jobs – still less, one that will deliver general prosperity across the countries and communities of the European Union (Blyth, 2013). Reformers typically offer two sorts of proposal.

First, across the eurozone in particular, and across the single market more generally, individual economic actors need greater protection against destabilising shocks. This is true for banks and private financial institutions, for the public finances of individual national governments and for individual citizens. This is a major argument by Vandenbroucke in his contribution to this forum. Stiglitz (2016) likewise, in his recent analysis of the euro and its economic, social and political consequences, argues for financial stability mechanisms, including eurobonds, common deposit insurance and the pooling of unemployment insurance costs.

In short, therefore, the long-standing reluctance of national governments to have the EU institutions involved in their national social policies, coupled with the prominent role played by the EU institutions in the enforcement of austerity, meant those institutions had little to offer the mass of the European population in terms of social and economic justice in hard economic times.

Second, there is a need for well-targeted investment in the new technologies and jobs of the future. Here public and private investment need to work in concert – as demonstrated by the experience of the US, no less than the Asian Tigers (Mazzucato, 2013). Such investments would prioritise those that can deliver a low-carbon economy. This is a key proposal by Varoufakis and DiEM25 for a Green New Deal.

Each of these reform proposals, however, requires important caveats. Efforts to protect against destabilising shocks tend to assume that such shocks are the exception rather than the norm. But what if such destabilisation is inherent in the very process of capitalist accumulation, and may indeed intensify as remaining barriers within the trans-European economic space are removed? So also, public and private investment in new technologies may well deliver jobs for the future, but these may not entail prosperity across the countries and communities of the European Union; they may instead just reinforce existing disparities. And if that investment is left to each nation to handle itself, as Piketty, for example, seems to imagine, the scope for such investment within the weaker economies will be correspondingly limited.

These questions were already being raised at the time of the UK’s entry into the European Economic Community in 1973. Kaldor, a leading Keynesian, had a keen appreciation of the cumulative dynamics of economic development. Those regions which captured a competitive advantage in manufacturing industry would tend to perpetuate and reinforce this (Kaldor, 1971). Eventual European economic and monetary union would reinforce these virtuous and vicious circles by removing any scope for exchange rate adjustment. In such circumstances, the burden of social benefits – unemployment benefit in particular – would tend to grow fastest in the countries with the weakest economies, as has indeed happened. Here was a fiscal vicious circle, walking in step with the vicious circle of stagnant productivity – even while other countries enjoyed the virtuous circle of accelerating productivity, export surplus and stable levels of social expenditure. For the populations of those stagnant economies, in the east and south of Europe, emigration may well seem the only alternative to poverty or destitution. This is powerfully argued by Andor in his contribution to this forum.

These were by no means concerns that others than Kaldor had ignored. Nevertheless, when Cecchini (1988) brought together the official wisdom on the costs and benefits of the single market, he was confident that such benefits would extend to all the countries involved and gave little if any warning that some might succumb to persistent stagnation.

The political challenge

What did we learn from the UK referendum of 2016, and the passions and fears that it unleashed? Was this a national – and rational – debate about membership of the EU, or a mix of quite different hopes and especially fears? These questions arose most fundamentally for the UK Labour Party, as they sensed the gap that had opened up between the internationalism of their London-based elite and their traditional supporters in the Midlands and the North. But how did the UK get into this situation? How in particular did immigration divide Labour from its base?

Immigration into the UK over the decade until 2016 was 5.77 million. Many immigrants went into areas of low-cost accommodation alongside the working-class households from whom Labour has traditionally drawn its support. True, there has been emigration of 3.48 million (meaning net immigration has been 2.49 million), but not necessarily out of those same localities. During the same period, austerity and recession meant cuts in public services, in jobs and in benefits, which hit those same areas particularly hard. Was it so surprising that established residents should infer a causal connection? And was it surprising that they felt insecure and abandoned?

Labour assured voters that immigration was a good thing; those who said otherwise were bigoted or misguided. After all, had not immigration been accompanied by some growth in GDP? (Maybe so, but for households on average incomes, real wages had stagnated.) And did not immigrants pay more in terms of social security contributions than they took out in benefits? (Maybe so, but in localities receiving large numbers of immigrants, policies of austerity meant there was little if any financial support for the extra services needed.)

The economic crisis following 2008 – and the programme of austerity that followed – undermined the solidarity and resilience of local and national communities in the face of such changes. All but the wealthiest suffered; Labour’s natural constituency suffered most of all. The referendum provided an opportunity for them to give vent to their sense of abandonment. It is this that politicians in the UK have been forced to confront.

These economic and social divides are, however, largely peripheral to much of the European reform debate, including the Commission’s March 2017 white paper. This is not only because of an economic orthodoxy, which expects social benefit to be evenly spread, as the concomitant to the free market, but also because social policy is assigned by the subsidiarity principle to the individual nation states. Social policy and social justice are, however, much too important to be left there; they constitute the ‘hot politics’ of European progress. If ignored, they risk a meltdown of the whole Union.

Solidarity in hard times

The fear that electorates would see European integration as no more than a project of the elites has been a perennial concern of EU policymakers. Hence their long-standing wish to provide the EU with a ‘social dimension’.  However, this has never been so ambitious as to intrude on the prerogatives of the member states in such a major area of spending and political saliency with the electorate. At best it has involved ensuring common social standards (as much to avoid unfair competition between businesses as to benefit citizens) and exchanging best practices in policies for education, training and social welfare. This grew in particular during the Delors presidency with the move to the Single Market, and with growing concerns at the turn of the century over the weakness of the European economy, as new digital industries began to dominate. Protection for workers, as economic change accelerated, and investment in workers, as skills became more rapidly outdated, moved centre stage.

The financial crisis of 2008 changed everything. Now it was the banking system and the public finances that needed protection: first by providing a safety net for those banks that held bad risks, and second through austerity policies that shifted the burden of that safety net onto the population as a whole. The result was particularly severe for the weaker economies of the periphery – and for national governments within the euro area, which were required to follow the currency’s budgetary disciplines, but without any mechanism for solidarity between them, only a debtors’ prison for the worst offenders. The consequence was rising unemployment in much of the south and the ‘desertification’ of their economies.

In the UK, Jeremy Corbyn sees attractions in Brexit, such as allowing state aid for industry and a strong industrial strategy, but has little sense of what EU rules already allow. Nevertheless, it would still be possible to frame a reform message for the EU, centred on social and economic justice, and grounded in the concerns felt by disenfranchised communities across Europe.

In short, therefore, the long-standing reluctance of national governments to have the EU institutions involved in their national social policies, coupled with the prominent role played by the EU institutions in the enforcement of austerity, meant those institutions had little to offer the mass of the European population in terms of social and economic justice in hard economic times. Imprisoned within the straitjacket of German ordoliberalism and austerity, the EU proved unable to develop a European solution for an interconnected European economy. This has been matched by the failure to develop a European response to the migration crisis of recent years.

With the economic desertification of southern Europe and conflict across the MENA region, pushing many towards the European north-west, it is not surprising that the populations of the north-west have turned against such immigrants. This is especially the case with those local communities suffering from austerity and a lack of community investment and fearing intensified competition for local jobs. Recent research across Germany and France paints a similar picture to Brexit Britain. These are the ‘hot politics’ with which European citizens are fundamentally concerned and by reference to which they judge their politicians, even though they may be unsure which of them to hold responsible.

Three steps to save Europe

The EU has played a major part in bringing peace and prosperity to its peoples.  Nevertheless, it also has important failings, which have contributed to popular disenchantment. This has made the EU a convenient scapegoat for cynical domestic politicians blaming their audience’s woes on distant foreigners. This has been a potent brew for the politics of European disintegration. Thus, as Andor points out in his contribution to this forum, successive UK governments could have made much greater use of EU funds: for example to help municipalities facing migration pressures. Cynically they did not do so. This is not peculiar to Conservative politicians; Jeremy Corbyn sees attractions in Brexit, such as allowing state aid for industry and a strong industrial strategy, but has little sense of what EU rules already allow.

Being forced to migrate north because of the economic desertification of one’s home region is no freedom. It is also no ‘free movement’ if rich countries denude poorer countries of their highly skilled people because they have themselves failed to invest sufficiently in training.

Nevertheless, it would still be possible to frame a reform message for the EU, centred on social and economic justice, and grounded in the concerns felt by disenfranchised communities across Europe. This would, however, require reforms to the institutional order of the EU and more active democratic engagement with markets and corporate interests. Such a reform message might have three elements:

Rejuvenate the European Economy

It will be necessary, first, to confront the toxic austerity regime that Berlin has imposed on much of Europe. Austerity insists that reduction of the public sector deficit must be the principal economic goal, pursued mainly through cuts in public expenditure. There is, however, an alternative and very different analysis. Government must play a leading role in maintaining the general buoyancy of the economy, and in using public investment to build its long-term capacity. Otherwise, the economy is likely to stagnate, and the most vulnerable communities will disproportionately bear the costs.

A positive industrial strategy would aim to spread jobs and useful work to all localities and regions, revitalising local communities and pushing back against predatory financialisation. Stiglitz (2016) wants a stimulus to promote growth, especially in the stagnating regions, and encouragement for industrial policies to enable the eurozone’s laggards to catch up with the leaders. One approach could be to allow incomes in those surplus countries to rise and expect some to be spent by consumers on goods and services from the weaker economies. This would accord with the instinct to ‘trust the market’. It would, however, be unlikely in itself to produce a process of economic development that builds high value-added industries in those weaker economies and addresses the social and economic needs of their domestic populations.

A better response would be to invest purposefully and strategically through both public and private effort. A positive industrial strategy of this sort could take inspiration from the active industrial policy of the Treaty of Paris, as well as the concerted efforts to build a knowledge economy that were embodied in the Lisbon (2000) process. This would include investment in infrastructure, human capital and the science base, especially through long-term projects of a scale and duration the private sector cannot contemplate on its own. Government can also be central in creating new markets, including – in recent times – the development of new markets for green technologies and energy sources. This goes far beyond the argument that government should intervene only in cases of ‘market failure’.

Rejuvenating the European economy will surely require significant fiscal integration. Various proposals for fiscal union in the eurozone have been advanced in recent years, including most recently by Piketty and colleagues, starting with corporation tax. They also argue for the creation of new democratic institutions for the eurozone, since without an accompanying democratisation of decision-making at the European level, fiscal union will simply be experienced as a further loss of sovereignty and accountability.

Promote Security and Creativity for All

Reaching towards a knowledge economy involves not only shifting the European budget towards research and building the right links between research, technology, innovation and enterprise, it also needs a strong social dimension, in terms of skills, social institutions that support a high-skill economy and broad popular commitment to this new economic order.

Individual security against the risks of income interruption was the heartland of traditional welfare states. Over the last half-century, however, those solidarities have been on the defensive across much of the industrialised world in the face of neo-liberal hostility to state welfare. The globalisation of markets and the shift to new knowledge-based technologies has brought insecurity to large swathes of the population, and it was this insecurity, at least in part, that created the social conditions for Brexit. In turbulent times, the solidarities of strong welfare systems must therefore be retained, not dismantled, in the face of neo-liberal markets (Polanyi, 1944; Rieger and Leibfried, 2003).

The economic and political challenges that Europe faces are not entirely the result of political incompetence or ill-adapted institutions. They are, at least in part, the result of the political economy of European integration and the distribution of economic and political power.

Yet if markets threaten those solidarities, so does excessive and unbridled inequality (Piketty, 2014). This is for several reasons. First, because it encourages the rich to opt out of collective security arrangements and build protected schemes of their own. Second, because the national solidarities of strong welfare systems carry with them norms of equitable treatment and just deserts, which unbridled inequality undermines. Gross inequality undermines solidarity and hence also the overall European project.

Meanwhile, however, the financial crisis showed who calls the shots within Western political economies. Governments came forward as guarantors of the banks’ viability. The costs were then spread across society, in particular by retrenchment in public provision and in the institutions of collective solidarity on which most people depend. Security for citizens and communities was thus, at least to some degree, in tension with security for the financial institutions. The tension is all the greater when taxation systems become less progressive, when taxation of footloose corporations is driven by a ‘race to the bottom’ against national tax authorities, and when governments shift from taxation as a source of revenue to borrowing on the bond markets. This is what Streek (2014) describes as the ‘Debt State’ and Galbraith (2009) as the ‘Predator State’. Tax reform is also, therefore, a necessary part of any European reform, in any attempt to ‘rescue Europe’.

The shift to a knowledge economy depends not only on collective security and solidarity but also on human investment and skills. This is especially important for the demographically challenged societies of Europe, which can ill afford to waste their scarce human resources and must equip them to respond successfully to the new challenges of artificial intelligence and robotics. This will need more investment in the least skilled since this can yield the greatest returns in terms of economic growth (Coulombe et al., 2004). However, if our education and training systems are to prioritise these groups, they need to be much more inclusive than at present. Otherwise, they will be neither socially equitable nor economically efficient.

Social policy as a productive force is not just about investing in individuals; it also involves investment in occupational and regional communities. Human capital must be deployed effectively within industrial settings if economic growth, competitiveness and employment are to be achieved. This aligns with the vision of a ‘smart economy’ set out by Hutton (2015: Ch 6), with innovation and ‘mass flourishing’, locally and nationally.

Rethink Free Movement

Free movement also needs rethinking: the free movement of people, but also of goods, services and capital. The free movement of goods and services may allow economies of scale and reductions in the price of consumer goods – but it can also mean downward pressure on social and environmental standards and the destruction of employment in communities unable to compete. The free movement of capital may mean downward pressure on taxable capacity, as businesses threaten to move elsewhere, and their disregard of any obligations towards the communities where they are based.

Being forced to migrate north because of the economic desertification of one’s home region is no freedom. It is also no ‘free movement’ if rich countries denude poorer countries of their highly skilled people because they have themselves failed to invest sufficiently in training.

Free movement requires some collective responsibility for the infrastructures of the communities to which large numbers of immigrants come, rather than ‘devolving’ this burden to the local areas in question. This is true whether those incomers arrive from outside or inside the country in question, and whether they are coming for work, tourism or education.  We allow fragile environments to be protected and watched over by local communities. We may also allow them, as caretakers, to set the terms on which we intrude and in what numbers; we encourage their community stewardship (Ostrom, 1990). It would be strange not to extend that thinking to their jealous protection of their social fabric.

Against the market optimism of recent decades, what European austerity has exposed are the social class divisions of capitalism. This is why our ‘three steps to save Europe’, taken together, are much more than an exercise in economic management and social cohesion; they are fundamentally political, a struggle for social justice.

This is part of the larger question of how national and European policies can support local communities more generally, especially those facing major social and economic change. Leaving them at the mercy of global markets risks community disintegration – as much through the loss of secure jobs as through the arrival of incomers. This will require investment in the social and economic security of all our communities. It could mean re-embedding capital within local and regional communities, including, for example, encouraging community co-ownership of local businesses. This is central to the reforms of the UK economy proposed by Hutton (2015: Ch 5), with business ownership a vehicle for innovation and community benefit as much as for profit.

This may entail interfering in the free movement of financial capital, the hallmark of the globalised economy. What recent experience has underlined, however, is that the free movement of financial capital is itself dependent on the concerted guarantees provided by national governments – the very governments from whose taxation international finance seeks to free itself (Supiot, 2012: Ch 4).

In short, therefore, the free movement of labour, capital, goods and services requires some more careful assessment of who benefits, rather than a blanket commitment as an article of faith, or a test of political correctness. This sets markets as servants, not masters, of social and political choice. Blind commitment to the ‘four freedoms’ is not a sound basis for public policy (Supiot, 2012: Ch 5).

What might this mean, in practical terms, for the free movement of labour within the EU – the issue that emerged as the central battleground in the UK referendum, but which also now infuses national politics across the continent?

First, there are no simple answers. It is as unhelpful to insist on the ‘free movement of people’ as an absolute principle of the EU as it is to insist that ‘control of its borders’ is an absolute necessity for each nation-state. A more intelligent conversation is needed, seeking to balance the diverse interests involved.

Second, we must recognise that we each sit within multiple solidarities, with their entitlements and obligations: our families, our local communities, our nations and beyond that our citizenship of the EU. Each of these entails responsibilities and commitments on our part and the expectation of support. I should expect a generous welcome wherever I travel in the EU, but until I make my own contribution to that community, it is to my community of origin that I should primarily look for support in time of need. This is broadly the current situation. This, again, needs respectful and civilised discussion, with due attention to the readiness of extremist groups to fan the flames with their divisive rhetoric.

Third, we should also recognise that these solidarities may be resilient, but also sometimes fragile, in the face of exogenous shocks – and that rapid change can bring them to ‘tipping points’ of calamitous loss. These may arise from the sudden influx of outsiders, migrants from other countries, but also the ‘gentrification’ of old working-class residential areas as prosperous young professionals move in. They can also arise from the free movement of capital, as international corporations acquire and close down local firms with no regard to the community solidarities that employment sustains. It was partly in recognition of such solidarities that the Treaty of Paris and the European Coal and Steel Community had a strong social and industrial policy. This still has a key role to play in a reformed EU.

This would then also reshape the debate on immigration. First, by investing in the skills and creativity of our own population, we reduce the need for employers to look elsewhere – for nurses, for IT specialists and others – in ways that denude poorer countries of those in whom they have invested their slender national resources. Second, by taking collective responsibility for the infrastructures of those communities to which large numbers of immigrants come, rather than ‘devolving’ this burden to the local areas in question, we reduce the risk that those communities will see immigrants as a threat.

These surely are the principles by reference to which any new view of free movement needs now to be forged – and they are applicable across the EU. There are ideas aplenty for practical reform, and not only from those involved in the UK’s Brexit debates.

The ESU and the political economy of Europe 

The EU Council and the Commission have developed a wide range of instruments for monitoring the economic and social policies of the member states, checking them against centrally agreed standards and identifying the leaders and laggards. The latest addition is the EPSR, with its twenty principles and rights, neatly packaged into three categories. Meanwhile, the Parliament has steadily expanded its powers of co-decision. The appearance is therefore of a more orderly but also more democratic Union.

Nevertheless, the challenges discussed here require a more fundamental bottom-up reconstruction of democratic European politics. Policy monitoring will become a dynamic force for change only when local and regional social and economic actors drive the process of comparison and policy learning, depending on their specific needs and interests. This would expose domestic policymaking to alternative approaches and intelligence from across Europe, thereby enriching policy debates. It would recognise different scenarios of potential development, with real political choices and trade-offs. Domestic political leaders could no longer rely on the relative ignorance of their population regarding practices elsewhere; they would instead need to justify their performance, by comparison with good practice in other countries. Social benchmarking of this sort could have major consequences for their political credibility.

This is consistent with some of the pressures for change around the 2020 European Strategy, the updated Lisbon process, which call for more opportunities for citizens and communities to participate in European governance, along with trade unions and other civil society organisations (Natali and Vanhercke, 2015: 248, 258). The latter have generally grown weaker over recent decades; new forms of cross-national exchange and solidarity might serve to reverse this.

In some small and modest ways, there are already prototypes of this within the history of the EU. One was the succession of ‘pilot programmes’ to combat poverty, launched by the Commission between the mid-1970s and the mid-1990s (Room, 2014). Poverty was of course outside the scope of Community social policy as defined by the Treaty of Rome. These programmes were therefore small and required special decisions by the Council of Ministers – but their novelty and their concern with the living conditions not just of workers, but of citizens in general, gave them a certain freedom to develop outside the normal constraints of Commission functioning. So did their small scale, which obliged the Commission to limit them to a range of local communities and to work in concert with NGOs.

The result was a succession of initiatives involving local communities from across Europe, connected through the evaluation experts on whom the Council had insisted. Once connected, they used that intelligence network for their own purposes. Local projects brought their peers together on their own turf, both to enrich the debates with city decision-makers in which they were involved, and to involve Commission officials and national civil servants in events at which those decision-makers would have to defend their policies in the glare of international publicity (Room, 1986: Ch 4).

This showed the critical leverage that local communities can exercise, exposing local, national and European decision-makers to public scrutiny – and uniting those communities in a transnational ‘demos’ that questions the prevailing order. This was deliberative democracy in practice, with local communities artfully calling together the multilevel decision-makers, who pull the levers of power, and practitioners from elsewhere, who can testify to alternative ways of doing things. Rather than national and EU decision-makers keeping to their allotted spheres, local actors summoned them to confront the social and economic injustices faced by their communities.

Small prototypes of this sort will not change the world, but they may provide models on which other social and political actors can draw – including national parliaments. They point the way to an ‘ever-closer union’, not in the sense of ‘free markets’ and new levels of political management, but in terms of the diverse legacy on which local communities can creatively draw. This means not just securing respect for what Scharpf (2014: 1, 16) terms ‘legitimate diversity’, but also building new forms of diversity, through transnational association and practice. This would balance an ‘ever-closer union’, as the goal of European development, with an ever more diverse and creative union, enjoying strong social solidarity and participatory democracy (Leonard, 1999: Ch 5).

Nevertheless, to speak thus risks embracing a spurious optimism. The economic and political challenges that Europe faces are not entirely the result of political incompetence or ill-adapted institutions. They are, at least in part, the result of the political economy of European integration and the distribution of economic and political power. This has indeed been the subtext of much of this paper – the priority given to protecting the financial institutions; the displacement of the costs of the financial crisis to the least secure in our societies; the opposition of the stronger member states to fiscal integration; the tolerance of rising levels of income and wealth inequality; the free movement and management of capital.

Thus, against the market optimism of recent decades, what European austerity has exposed are the social class divisions of capitalism. This is why our ‘three steps to save Europe’, taken together, are much more than an exercise in economic management and social cohesion; they are fundamentally political, a struggle for social justice. Whether there are political actors ready and able to take forward such a struggle will dictate what sort of Social Union emerges. In his contribution to this forum, Ferrera documents evidence of pan-European public solidarity, but not of their political support for a new Europe-wide social contract – even if this is indeed a precondition for the survival and strengthening of the EU.

Photo Credits CC Flickr: David Goehring


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