Difficult European social market economy

Legal, political and economic scholars have encountered difficulties, when dealing with the treaty based aim of the European Union as a highly competitive social market economy.

Negative integration in order to remove or to lessen obstacles in the internal market and external trade can be promoted by harmonisation and the Court of Justice of the European Union, flanked by rules to ensure fair competition.

However, despite the kind words the Treaty on the Functioning of the European Union (TFEU) offers on social policy - Title X - the real powers lie with the member states, as illustrated by Article 153. The powers for positive integration (harmonisation) are weak in the EU we have today:

Article 153 TFEU

(ex Article 137 TEC)

1. With a view to achieving the objectives of Article 151, the Union shall support and complement the activities of the Member States in the following fields:

(a) improvement in particular of the working environment to protect workers' health and safety;

(b) working conditions;

(c) social security and social protection of workers;

(d) protection of workers where their employment contract is terminated;

(e) the information and consultation of workers;

(f) representation and collective defence of the interests of workers and employers, including codetermination, subject to paragraph 5;

(g) conditions of employment for third-country nationals legally residing in Union territory;

(h) the integration of persons excluded from the labour market, without prejudice to Article 166;

(i) equality between men and women with regard to labour market opportunities and treatment at work;

(j) the combating of social exclusion;

(k) the modernisation of social protection systems without prejudice to point (c).

2. To this end, the European Parliament and the Council:

(a) may adopt measures designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States;

(b) may adopt, in the fields referred to in paragraph 1(a) to (i), by means of directives, minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States. Such directives shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings.

The European Parliament and the Council shall act in accordance with the ordinary legislative procedure after consulting the Economic and Social Committee and the Committee of the Regions.

In the fields referred to in paragraph 1(c), (d), (f) and (g), the Council shall act unanimously, in accordance with a special legislative procedure, after consulting the European Parliament and the said Committees.

The Council, acting unanimously on a proposal from the Commission, after consulting the European Parliament, may decide to render the ordinary legislative procedure applicable to paragraph 1(d), (f) and (g).

3. A Member State may entrust management and labour, at their joint request, with the implementation of directives adopted pursuant to paragraph 2, or, where appropriate, with the implementation of a Council decision adopted in accordance with Article 155.

In this case, it shall ensure that, no later than the date on which a directive or a decision must be transposed or implemented, management and labour have introduced the necessary measures by agreement, the Member State concerned being required to take any necessary measure enabling it at any time to be in a position to guarantee the results imposed by that directive or that decision.

4. The provisions adopted pursuant to this Article:

— shall not affect the right of Member States to define the fundamental principles of their social security systems and must not significantly affect the financial equilibrium thereof,

— shall not prevent any Member State from maintaining or introducing more stringent protective measures compatible with the Treaties.

5. The provisions of this Article shall not apply to pay, the right of association, the right to strike or the right to impose lock-outs.

European social market economy reading

Already at the time of the Treaty Establishing a Constitution for Europe,

Christian Joerges and Florian Rödl discussed the social deficit of the EU, the genesis of the social market economy at the national (Germany) and the Europena level, as well as the limits of EU competences in the social field, in  “Social Market Economy” as Europe’s Social Model? EUI Working Paper LAW No. 2004/8 (25 pages).  

Klaus Dieter John discussed various forms of economic liberalism in the article The German Social Market Economy – (Still) a Model for the European Union? (8 pages)

In a December 2011 publication, the Swedish Institute for European Policy Studies (Sieps) let four authors discuss the lack of EU powers and the necessity (risk) to move towards a federal state, if Europeans want a social market economy: Giuseppe Bertola, Jörgen Hettne, Fritz W. Scharpf och Daniel Tarschys: Är EU en social marknadsekonomi? Sociala Europa – en antologi; SIEPS 2011:2op (88 pages).

Two of the contributions had been published earlier in English and are still available:

Scharpf, The Socio-Economic Asymmetries of European Integration (2010:10epa) och Bertola, Social and Employment Policy in the EU and in the Great Recession (2010:11epa).

Václav Šmejkal, Stanislav Šaroch: EU As a Highly Competitive Social Market Economy – Goal, Options, and Reality; Review of Economic Perspectives Vol. 14, Issue 4, 2014 (18 pages), another example:  

The paper is a combination of economic and legal -political analysis through which the authors try to answer three main questions: What is the contemporary meaning of the term “social market economy” in the both economic and EU-law academic theory? Can the EU within the powers conferred to it positively fulfill such an objective, or can it just approach it by weakening the still prevailing tendency towards liberalization and deregulation brought about by the construction of the EU internal market and by the promotion of its freedoms?

To round off the reading part, a few random excerpts from Floris de Witte, in The Architecture of a Social Market Economy; LSE Law, Society and Economy Working Papers 13/2015 (24 pages):  

This paper traces the evolution of the nature of the EU’s internal market, from its origin in the 1950s to its current redesign in the aftermath of the Euro-crisis. It suggests that the relationship between ‘the market’ and ‘the social’ has shifted multiple times throughout the Union’s history.  

In doing so, however, they overlook a number of institutional asymmetries, normative biases and legal implications, which mean that any attempt to create a ‘social market economy’ – as Article 3 (3) TEU commits the EU to do – is bound to be distinctively light on ‘social’ and heavy on ‘market’.

The third phase has started since the outbreak of the Euro-crisis. Increasingly, Union institutions are pushing towards social policy coordination and even harmonisation in the EU. The purpose of EU social policy here, again, is very different from the previous two phases. Social policy is now considered as an auxiliary instrument for the stabilisation of monetary and economic policy across the Eurozone. Diversity and national autonomy, on this view, are problematic.

Social policy differentiation throughout the EU, to put it as simply as possible, disrupts both the operation of the internal market and the operation of the economic and monetary union. (page 17)

In blunt terms, the current architecture of the EU simply cannot support a ‘social market economy’ – which comes with far-reaching implications for the stability of the Union’s market and polity.  (page 18)

The legitimacy of their answer presupposes that it is answered through a representative and democratic process. Allowing apolitical institutions to answer such questions will almost inevitably lead to these being answered as if they are regulatory questions.  (page 19)

In the absence of a sufficiently thick political sphere on the European level, any attempt at socialising the EU’s market will be doomed.  (page 21)

A ‘social market economy’ may simply be beyond the capacity of EU law to produce.   (page 22)

Despite the talk about the future of Europe, do we see the EU institutions forging the powers for these representative and democratic processes at the European level?

European social market economy questions

After looking at the asymmetries, I want to finish this blog post by referring to the intelligent questions posed by Stefan Collignon in the web journal Social Europe: How To Create A Real European Social Market Economy; Social Europe 3 February 2015:  

The single most important contribution to revive Europe would be starting a wide debate about who are the winners and losers in the single market; who are the extractive elites that resist a fair distribution of advantages and privileges? How is the idea of sovereignty (mis)used as an instrument to protect these elites? What mechanisms must be designed to create a fair system of distributing the net gains from integration? How can one overcome the veto power and “agency capture” of national governments by local pressure groups? The European social market economy – with new institutions – must emerge from these debates. Without them, it will fail.

Ralf Grahn