Eu Welfare Policys Contribution To Eu Economies Economics Essay
歐洲福利政策對于歐洲經濟的貢獻
 
根據《羅馬條約》,社會政策仍主要是國家的事情,因為國家未能實現維持社會政策的和諧。《羅馬條約》的主要成就之一是提供關于歐洲社會基金的建立(ESF)條款。[1]它的目標相當狹窄,主要關心的是簡化工人的就業問題,增加社區中的流動性和適應職業培訓的變化。[2]

1987年《單一歐洲法案》引用了了合格的多數投票，遍布于歐洲社會政策的不同地區，尤其是在工作環境方面(工人的健康和安全)。[3]
 
《馬斯特里赫特條約》是進一步改革了歐洲社會政策。馬斯特里赫特的社會協議(社會篇章)增加了在社會事務中社區的能力范圍;此外,合格的多數投票比過去在更多地區展開。介紹了1997年的規定社會協議在阿姆斯特丹條約,這是綁定。最后,尼斯條約并沒有帶來顯著變化的社會政策。[4]
 
According to the Treaty of Rome, the social policies remained mostly under national affair, as the countries didn’t manage to reach a compromise about the harmonization of their social policies. One of the main achievements of the Treaty of Rome is the provision about the establishment of the European Social Fund (ESF). [1] Its goal was quite narrow, being mainly concerned with the simplification of the employment of workers, the increase of their mobility in the Community and their adaptation to change by means of vocational training. [2]
 
In 1987 the Single European Act introduced the qualified majority voting in different areas of European social policy regarding especially the working environment (health and safety of workers). [3]
 
The Maastricht treaty is a further step of reforming the European social policy. The Maastricht Social Protocol (Social Chapter) increased the range of competences of the Community in social affairs; moreover, the qualified majority voting was extended in more areas then before. In 1997 the provisions of the Social Agreement were introduced in the Amsterdam Treaty and that is binding for all. Finally, the Nice Treaty hasn’t brought significant changes in terms of social policy. [4]
 
The Lisbon Summit gave a new boost to the further development of the European social policy. The Open Method of Coordination (OMC) is defined as an instrument of the Lisbon Strategy. It’s the new tool of governance aimed at the coordination and harmonization of the social policies. [5] It is based on the European guidelines, which are transferred into national action plans. The OMC established common indicators for comparing the best practices. The evaluation and review of the national plans are periodically organized at the European level. [6]
 
European social models
 
The period following the World War II is marked by the significant growth of the welfare states. During this period the European countries started to spend more on social protection programs, directed mainly to people under social and financial risks, such as the unemployed, older people, and people with disabilities or low income. [7] Pestieau mentions that the two most important objectives of the welfare state are to relieve poverty and to provide a sense of security to all. However, he also emphasizes the fact that the assistance and insurance are not its only objectives, as some of its programs can also have effects on macroeconomic stabilization and growth. [8]#p#分頁標題#e#
 
There are three main sources of financing the European welfare state: through fiscal policies (taxing and spending), regulation and direct provision. [9]
 
Sapir distinguishes between four main types of European social models. The Nordic countries (Denmark, Finland, Sweden and the Netherlands) are characterized as countries with the highest level of social spending, high taxation rate and strong labour unions. [10] In Anglo-Saxon countries (the United Kingdom and Ireland) cash transfers are mainly directed to the people in working age. The labour unions are weak. As to the wage dispersion, it is quite wide and increasing. [11] Continental countries (France, Germany, Austria, Belgium and Luxembourg) are characterized by high expenditure on non-employment, health and pensions, still having strong trade unions. [12] In Mediter­ranean countries (Italy, Spain, Portugal, Greece) the main part of the social spending goes to the pension funds. The social welfare systems of these countries apply employment protection and early retirement. [13]
 
3 Economics of the Welfare State
 
The rise of welfare policies is strictly connected to the development of the European countries not only intended in economic terms but social, cultural and ideological as well. The demand for welfare policies in Europe, in fact, has incredibly grown because of many non-economic factors. First, one of the factors is the principle of equality as a core concept of European political and juridical systems. Second, there is the need to react to the ‘geopolitical pressure’ coming from the Soviet block and its propaganda on egalitarianism, which had a great impact on the social and political balance in some EU member states [14] .
 
Extra-economic considerations are at the base of the specific nature of welfare policies and can explain the reason why they nowadays constitute such a controversial issue. The core concern regarding welfare policy is due to the consciousness of being in front of a sort of dilemma: the complex relation between equity and efficiency.
 
3.1 - Equity versus Efficiency
 
The debate regarding welfare policies has always been related to a search for equity, on one hand, and its costs in terms of efficiency, on the other hand.
 
The reason why welfare policies are considered important relies on social considerations. They assume that modern society should grant equal opportunity to everyone, not only through the equality of rights stated by the law, but also through a more equitable economic perspective [15] . In an ideal world all those considerations could be assessed as optimal, but in real life the costs connected to those arguments cannot be neglected.
 
The degree of inequality, existing in every country, can be explained by the Gini coefficient derived from a diagram called the Lorenz curve, which show the relation between the cumulated distribution of income to the cumulated distribution of households [16] .#p#分頁標題#e#
 
In Figure 1, the diagonal line represents the curve of absolute equality, where each person should have the same amount of income. A hypothetical curve in the left-bottom corner will represent the curve of absolute inequality, where one person will receive the total income [17] . The curve ‘c’ shows a hypothetical country where the distribution is in between the two opposite extremes.
 
Curve of absolute inequality
 
Figure 1 – Lorenz curve (Source: based on Samuelson Nordhaus and Pestieau)
 
The Gini coefficient is given by the area in grey. A Gini coefficient of 0 corresponds to perfect equality, whereas a Gini coefficient of 1 represents perfect inequality [18] . Normally, the Gini coefficient is calculated on a national basis and all European countries are placed between the two extremes at really different levels of the Gini coefficient, as shown in table 1.
 
Table 1 - Source: Eurofond [19]
 
Notwithstanding social welfare expenditure in the EU-27 accounted for 42.2% of governments’ expenditure in 2009 [20] , the Gini coefficient varies according to countries and, especially, in some of them it is high telling us that the social policies adopted don’t reach the scope of redistribution as they were supposed to. This phenomenon can be explained with two major arguments: the first one takes into account the costs of welfare policies in terms of general efficiency, the second one deals with the inefficiencies produced within the social policies adopted and it can explain significant variation among EU countries.
 
3.2 - The Leaky-Bucket
 
From an economic point of view, any action has an opportunity cost. The cost of redistribution, which is the major stream implicit in welfare policies, is very well expressed by the “leaky-bucket” experiment developed by Okun [21] . Redistribution policies are meant to levy money from the rich people and to give it to the poor; in this regard, Okun noticed that not the entire amount of money taken from the richer went to the poorer. [22]
 
F,A,D,G represent Pareto-optimums in a condition of laissez-faire economy.
 
Figure 2 - Source: Pestieau
 
Pestieau uses a simple example to show how this economic metaphor works [23] . As in Figure 2, he assumes that at point A, Robinson has 8 oranges whereas Tintin has 2. If we want to redistribute equally the oranges we should transfer 3 from Robinson to Tintin. However, as we transport those oranges in a “leaky bucket”, some of them will be lost. In the end, Robinson will have 5 oranges and Tintin 4 (point B) [24] . The lost orange represents the cost of transfer from the rich to the poor, showing a clear loss in terms of efficiency. In real life, that cost is due to different factors such as administrative costs or lower efforts in savings and work made by the tax-payers [25] .
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3.3 - The Matthew Effect
 
Another reason at the base of welfare policies inefficiency is the so-called Matthew effect. The Mathew effect supports the idea that - usually - the people who benefit the most from social spending are those who need it the less [26] . In fact, people with a lower level of income, “benefit less from these transfers offered by social policies, stopped by administrative complexity and by fear of stigmatization [27] ”. The result of the phenomenon is an increase in inefficiency of welfare policy, related to the disregard of its main goal: redistribution of wealth.
 
4 Economic Losses
 
The trade-off between equity and efficiency is at the heart of many discussions concerning public policies. There is a clear disagreement about the nature of this trade-off.
 
Even though the statistics appear to show a correlation between public spending and GDP, we can always argue about the direction of the causality [28] . Furthermore, as Pestieau mentions, ‘we cannot correlate social spending with GDP, because less generous social systems such as Greece, Portugal, Spain and Italy experienced globally higher growth rates than more thriving systems such as the Northern states of the EU in the early eighties” [29] . In fact, if we analyse the tendency over the years, we notice that countries with a laissez-faire economy had a better GDP performance during the last decades [30] .
 
In the next paragraphs we will focus on the impact of EU welfare policies on economic efficiency, namely through the influence that these policies have on savings and investment, competition and disincentives to work in the European Union. Furthermore, we will write about the inefficiency of the welfare state itself, as the economic results of these EU social policies are not always in line with the expected outcome. Finally, we will use those tools to discuss on the economic efficiency of some EU policies that are currently being undertaken.
 
4.1 – Savings and Investment
 
Basic macroeconomic theory debates about the importance of savings and investment in order to achieve increased economic growth. Many economists, including Post-Keynesian economists such as Kaldor, claim that “since the tendency to save increases with income, policies redistributing revenue from the richer to the poorer would reduce savings and growth by the same token” [31] . In other words, richer European citizens will set aside an increasingly large proportion of their additional income on savings, while disfavoured socio-economic groups are likely to save less. Therefore, inequality can be economically desirable to some extent, since economies with greater inequality levels would experience a higher economic growth. [32]
 
4.2 - Competition
 
Given the recent failure of the Lisbon strategy, the concern about the ability of the EU to compete with other world major economic powers, such as the US and China, is being seriously questioned.#p#分頁標題#e#
 
EU welfare policies would not prevent the fact that part of the social protection financing comes from labour taxes. In a globalized world, where the EU acts as a major trade player, the existence of these taxes would cause an adverse effect on EU’s competitiveness. In fact, the higher the European firm’s wage cost and cost of production is, “the less competitive it will be relative to firms from countries with lower tax burdens”. [33] Thus, taxation schemes can be an “element that makes the EU a less attractive territory” [34] , discouraging foreign investors and encouraging tax evasion and emigration. Consequently, it is important that EU social policies do not negatively affect competition and that private companies are able to compete freely, as they are naturally more efficient.
 
EU welfare policies would also cause deadweight losses through the distortions of consumer choices [35] , given that the variety of products decreases without competition [36] . Taking into account Ricardo’s model of comparative advantage, the adjustment of wages implied in payroll taxes would give a comparative advantage to both labour and capital intensive countries when trading products with the EU.
 
4.3 - Disincentives to Work
 
Another important aspect of EU welfare policies is the problem of the disincentives to work and the effect of individual behavioural responses to the incentives implicit in these social policies. Both have a large impact on economic efficiency. For instance, “social security can induce socially undesirable early retirement” [37] . Also, “disability insurance can lead to more absenteeism on grounds of minor health complaints”. [38]
 
Traditional micro-economic reasoning is based on the concept that an individual will “only seek employment when it provides him with material gain”. [39] If stopping to work and accepting benefits was more financially attractive than earning money via work, employees would assume the possibility to reduce their labour supply, catching them in an “inactivity trap” [40] . Furthermore, some people would consider the possibility to work in the unreported economy while still illegally benefiting from minimum pension provisions.
 
4.4 - Inefficiency of the implementation of EU policies
 
Finally, it is important to consider the inefficiency of the implementation of EU policies too, since it has an indirect but large effect on the efficiency of EU economies. Redistributing income is becoming more difficult, as technical progress is responsible for increasing wage disparities between skilled and unskilled workers. Following the Mathew effect – described earlier - the inappropriate distribution of the EU’s social expenditure has a negative impact on economic efficiency in the EU. Indeed, public expenditure associated with EU policies often favours the wealthiest social groups, by “providing them social provisions intended for disadvantaged groups”. [41] This is due to cultural and institutional reasons. The lowest socio-economic groups are often stopped from benefiting from EU social policies because of “administrative complexity and fear of stigmatization”. [42]#p#分頁標題#e#
 
Finally, the problem of the Administrative costs should be mentioned. Even though it is true that having EU common social policies generally reduces administrative costs, these costs are still considerably high, as the implementation of such European policies is made on a national level.
 
c
 
Figure 3 – Best Practice frontier (source:Pestieau p.83)
 
To sum up, the productive inefficiency in the allocation of resources should always be considered when it comes to social policies. As seen in Figure 3, there is a productive inefficiency if the same production of goods and services can be carried out with fewer resources (point a to point c) or if more can be produced with the resources used (in point a to point b). This denotes that better can be done with less [43] .
 
Now that we know to what extent social policies affect the efficiency of EU economies, we can focus on the impact that some EU welfare policies may have on EU economic performance.
 
4.5 – Examples of EU policies
 
4.5.1 - Lifelong Learning Programme
 
At the EU level, lifelong learning programmes - such as Comenius, Erasmus, Leonardo da Vinci and Grundtvig - are seen as “critical factors for achieving the Lisbon strategy’s objectives of enhancing economic growth, competitiveness and social inclusion” [44] . These programs intend to improve knowledge, skills and competences of European citizens.
 
Notwithstanding the social benefits of such a programme, we think it is still important to question whether there is an economic payback for the €7 billion budget assigned to these programmes for 2007 to 2013.
 
For instance, the Grundtvig program aims at “supporting adult learning staff to travel abroad for learning experiences” [45] . Setting the social benefits aside, which indeed exist and are quite substantial, we can debate whether the marginal economic outcome of teaching an adult is the same as of teaching a younger person. The shorter remaining life expectancy of the older people can cause a deadweight loss. If the increase in productivity doesn’t make up for the money spent on that program, there is no economic benefit in doing so. This will have a negative effect on EU’s competitiveness when compared to other countries.
 
Furthermore, we should ask if the people that benefit from lifelong learning programs are the ones who really need it, as in the Mathew effect. The fact that some programs - such as Erasmus - still need a strong personal financial participation can be a problem in this respect. The lowest socio-economic groups can still have difficulties in participating in such a program. Therefore, this measure could have a counter-efficient result on inequality too.
 
Finally, we have to consider that the economic output of these policies largely depends on individual behavioural responses. For instance - with the Erasmus program - there is a considerable possibility that the students benefiting from such a program won’t do it for the purpose it is supposed to, which should be “enriching students' lives in the academic and professional fields” [46] .#p#分頁標題#e#
 
4.5.2 - Health and safety at work
 
Another example of a negative effect of EU welfare policies is related with the impact that environmental, health, and safety regulations have on the efficiency of EU economies. As a matter of fact, there is an opportunity cost when complying with these regulations, as more productive investment decisions such as industrial expansion plans, have to be either delayed or abandoned. This builds a clear disadvantage in the competitiveness of the EU towards other countries.
 
Health and safety at work “represents today one of the most important advanced fields of the social policy of the European Union” [47] according to the European Commission. However, the obligations concerning for instance workplaces and work equipment can have a negative effect on economic performance. These regulations - supported by the PROGRESS programme - can in some cases arm the competitiveness of EU companies, given that international competitors will always have the option to make other investment choices, exclusively based on whether they are more efficient or not from an economic point of view.
 
Environmental policies
 
Environmental Directives [48] can also suffer from the same symptoms as with Health and Safety work regulations. An example of this can be the Directive on Environmental Noise and on Waste prevention and management, which represent one of the EU's Sixth Environment Action Programmes. Even though the aim of these EU policies is also related with lowering overall costs, it is always more efficient to operate in an unrestricted market. If those directives really had a positive impact on economic efficiency than the private sector would implement them naturally.
 
Concluding, there are many fields in which EU social policies can have an undesirable impact on the efficiency of EU economies. The most important is to assess whether “the losses associated with these welfare policies exceed the associated gains” [49] . It is in this relationship between the total economic gains and losses that economists don’t seem to find a consensus.
 
As we can see in Figure 3, there is an optimal point (A) where net gains are maximised.
 
Figure 4 – Economic gains and Losses of the Welfare State. (Source: Haveman)
 
It is a fair question to ask if one of the reasons for the poor economic performance of the EU during the last few decades might not be related to the fact that the economic losses engendered by these welfare policies surpass – nowadays - the economic gains, as in point B of Figure 4.
 
The fact that EU countries are increasingly relying on social policies in order to promote equity (as the rise in public spending during the last decades suggests), leads us to believe that the EU has already passed the equilibrium point, where Total losses equal Total gains.#p#分頁標題#e#