Social Europe Journal Vol. 2 No. 1

Social Europe

Volume 2 • Issue 1 July 2006 Suggested Donation 5₏

the journal of the european left

Contributions by Stephen Haseler Werner Abelshauser Evelyne Gebhardt Jean-Marc Ayrault Patrick Diamond Mircea Geoana Giuseppe Vacca Jo Leinen

www.social-europe.com

The European Economy: Some Reflections An initiative by the Party of European Socialists

Social Europe the journal of the european left • Volume 2 • Issue 1 • July 2006

Editorial Board Detlev Albers Chief Editor Giuliano Amato Italian Interior Minister, Former Prime Minister Karl Duffek Director Renner Institute Elisabeth Guigou French MP, Former French Europe and Justice Minister Zita Gurmai President PES Women Stephen Haseler Chief Editor Poul Nyrup Rasmussen President of the PES Please make sure that there are more issues of ‘Social Europe: the journal of the european left’ by paying the suggested 5€ donation for this issue or become a Sponsor Member. Visit our website www.social-europe.com for more details and payment options.

Angelica Schwall-Dueren Vice Chair SPD Bundestag Group Giuseppe Vacca President Gramsci Foundation Jan Marinus Wiersma Vice President Socialist Group European Parliament

Thank you very much!

Henning Meyer Managing Editor

‘Social Europe: the journal of the european left’ is published by the European Research Forum at London Metropolitan University.

Editorial team Ben Eldridge & Ian Gardiner Design & Layout Ruth Davis & Katerina Hadjimatheou Sub-editors

In co-operation with:

Friends Jean-Marc Ayrault, Stefan Berger, Antony Beumer, Matt Browne, Proinsias De Rossa, Harlem Désir, Guglielmo Epifani, Patrick Diamond, Antonio Guterres, David Held, Andrea Manzzella, Jacques Reland, Donald Sassoon, Adrian Severin, Martin Schulz, Dominique Strauss-Kahn, Livia Turco, Heidemarie Wieczorek-Zeul, Christoph Zöpel

Social Europe the journal of the european left • Volume 2 • Issue 1 • July 2006

Editorial Social Europe: the Second Volume...

F Henning Meyer Managing Editor

OLLOWING A VERY successful first year for ‘Social Europe. the journal of the european left’ we sought the advice of our readers and have now come up with a number of innovations for the second year.

Our first book has recently been published under the title ‘Social Europe: a continent’s answer to market fundamentalism’ and is already making an impact in the traditional publishing environment. Furthermore we will start to publish ‘letters to the editor’ from the next journal issue on, so you are all invited to email your opinion about the debates lead in our journal to letters@social-europe.com.

The biggest innovations, however, are to be found in our online services that are the backbone of our publishing concept. Additionally to our own content, we aim at being a comprehensive online portal for social democrats who want to access the debates about Europe and its future. Following the relaunch of our website, you can now also read reports on Brussels matters (updated daily), can access live and

recorded video coverage of EU events and read the blogs of Commission Vice President Margot Wallström and Socialist Group Vice Chairman Jan Marinus Wiersma.

Also, we will send out relevant information from national social democratic think tanks via our pan-European newsletter with several thousand subscribers. Therefore, we would like to encourage our present and future partners in different social democratic think tanks to send us information about their European work to info@social-europe.com. This is the easiest way to make sure that not only your environment but wider European social democracy benefits from your work.

From the beginning on, our project has been seen as an open project. If you would like to express suggestions, comments, criticism or praise please do not hesitate to contact us.

Social Europe the journal of the european left • Volume 2 • Issue 1 • July 2006

Contents 5 14 22 26 32 36 41 47

The Failure of Neo-liberalism: ‘Social Europe’ Now Defines the Continent Stephen Haseler The German Innovation Machine: Dead or Alive?

Werner Abelshauser The Service Directive – a Success for Social Europe Evelyne Gebhardt Europe’s Social Model Jean-Marc Ayrault The Future of Progressive Politics Patrick Diamond The Romanian Social Model Mircea Geoana The Olive Tree Party (L’Ulivo) Giuseppe Vacca Stronger European Parties for a Social Europe Jo Leinen

Click on the flags for links to foreign language versions

The Failure of Neo-liberalism: ‘Social Europe’ Now Defines the Continent

O

Stephen Haseler Professor of Government at London Metropolitan University and Chief Editor of ‘Social Europe. the journal of the european left’

NE OF THE fascinating features of the contemporary European debate is the growing sense that the erstwhile dominance of ‘neo-liberal’ ideas – and the market fundamentalism they encourage – is now coming to an end. The signs and symbols of a growing resistance to ‘neo-liberalism’, and of a major reappraisal of its relevance, are all around us. The most dramatic sign was the decision of the French electorate in the referendum of 2005 to reject the EU Constitution. Many factors were at play in France, but there is little doubt that the perceived threat posed by ‘neo-liberalism’ to the French social democratic welfare system was one of them. Another sign was the surprisingly good showing of the German SPD in the Bundestag elections in September 2005. Even though Gerhard Schröder’s programme had become unpopular, and pundits expected a large conservative-liberal majority, the German public was clearly opposed to the introduction into Germany of the kind of ‘Thatcherite’ programme many German conservatives had been pressing for.

Alongside the publics of France and Germany, the elec-

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torates in Spain and Italy have also recently rejected market fundamentalism as they bade farewell to Prime Ministers Aznar (in 2004) and Berlusconi (in 2006). And, on a European level, the European Parliament’s recent decision to seriously weaken the ‘neo-liberal’ elements in the Bolkestein directive on services was yet another signal of a changing tide of European opinion.

Intriguingly, even in the heartland of ‘neo-liberalism’ – the United States – serious criticism of the prevailing economic orthodoxy (and, in particular, of one of its key elements, ideologically-driven ‘Free Trade’) is growing louder by the day. A bipartisan alliance led by Senators Schumer and Graham is threatening China with sizeable tariffs should it continue its currency policy regime; the issue of ‘outsourcing jobs’ that was such a key feature of presidential campaign of John Kerry will remain a big election issue; and the US public is increasingly supportive of a range of Democratic party proposals to save what remains of the Roosevelt-Johnson US welfare state. All in all, a serious reappraisal of key aspects of the ‘neo-liberal’ economic and social orthodoxy is now underway in the popular journalistic

community, led by serious economists like Paul Krugman and Joseph Stiglitz; and, surprisingly, some American thinkers, like Jeremy Rifkin (the President of the Foundation on Economic Trends who wrote in an earlier edition of ‘Social Europe’), are even pointing to Europe’s ‘social market’ as a healthier and more balanced system.

This reassessment of ‘neo-liberalism’ goes hand in hand – as it should – with a reappraisal of the merits of economic globalisation. The fact is that the present phase of raw capitalism was given its new lease of life by the end of the Cold War and the sharp and sudden growth of the global economy – particularly by the entrance of China and India (and, to a lesser extent, eastern Europe). This huge new labour force and market has allowed raw capitalism to run wild by avoiding the constraints and limitations placed upon it during the Cold War. By weakening both governments and free trade unions the new global economy has given a new lease of life to corporate profits, and to global finance (through mobile hedge funds and the like). In sum, globalisation – used here in the sense of economic globalisation – has made our ‘neo-liberal’ world order possible. In the words of the old song, the global economy and ‘neo-liberalism’ go together like ‘love and marriage’. For this reason, if for no other, social democrats need to focus a serious sceptical eye not just on markets but also on the fundamental dynamics of the broader global economy.

Yet amidst this serious reappraisal, many on the European centre-left are still seduced by

“Blair’s and Clinton’s approach had no room in it for resisting, or even much limiting, the rules and imperatives of the global market” this contentious ideology of globalist ‘neo-liberalism.’ They, of course, differ from European conservative advocates in that, with some exceptions, they bring little enthusiasm to the subject. Rather, they take a fatalistic approach: they see ‘no alternative’ to globalisation and to a marketised and globalised world, and also ‘no alternative’ than to accept ‘reality’ and its harsh rules, and make the most of them. They stick by the mantra that all the state, and the politicians, can sensibly do is to ‘equip’ its people to survive in the global market by ‘educating’ and ‘skilling’ them to compete with low cost Asian workforces in China and India.

Consequently, the state, they believe, cannot beat the market, and cannot even act as a balancing force. Indeed, it can only act as a junior partner to the private sector. Thus, according to this doctrine, even social democrats are forced to accept only a limited role for governments in the domestic economy and a minimal role for governments in the global economy.

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RITISH PRIME MINISTER Tony Blair has been the major political exponent of this fatalism. His ‘Third Way’ strategy (it was not really a philosophy) was principally about equipping Labour to win elections. However, a key aspect of

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the ‘Third Way’ thesis – one borrowed heavily from the thinking of Bill Clinton and the Democratic Leadership Council in the United States – was the need for the left-of-centre to fully embrace market globalisation. The idea – also supported

by Gerhard Schröder during his early months as German Chancellor – was that social democratic values could be squared with capitalist global markets just as they had been with the more domesticated and constrained capitalism of the post-war decades.

Blair’s and Clinton’s approach had no room in it for resisting, or even much limiting, the rules and imperatives of the global market. Indeed, this was what they meant by their constant evocation in speech after speech to ‘embrace change’ rather than resist it. Since those heady days, however, Blair has softened his stance somewhat. His second administration pulled back from extreme Thatcherite orthodoxy as New Labour embarked upon a considerable public spending programme: and now, at least in theory, Blair and New Labour proclaim themselves as being in favour of the ‘Social Model.’ Yet, Blair has never revised his strong advocacy of the need to accept the rules of globalisation.

And it will be fascinating to watch whether Blair’s likely successor, Gordon Brown, will con-

Geopolitical blocs

tinue with this enthusiasm.

Brown argues in favour of accepting the ‘reality of globalisation’, and of ‘embracing change’, but, at the same time, his seeming heartfelt commitment to relatively high public spending may well lead him to revise this approach.

But there is a sense now that global market fundamentalists have few long-term answers to the really big economic and social problems facing the peoples of the European continent.

By common consent by far the greatest, and most urgent, of these problems is the jobs crisis.

And at the heart of this crisis is the fateful process – recognised by both supporters and opponents of market globalisation – of capital, and job flight. The dynamic is now well established: European jobs move irrevocably away from high cost, high tax Europe and towards Asia, principally China and India, where wages and taxes – and standards – are lower.

Figures on job losses are notoriously difficult to assess.

British Chancellor of the Exchequer, Gordon Brown, recently hazarded a guess and argued, very conservatively, that because of globalisation the West had witnessed ‘one million [manufacturing] jobs lost from America, Europe and Japan’ and also that ‘one quarter of a million service jobs [have] gone offshore.’ But Western unemployment can also be measured indirectly by the growth in Europe of low paid (low pensionable) work and in part-time work as well as in the high basic unemployment numbers.

In the European home of market fundamentalism – Great Britain – we have only hidden, not solved, the jobs crisis. We have done so by creating low paid work in the lower end of the service sector (in call centres, retailing and fast food outlets) a low pay regime reinforced by the new addition of low cost East European labour. To counter this low pay environment we have kept up demand by high levels of public spending and by a huge, and seriously irre-

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sponsible, ‘debt mountain’ – based upon a housing boom – that is simply unsustainable.

High unemployment (whether open or hidden) clearly weakens demand, and in turn weakens the tax take upon which the European welfare states and societies are so dependent. So, should the current high unemployment/low demand trends continue, Europeans are looking at nothing less than the serious erosion of their post-war welfare states. And if these welfare states collapse then we are facing the appalling prospect of the pauperisation of large sections of the workforce – particularly those who cannot compete in the global economy. And, to make matters worse, all of this will go hand in hand with a further growth in highly visible inequality. Clear evidence now shows that globalisation is bad news for the social democratic objective of more equal and just societies – as those economies most open to globalisation, for instance the USA, Britain and New Zealand, are also the economies most prone to growing inequality. Global capitalism

has also produced a damaging egregious inequality in the form of the arrival of a new global and mobile class of ‘Super-Rich’ people whose outlandish riches often depend on capital not work, who have no allegiance to any society at all, and spend their time moving money around the world – often through the mechanism of hedge funds – to the most profitable (in most cases the lowest tax) haven.

Yet, even in the face of all this, ‘neo-liberals’ remain complacent. They argue that even though competition from Asia will inevitably continue to erode manufacturing industries in Europe, European publics will benefit by low prices and, crucially, by a growing demand from Asia for Europe’s service and hi-tech sectors. This is classic free trade theory, an updated version of the comparative cost advantage thesis of eighteenth century classical economists David Ricardo and Adam Smith.

Of course, at a deep theoretical level this theory may well be right, or indeed wrong; but even if it works today, the timing of the return to balance remains its central problem, and inadequacy. For in the long run everything might well balance out as the free trade theorists argue, in the all too important short-run (which could last for ten to twenty years) the really severe problems of social adjustment – around job losses, inequality growth and welfare erosion – could build up to the point where they fracture and destabilise Western societies and lead to political extremism.

Also, there are two great fallacies about Asian competition that bedevil the current globali-

sation debate in Europe and the West. The first is the almost wilful belief that this competition is only restricted to manufacturing, and that the European service and high-tech sectors are not threatened. Some northern Europeans in Sweden, Britain and Germany exhibit this complacency and are less than keen, and collegial, in supporting hard pressed manufacturers in Italy, France and Spain when they pressure Trade Commissioner Peter Mandelson to take a tough line in EU tradebargaining with China. Yet this northern European complacency is very short-sighted because the clear reality is that burgeoning Asia (particularly China) is now moving seriously into the service and hi-tech sector and at a much lower cost-structure than their Western competitors.

We in Europe need to realise a salient fact – that Chinamen can do banking, and insurance! As can Chinese women.

The second fallacy is that Asia will over the next few decades cease to be relatively low cost – and therefore less competitive – as a Chinese middle class grows and begins to demand higher conditions and standards. This particular complacency ignores the stark fact of the massive pool of potential cheap labour (millions upon millions) still available to enter the commercial coastal regions from the agricultural and rural parts of China. And we can be certain that as long as the Chinese regime remains authoritarian, and controlled by the Communist party, free trade unions will, to say the least, not be encouraged – and thus pressure for seriously higher wages and costs will continue to be

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resisted. Some commentators are now suggesting that the Chinese low-cost system is so fragile that a ‘revolutionary’ situation may soon develop – one which would might stop the rural rush into the coastal areas and thus, by draining the pool of labour available, see the demise of the coastal cheap labour policy.

Of course, anything is possible, but Westerners should not bank their futures on it. We in the West sometimes forget that authoritarian regimes have far better coercive mechanisms for social and political control, and adjustment, open to them than do democratic western governments.

The Rise of ‘Neo-Protectionism’

These great economic undercurrents flowing from Asia to Europe and America are already producing a truly historic crisis, one which the ‘neo-liberal’ globalist true believers (and the governments that agree with them) can no longer deal with. And, without any answers themselves, globalists are reduced to a constant negativity of warnings about the perils of changing course, and about the dangers of any alternative approach, normally labelled as ‘protectionism’. The simplistic ‘neo-liberal’ mantra is repeated time and time again: that any interference by political authorities in the global ‘free market’ is ‘protectionist’ and that ‘protectionism’ is not only inefficient but also leads to nineteen-thirties- style isolationism and nationalism. Thus, in the process, any alternative strategy is demonised, considered not even worthy of consideration, and thus dismissed.

But, no matter the demonising, Europeans are more and more eager to find sensible alternatives to the ravages inflicted by the ‘neo-liberal’ global order.

A fully developed and intellectually coherent paradigm to replace ‘neo-liberal’ globalism has not yet been secured, but the outline of a new approach is beginning to emerge. It can be seen in the recent stirrings of what is often described as ‘economic patriotism’ as, one after another, European nation-states have sought to protect their industries and services from foreign take-overs – often global, though often, too, European in origin. This ‘patriotic protectionism’ is often short-sighted and counter-productive – certainly so when aimed against fellow Europeans – but its objective, for social democrats, is understandable, for it amounts to an attempt to shore up Europe’s still decent social and economic life against the ravages of global capital. It is also born out of a real frustration – exhibited particularly in France but much more widely too – with the European Commission’s perceived ‘neo-liberal’ impulses. From this perspective, if the Commission was doing its job at the continental level then national governments would not need to resort to ‘patriotic protectionism’.

Yet, in many respects the Commission is unfairly criticised. It certainly contains its fair share of ‘neo-liberal’ and globalist enthusiasts (President Barosso himself has a strong ‘neo-liberal’ background). Also, the original un-amended Bolkestein directive was an example of the Commission’s ‘neo-liberal’ impulses, as seemingly are many of the directives aimed at perfect-

ing the single market. However, many of the Commission’s single market improvements are just that – nothing to do with blindly accepting globalisation, but rather increasing competition within the EU economy, an altogether different proposition.

Today’s Commission, like the broader European polity, is in no way under the sway of the ‘neoliberal’ globalist ideologes. It is better seen as containing a spectrum from ‘neo-liberals’ to social democrats – from moderate globalisers to moderate protectionists

ness around the world is based in large part upon its lack of self-sufficiency in key resources – such as energy; and it is these exigencies of geo-politics that will, over time, lead Europeans to prize self-sufficiency – particularly in energy and in food – a self-sufficiency that is undermined by the pressures of global ‘free trade’.

Of course, a profound reaction against the excesses of globalism and ‘free trade’ was only to be expected should Europeans want to keep their prized ‘Social

“A fully developed and intellectually coherent paradigm to replace neoliberal globalism has not yet been secured, but the outline of a new approach is beginning to emerge” – with the winner not yet decided, and all to play for.

In one sense, of course, the Commission will, by the very dynamic inherent in its ‘European-wide’ vision, view things through a ‘protectionist’ lens, a focus which, as the world morphs into continental trade blocs, will sharpen. Already, the European Commission is securing quasi-protectionist trade agreements with Asian countries about shoes and clothing and continues to protect European agriculture in its trading agreements. Intriguingly, ‘protectionism’ in agriculture is slowly becoming less subject to criticism as people become aware of the need for the continent, in a dangerous world, to remain selfsufficient in food. US aggressive-

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Model’. The French veto of the Constitution, the German support for their welfare state, and the new ‘economic patriotism’ can be viewed as a European version of the more general worldwide phenomenon of blowback.

Six years ago I suggested that ‘a great world drama is being played out before our eyes between the ‘neo-liberal’ global economy and the European social model’ (Haseler 2000), that they were mutually contradictory, and that, over time, one would have to give way to the other. Today, the battle lines are still tightly drawn. And it is increasingly apparent that the very existence of the European Social Model – with its regulatory frameworks, its social spending, its protected labour markets

as much as its trade policies – is itself an intervention in the ‘neoliberal’ globalisation process, and a form of protectionism. Indeed preserving the ‘Social Model’ represents a key building bloc of the new protectionism – nothing less than an intervention in the process and an attempt to shape globalisation to meet our needs rather than having it impose its rules upon us.

What Europe’s resistance to globalisation now adds up to is not just a simple rejection of its economic and financial rules, but, rather, the emergence of a ‘strategic’ and ‘continental’, as opposed to an ‘ideological’ and’ universalist’, approach to world problems. Social democrats must be clear that we do not reject the idea of universalism when it is used politically and morally – to affirm the equality of humankind and the value of each person no matter nation, race or religion. But when used economically ‘universalism’ – or globalisation or globalism – is often used simply as a cloak for a universal imposition of corporate business-led economics, politics and ethics. In other words a ‘universal’ world order productive of huge inequalities in the Western world and in the developing world the binding of poor areas into a system that will keep them poor.

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Y CONTRAST, INSTEAD of accepting the businessdominated global system social democrats should seek to shape it. And shaping the system means what is says: neither the craven acceptance of all globalisation’s characteristics, nor the blind opposition to its positive features. For instance, social democrats would obvi-

ously seek to encourage the truly progressive aspects of the globalist system – the greater communications, the greater possibilities for understanding cultural diversity, the opportunities for travel, the universalism of human rights. But, at the same time no-one should be fooled into believing that we need to accept the totality of the global system, to accept globalisation ‘warts and all’. There is absolutely no contradiction between accepting positive aspects of globalism and, at the same time, intervening in the economic globalisation process to place a limit on the ability of footloose global capital to weaken and coarsen societies.

Of course, it is easier to assert the need to shape globalisation than to answer the question: how can it be done? In one sense European social democrats do not need to do anything except defend what they have.

For simply by resisting dilutions to Europe’s Social Model – by sticking with social democratic labour policies, tax policies, regulatory system and welfare provisions – we are effectively intervening in the global market by not letting footloose capital have its sway. It is this resistance to the suzerainty of mobile capital – and to the potential example it sets around the world – which so often drives ‘neo-liberals’ and ‘neo-conservatives’ in Washington and Wall Street into wild opposition to our European Social Model leading to propagandistic attacks on the ‘sclerosis’ of the European economy.

However, ‘neo-liberals’ are right that the Social Model is too ‘expensive’ if by ‘expensive’ is meant that it cannot be sus-

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tained in a global economy which demands that Europe remain ‘competitive’ – in other words, cut its costs. These costs, primarily wages and taxes (what businesses call ‘social costs’), are deemed too high and thus, it is argued, mobile capital will move (outsource) from Europe or blackmail governments (by threatening to move) or both. It is a compelling argument.

And social democrats can only counter this argument by a new approach to trade. In this contest between welfare states and mobile capital the only asset in the hands of the governments of the welfare states is the control of the market – in Europe, the largest single market in the world. Global corporations might want to cut costs by moving their operations abroad, but, even more important to them is access to the big markets of the world for their goods and services. ‘Free-trade’ is not just a mantra it is necessary for the survival. But as long as social democratic governments can be persuaded not to interfere in the ‘free trade’ system, in the almost sacred flow of ‘free trade’, then democratically elected politicians will remain, compared to their corporate contestants, completely impotent.

This is why social democrats need to supplement the protection of their welfare states by a ‘strategic’ – as opposed to an ideological or indeed religious – view of ‘free trade.’ We need to look at trade policy as a key tool – a strategic tool – in intervening in and thus shaping the global economy – that is shaping to the needs of the European publics and European jobs rather than global businesses.

“ ‘Market forces’ will, given free rein, place Europe at a huge disadvantage in attempting to negotiate a single, unified European policy with the energy producers”

To some extent the Council and Commission already take such a strategic view, but European trade policy could make a greater distinction – in principle and not just when pressed – between sectors (for instance between those at risk from low-cost centres and those not at risk, and those necessary for security and those not); and it could also distinguish between trade policies which served to featherbed domestic producers against fair foreign competition (bad), and, on the other hand, trade policies which protect domestic producers against unfair low-cost global competitors (good).

Above all, a social-democratic, strategic trade policy would resist the now very powerful and essentially short-term pressures exerted on Trade Commissioner Peter Mandelson from European retailers to allow unfair low-cost imports at the expense of manufacturing jobs.

Also, a strategic view of trade means a long-term view, or, at the very least, a medium-term view – a vantage-point which would lead those northern European social democrats, in countries like Sweden and Britain where services and hitech industries are not yet threatened by low-cost trade,

to show some solidarity with southern European workers whose jobs are.

Nowhere is a European strategic approach needed more than in the now urgent issue of energy supplies. Market forces – particularly global market forces – will, given free rein, simply place Europe at a huge disadvantage in attempting to negotiate a single, unified European policy with the energy producers. Indeed, the obvious public understanding of the need for a Europe-wide energy strategy will help proEuropeans and social democrats in their domestic political battles with Eurosceptic globalists and ‘neo-liberals’ by telling the story, loud and clear, about how globalists place these ‘market forces (usually code for big corporate money making) ahead of the security of the people.

This new strategic approach, as hopefully it supplants the universalist ideology of the market, cannot, however, be wholly neutral on the great sensitive question of the role of the state within the domestic European economy.

In this sense this new paradigm can only be a left-of-centre idea – for it demands a state strong enough to be able to intervene in the global market and/or to balance off and negotiate with global market forces, normally the

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great transnational corporations.

Yet, the stark fact remains that the European nation states are too small for this strategic purpose. Even the biggest (Germany) finds it difficult to withstand the global pressures exerted on it, and without the unified power of the single market and single currency, might already have succumbed to the erosion of its welfare state. That is why a ‘neo-protectionist’ strategic approach will only work in a Europe-wide context.

Compared to nation states of 50 million or so, a single market of over 450 million people with a single currency of over 350 million has real power – and possesses the tools to properly negotiate with corporations and mobile global capital.

It all amounts to the urgent need, for those who believe in ‘Social Europe’, to continue with the integration of the continent and the building of a European polity – that is, a ‘continent-state’ to replace the old fashioned and increasingly impotent nation states. The American global theorist Philip Bobbitt in his large, portentous work The Sheild of Achilles; War, Peace and the Course of History, has pioneered the clear and, by its own lights, compelling, US vision of a future ‘neo-liberal’ order in which the present European nation states morph into ‘market states’ in which they become little more than subordinate agents of the needs of global capital in a marketised globe. This indeed is the fate that awaits the European nations (even the large ones) should they turn their backs on the building of their ‘continentstate’.

Fear of this fate is already leading other continents to fol-

Social Europe A continent's answer to market fundamentalism Edited by Detlev Albers, Stephen Haseler and Henning Meyer European integration is more, much more, than the economic integration of markets. It has, and needs, a strong political dimension. Indeed, social democrats need to emphasise the primacy of politics; and, within politics, the primacy of democracy.

In future debates about the European Social Model we cannot dilute the universal objectives of economic democracy and social justice, which have been visionary in the past and remain highly relevant today. The European Social Model needs a much bigger European consciousness with much more conscious European players if it is to be sustained against internal and external pressures. Only if this is achieved will the European Social Model also become attractive to other parts of the world. Who else other than the European Left is fit to lead this undertaking?

£12.99 RRP order your copy at

www.social-europe.com low the EU lead by developing incipient ‘continent states’ based around regional economic groupings – such as Mercosur and ASEAN. And the sub-text of these groupings is obvious: they will enable these less developed economies to develop a way forward based upon a more ‘protectionist’ and strategic approach. Indeed, they represent a recognition, often inchoate, that ideologically driven global ‘free trade’ and the global ‘free market’ have been ruinous for many of these poor areas of the world.

‘Neo-liberal’ advocates often appeal to the liberal and compassionate instincts of Europeans and Americans by arguing that a world of trade blocs, of protectionism, even moderate strategic ‘neo-protectionism’, will seriously damage

the poor areas of the world by cutting them off from Western markets. Yet, a very powerful body of critical literature – led

by Joseph Stiglitz amongst others – has amply shown the limitations of this line of argument by pointing to how the ‘Washington Consensus’ has forced less developed countries to order their economic and social life according to western needs. In essence, the globalist order has served the often unintended – but nonetheless devastating – function of blocking these poor regions from developing strong domestic markets.

After all, during the rise of their own capitalist economies, the Dutch, British and Americans all protected their own fledgling domestic markets. In Britain’s case the ‘free trade’ mania did not get off the ground until well

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into the last half of the nineteenth century, and then there was, as John Ralston Saul has pointed out, a ‘wonderfully hypocritical debate’ on English cloth versus Indian as ‘even at the height of the free trade moralizing furor, the Manchester merchants – the true believers of true believers – saw no contradiction in yet again not giving India its fair trading chance.’ (Saul 2005) In an excellent, technical, example of the needed strategic – indeed protectionist – approach to trade, Robert Wade, Professor of Political Economy at the London School of Economics, has argued that the developing countries should push for rules that allow them ‘more latitude to set tariff levels in line with the maturity of their industries, and with variation

rather than uniformity in tariffs across industries in line with differences in the time needed for upgrading.’ (Wade 2006) And in this sense, therefore, in the great game of globalisation’s winners and losers, the less developed poorer regions of the world line up, so to speak, with the working populations of Europe and America against the present ‘neo-liberal’ global order, whereas the large Western corporations line up with China and India in favour.

Thus the arguments for a new strategic protectionism are not just economic. They are also fundamentally moral and political – in the sense that the global ‘neo-liberal’ order, if left unchecked, will not only dramatically increase inequality and poverty but will also – by virtue of this inequality and pauperisation – put at risk the mechanisms that nourish and protect democracy and human rights. Democracy and civil and human rights are, essentially, political conceptions, the product of and nurtured by political institutions. Thus, defending democracy inevitably involves a reassertion of the power of politics over economics. In this business-dominated era in which economics is becoming religion, a rebalancing of politics and economics remains a formidable task.

But such a rebalancing will not emerge out of thin air. Social democrats will need to accept that counterbalancing corporate and business power can only be achieved by a strong state – that is, the kind of mixed economy state Europeans got used to in the 1960’s. But many social democrats have been squeamish and defensive, particularly dur-

ing the hey-day of the ‘neo-liberal’ order, about advocating such a strong state. This, of course, is a reaction against the type of overweening state that was proposed by the left-wing socialists of the 1970’s and 1980’s; but, we now have an overweening ‘market state’ and business culture that desperately needs to be constrained.

It should also be remembered that only if the state (whether local, regional, national or ‘continental’) is sufficiently powerful will it be able to guarantee and enforce the great liberal idea of human rights. And only if it is strong enough will it be able to take on the entrenched power of business and begin to bring the great social democratic idea of ‘democracy in the workplace’ to the modern company and corporation through employees, trade unions and stakeholders having a real say in the firms they work for.

Europeans discovered capitalism. It has served us very well – but the beginning of wisdom tells us that it serves us well only when it is limited and constrained. However, the raw and rampant global capitalism unleashed in the last two decades threatens to undermine everything that European social democrats stand for. That is why in the coming era the European left and left-of-centre will need not only to challenge ‘neo-liberal’ globalisation but begin to define itself, and Europe, by such a challenge.

Put another way, the European Social Model, and the neo-protectionist strategy needed to defend it, may well become the key to establishing that elusive European identity.

13 Social Europe the journal of the european left July 2006

References Bobbitt, Philip (2002): The Shield of Achilles: War, Peace and the Course of History, London.

Brown, Gordon (2006): ‘On Embracing Change’, Newsweek, 18th June.

Haseler, Stephen (2000): The Super-Rich. The unjust new world of global capitalism, London.

Krugman, Paul (2003): The Great Unraveling: Losing Our Way in the New Century, New York.

Rifkin, Jeremy (2004): The European Dream: How Europe’s Vision of the Future is Quietly Eclipsing the American Dream, New York.

Saul, John Ralston (2005): The Collapse of Globalism: And the Re-Invention of the World, London.

Stiglitz, Joseph (2003): Globalization and Its Discontents, New York.

Wade, Robert (2006): ‘The Doha Talks Must Fail For The Sake of the World’s Poor’ The Guardian, 3rd July.

The German Innovation Machine: Dead or Alive?

To Reform or to Start from Scratch?

I

Werner Abelshauser Professor of Economic History at Bielefeld University in Germany

NNOVATIONS DO NOT fall from heaven like manna. Nor can they be jump-started by policy campaigns no matter how much money is pumped in.

Innovations are the result of gradually acquired abilities in science, business, and society.

They involve receptive patterns of thinking and acting nested in a framework of economic and social institutions, in an established social system of production that, ideally, becomes a smoothly functioning innovation machine. The ability to innovate means the art of creating new

“The ability to innovate is associated with the hope for a better life and for other kinds of ‘progress’. It is essential to every society resting on the belief that it can shape its own future” markets and new rules of the game whose adoption improves people’s productivity and opportunities in life, whether through novel developments, inventions, other scientific insights, or creative thinking and behavior. The ability to innovate is associated with the hope for a better life 14 Social Europe the journal of the european left July 2006

and for other kinds of ‘progress.’

It is essential to every society resting on the belief that it can shape its own future.

Germany has long had a firstrate innovation machine. It is thus all the more poignant that its ability to innovate and, hence, its competitiveness and sustainability is now sorely doubted at home and abroad.

According to critics and others, it is not innovative ability per se that the German economy lacks but rather the power to innovate on certain markets that the whole world assumes to be auspicious. They are commonly considered part of the new economy. Opinion differs on what to do about this weakness in innovation. Some observers advocate reform of the existing social system of production.

They seek to free it of sclerosis, overextension, and the runaway growth of welfare state activities throughout decades of success.

Others regard this system as obsolete and see a compelling need to start anew. They argue for replacing the existing production regime with a new one and for adopting new social rules modeled on those in the United States. Most participants in the present discussion, however, see the cure in a motley combination of reforms and radical changes that they stir

together without too much bother. A clear basis for decisions is possible only if this confusion is overcome.

The German Model under the Gun

The cardinal question is whether the German innovation machine - the country’s prevailing social system of production and its social rules - can cope with contemporary challenges.

At first glance, one might not be sure, for most of its parts are more than a century old (see Table 1). Reservations have centered on the specifically German principles underlying the organisation of the economy (production regimes). Persistent mass unemployment since the late 1970s has led to increasingly frequent claims that the German production regime is

incapable of adapting to new, innovative product markets, for which globalisation is said to require highly flexible entrepreneurial decision-making processes. Although faith in the economic and social superiority of the ‘Rhenish model of capitalism’ (Michel Albert) publicly prevailed just ten years ago (and still does among many experts), mounting scepticism has prompted speculation about the necessity of retreat, given the political, media-related, and cultural influences of its American competitor. The properties of the ‘German model’ that were prized by earlier reformers abroad - the long-term character of entrepreneurial decision-making and the German production regime’s close-knit cooperative structures - are the very ones that seem to

15 Social Europe the journal of the european left July 2006

make it difficult for today’s German economy to accommodate new circumstances quickly.

The system has strengths and weaknesses that condition each other. What it gains through cooperation, stability, and sustainability, and the competitiveness it enjoys on many markets because of these comparative institutional cost advantages, keep it from adapting rapidly in highly innovative markets. Its elements are so tightly interlinked that they preclude selective strategies for innovation. A decision must be made for or against the entire existing social system of production. It is all or nothing.

Table: Institutional Framework of the German Economy

The German economy is under fire. Dissatisfaction with corporate governance is especially intense. It extends to the financial system, whose focus on all-purpose banks is blamed for the alleged undersupply of venture capital in Germany’s New Economy. There is also discontent with the system of industrial relations, whose German flagship - codetermination, or the right of workers to participate in controlling shop-floor conditions and management decision-making - prevents quick decisions by senior management. The organisation of businesses at the intercompany level is reproached for being excessively coordinated by the associations, which leads to restraint of competition and overregulation of the labour market. Lastly, the dual system of vocational training stands accused of compounding and perpetuating the entire quandary through standardisation of qualifications and through creation of long-term mutual commitments between employer and employee.

Ask, however, what kind of challenges the system is expected to cope with, and the perspective changes. The two key ones facing the economy and society in the early twenty-first century - globalisation of the markets and the primacy of scientific methods and theories in the production process - were already playing their part when today’s innovation machine took shape more than a hundred years ago. Almost all economic historians agree that the globalisation process started in the late nineteenth century and the catastrophes of the twentieth century only interrupted it, occa-

sionally driving it almost completely from the public mind.

There is broad agreement, too, that the rise of intangible factors of production and the central role of science and research in the innovativeness of postindustrial national economies also began in the late nineteenth century. Not a few economists see this second economic revolution and its associated new institutional frameworks as the onset of an economic watershed whose magnitude far surpassed that of the eighteenth century’s Industrial Revolution and ushered in the end of the industrial age more than a century ago.

Equally clear, however, is a certain market weakness for highly innovative products.

This point lies where the flow of results from basic research must be converted quickly into profitable economic and social possibilities, as on the market for information technology (IT), biotechnology, and genetic engineering. A classic case is the embarrassing fiasco of the attempt to equip German expressways with a toll-collection system based on highly innovative IT. Unable to concentrate fully on solving the problem, the managements of the two global businesses main-

“There is little reason to assume that the established social system of production in Germany is less conducive to innovation than the American system” Indisputably, Germany ranked with the United States as one of the pioneers of that development and is still strongly marked by it. This fact is reflected in Germany’s extreme orientation to the world market and the dominance of New Industry, whose value-added is of an essentially intangible nature.

Given this historical background, there is little reason to assume that the established social system of production in Germany is less conducive to innovation than the American system or that it fails to prepare the country for current challenges, which, historically speaking, are not all that new.

16 Social Europe the journal of the european left July 2006

ly involved, DaimlerChrysler and Deutsche Telekom, evidently cannot do what would be a matter of course in U.S. companies: respond flexibly to the fatal consequences that the looming flop would have for their reputations. It is not codetermination that limits the maneuvering room of these German corporations. Nor is there any lack of technical solutions to the problems. The mismanagement clearly results from a lack of experience in dealing with enormously complex and exceedingly innovative production processes.

In Germany the social system of production is geared to what

Wolfgang Streeck calls ‘diversified quality production’. As with highly innovative technologies, this (post)industrial mass customisation for the world market is about production processes in which valueadded stems ever less from the conversion of material, as it used to with the classical Old Industry. It originates instead in integrated knowledge about many things, including market needs, solutions to problems through research and development, manufacturing processes, applications and processing possibilities, and integrated services that facilitate timely production, delivery, financing, and the assurance of other qualitative aspects. The German economy’s strengths tend to lie where business, science, and industry, working on the basis of established technologies and rules, develop economic and social process innovations whose market success rests on the ability to offer diversified quality production and trustbuilding sociability. This description defines the new economy that developed early in Germany and still dominates numerous markets. It differs from the New Economy only in its applications and markets, not in its ability to innovate.

Germany’s Resources: Quality, Networking, Trust

This manner of production is embedded in a coordinated market economy, which is organised in such a way that neither the individual nor the state sets the tone. The rules by which it operates stem from a dense network of institutions and organisations whose actors in civil society (which Hegel

referred to as ‘corporations’) exist between the individual and the state. As a historical compromise consisting of the conservative social welfare state, Catholic social doctrine, and social democratic will for reform, the German economic order has long stood for social stability and new economic possibilities. It opens long-term horizons for adventurous business strategies and decisions, ensures a superior standard of quality and a motivated workforce, and affords the collective inputs from basic research that were crucial to this production pattern. The high density and integration of the institutional framework and the capacity for market sociability -the basis for building trust and reducing costs - are resources that have grown over long periods (see Table 1) and owe their existence to the peculiarities of German industrial development.

This system still has notable potential for innovation, as shown by both the specialisation index for patents and by the balance-of-trade accounts. The most dynamic performance of Germany’s export economy is in automotive manufacturing, machine building, and the chemical industry, whereas it has had to curtail its presence considerably on the market for modern office machines and other IT components. Although the German export economy, unlike its American or Japanese counterparts, is not the complete master of any segment of the world market, the breadth and depth of its international position is surprising. This breadth indicates a strategy of differentiation centering on industries

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with a relatively high degree of specialisation and productivity.

The nation therefore weathers competition and cyclical fluctuations especially well. This capacity is manifested in the German export economy’s ability to defend its position despite the soaring number of competitors on the world market in the previous decade.

Of course, Germany’s continuous success with exports since the early 1950s is still based on the comparative institutional cost advantages that the German economy enjoys on markets for diversified quality products.

Machine building, for example, a pivotal industry in every competitive export ‘cluster’, is no exception. Germany has vastly more competitive lines of machine building than the United States does. Conversely, the United States is far better positioned than Germany on the market for international services, where the management of large and complex systems counts as much as access to the skills of well-trained selfemployed persons. The numerical relations of the two countries’ national sectors are even more imbalanced in sectors where the use of electronic components is escalating, as is the case on the market for office appliances and Telecom products. Fears that this gap could quickly widen have proven unfounded. In fact, a market has developed in the manufacturing of machines for products of the New Economy, with the innovativeness of the German machine-building industry being demonstrated by a disproportionately great increase in patent registrations. The German economy appears to be

catching up with the U.S. economy and seems to be pressing on with ‘innovative product modernisation,’ albeit along different paths.

Not surprisingly, German companies have intensified their focus on technology, innovation, and customerfriendly product design.

Pursuing this strategy, they often tend towards over-engineering and favour quality over price to a greater degree than competition necessitates.

American companies aspire to price leadership more frequently than German companies do. No longer completely dominating electronic business, American companies

Is the German Economy in Danger of Failing to Keep Up?

The cardinal question for the future then becomes whether the German production regime can keep proving its strength in the phase of a product cycle when basic innovations move on to process innovations. Can it repeatedly come through when newly developed technologies reach the stage at which the main thing is to utilise them for specific economic purposes? If so, that is where the German production regime could bring its comparative advantages fully into play.

The German production regime would be able to demonstrate its strengths again and again.

“American companies have allowed their German rivals to take the lead in applying methods that link computer-aided design, work planning, and production” have allowed their German rivals to take the lead in applying methods that link computer-aided design, work planning, and production, although these CAD systems originated in American software laboratories of the aerospace industry.

This example reveals that Germany’s New Economy is strong primarily at converting established technologies into economic and social process innovations whose success rests partly on the capacity for diversified quality production and trust-building sociability.

Germany’s New Economy could live well with that role.

Lingering weaknesses would then be all the easier to offset through compensatory strategies, such as direct foreign investment, in order to exploit different comparative institutional and material advantages.

However, if the German economy steadily loses its ability to develop new product cycles on its own, it could eventually fail to keep up with shaping new product cycles. The overhaul of the German economy’s institutional framework would then have to be tackled seriously.

Given the present discussion, however, the question would be whether the German production

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regime has really become obsolete or whether it requires internal reform in order to adapt it to new external developments, to which it has long been oriented in principle. In contrast, the only response that seems out of the question is that of replacing individual elements of the system with ‘modules’ alien to it.

The discrete components mesh tightly with each other. The resulting synergies account for much of the system’s success.

There are already clear signs that entrepreneurial reform strategies based on concepts imported from the U.S. production regime have failed, as is the case with numerous transnational companies. Having experienced an initial phase of unconditional adaptation to American practices of corporate governance, financing, or industrial relations, German multinationals are beginning to ponder whether that change itself is the cause of their acute problems.

The major German banks, a branch of the New Economy that has compelled this strategy of fleeing the portfolio of its own, long-standing sectorial culture, have not been served well by this strategy. What has happened to them could jeopardise the entire economy if its portfolio is overextended by selective reform. Despite massive efforts, the German banks have neither gained a footing in investment banking nor managed to straddle both cultures without neglecting their traditional core business. The economic and moral decline of Deutsche Bank is an instructive example.

Change in the social system of production is therefore bound to encroach on the iden-

tity of German society more profoundly than most critics are aware when they call for thorough modernisation. That kind of discontinuity would not be unprecedented in German economic history. The era of the German empire gives an idea of how a production regime (the liberal market economy) can be quickly replaced by another (the coordinated market economy) after a long-smoldering crisis.

But it also illustrates the ordeals that a society may have to endure in the process.

Efficiency in the Welfare State: Finland

There is no reason to doubt that the coordinated market economy can creatively adopt the new developments arising from the knowledge and information society. Evidence that it can take them on lies in Germany’s own historical experience.

There are also other examples bearing out the experience that a welfare state in which cooperative labour relations prevail and in which government policies shape much of the overall context in which business is conducted is quite able to stand up to the American model on its own ground. Finland’s rise to global leadership as a supplier of IT in the 1990s verified the possibility of achieving a high level of technology and competitiveness from quite different points of departure and economic development. The Scandinavians have not suffered the social inequality that the Californian model seems to foster, nor have they resorted to the authoritarian political means that Singapore and other southeast Asian ‘Tiger States’ use to survive in the competi-

tion of the global New Economy.

On the contrary, the Scandinavians have succeeded in transforming the characteristics of their own social system of production into comparative competitive advantages. A union membership rate of 80 per cent - as is the case with the workforce in Finland -need not contradict the inherent laws of the new economy. That degree of organization can instead guarantee the stability of labour relations, which facilitates flexibility in shaping venturesome business strategies on innovative markets. In return, the unions have the security of the welfare state and the advantages that a growing economy means for employment and wage policy. A comparatively high rate of taxes and levies is productive and politically tolerable as long as it provides all citizens with an attractive level of welfare benefits, a high quality of life, and the infrastructure that is necessary for people and markets to perform well. The welfare state need not hinder the continued development of the new economy. It can open new markets, as is shown by the Finnish example of linking health care and IT. As similar as Finland and Germany are in the pattern underlying their respective social systems of production, they are just as different in another respect. Emerging in the 1990s from relative poverty and a state of absolute backwardness in IT, Finland joined the world’s top ranks in that field, boasting a cluster of more than 3,000 IT businesses with Nokia as corporate icon - not to mention Linux, an open source operating system with Finnish

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roots challenging Windows.

Germany, by contrast, lacks economic incentives for reforms, a problem resulting from satiation and a desire to maintain the status quo. But the country does have what it takes for reform.

Build on Your Own Strengths Rather than Imitate Those of Others

The most important thing that German policy currently needs is a clear picture of the country’s economic portfolio. What the economy can and cannot do is less a function of heroic decisions by policy-makers or economic elites than of abiding experience on markets and with corporate or economic cultures.

Research on organisational behaviour teaches that attempts to move against the grain of one’s corporate culture can fail, and often has failed, when it means leaving an established portfolio so as to succeed on weaker markets. Since the 1990s, most German companies have therefore concentrated on their core business in order to optimise their strengths. This recommendation would suit the German social system of production with its powerful economic culture. Institutions that have taken shape of extended periods can be destroyed quickly, but it takes a long time to build new rules and economic structures - with no guarantee that such a radical operation will succeed.

As long as the German innovation machine is not certifiably drawing its last breath, there is no meaningful alternative to trying to liberate it from decades of slag and to keep it compatible with new developments, including demographic ones. This per-

spective should direct the attention of reformers first to the erroneous decisions of the 1970s, which centered on the anachronistic industrial worldview rooted in the period of the economic miracle. There is not a moment to lose in adapting Germany’s economic and social policy to postindustrial conditions. That adjustment is long overdue.

State intervention policy should begin at home, that is,

tem; public and private safety; and the broad field of education, training, and research. The more structural change has moved macroeconomic demand for goods and services into these traditionally state-run sectors in Germany, the less the state has been able to respond appropriately on the supply side. A number of restrictions prevent the public sector from flexibly adapting its economic activity to market conditions

“There is not a moment to lose in adapting Germany’s economic and social policy to postindustrial conditions. That adjustment is long overdue” with a redefinition of the government’s role in the economy.

Granted, the German innovation machine is inconceivable without its integration in the collective flow of goods attributable to the government’s macroeconomic policies that set the overall context in which business is conducted. But that relationship does not mean unconditional acceptance of every protracted, rampant increase of state influence on the economy. Having issued from specific nineteenth century conditions that do not pertain anymore, many economic activities of the state, local communities, and regional authorities no longer automatically seem to warrant continuation. The areas of state involvement include public electric utilities; the transport and communications sector; financial institutions; the health-care sys-

and from expanding its capacity to meet rising demand. Legal and mental vestiges of cameralist accounting, lack of management praxis, underdeveloped cost-consciousness, legal and political resistance to deregulated pricing of public goods and services, and, most of all, political constraints on using tax revenues to finance additional jobs - all these problems make the public sector appear unsuitable for managing the very areas of the economy that are the most dynamic.

Privatisation usually seems a proven remedy - provided it does not encroach on the state’s economic role where it is still important for ensuring the efficiency of the social system of production. Savings banks are such an exception, for their commitment to the common weal and to regional tasks still

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seems indispensable to the comprehensive financing of investment in a national economy as decentralised and oriented to small business as Germany’s is.

Above all, a production regime based on diversified quality work is inconceivable without a training and research system whose unrestricted access guarantees equal economic opportunity as well as the full mobilisation and use of human capital.

Elite universities are not required in order to provide those essentials. The German innovation machine depends instead on high-quality broad education. Once that quality is ensured, however, elite universities would not hurt. Cutting edge research, too, has long been among the institutional foundations of the innovativeness of Germany’s social system of production.

Since the end of the great antagonism between the economic systems in East and West, divergent cultural factors have conditioned the global economy more and more. That reality suggests a course of action focused on streamlining the institutional framework yet also retaining its characteristic features and emphasizing its competitiveness. A good deal of evidence refutes the notion that there is only one way to ensure long-term competitiveness on the world market. That path need not be that of homogeneous entrepreneurial ‘best practice’ shaped by the neoclassical ideal of deregulated markets and unrestricted entrepreneurial prerogatives. History demonstrates that different market conditions veritably demand institutional variants on the supply side. Production regimes

Readers’ Lottery All Sponsor Members and readers who give the suggested donation of 5 Euro per journal issue until the 30th September 2006 will be entered into a lottery draw with the following prizes:

A copy of each ‘The European Dream’ and ‘The Hydrogen Economy’ signed by the author Jeremy Rifkin; a 10 CD Box of World Music; and two copies of ‘Social Europe: a continent’s answer to market fundamentalism’.

see www.social-europe.com for details on donating characterised by a dense institutional landscape in which fixed rules have evolved, as in most European countries, need not be less competitive than U.S.-style national economies with weak institutions, which leave organisation and controllability primarily up to markets and hierarchies. German economic policy at the dawn of the twenty-first century should therefore not be confined to imitating innovation regimes of successful competitors but rather should creatively expand the economy’s own comparative institutional advantages.

It was first presented at the Friedrich Ebert Foundation international seminar ‘European Social Models and the future of social democracy’ in Berlin on Friday, 31st March 2006.

This essay is based on the author’s recent study The Dynamics of German Industry.

Germany’s Path toward the New Economy and the American Challenge, New York, Oxford 2005.

21 Social Europe the journal of the european left July 2006

The Service Directive – a Success for Social Europe

N Evelyne Gebhardt German Member of the European Parliament (PES) and the EP Rapporteur on the Services Directive

EXT TO THE draft proposal for a European Constitution, the service directive is the most difficult and important legislative project being discussed at present in the European Union.

After two years of negotiations in the European Parliament, we have succeeded in re-drafting and thoroughly changing the text of the European Commission, which was entirely unsatisfactory.

In February 2006, the European Parliament adopted a proposal after the first reading and with a large majority of almost 400 votes. This draft is now the basis for the next stage of the legislative procedure.

Ever since the beginning, the Socialist Group has played a predominant role.

During the debate in the European Parliament, we were always very critical of the guiding principle of the draft directive, namely the ‘country of origin’ principle, which we always saw as a danger for social benefits in Europe.

After long and difficult discussions, we managed to convince the other political groups that neither an overall rejection of the directive nor a rejection of the Commission’s particular draft would be reasonable solutions.

As rapporteur for the European Parliament, I am very happy to have been able to come up with a strong compromise between the different political groups. For a long time, this seemed totally impossible because our respective stands on the more appropriate instruments to open up markets

22 Social Europe the journal of the european left July 2006

for service provision and on the scope of the directive were so far apart.

The negotiation marathon in the European Parliament was marred by ideological discussions. The breach between those defending the liberal project of the Commission, and those who wanted to reject the overall directive seemed impossible to heal. Only when we managed to go beyond the discussion on principles and started to look for concrete responses to the real protectionist barriers to the free transborder movement of services, was a compromise possible.

The result is a good balance between opening up the service market and preserving the member states’ and the European Union’s social benefits. The free movement of services is guaranteed. At the same time, the existing rules and regulations in the member states on important fields such as public services, employment law, consumer protection and the environment are safeguarded.

Another important asset is that the principle of country of origin has been taken out of the draft. This principle, invented by the European Commission and long defended by the conservative and liberal Members of the European Parliament, is not only removed from the legislative text but also disappears as a basic principle of the directive.

The service directive beast has therefore lost its poison fangs.

The primacy of the rules and regulations of the service provider’s country of origin would undoubtedly have led to a

negative competition between solidarity-based systems in the member states and would have resulted in a race to the bottom for the working and living conditions of workers and their families.

An unregulated market would have developed. Social benefits, environmental and consumer protection, and quality standards would have reached the lowest levels in the EU. There would also have been greater legal insecurity because initially the European Commission wanted to leave the control of services solely to the country of origin. This regulation could not have been applied. Moreover, small and medium-sized enterprises without strong legal support would have been negatively affected by these provisions.

“The Parliament’s decision leaves member states a good margin of manoeuvre to keep their own rules and regulations as destination countries, provided they do not behave in a protectionist manner” The danger has now been removed.

In the well-known article 16, the principle of country of origin no longer appears and has been replaced by a free movement of services.

According to the text of the European Parliament, member states should guarantee the free access and provision of services on their territories. This general opening is important to develop the great potential of the service sector as an engine of economic growth and employment.

Protectionist barriers still to be found on the internal market are to be removed. Some of the scenarios have been become famous: the Romanian tour guide, who had to have been born in Rome or the painter from Aachen working in Belgium, who can only transport his working tools in a car with a Belgian number plate.

23 Social Europe the journal of the european left July 2006

Such access restrictions are excluded thanks to a list of unacceptable prerequisites clearly spelled out in the directive in order to set a legal precedent for the European Court of Justice. Other prerequisites are deemed unacceptable if they are discriminatory or unjustified for reasons of public order, security or health or if they are not proportionate to the objective they aim to reach.

The peculiarity of the European Parliament’s decision lies in the fact that market access is simplified but at the same time, the rules and regulations of the country of destination must be respected. In order to do that, we have set powerful tools at the member states’ disposal: specific requirements for service provision can be defined for reasons of public order and security, protection of the environment and public health.

Likewise, services can be conditioned by specific authorisation rules if necessary for pressing reasons of general interest. In addition to public order, health and security, this includes financial balance, social security, access to medical care for all, consumer protection, worker protection, the fight against fraud, animal health, environmental protection and protection of the cultural heritage or social, political and cultural objectives.

The suppression of the ‘country of origin’ principle is highly important because it has become the key motto of the Commission’s liberal efforts.

However, the Parliament’s decision leaves member states a good margin of manoeuvre to keep their own rules and regulations as destination countries, provided they do not behave in a protectionist manner. Of course, the liberals and conservatives were against the removal of the ‘country of origin’ principle. The British Chamber of Commerce even launched an appeal to keep this principle.

Reason finally prevailed, as shown by the numerous positive reactions I

received, not only from the trade unions but also from different local authorities, arts and crafts organisations, professional associations and non-governmental organisations.

Contrary to the initial proposal of the European Commission, we managed to take important sectors out of the scope of the directive. These are mainly related to very sensitive services such as health care and social services or sectors that are already governed by sectoral directives such as the directive on the posting of workers or the mutual recognition of degrees.

Services of general interest as defined by the member states are excluded, as well as social legislation or employment law, rules on health and security in the workplace and even collective agreements and the right to strike. Temporary work agencies, port services, audiovisual services, games, security services, criminal law and lawyers and notaries are also excluded from the scope of the directive.

One particular achievement is the exclusion of health services, independently of their organisation, their functioning or of whether they are private or public.

Another very important success is that we managed to gather a majority for a total exclusion of social services, such as social housing, childcare and family services.

H

OWEVER, IT IS still necessary to improve the draft on the issue of services of general economic interest. Indeed, in spite of some possible restrictions available to member states, they are still under the scope of the directive because of their economic nature. Member states can themselves define services of general economic interest (SGEI), how they are to be financed and organised and which obligations they should be subjected to.

The topic of SGEI is still pending and therefore it will be an important issue

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for the next legislative step.

The PES Group in the European Parliament has worked on the issue of services of general interest for some time now and demands that a separate legislative instrument be created for services of general economic interest.

Therefore, our group has launched the initiative to elaborate a draft framework directive for these services in cooperation with a group of experts.

The European Parliament’s decision was a great success for the social democrats in Europe. Despite differences in the Parliament that seemed irreconcilable, we managed to set the services directive on the right track thanks to a lot of commitment and stamina. At the first reading, already 90per cent of the necessary changes were adopted. This was already a very good basis on which to pursue the legislative procedure and I will not allow any step backwards on what we have already achieved.

The amended proposal made public by the European Commission at the beginning of April shows that Commission President Barroso and Commissioner McCreevy have really understood the message of the European Parliament and civil society and have largely taken into account the vote in the EP. They have kept their word and as they had promised during the plenary debate, they accepted the clear vote of the European Parliament.

Of course, some important demands of the EP were not taken into account.

However, the European Commission has understood that the Parliament’s proposal is the only possible solution to advance quickly on the services directive.

The European Parliament’s vote shows the right way: in the end, we will need a directive without too much red tape, and at the service of workers because competitiveness in Europe depends on them. This directive should also respect the member states’ specificities and stop any danger of a

“The European Parliament’s vote shows the right way: in the end, we will need a directive without too much red tape, and at the service of workers because competitiveness in Europe depends on them”

deterioration of working conditions and salaries, quality and consumer and environmental protection. The European Union’s task is to see to the well being of 470 million citizens, men and women, and not to serve the market and liberalisation freaks.

I feel it is very important to put citizens at the centre of our political action and of our legislative work.

Workers and their families should be at the core of our concerns, not big companies and markets.

The European Parliament and the PES Group have done everything possible to come up with a reasonable solution for the services directive. Now, the ball is in the Council’s court. In the last Spring Summit, there was a clear message that the Council wants to go on with its work on the basis of the EP’s proposal. If this is the case, there will indeed be a possibility to make quick progress in the legislative process and conclude the whole process by the end of the year. If not, nobody knows whether we will finally have a services directive or not.

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Europe’s Social Model O

Jean-Marc Ayrault Chairman of the Socialist Group in the French National Assembly

NE YEAR AGO almost to the day, Europe experienced its greatest trial.

Two founding countries, France and the Netherlands, said ‘No’ to the Constitutional Treaty their government and governmental parties had unanimously supported. This led to political shock and a psychological earthquake. European construction had conveyed hidden language since its advent and this had been expressed in all its ferocity.

Europe’s weaknesses appeared in broad daylight. Paralysis overcame all its decision making processes.

The aim here is not to retrace the history of the French referendum or to restage the ‘Yes’ and ‘No’ drama. I in no way repudiate my commitment to the Treaty which represented the progress of our values.

However, I feel it is impossible to speak of the future of the European Social Model without understanding the underlying causes that led to this crisis, and without trying to find solutions to it.

I. State of the Situation in the European Union

To be honest, it must first be admitted that the ‘No’ caused as much as revealed this crisis of Europe. Two years ago, I observed that the four pillars on 26 Social Europe the journal of the european left July 2006

which the European Social Model is based have been shaken: social inclusion through work has been undermined by mass unemployment and job insecurity; social advancement through education no long manages to curb the growth in inequality; redistribution by taxation is challenged by those nations levying the lowest tax rates both inside and outside the Union; collective protection for health and retirement is coming up against the problem of demographic ageing and the rising imbalance between the employed and unemployed.

I also highlighted the severance between Europe and the popular mass of society, which was caused by this rapid and ill-managed evolution. It is this popular mass which is the worst affected by the increasing precariousness of the job market, delocalisation, productive investments fuelling stock exchange speculation, and restrictions on protection. It is they who are the worst off because of the weakening of the social welfare state which used to protect them against the unforeseen events of life. It should be acknowledged that they never saw Europe’s successes – the single market and the currency – as real opportunities.

“A single figure says it all: 80 per cent of workers and employees in France voted ‘No’. And for the first time ever in a European poll, they were supported by a majority of middle class voters” The rejection of the European Constitution in France and the Netherlands was an illustration of this severance. A single figure says it all: 80 per cent of workers and employees in France voted ‘No’. And for the first time ever in a European poll, they were supported by a majority of middle class voters.

The double crisis

Many analysts, especially in Germany, ascribed this fracture to a national identity crisis specific to France. This dimension does exist. France, a symbol of the nation state, has more than any other country been undercut by globalisation and the deregulation it has brought with it. French society is the most hostile to liberal theses, as demonstrated again by the massive social movement against the First Job Contract (CPE).

Nor can the responsibility of the French government be passed over in silence. Its erratic management and unfair, ineffective and ill-conceived reforms have exacerbated the country’s ills and largely contributed to the failure of the referendum.

Yet I want to stress the following point. The French thoroughly understood the question.

They voted on Europe, on its

evolution, and on what the Constitutional Treaty proposed.

They did so with full knowledge of the facts, after a debate that was an honour to our democracy.

thing but minor: dilution of the European political project; its incapacity to respond to the new economic and social insecurities caused by globalisation; and ill-prepared, ill-explained and all in all misunderstood enlargement.

The dilution of the political project is present before our very eyes: in the deadlock of the European Council; in the lack of any initiatives worthy of the name; in inward-looking nations; and in a leadership crisis unprecedented since the foundation of the European Community.

A political project to be rebuilt

Future of the Constitutional Treaty

I wish to recall the following to avoid any nonsense. Many in Brussels and in European chancelleries believe that a bit of time, a change of president in Paris, and a few marginal alterations to the text will suffice to get the French to vote again, this time in favour. The minister for the interior, Nicolas Sarkozy, a presidential candidate, no longer proposes to consult the people or call a parliamentary vote.

I still believe the Union needs a Constitutional Treaty. The states which ratified the Treaty want to safeguard it and I respect that right. I acknowledge the right of the others to vote.

But politics consists of looking squarely at the reality. Nobody should believe that the French can be persuaded to revote on the same text, with the same arguments. Nobody should believe that they will allow their decision to be circumvented by means of institutional trickery.

My compatriots said ‘No’ for three reasons which are any-

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For several years now, the Franco-German couple has no longer shared a joint outlook.

We see one another, speak to each other and continue to hold exchanges. But the fervour has disappeared. Apart from the common opposition to the war in Iraq, the impetus formerly provided by our two nations is abating in meaningless rituals.

This can be seen in the question of the future of the Constitutional Treaty. Berlin is seeking to save whatever possible. Paris wants to turn the page. Other examples of these disputes could be quoted: taxation; industrial mergers; the transatlantic tie… Mrs Merkel’s speech at the Bundestag expressed the German desire to go beyond these disputes and infuse new life into the FrancoGerman motor. But we will have to wait for a replacement president in France if we want to make a new start.

In this context, England felt its time had come. Tony Blair’s speech before the European Parliament gave him the image

of a refounder ready to take the place of the old Franco-German couple. His six months of presidency was enough to dispel that mirage. By clinging to the obsolete aim of keeping the British rebate, he proved that ‘Rule Britannia’ remained stronger in Downing Street than continental ambition.

This political dilution also has deeper roots. Never has the debate on the purpose of the Union been conducted to its logical end. Never has the Union dared to define its place and role in the world. A federation or an association of nationstates? A power in the making or a mere area of exchange and cooperation? An original model, or the dumping ground of globalisation? For want of any joint outlook shared by the member states, the Constitutional Treaty has not settled any of these issues, attracting the most contradictory refusals.

What then are the possibilities open to us?

I feel that enlargement by major treaties is frozen for a long time to come. I find it hard to imagine that states will be able to agree on a new Constitution, after having experienced so much difficulty finding a compromise on the present text.

The real urgency lies in the need to provide the Union with the political means to get back into action. I suggest that the European Council should go back over the institutional and political chapters of the text on which there is a consensus and that it should submit those passages to ratification. I know of the hesitation of some member states, including Germany, with respect to this proposal. But the

Union cannot continue to exist with unanimous procedures which paralyse it on all important issues. I am convinced that the only workable solution is to enable enhanced cooperation between groups of states that would provide the impetus for precise projects: industry, research, education, training, energy. Without new political architecture, without the capacity given to a few to take initiatives, Europe will condemn itself to the lowest common denominator, as we have seen with the budget.

II. A European Social Contract

Moving on, the second urgent task is to reconnect the Union with its people and prove to them that it is capable of keeping its growth and employment promises. In this respect, ideas and projects have not been lacking: the white paper by Jacques Delors; the Nice social agenda; the Lisbon process; the Sapir report; and a task force.

All have gone unheeded for want of political determination.

The last European Council devoted to assessing the growth strategy set in place six years ago in Lisbon observes ‘the incapacity to respect the schedule and the planned objectives.’

What does it propose as a remedial measure? Nothing. No economic coordination instrument. No social support. No industrial component. As for the budget assigned for this purpose, it is pathetic. The Council’s sole obsession is to recommend the states to pursue relaxation of the labour market and to adapt social protection systems.

Without underestimating the scale of the effort of each of our

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countries to adapt to the changes in the world, I am among those who believe that France has not managed to set the terms of a new social contract and that this will be a major challenge in the forthcoming presidential election.

Of course Europe must set an example of this determination to introduce underlying reform.

It must introduce the means to become, I quote, ‘the world’s most dynamic and competitive knowledge-based economy.’

The stability pact reform was a first step. The latitudes of action it gives states depending on economic cycles are an encouragement to public investment policies.

Urgent reform of the common policies

But this reform remains unfinished. I argue for the Eurozone becoming the core of European integration. The impetus must come from the Eurozone. A Europe of projects, in short a practical Europe, must result from it. What it is lacking is economic coordination, which would allow the organisation of a growth support strategy, and a complete overhaul of its priorities and financial choices.

Everyone knows that the Union’s budget is insufficient.

Everyone knows that its common policies no longer correspond to the requirements of world competition. We devote 40 per cent of the European budget to agriculture and less than 10 per cent to research and education.

The 2008 deadline regarding budget orientation is in this respect decisive. Everything must be looked at freshly, without any taboos: the CAP and the

British rebate; the ceiling on expenditure and where it goes; national contributions and the launch of a loan. Taking a look at the United States and Japan, budget policies there are used for massive investment in promising, job-creating sectors: higher education; research; industrial policy; and equipment. As long as Europe clings onto its dogmatic accounting rules, as long as it pursues antiquated policies, and as long as it fails to invest massively in high-tech programmes, it will continue to remain a stagnate area. This is not a question of inventing anything impossible but merely building on the momentum of what exists.

I have made this big detour via politics and the economy because they are the Union’s primary competences. Without a breakthrough in these two fields, without concrete changes in the choices made over the past twenty years, there will be neither any social advances nor any reconciliation with the people.

From the virtual to the real

The debate we had with the Commission President, Mr Barroso, at the National Assembly, a few months ago was enlightening in this respect.

While constantly mentioning the efforts Europeans had to make to adapt to globalisation, at no time did he mention the idea that the Commission could influence the process of globalisation and offer alternatives.

Most European leaders share this resignation.

Many directives adopted in recent years on working hours, transport, and the opening up of services, have put deregulation,

competition and privatisation first. The same trend can be seen in the member states. The reforms implemented have mostly aimed at whittling down labour legislation and social rights. And long political and social tugs-of-war are too often necessary to obtain more acceptable compromises as is the case with the famous Bolkestein directive. In this respect, I wish to hail the work performed by Evelyn Gebhardt and the PES Group in the European Parliament. Thanks to them, we obtained a good agreement.

Despite this breakthrough, the labour world questions the

them. And it is not continued unanimity on these issues which will help improve matters.

The acts of a social reconciliation

In this field more than in others, Europe must stop wittering on. Concrete, tangible action is needed. Two years ago I presented a series of proposals that I feel are now more topical than ever before. May I recall the main ones: • Assign part of the structural funds to support programmes combating poverty and run down areas.

“Many directives adopted in recent years on working hours, transport, and the opening up of services, have put deregulation, competition and privatisation first” existence of a social model specific to Europe. The Constitutional Treaty admittedly integrated the charter of fundamental rights into the Union’s founding values. But no concrete Council and Commission policy has implemented it for people to enjoy on a daily basis. Neither the social treaty nor the directive on public services, which have been promised for twenty years, have come into existence. Similarly, the aims of the Lisbon strategy regarding the reduction of unemployment and exclusion have been delegated to the states without the Union contemplating helping

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• Create a European social minimum which would be calculated in each state depending on the evolution of GDP. • Extend the directive on works councils to the monitoring of restructuring, merger and delocalisation procedures.

• Introduce the right to lifelong training which would help to secure employees’ careers by enabling employees to adapt when they change activity or the company they work for.

• Doubling investments for universities in order to create a European higher education network based on excellence poles.

A D V E R T I S E M E N T

• Promote fundamental labour standards in international bodies.

• Create a European levy which would relieve national contributions, would fund solidarity programmes and would prepare a harmonisation of our taxations.

These proposals have nothing revolutionary. They require neither a major proclamation nor a specific treaty. They result from a political determination to put employees at the heart of the European project, to give them the means to cope with economic change and set up a social model which is something else other than the erosion of people’s rights.

The frontiers of enlargement

With this approach, it is neces-

sary to have the courage to question oneself openly about the nature of enlargement. I detested the shameful exploitation the supporters of the ‘No’ vote made of the caricature of the ‘Polish plumber’. People who have lived fifty years under the Communist yoke were entitled to membership. Solidarity in helping them catch up from slow growth is a debt we owe them. They have the same rights and the same duties as the others. But whatever aversion we may feel with respect to such caricatures, it should be acknowledged that they relate to the questions pestering our compatriots. Does enlargement elevate or lower the level of the European Social Model? Has it helped the new member states to catch up or has it merely weakened the protections of the others?

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Objectively, the rise in the living standard in the new member countries has been profitable to everyone. On the other hand, they are lagging behind in introducing the minimum wage, labour law and social legislation, which has led to an imbalance in competition and has accelerated a downwards trend in the level of protections.

Here again we should know how to learn lessons. The myth of never-ending integration, with one enlargement leading to another, should be ditched for good. Our people are no longer following us, as can be seen in the debate on the membership of Turkey. They feel that Europe no longer knows where it stops.

However much I may be in favour of Turkish membership, it cannot take place until the present enlargement has been

assimilated and the perimeter of the Union debated. Europe must give itself time to make up for the economic and social divide between its member states and accept to define its ultimate borders. A political project is also based on cohesion and geography.

The appointments of social democracy

I am convinced that we cannot deal again with the constitutional issue without having tackled these political, economic, social and geographic uncertainties. We are faced with a historic challenge: safeguarding and renovating the biggest political project the world has nurtured since the war.

Social democracy has a decisive role to play. Its unity and capacity to transcend national interests will depend to a large extent on Europe’s fresh start.

We no longer are entitled to miss the opportunity like we did when the left held the majority at the European Council in 2000. This is particularly true of my party. The referendum tore us apart. Our divisions never allowed us to get the message across of the advances the Constitution represented and the mechanisms it offered to conquer new areas.

Since the general review prepared by the Socialist Party at its Congress in Le Mans at the end of last year, we have shared the same determination to go beyond the ‘Yes’ and the ‘No’.

The choice of our presidential candidate is still interfering somewhat with the main body of our doctrine. But I can assure you that our project and our candidate will fit in with the European dynamic I have just

described, in tandem with European social democracy.

Having the same discourse in France and in Europe is the prerequisite to restore the rank and credibility of my country in the eyes of its partners.

At the time of the referendum, socialists and social democrats went into battle side by side. Together we made commitments to voters: to implement a European employment policy; to establish a framework law on public services; and to make headway with social policies. After the victories of the left in Italy, Finland and Hungary, the Council again has a progressive majority. Let’s use it! Let’s implement our commitments! Let’s set short- and medium-term prospects for the Union! We no longer have the right to disappoint. We have an obligation to produce results.

With this in mind I have proposed the holding of an assembly of socialists and social democrats of all the Union. We need a relaunch of Europe. We need to set down the basis for a renaissance programme for the coming decades. A renaissance by the people. A renaissance for the people.

This text is an updated version of Jean-Marc Ayrault’s speech at the Symposium ‘Think social, think European’ organised by the Friedrich Ebert Foundation in Berlin on the 29th May 2006.

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The Future of Progressive Politics Introduction

T

Patrick Diamond Director of Policy Network and a Senior Visiting Fellow at the London School of Economics. He is a former Special Adviser to the British Prime Minister

HE ‘THIRD WAY’ of Bill Clinton and Tony Blair was conceived in the early 1990s as the industrialised world was being swept along by advances in globalisation, the emergence of the New Economy, and the rise of new social risks in an era of greater complexity and diversity.

The West was apparently experiencing another fast-forward spurt of technologies, values and lifestyles comparable to the industrial revolutions of 19th century Europe. This proceeded to gradually overturn traditional institutions and assumptions, leaving in its wake a transformed economic and social landscape as the 20th century drew to a close.

Yet the pace of change is so fast that remarkably the environment in which that ‘Third Way’ approach originally took shape has already passed away.

What progressive politics is struggling with today is how to reconcile the conflicting impulses of voters as the tribal loyalties of the post-war age steadily dissipate.

People want to be protected from the myriad insecurities and inequities that

“People want to be protected from the myriad insecurities and inequities that arise in the global economy... but want to be shielded too from terrorism and threats to physical security” 32 Social Europe the journal of the european left July 2006

arise in the global economy. They fear for their future and their children’s future in a world of intense global competition – but want to be shielded too from terrorism and threats to physical security. At the same time, modern electorates have never been more individualistic, more demanding as consumers, or more enthusiastic to assert their rights to autonomy.

The battleground of conflicting impulses between ‘interdependence and independence’ will determine the future of progressive politics for decades to come. The centre-left has natural advantages, as citizens identify the state as the collective means of insurance against the perils of globalisation and social turmoil. The threat of the right to dismantle ‘big government’ and shrink the size of publicly funded services would damage the interests of the hard-working majority.

Yet while effective government is in tune with the times, an over-mighty state that fails to treat individuals as consumers – as well as citizens – will divide the left from its natural base of electoral support. For the latter half of the 20th century, centre-left revisionism sought to reconcile social democracy to the realities of the market economy. Today, the challenge is embracing the reform of the state in a more complex, aspirational and uncertain world.

The challenge of progressive governance

Progressive governments must also learn from the experience of policies

tried and tested by others, striving to achieve best practice in what are often complex fields: from crime and childhood, to social exclusion, environmental degradation, and global economic change. We should encourage the opening up of new frontiers and the crafting of new policy instruments appropriate to this new epoch.

In every era, policy debate is shaped by the compelling challenges of the times. In the 1940s, the priority was reconstructing economies ravaged by war, with wide acceptance of the virtues of collective planning and public ownership. In the 1960s, attention shifted to tackling social inequalities and advancing personal freedoms. In the 1980s, the ascendancy of the new right meant the triumph of monetarist economics and free market ideology – matched by successive assaults on the efficacy of government.

The future of the ‘Third Way’

The Third Way of the 1990s was itself a response to the hard-line anti-government, anti-state rhetoric of the Thatcher-Reagan era. The ‘Third Way’ label refers to the revitalisation of social democracy in the light of changes in society, the economy and culture. It is fundamentally concerned with how centre-left parties should respond to change. Critics such as Perry Anderson have defined it as, ‘the winning formula to seal the victory of the market…not to attack, but to preserve the placebo of a compassionate public authority, extolling the compatibility of competition with solidarity’.

(Anderson 2000) However, the Third Way, as Anthony Giddens has reminded us, should not be identified solely with the outlook and policies of the New Democrats, New Labour or any other specific party.

It is a broad ideological stream with several tributaries flowing through it.

The doctrinal changes made by social democratic parties in the Scandinavian countries, and in Spain, the 33 Social Europe the journal of the european left July 2006

Netherlands, Italy, and France since the late 1980s are as much part of Third Way politics as those developed in Anglo-Saxon countries.

Third Way politics has been the source of electoral success in a multitude of countries. It has also demonstrated its utility as a governing strategy, not just an electoral tactic. Indeed, the Third Way enabled the centre-left to solve many of its old problems, as the American political commentator E. J. Dionne has incisively commented. In most western countries, the left is no longer regarded as fiscally irresponsible. No one believes that social democrats aspire to seize control of the means of production, or weaken the market. Our parties no longer exist merely to defend the gains of the past, representing only declining sectors and regions of the national economy.

However, in truth that Third Way formula has proved better as a critique of the past than as a guide to the future. The next generation has to move beyond the glib assertion that progressive parties should not move from the centre-ground. This might be true, but it does not constitute a strategy, as Peter Hyman, the former New Labour strategist has remarked.

The centre ground is not given, but shifts according to who is in power. So the real question for social democratic parties is not whether to abandon the centre-ground, but how to construct a future agenda that gives it the best chance of holding on to power, while shifting the centre in a progressive direction.

Modern social democracy must hold true to its radical vision: a stable economy in which all have the chance of success; an education system that spreads opportunity to all; a belief in using the public, private and voluntary sectors to strengthen communities; a balanced approach to law and order that tackles crime and its causes; an internationalism that deals with poverty and environmental damage as well

“The centre-left has to has to show that it is on the side of those whose economic power is weakening or indeed, has already declined”

as terrorism; and a belief in tackling inequality, devolving power, and helping the powerless.

The rise of economic insecurity

Yet as new priorities evolve, that vision must be interrogated anew. Among the most compelling is the rise of economic insecurity. The rapid integration of the world’s economies is promoting huge upheaval. Certainly, large minorities are not yet sharing in the benefits of economic growth and technological progress, yet everyone is affected by problems of crime, drug abuse and social fragmentation.

In the post-industrial societies, workers have evidently never felt so anxious about the future. For example, nearly 70 per cent of Americans in a recent poll remark that they believe their country is heading in the wrong direction. A majority believe that their children will be worse off than they are. Stagnating wages are accompanied by soaring inequality, as Robert Gordon of Northwestern University has recently shown.

Since 1973, the annual income growth of the top one per cent of Americans was 3.4 per cent. For the top 0.1 per cent, it was 5.2 per cent.

But for the bottom 90 per cent, it rose by just 0.3 per cent a year. These trends are not confined to the United States, as the sociologist Gøsta EspingAnderson has noted. He finds that there is a significant reversal underway in many nations, including historical bastions of equality such as Sweden. There is, indeed, striking evidence of declining upward mobility in almost every industrialised society.

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Wider income disparities, the loss of manufacturing jobs, and a weakening of healthcare and pension provision are also fuelling potent protectionist sentiments.

The drivers of the new inequality are, inevitably, profoundly complex.

The impact of low-wage competition from China, South Korea and India is to reduce the bargaining power of many workers in tradable sectors of the economy. Most economists also attribute widening income disparities to the increasing returns that education and skills deliver when they combine with new technology. The majority of new jobs are at the low-wage, low-skill end of the non-unionised service sector.

There is no simple solution to the tidal wave of insecurity. It is true that economic openness often creates successful societies, attracting a ‘creative class’, as Richard Florida has broadly defined it. But the centre-left has to do better than simply decry ‘populism’ as naïve, or economically illiterate. It has to show that it is on the side of those whose economic power is weakening or indeed, has already declined.

Initiatives such as the Hamilton Project launched under the auspices of the Brookings Institute in Washington DC are absolutely vital, stimulating innovative policy ideas that aim to temper the extremities of globalisation, while making growth fairer to all.

Populism is ugly when it plays to protectionism or xenophobia. The left should be staunch in its defence of economic and cultural openness, and the cosmopolitan world which globalisation has made an unavoidable reality.

But in rejecting unacceptable populist sentiments, progressives cannot join the new class of complacent elitists who revel selfishly in the fruits and freedoms of the present age.

An economic populism for the global economy of the 21st century is now required. In truth, social democrats have done too little in recent decades to back up their vow to be parties of

the people who in Bill Clinton’s still resonant phrase, ‘work hard and play by the rules’. To thrive, they must enact programmes that result in measurable, durable changes in the economic fortunes of working people as Michael Kazin reminds us in his brilliant portrait of the early 20th century American populist, William JenningsBryan.

That also requires opening up the policy field to a greater range and quality of innovation. Politics and policy have always been international endeavours. But the sheer speed and volume at which ideas travel in the global market is unprecedented – and the network of ideas has itself become more heterogeneous since the late 1970s.

There are also new sources of innovation, from smaller countries experimenting with new ideas and projects, to the growth of the voluntary sector and not for profit movement.

Conclusion

The challenge for progressive politics in the decades to come will be reconciling the impulse towards independence with the basic need for interdependence and solidarity. There is no simple choice between globalisation and security: the left has to find a compelling future prospectus that offers both. The social democratic agenda must be relevant to the world of 2010, not that of the early 1990s.

35 Social Europe the journal of the european left July 2006

References Anderson, Perry (2000): Editorial, The New Left Review, no 1, Oxford.

Giddens, Anthony (2002): Where Now for New Labour?, London.

Esping-Anderson, Gøsta (2005): Inequality of incomes and opportunities, in: Giddens, Anthony and Patrick Diamond: The New Egalitarianism, Cambridge.

Luce, Ed (2006): Out on a limb: why blue-collar Americans see their future as precarious, Financial Times, 3rd May. Kazin, Michael (2006): An Ungodly Hero: The Life of William Jennings Bryan, New York.

The Romanian Social Model I. Argument

R Mircea Geoana President of the Romanian Social Democratic Party, Former Minister of Foreign Affairs

ECOGNISING THE specific features of postcommunist societies within the debate concerning the European Social Model is an objective necessity. There is a social sub-model of Europe in transition, in which neither the neo-liberal solutions nor the social state built in the West are applicable. A specific ‘triangle’ between the need for social progress, accelerated modernisation and state reform represents the progressive recipe applicable to Central and Eastern Europe.

Romania is the country that started with a specific handicap compared to the rest of communist Europe. Romanian transition has been also marked by tensions and social fractures. Sixteen years after the fall of communism and after encountering the European Union, Romania is today a polarised country, with a high level of poverty, with an acute need for massive public investments in all fields, lacking sufficient quality public goods. A country that would need, under current public policies, 30 years of 5 per cent annual economic growth in order to eliminate the gap separating us from the European average. A country where intellectual and

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economic elites are fragile or unconvincing, in which social capital and community and civic spirit have been seriously impaired.

The Romanian social model represents more than an ideological, political and governmental action platform. It is a stringent necessity for a society that has not yet developed fundamental features of post-communist capitalism. It can only be offered by a modern and progressive European left of Romanian social democrats represented by the Social Democratic Party (PSD).

II. The European Social Model

The main critique of the European social model concerns the low levels of economic growth, slow changes, and the great distance from the application of re-launching measures until competitiveness advances.

Population ageing, the conservative management of pension funds (risk aversion regarding the transfer of public funds into private pension funds), competition from countries with lower wages, but with valuable human capital, ‘the transfer of jobs’ to other countries which are more friendly from a fiscal point of view, the growing heterogeneity of social policies from EU mem-

ber states, and growing unemployment are many threats that have brought into the open the need for reform of the European Social Model.

The main coordinates of the reform of the European Social Model are: • Redefining the social contract (from welfare to workfare: flexible labour markets; social responsibility of firms; more powerful incentives for accepting new jobs; assistance in finding a new job; creating new jobs, mainly in the service sector; social insurances according to personal contributions); • Investments in human capital; • Strengthening economic and social cohesion, promoting permanent education; • The need for a more consistent dialogue between social practices of different European models (continental, Anglo-Saxon, Mediterranean and Nordic).

The continental and AngloSaxon social models function on the basis of an imbalance between wage distribution equity and labour force employment efficiency. The continental model is imbalanced in the sense of a lower efficiency, the Anglo-Saxon model in favour of lower equity.

The Mediterranean and Nordic models are based on balance between efficiency and equity. In the Mediterranean case however, both efficiency and equity are reduced, and thus the system is not sustainable. The Nordic model seems to ensure a high level of equity in conditions of increased efficiency.

III. The East European Specific

Eastern Europe needs a social model that would provide a new type of sustainable balance between social protection and economic competitiveness.

In Eastern Europe poverty is discussed in other terms than in the West. And the chances and the rhythm of equalisation are different. Therefore, the variables that we must introduce before proceeding to the elaboration of the Romanian social model are more numerous than in other parts of the world.

The target of Romanian social democracy is to tame capitalism in order that the markets’ dynamics do not slip towards excessively privileging some social categories in comparison with others.

But, more than in the rest of the world, Romanian and Eastern Block social democracy, in general, must be more vigilant and active in tempering the post-communist capitalism generating lasting social exclusion.

If we want to direct transition towards Western style mass prosperity, we need a social model that will equally take into account the need for strengthening the state and democratic and economic liberties, of creating the incentives of welfare and redistribution of incomes in favour of the poor.

Eastern Europe and especially Romania has its own development premises, starting from social realities differing from those of the rest of Europe. The communist experience and the experience of a more difficult transition than that of other Eastern countries make Romania a decisive actor in outlining a synthesis defining a

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post-communist social model closer to the needs of the people.

For 50 years, the communist state, a paternalistic structure, has perpetrated massive social spending. For that reason, the expectations of the population for the state to intervene are very high. But we must not ignore the macroeconomic realities.

A large inactive population leads to unbearable budgetary pressures. And the social state is forced into bankruptcy as, although the fall of the authoritarian regime has led to a progressive retreat of the state from the economy, it did not lead to its retreat from traditional social protection.

Post-communist capitalism has led to an uneven society with dim perspectives of improved living conditions for the larger part of the population. In Eastern Europe, and especially in Romania, there are major discrepancies concerning income and living standards between urban and the rural areas, and social polarisation, emphasized by disastrous ultraliberal measures – the flat tax – produces dangerous imbalances for social stability and for people’s trust in democracy and the market economy.

Post-communist economies have been excessively exposed to global competition, without having the necessary time to develop internationally competitive companies. The foreign controlled companies have become the backbone of the industrial structure, while the local companies (SMEs) concentrate on the pockets that are not interesting for foreign capital.

But attracting foreign invest-

ment grants an insufficient number of decently paid jobs for everybody.

Local companies (small, medium and large companies alike) play an important role, in their turn, by hiring labour.

This includes the traditional industries, which are less capital intensive. The main challenge for any social democratic strategy of fighting social exclusion is to create jobs – or income substitutes – for the rest of the labour force.

Another problem of the East regards the excessively large percentage of labour force employed in the primary sector.

A comparative advantage of Romania is the fact that the urban labour force is educated and disciplined, but not at the level of the young generation.

The new capitalist class is not yet oriented towards ‘production’, but towards getting privileges by manipulating politics.

For that reason, domestic capitalists are not yet a resource of social progress and balanced development of society.

The use of state power for the benefit of new classes in search of privileges goes together with the retreat of the state from the function of poverty-reducing agent. The state must renounce its alliance with the new capitalists. Instead of the state protecting economic interest groups, we need an active social state.

IV. Elements for a Romanian Social Model

The Romanian Social Model must not be seen in terms of a mechanic comparison with the European Social Model. Beyond the Romanian particular features, the difference is given by

our ambition to build a simplified theoretical background, expressed in a triangle of classical concepts of the left, contained at the end in a pyramidal formula (see Figure 1). The three fundamental dimensions of the Romanian Social Model – strong economy, social policies and the active social state – are completed by a fourth – national dignity – which brings a specific feature for Romania.

The Romanian Social Model has as its target the fight against the three fundamental evils of society: poverty, ignorance and disbelief. These phenomena do not disappear by themselves and are not cancelled out by the invisible hand sanctified by neo-liberals.

have to take with the help of this compass, in order to reach our destination, would be the assembly of substantial political decisions I call the ‘New Social Contract’.

Originally, the social contract is an exchange relation, a transaction through which citizens contribute, each according to his possibilities, to the establishment of a public fortune. In exchange for this contribution, the state pledges to offer its citizens public services or access to public goods.

IV. a. A New Social Contract

When services provided by the state are insufficient and qualitatively poor, the social contract must be redrawn, both by re-establishing the citizens’ obligations and by strengthening the duty of the state. A change in this kind of transaction between citizens and state can only be achieved within a ‘New Social Contract’.

The ‘New Social Contract’ represents the balance between thee citizens’ right to welfare,

If we imagined a social map of a future Romania, with citizens living in welfare, with a society offering quality public goods accessible to all citizens, with a class of political leaders understanding their purpose, firstly through their capacity of producing public policies and, only then, through their talent for intrigues and discourse, then the Romanian Social Model would be the compass guiding our steps. And the good path we

38 Social Europe the journal of the european left July 2006

Figure 1: The Pyramid of the Romanian Social Model

“The Romanian state as we know it, and as it was built in the 20th century, will not be up to the new challenges. It cannot ensure the security, the welfare or the dignity of Romanians” and their responsibility to get involved in the decisions of public interest and to take their fate into their hands. Romania needs such a contract because the old one does not function, is not respected by any of the participants.

Today, with its present state formula, Romania cannot walk the difficult road from poverty to welfare. The Romanian state as we know it, and as it was built in the 20th century, will not be up to the new challenges.

It cannot ensure the security, the welfare or the dignity of Romanians.

Fewer people contribute to the state fortune, politics tries to favour its supporting groups (for example the flat tax), and the state accomplishes its tasks with growing difficulty, as it has no more money and resources to mobilise. Building the new state pillars that would ensure Romania’s development in the decade 2007-2017 is the political mission of the modernised PSD. The ‘New Social Contract’ can be put into practice through a reform of the state and of its institutions that would increase competitive conditions of the economy so that more consistent funds could be employed for social policies.

(1) Giving up lower incomes and pensions as a comparative advantage If Western European countries wish to have lucrative outlets in Eastern Europe they need purchasing power to increase in this area. In these conditions, an option we must consider is to reduce social contributions and adopting private pension systems.

(2) The policy of intelligent public investments in physical and virtual infrastructures (by modifying the supply-side economics paradigm) Increasing investments in infrastructure, increasing investments in research and development, are elements of public policies that are compulsory for the countries in the East and especially for Romania. They will lead to the general development of society, to increasing consumption, to business development and, most importantly, to the creation of more and better paid jobs.

(3) Creating a beneficial social partnership for business and citizens The state can and must be relieved from social spending through an added responsibility, from a social point of view, of

39 Social Europe the journal of the european left July 2006

the private enterprises or of the civic structures. Moreover, such action will lead to the development of civil society and of the associated life. I support the provision of fiscal facilities for firms investing in development of services and infrastructures necessary for social policies. I also support targeted fiscal facilities granted to the NGOs. Romania needs to compensate for the social capital and civic and communitarian spirit’s weaknesses through the introduction of a culture of voluntarism.

(4) Investment in social policies (education, health, environment) as a productive factor and not just as social spending Also in the spirit of stimulating social responsibility of the private and civic environments, I support granting fiscal facilities to firms / foundations that offer scholarships. At the same time, creating the culture of sustainable development that would propitiate the demands of the economic environment with the natural environment, the efficient use of European funds concerning the environment (an activity implying the creation of numerous jobs), increasing investments in human capital, which will lead to an increase in labour productivity, are compulsory actions that must be included in the public policy plans of social democrats.

The ‘New Social Contract’ sets in the centre of its actions redefining the relation of the citizen with the state, including the assistance dimension. The fact that a country has a great number of socially assisted people does not indicate a

success of social policies in that country, but rather their failure. The final purpose of social policies cannot be but to help those that cannot help themselves. And, in order that their number remains minimal, active social policies become a necessity. Protecting young families, supporting the elderly, those with small revenues or those having no revenue, those whose work was necessary during communism and now nobody needs any more, supporting the village people involved in a sector generating no wealth but only subsistence, are the landmarks of the social policies mixture Romania needs. Social policies must eventually translate into an equitable access to education, to medical services. A child of today who does not study in school is unemployed or a delinquent of tomorrow. Social policy offers, first of all, equal chances that will lead to an improvement of the quality of life for the many.

V. Conclusion

This is a part of our project for society: until 2017, a really wealthy Romania, where fortunes are not grounded on theft but on competence, talent and labour. A Romania where solidarity functions in order to give a chance to the poor, where economic progress comes together with social justice. A Romania proud of its top industries or of an economy based on the country’s well-exploited traditional assets. A Romania that distributes justice and the benefits of society in an equitable manner.

A powerful and responsible Romania concerning foreign and the European affairs, which gains respect through earnestness, labour, and measurable performance.

IV. b. The National Social Network

The ‘New Social Contract’ recognises the limits of state actions, both in terms of finances/budget and in terms of effectiveness. Therefore, I propose the creation of a ‘National Social Network’, based on the partnership state – citizens – firms – NGOs. The ‘National Social Network’ is based on four principles: state support for the least favoured categories, freedom to choose the providers of social services, social responsibility of corporations and extended fiscal deductibility of spending on social services.

40 Social Europe the journal of the european left July 2006

The Olive Tree Party (L’Ulivo) T

Giuseppe Vacca President of the Gramsci Foundation in Rome

HE ELECTIONS OF 9th and 10th April saw the centre-left coalition return to govern Italy. The political significance of the event may be summed up in the alternation between a Europeanist coalition – the Union (l’Unione) – led by Romano Prodi, and the Eurosceptic one led by Silvio Berlusconi that had governed from 2001 to 2006: the House of Freedoms (Casa delle libertà). The Union coalition is now up against a situation fraught with difficulties – economic, social, political, and institutional.

In five years of administration by the right, the economy plummeted towards zero growth. The deficit rose by 4.5 per cent, and public debt spiralled after ten years of decline – exceeding 108 per cent of GDP. Public spending also spun out of control, wiping out the primary surplus that in 2000 stood at about 5 per cent of GDP. The international competitiveness of the Italian economy declined steeply. Big industry went even deeper into crisis, due in part to the collapse of two major groups in the food sector, Cirio and Parmalat.

“In five years of administration by the right, the economy plummeted towards zero growth. The deficit rose by 4.5 per cent, and public debt spiralled after ten years of decline” 41 Social Europe the journal of the european left July 2006

Deregulation lagged, and the banking system remained fragmented, protected, and stagnant. Government-encouraged tax evasion again reached alarming levels. The same occurred for the underground and criminal economies.

The school, university, and research system, traditionally weak points in our country’s competitiveness, took further steps backwards. Real inflation leapt to among the highest in Europe.

The only positive indicator – the employment rate – owes its growth chiefly to the legalisation of about 800,000 immigrant workers and to the multiplication of insecure jobs, a situation deemed unsustainable even by Confindustria and the Central Bank.

Moreover, improved employment figures conceal a substantial withdrawal of women from the labour market, and may draw attention away from the fact that the economically active population rate is among Europe’s lowest.

Lastly, southern Italy, home to one half of the country’s population, has, on the whole, completely stalled – in both economic and civil terms; the gap between north and south – traditionally an aspect of Italy’s fragile unity and weak international competitiveness – grew even wider. Unlike the right, which governed in years of decline in the European economic cycle, the centre-left government may enjoy the current rebound; but to jumpstart growth beyond the conditioning factors originating from its harsh inheritance from the previous government, particularly in terms of restoring macroeconomic

health, it will have to come to grips with a politically difficult situation.

The most significant aspects of the Union’s victory are medium-term. The first is the fact that, for the first time since 1994 (when the changed election law introduced bipolarity and alternation), a vast centre-left alliance was forged, cemented by a detailed common legislative programme. The second is that – also for the first time – the centreleft now outnumbers the centre-right.

This is the result of a popularity crisis that Forza Italia (the party founded and led by Silvio Berlusconi) has been going through for over three years; since its origins lie in Forza Italia’s more than disappointing stint in government, this crisis appears difficult to overcome. But victory was paper thin, and in the Senate (which in Italy has the same legislative powers as the Chamber of Deputies), the Prodi government enjoys a mere three-vote majority. The near tie in April’s elections was due to a highly skilled electoral campaign by Berlusconi, whose domination of the television system allowed him, in the last two weeks of campaigning, to impose issues characterised by unscrupulous social demagoguery, while increasing his support in the north. The centre-left leadership was entirely unfocused, vociferous, confused, and contradictory, and allowed its political agenda, soberly oriented towards resuming growth, to be expropriated. The considerable six-point advantage gained over the past two years and reliably recorded by all voter surveys thus melted away. But it looks like the right will have a hard time capitalising on the result, because the House of Freedoms has been torn apart by a political crisis for over two years and April’s vote does not appear to have repaired it. We cannot go into this more deeply – although for the developments of the Italian situation, this crisis is perhaps the main issue. We shall thus limit ourselves to discussing the problems regarding the Union coalition.

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The winning coalition is fragmented and heterogeneous. It consists of ten parties, chief among which are the Democrats of the Left (Democratici di Sinistra – DS), who garnered 17 per cent of the vote. Meanwhile, the coalition’s third largest party, the Communist Refoundation Party (Rifondazione Comunista – PRC), from the radical left, obtained 7 per cent.

The Union’s lines of division are drawn around foreign policy and the economy: in these areas, the Union is split into two distinct groups. The first is a reformist group enjoying a broad majority (in addition to the Democrats of the Left, this group also includes the Margherita, or ‘Daisy Party’ of democratic Catholics – second largest in the coalition with a little more than a 10 per cent share of the vote). These two parties, united in the Olive Tree, are joined by a cluster of small parties, such as: the Rose in the Fist (Rosa nel Pugno – democratic socialists and radicals); the Italy of Values (Italia dei Valori) party led by the former magistrate who was a major figure in the ‘clean hands’ (mani pulite) investigation of the 1990s; Udeur, another small centrist Catholic party led by current Justice Minister Clemente Mastella; and a regional Christian Democratic party, the South Tyrolese People’s Party (Südtiroler Volkspartei). The radical left grouping, which garnered in excess of 12 per cent of the votes, includes, in addition to the small Communist Refoundation Party, the Party of Italian Communists (Partito dei Comunisti Italiani), which split from the Refoundation Party in 1998, and the Green Party. But there are other important lines of division, which run along ethically sensitive issues, separating not only reformers from radicals, but also splitting reformers up among themselves. Moreover, the parties of the Union are scattered between the different supranational political families of Europe, excluding the European People’s Party (EPP). Lastly, they are

Romano Prodi

divided on the question of election law and the architecture of the political system: i.e., the form of government and form of state. All these various differences have a negative impact on both political stability and the effectiveness of governmental action. They also hinder the constitutional reforms that were to a large degree stalled by the manner in which a revolving door democracy took shape, in which the centre-right and centre-left coalitions derived internal strength from de-legitimising the opposition. The centreright now consists of new, Europhobic and xenophobic parties like Forza Italia and the Northern League (Lega Nord), whose political culture is hostile to, or removed from, republican Italy; a moderate Catholic party like the Centre Union created from the ruins of the old Christian Democrats (DC) but very much in the minority; and the National Alliance (Alleanza Nazionale), heir to the neo-Fascist Italian Social Movement. The Union coalition on the other hand brings together new and old political formations, all appealing to the bedrock cultures of republican democracy. The two coalitions’ ideologies are shaped by their mutual disavowal of the other’s legitimacy to govern.

43 Social Europe the journal of the european left July 2006

Herein lays the chief reason for the still incomplete transition from the political system of the First Republic, which imploded between 1992 and 1994, and a Second Republic which in truth has yet to be born. This is the heritage of the political history of republican Italy, in which the presence of a Communist Party, that until 1989 had represented the chief force of opposition, did not permit change.

Despite the special features of the Italian Communist Party (PCI) – party of the Republic’s founding pact, always loyal to the Constitution and inhabiting a role similar to that of Europe’s great social democracies – antiCommunism was a powerful argument against its legitimacy to govern, and one which prevailed until the end of the Cold War and the First Republic. It works not only as an effective propaganda weapon for the undisputed leader of the House of Freedoms, but is also present in the centre-left coalition: although they were among the founders of the PES, the Democrats of the Left – heirs to the PCI – are not yet considered qualified within the Union to put forward their own candidate for the country’s leadership. A significant step forward in overcoming this problem may be seen in the fact that, after the April elections, the Union, with its votes alone, elected Giorgio Napolitano – a historic leader of the former PCI – as President of the Republic, and PRC Secretary Fausto Bertinotti as President of the Chamber of Deputies. But, at least for the time being, institutional transition appears stalled. As the last legislature was about to end, the House of Freedoms unilaterally changed the second part of the Constitution, including the form of state and the form of government. The change followed on from an earlier, more limited reform regarding the powers of the regions.

This was also introduced unilaterally, this time by the centre-left at the end of the 1996-2001 legislature, by a slim margin of votes. The House of

Freedoms’ constitutional reform was up for ratification. Following the rejection of it, initiatives can now be developed to help put an end to the constitutional unilateralism that has marked both coalitions’ behaviour over the past six years.

The inconsistent alignment of the two poles and the stalling of constitutional reforms are consequences of the parties’ long crisis of democracy (which has characterised the life of the Republic since the mid 1970s), its subsequent implosion (alone among the major countries of Western Europe, between 1989 and 1993 Italy witnessed the end of all the parties of the First Republic) and the fact that the transition from the old party system to the new one took place solely through electoral reform. Until 2003, the political class made no significant effort to construct governing parties on the left or right, rooted as it was in the history of Italian democracy and in the social composition originating from an information economy and market globalisation. Only in 2003 did we see the slow and contested start of a serious attempt to unify the main currents of Italian reformism into a single party. This meant merging into a single political formation the parties that, from 1995 onwards, identified with the Olive Tree – the engine of reform and the dominant grouping of the centre-left. The project, promoted by the leaders of political Catholicism and by the DS, accelerated as the crises of the Berlusconi government became clear, along with the need to come up with a credible alternative. This was set against the backdrop of a well-established collaboration between the centre-left parties – and above all between those in the Olive Tree coalition in the regions, provinces, and municipalities.

After more than a decade, this collaboration selected a new administrative class, and recently conquered a broad majority of territorial bodies in local elections. But acceleration was, above 44 Social Europe the journal of the european left July 2006

all, thanks to the formation of a single DS and Daisy party list in the 2004 European elections. These elections, despite being run on the basis of proportional representation, and despite the two parties’ differing placement in the European Parliament (DS in the PES, and the Daisy party in the Alliance of Liberals and Democrats), managed to minimise the competition between them, thus strengthening the Olive Tree’s cohesion. The result of the single list was encouraging, as the Olive Tree garnered support equal to the sum of the two parties. But this was not enough to overcome resistance to the project, particularly within the Daisy party. At the regional elections of 2005, in which the centre-left outperformed the centre-right, the unified list was presented in only nine of the fourteen Regions where voting took place, and after the elections – with the upcoming national election on the horizon – the process stalled. This was caused by the fact that Romano Prodi, upon taking the helm of the Olive Tree immediately after concluding his term as President of the European Commission, together with the most influential leaders of the reformist left (Massimo D’Alema, Giuliano Amato, and Piero Fassino) set themselves the objective of funnelling the experience of the Olive Tree into the formation of a single party. Resistance came mainly from the Daisy party leadership, and was motivated by the spectre of annexation by the DS and possible merger with the PES. Given the latter’s configuration, this approach was not palatable to a party like the Daisy, which is rooted in the tradition of political Catholicism.

This resistance was defeated by the tenacity with which Prodi and the DS forced the primaries to choose the candidate for Prime Minister. Prodi was already the centre-left candidate, acknowledged by all the parties in the now-established Union coalition, and had no real rivals. The primaries,

which were open to all voters willing to declare their vote for the centre-left and to subscribe to its programme, could have seemed an empty ritual. On the other hand, they could not be rejected because Prodi belongs to no party in the coalition, his candidacy required democratic legitimisation, and he certainly stood to benefit from primary elections that strengthened the Union’s appeal at the same time. On 16 October 2005, more than 4,300,000 voters visited the 10,000 polling places set up for the voting operations. Prodi garnered 75 per cent of the public vote – more than 3,000,000 people. His opponent Fausto Bertinotti managed only 17 per cent. Participation by the

“Despite the difficult problem of its placement within Europe’s political families, the Olive Tree appears to be an authentic Italian version of the more mature experience of European reformism” PRC leader and by other minor candidates increased the event’s political significance and the Union’s cohesion, because Prodi was undeniably recognised as the prime ministerial candidate by all those taking part in the primaries. In truth, as the political leaders and the most informed observers were well aware, the celebration of the primaries had a value much greater than the selection of the prime ministerial candidate: they were the founding act of the coalition’s political unity, and dubbed Prodi not only as possible prime minister, but as its leader as well. They marked a decisive passage in the Olive Tree’s transformation into a party, and it is to this that I would like to dedicate some concluding remarks.

Due to a political miscalculation 45 Social Europe the journal of the european left July 2006

originating from the new electoral law voted in by the House of Freedoms at the end of the Berlusconi government, which involves assigning the majority premium on a regional basis for the Senate, the Olive Tree list, formed by the DS and the Daisy party, was presented only for the Chamber of Deputies election. Olive Tree votes exceeded by 2,400,000 – equal to 3 per cent – the sum of votes obtained by the two parties for the Senate, where the DS and the Margherita ran under their own symbols. The Olive Tree garnered the most support from younger voters, thus unequivocally confirming its popularity with the electorate, and its status as a unitary political player. Stalled at the lowest threshold of support in the Senate vote, the DS and the Daisy party appear to have run out of steam.

Consequently, in both the Chamber and the Senate, Olive Tree parliamentary groups were established, and the reconvening of parliament in the autumn should herald the birth of the new party. The party’s path is still uncertain, and is of an unforeseeable length. But an argument can be made for its historical justification. For wellknown reasons, republican Italy has had a party system unlike those that have taken hold in the other countries of the European Union (before the enlargement to 25). This impeded the birth of a European-level democratic socialist party, and divided the reformist currents, in the long decades of the Cold War, between governing parties and opposition parties. The Olive Tree was created by the confluence of reformist factions derived from the history of the PCI, the DC, the PSI (Italian Socialist Party), and the parties of lay democracy. Although they stem from different political cultures, what unites them is stronger: the European option (supranational integration, multilateralism, and affirmation of ‘Europe as a civil power’) and their vision of society (to put it extremely briefly, the rule of law, liberal democracy, and wel-

fare values reoriented from ‘guarantees’ to ‘opportunities’). What differentiates them regards a redefinition of lay politics, triggered by the new challenges of the technical and scientific revolution, the multiethnic society, and the crisis of the nation state’s historical prerogatives. These problems are in varying degrees present in all the countries of the European Union, and everywhere they generate new challenges for the party system and their political cultures. But what makes the difference in Italy is the influence the Church of Rome has over political Catholicism and society, and the fact that the new challenges are being faced not by historically consolidated parties, or by a large reform party already in existence, but by a party yet to be created through the fusion of political cultures long divided by fissures between believers and non-believers. All the same, we are not starting from scratch, because from the birth of the Republic onwards, there has been a positive and well-established history of political collaboration between Catholics, socialists, and liberals. The challenge of transforming the Olive Tree into a reformist party of European scope thus appears possible.

Despite the difficult problem of its placement within Europe’s political families, the Olive Tree appears to be an authentic Italian version of the more mature experience of European reformism. Seen from Europe, it may be considered the equivalent of a major social democratic party – but one born during times quite different from those that surrounded the birth and development of the great social democracies, in a country that stands alone, on account of the simultaneous presence of a ‘Vatican question’, a ‘Catholic question’, and a ‘religious question’.

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Stronger European Parties for a Social Europe

A

Jo Leinen German Member of the European Parliament (PES) and Chairman of the Constitutional Affairs Committee

“Stronger European Parties could play a crucial role in democratising decision making in the EU”

SOCIAL EUROPE IS not possible without European democracy and the support of strong European political parties.

Without denying that European integration is a success story, one must acknowledge that today’s concerns of the citizens – high quality employment, social protection, the guarantee of fundamental rights and physical security – have not yet been met by the EU. Creating a common market, guaranteeing the four freedoms, introducing the Euro and integrating the economic policy were favourable conditions for a strong European economy. But these steps have contributed too little to a secure social situation for the Union’s citizens. The EU is so far missing the vision for a Social Europe; also the lobby for the citizens’ interests is too weak. Both can only be provided once European parties stimulate European-wide dialogue and have the power to link the interests of their voters with the decisions of the institutions.

Strong European Parties are Necessary

The European Union has for a long time developed as a Union of states. There was the assumption that the interests of the member states equal the inter47 Social Europe the journal of the european left July 2006

ests of the citizens. While this was true at the beginning of the integration project, it is not any longer. While citizens expect the Union to play a leading role in responding to their concerns, such as high unemployment rates, rising poverty levels and increasing social and physical insecurity, heads of government talk behind closed doors about majority rules in the institutions and negligible issues such as the seat of a European food agency. National governments seem to be more concerned and capable of securing their own power base and protecting national sovereignty than finding solutions for the more pressing issues such as unemployment.

A reason for this increasing gap between expectation and delivery lies in the structure of the Union. Major decisions about the future of Europe are taken in the European Council and the Council of Ministers.

This is problematic insofar as the member states have little scrutiny from citizens when taking these decisions: negotiations are held in secret, there is no European public sphere where decisions are reflected; the member states are not taking responsibility for their own decisions on the European level but instead blame “Brussels” for

them; and last but not least, the national parliaments do not have enough interest to monitor their government’s decisions in the EU. Stronger European parties could play a crucial role in democratising decision making in the EU. First of all, they could stimulate European-wide debate about major topics. The discussion on the Bolkestein directive was the first example of the usefulness of transnational discussions about the pros and cons of EU directives and regulations. It was especially the Party of European Socialists (PES) that took onboard concerns of citizens expressed in demonstrations and public debates. The Socialist Group in the European Parliament succeeded in changing the proposal considerably by putting forward amendments to the original proposal from the Commission. On the project of the European Constitution a truly pan-European debate would have been necessary too.

Whether the Constitution is an improvement compared to the Treaty of Nice was so far only discussed from a national point of view.

It is also true that until today, the Union’s citizens have had too little influence on the political direction of the EU and its leaders. The result of the European Parliament elections has so far had too little influence on the political direction of the European Commission and the Council. For politicians in these two institutions, the positions of their European party should serve as orientation. Thus, election results would be decisive for the politics of the Union. This would

also motivate more people to participate in the European elections and therefore strengthen the legitimacy of the European institutions.

Strong European Parties could also play an important role in developing the economic Europe into a political Europe.

In the first decades of the European project it was mainly economic tools that contributed to further integration: the establishment of an integrated market, the introduction of a common currency and an integrated foreign trade and customs policy. There were no historical precedents of implementing trans-national economic structures of this scale. To ensure successful economic integration, decision makers relied on the expert knowledge of economic specialists. In this environment it was economic “experts” that gained a strong influence on political decisions, often much stronger than that of politicians. This structure of decision making contributed to developing a common market, enabled the introduction of the Euro and contributed to economic growth in all member states. But it failed to ensure that all Union citizens could profit from integration. The citizens had so far too few spokespeople in the EU. European parties, whether social democratic, conservative, liberal or left, are more likely to represent the interests of the citizens than economic actors. The reason is simple: a party’s success is dependent on citizens’ votes in upcoming elections, while lobbyists are only accountable to their contractor. Once the structure of the European Union is reformed, the parties can offer

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competing political programmes, which are represented by their candidates for the European elections. The political direction the Union takes would be decided by the citizens’ vote.

European Parties today: too little influence on the important decisions

The historic development of the Union did not foresee European political parties as decisive actors in the political system.

Steps towards more integration have always been a result of negotiations between member states. Parties played no role.

National parties that were not in power in their country had no chance to influence European decisions. Only the introduction of direct European elections in 1979 led to the establishment of parliamentary groups. Once the European Parliament was strengthened step by step, the power of the party groups to shape the Union’s policy increased. However, it was only recently that independent European parties were formed and emancipated from the groups in the European Parliament.

Looking at today’s decision making system in the EU, made up of the European Commission, the Council and the European Parliament, European Parties still play a minor role. Different to national governments, the European Commission neither depends on a parliamentary majority, nor is it made up of members of one party or one coalition. There is no clear party-political direction the Commission has to follow.

Although the Commission President was nominated after

“Only in the European Parliament are the European Parties a decisive force. Most members of the Parliament are organised into parties and all the party groups existing in the European Parliament have established independent party-families outside the parliament” the last elections of the European Parliament in 2004 in light of the election results, the consensus decision procedure in the Commission prevents him from acting against the interests of the other Commissioners. In such a structure, it is impossible to implement the political programme that the strongest party was presenting during the election campaign. Since the political fate of the Commission is not dependent on the support of a majority coalition in the European Parliament, European Parties can exert only little pressure on the Commission through their parliamentary groups.

Another structural problem prevents the Commission from implementing a clear political programme: legislative initiatives will not be automatically withdrawn when the term of an outgoing Commission ends.

This means the new Commission has to defend the proposals of its predecessors, irrespective of whether the political direction of the Commission has changed with the election. Even if there was a strong party of European Socialists, which would clearly win the elections and had a majority in the Commission college, they would have little chance to implement the entire political programme they had

put forward during the election campaign.

Besides the Commission, it is the member states – through their participation in meetings of the European Council and the Council of Ministers – that exert control over the political direction of the Union. Since the European Council decides in unanimity, a similar problem to that of the Commission applies: even if there were a clear majority of heads of governments from one party or one party coalition, they could not make a decision without taking into consideration the positions of all other parties represented in the European Council.

Implementing a party-political programme in this environment is very difficult, even for strong and united parties.

Meetings of the Council of Ministers provide more possibilities for European parties to be involved. In the past years more Council meetings were opened from unanimity to qualified majority decisions. In theory this would allow the formation of coalitions of parties in the Council, which could push through their programmes.

Since some decisions in the Council of Ministers are still taken in unanimity, there is also the threat that ‘opposition’ governments would block these decisions until their views were

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also respected in areas with qualified majority voting. The reality is that decisions in the Council of Ministers are taken on a consensual basis. This does not allow for one of the parties to show a clear profile in terms of shaping Council decisions in their direction.

Only in the European Parliament are the European parties a decisive force. Most members of the Parliament are organised into parties and all the party groups existing in the European Parliament have established independent partyfamilies outside the Parliament.

Nevertheless, unlike in most member states, the parties in the European Parliament do not form stable coalitions. Neither the conservatives nor the social democrats can dominate the political direction of the European Parliament. Firstly, in the committees and in the various areas of politics, the majorities in the parties differ.

Secondly, in the European Union the main political conflicts generally arise between the three institutions: Commission, Parliament and Council. To be a strong actor in the inter-institutional contest, the Parliament wants to show unity, which is why the big parties aim at voting en bloque on important decisions. This was shown during the vote on the Union’s budget for the years 2007 – 2013 that received, despite being highly controvercial until the end, a big majority in the final vote in the European Parliament.

Even if there was no need to make decisions with clear majorities, the European parties would find it difficult to form coalitions in the European

questions such as social protection or tax policy are very difficult to harmonise, as on the local, regional and national level these topics are not discussed with a European view in mind. That there are too few common positions is very obvious in the manifestoes of the parties for the European elections. They are very short and indefinite.

Possible functions for European Parties

Jo Leinen talking about European Parties. Click to watch. (Acrobat Reader Version 6 and later only.)

Parliament. Besides the five ‘acting parties’, conservatives, social democrats, liberals, greens and left, there are also two broadly euro-sceptic parties and some of the independent deputies are completely against the EU. In order to achieve a majority under these circumstances, at least three of the “acting parties” would need to form a coalition, which would cover a very wide political spectrum.

The main reason for the nonexistence of a ‘governing coalition’ in the European Parliament is that in today’s structure this would be of little use. A ‘governing coalition’ could neither dominate the political direction of the EU, as it could not influence the direction of the European Council and the Council of Ministers, nor could it elect the head of the European government, the Commission President, out of its

elected members. Unless the institutions are reformed, European parties therefore have no possibility of exerting influence on the Union’s direction comparable to that which they enjoy on a national level.

However, one must admit that the weakness of European parties is not only due to the unhelpful structure of the Union. The European parties have until today not been able to achieve a strong profile and a common position in the important political debates. Even in the European Parliament, the birthplace of the European parties, it is often difficult to find a common position for all members of a political family.

Whether on environmental, economic or social policy, the diverging political traditions often lead to different positions and views in these fields of politics. These differences are much bigger when the European parties try to find a compromise outside of the Parliament. The different national party positions on

50 Social Europe the journal of the european left July 2006

The complicated structure of the European Union institutions and the rules of decision making mostly developed before European parties were founded.

European parties still have to find their role to play, as some of the traditional functions they fulfil in the nation states have been taken over by other institutions. The party’s functions on the national level are mainly to work out a political programme that will guide the work of the government, the formation and education of political personnel and the connection of political decisions with voters’ interests.

To draw up a political programme that can guide the development of the EU is very difficult. The European political parties consist mainly of likeminded national parties. Since the respective national parties have gone through very different historic developments, since they are embedded in different political systems and since they are influenced by the positions of their leaders, it is very difficult for them to agree on a common European position. One of many examples for these differences is the debate about possible options for a Social Europe,

which range in the PES from more liberalisation to more protectionism, from harmonisation to integration, from common minimum standards of social protection to harmonised European social security systems. So far it has therefore not been possible to draw up strong and detailed political manifestoes for election campaigns.

Elected political leaders therefore had a certain freedom to interpret the political programme of their party.

Even though the parliamentary groups follow the political manifestoes, looking at all decision makers in the EU it is only a minority that follows the political line of one of the European parties. The European Council and the Council follow the aggregated interests of the member states, whereas the Commission defends the common interest of the Union, not that of one of the political parties. And economic actors, who still have a considerable weight on decisions in many political fields, follow the interests of their financiers. Therefore, even if the European parties could agree on comprehensive political programmes, they could not yet have the same influence on decisions on the European level that they have in the member states.

Also on the selection of the political leadership of the EU,

European parties have not yet had a lot of influence. The nomination for the Commission President is made after long and enduring negotiations between the member states in the European Council. Indeed, this nomination is done in the light of the election results. But the candidate for the Commission President is neither presented to the voters before the elections, nor do the political bodies of the European Parties take part in the decision. The other members of the Commission College are nominated by the member states and, except for some ‘experts’, come from the respective governing party. Bodies of the European parties have no influence on these purely national decisions, except for the possibility of rejecting individual candidates in the European Parliament. A better coordination of the nomination of Commissioners from social democratic parties could, for example, result in better gender equality inside the European Commission (today only 7 out of 25 Commissioners are female).

On the formation and education of the political leadership, European parties again have little impact. Commission Presidents and Commissioners have usually gathered their experiences as former ministers or prime ministers and will

“Even if the European Parties could agree on comprehensive political programmes, they could not yet have the same influence on decisions on the European level that they have in the member states” 51 Social Europe the journal of the european left July 2006

remain loyal to the Council, rather than to the European parties. This argument is even more valid for the ministers and heads of states represented in the Council of Ministers and the European Council. However there are good reasons for optimism. The elections in Italy, resulting in the election of a former Commission President as new Prime Minister and a former chairperson of the Constitutional Affairs Committee in the European Parliament as the new President, show that it is also possible that politicians develop a strong profile on the European level and bring back their European spirit to the national level.

The future of European Parties

Despite the current challenges facing European parties, recent years have seen a very positive development. Since the adoption of the Leinen-Report on European parties in 2003, the number of European Parties has risen to 10. The European parties have been emancipated from the party groups and are in the process of developing their own profile. Fundamental improvements for the role European parties can play in the European structures, are linked to the constitutional process.

Reforms of the institutional framework of the EU, foreseen in the European Constitution, point in the right direction.

The role parties can play through their groups in the European Parliament will be strengthened through the extension of co-decision voting in many areas. This step will strengthen the ability of the European parties to play an

important role in shaping the direction of the European Union. Furthermore, the strengthened influence of the European Parliament in electing the Commission President will bring the Union closer to the democratic ideal: with the help of political parties, citizens can choose the political programme and the political leadership for the EU. However, ratifying the European Constitution will not be sufficient. For European parties to play a decisive role, there need to be set rules concerning the function and working methods of the European parties. This can best be done within the framework of a European party statute. On the 23rd of March 2006, the European Parliament adopted a report which requests the European Commission to put forward a proposal for such a statute. The aim of such a statute is to regulate details concerning the function, objectives and financing of European parties. Until today, all European parties are registered under national law, mostly in Belgium. A European statute could ensure that all European parties receive the status of a European legal personality and would benefit from equal rights and duties in all member states. Further, the statute should define whether and in what way individual membership is allowed or required from European parties and it could set minimum standards concerning party internal democracy. Last but not least, the party statute has to underline that European parties are allowed to participate in European election campaigns,

European political campaigns and European referenda.

A crucial role in the development of European democracy will also have to be played by European political foundations.

In many member states they play a key part in democratic education. To achieve European democracy, it would be essential to support European political foundations that are linked to the parties and represent the different ideological mainstreams in Europe, while yet remaining independent from the parties.

The difficult debates about the future of Europe and the European Constitution have shown that there are too few spokespersons of European interests. European political foundations will have in common a European perspective on politics but will follow different ideological directions, thus offering different political visions for the future of Europe. Thus, they can play an important role as think tanks of the European parties, without being part of them.

Last but not least, also the political youth organisations have to be strengthened. They play a vital role in educating the future leaders of Europe.

Already today, the existing political youth organisations offer a wide range of activities for the members of the national youth parties and thus provide for European education from the beginning of political careers. This will contribute to a greater understanding of the European dimension of all national politics. To fulfil their increasing role in the future, political youth organisations on the European level will have to

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be adequately financed and supported.

Conclusion

The principle of a participatory and parliamentary democracy is contained in the European Constitution. Only a democratic European Union will be supported by a broad majority of the citizens and only when the institutional framework of the Union provides for democratic procedures can a Social Europe be achieved. European parties are an essential instrument in realising European democracy.

Before the elections of the European Parliament in 2009, decisive progress should be made concerning the development of a political programme as well as the selection of the leadership for the Union.

Social Europe the journal of the european left • Volume 2 • Issue 1 • July 2006

Endnotes

We would like to express our special gratitude to Chloé Aublin and Jeannette Ladzik who helped a great deal in the development of this issue.

All the views expressed in the articles of this issue are those of the authors and do not necessarily represent the views of Social Europe Forum.

All rights reserved Social Europe Forum © 2006