Social Europe Journal Vol. 2 No. 1

Volume 2 • Issue 1

July 2006

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Contributions byStephen Haseler

Werner AbelshauserEvelyne GebhardtJean-Marc Ayrault

Patrick DiamondMircea Geoana

Giuseppe VaccaJo Leinen

The EuropeanEconomy: SomeReflections

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

Editorial BoardDetlev 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

Angelica Schwall-Dueren Vice Chair SPD Bundestag Group

Giuseppe Vacca President Gramsci Foundation

Jan Marinus Wiersma Vice President Socialist Group European Parliament

Henning Meyer Managing Editor

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Ben Eldridge & Ian Gardiner Design & Layout

Ruth Davis & Katerina Hadjimatheou Sub-editors

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

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Editorial

Henning Meyer Managing Editor

Social Europe: theSecond Volume...

FOLLOWING A VERY suc-cessful first year for ‘SocialEurope. the journal of the

european left’ we sought theadvice of our readers and havenow come up with a number ofinnovations for the second year.Our first book has recently beenpublished under the title ‘SocialEurope: a continent’s answer tomarket fundamentalism’ and isalready making an impact in thetraditional publishing environ-ment. Furthermore we will startto publish ‘letters to the editor’from the next journal issue on,so you are all invited to emailyour opinion about the debateslead in our journal [email protected].

The biggest innovations, how-ever, are to be found in ouronline services that are thebackbone of our publishing con-cept. Additionally to our owncontent, we aim at being a com-prehensive online portal forsocial democrats who want toaccess the debates about Europeand its future. Following therelaunch of our website, youcan now also read reports onBrussels matters (updateddaily), can access live and

recorded video coverage of EUevents and read the blogs ofCommission Vice PresidentMargot Wallström and SocialistGroup Vice Chairman JanMarinus Wiersma.

Also, we will send out rele-vant information from nationalsocial democratic think tanks viaour pan-European newsletterwith several thousand sub-scribers. Therefore, we wouldlike to encourage our presentand future partners in differentsocial democratic think tanks to send us information abouttheir European work [email protected]. This isthe easiest way to make sure thatnot only your environment butwider European social democra-cy benefits from your work.

From the beginning on, ourproject has been seen as anopen project. If you would liketo express suggestions, com-ments, criticism or praise pleasedo not hesitate to contact us.


ContentsThe Failure of Neo-liberalism: ‘Social Europe’ Now Defines the ContinentStephen Haseler

The German Innovation Machine: Dead or Alive?Werner Abelshauser

The Service Directive – a Success for Social EuropeEvelyne Gebhardt

Europe’s Social ModelJean-Marc Ayrault

The Future of Progressive PoliticsPatrick Diamond

The Romanian Social ModelMircea Geoana

The Olive Tree Party (L’Ulivo)Giuseppe Vacca

Stronger European Parties for a Social EuropeJo Leinen

Click on the flags for links to foreignlanguage versions

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http://www.social-europe.com/vol2iss1/abelshauserd.pdf

http://www.social-europe.com/vol2iss1/gebhardtd.pdf

http://www.social-europe.com/vol2iss1/gebhardtfr.pdf

http://www.social-europe.com/vol2iss1/ayraultd.pdf

http://www.social-europe.com/vol2iss1/ayraultfr.pdf

http://www.social-europe.com/vol2iss1/geoanaro.pdf

ONE OF THE fascinatingfeatures of the contem-porary European

debate is the growing sensethat the erstwhile dominanceof ‘neo-liberal’ ideas – and themarket fundamentalism theyencourage – is now coming toan end. The signs and symbolsof a growing resistance to‘neo-liberalism’, and of amajor reappraisal of its rele-vance, are all around us. Themost dramatic sign was thedecision of the French elec-torate in the referendum of2005 to reject the EUConstitution. Many factorswere at play in France, butthere is little doubt that theperceived threat posed by‘neo-liberalism’ to the Frenchsocial democratic welfare sys-tem was one of them. Anothersign was the surprisingly goodshowing of the German SPD inthe Bundestag elections inSeptember 2005. Even thoughGerhard Schröder’s pro-gramme had become unpopu-lar, and pundits expected alarge conservative-liberalmajority, the German publicwas clearly opposed to theintroduction into Germany ofthe kind of ‘Thatcherite’ pro-gramme many German conser-vatives had been pressing for.

Alongside the publics ofFrance and Germany, the elec-

torates in Spain and Italy havealso recently rejected marketfundamentalism as they badefarewell to Prime MinistersAznar (in 2004) and Berlusconi(in 2006). And, on a Europeanlevel, the European Parliament’srecent decision to seriouslyweaken the ‘neo-liberal’ ele-ments in the Bolkestein direc-tive on services was yet anothersignal of a changing tide ofEuropean opinion.

Intriguingly, even in theheartland of ‘neo-liberalism’ –the United States – serious criti-cism of the prevailing economicorthodoxy (and, in particular, ofone of its key elements, ideolog-ically-driven ‘Free Trade’) isgrowing louder by the day. A bi-partisan alliance led bySenators Schumer and Grahamis threatening China with size-able tariffs should it continueits currency policy regime; theissue of ‘outsourcing jobs’ thatwas such a key feature of presi-dential campaign of John Kerrywill remain a big election issue;and the US public is increasing-ly supportive of a range ofDemocratic party proposals tosave what remains of theRoosevelt-Johnson US welfarestate. All in all, a serious reap-praisal of key aspects of the‘neo-liberal’ economic andsocial orthodoxy is now under-way in the popular journalistic

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

Stephen HaselerProfessor of Government at LondonMetropolitan University and ChiefEditor of ‘Social Europe. the journalof the european left’

5 Social Europe the journal of the european left July 2006

the ‘Third Way’ thesis – oneborrowed heavily from thethinking of Bill Clinton and theDemocratic Leadership Councilin the United States – was theneed for the left-of-centre tofully embrace market globalisa-tion. The idea – also supportedby Gerhard Schröder during hisearly months as GermanChancellor – was that socialdemocratic values could besquared with capitalist globalmarkets just as they had beenwith the more domesticated andconstrained capitalism of thepost-war decades.

Blair’s and Clinton’s approachhad no room in it for resisting,or even much limiting, the rulesand imperatives of the globalmarket. Indeed, this was whatthey meant by their constantevocation in speech after speechto ‘embrace change’ rather thanresist it. Since those heady days,however, Blair has softened hisstance somewhat. His secondadministration pulled back fromextreme Thatcherite orthodoxyas New Labour embarked upona considerable public spendingprogramme: and now, at least intheory, Blair and New Labourproclaim themselves as being infavour of the ‘Social Model.’ Yet,Blair has never revised hisstrong advocacy of the need toaccept the rules of globalisation.And it will be fascinating towatch whether Blair’s likely suc-cessor, Gordon Brown, will con-

this contentious ideology ofglobalist ‘neo-liberalism.’ They,of course, differ from Europeanconservative advocates in that,with some exceptions, theybring little enthusiasm to thesubject. Rather, they take a fatal-istic approach: they see ‘noalternative’ to globalisation andto a marketised and globalisedworld, and also ‘no alternative’than to accept ‘reality’ and itsharsh rules, and make the mostof them. They stick by themantra that all the state, andthe politicians, can sensibly dois to ‘equip’ its people to survivein the global market by ‘educat-ing’ and ‘skilling’ them to com-pete with low cost Asian work-forces in China and India.Consequently, the state, theybelieve, cannot beat the market,and cannot even act as a balanc-ing force. Indeed, it can only actas a junior partner to the privatesector. Thus, according to thisdoctrine, even social democratsare forced to accept only a limit-ed role for governments in thedomestic economy and a mini-mal role for governments in theglobal economy.

BRITISH PRIME MINISTERTony Blair has been themajor political exponent

of this fatalism. His ‘Third Way’strategy (it was not really a phi-losophy) was principally aboutequipping Labour to win elec-tions. However, a key aspect of

community, led by serious econ-omists like Paul Krugman andJoseph Stiglitz; and, surprising-ly, some American thinkers, likeJeremy Rifkin (the President ofthe Foundation on EconomicTrends who wrote in an earlieredition of ‘Social Europe’), areeven pointing to Europe’s ‘socialmarket’ as a healthier and morebalanced system.

This reassessment of ‘neo-lib-eralism’ goes hand in hand – asit should – with a reappraisal ofthe merits of economic globali-sation. The fact is that the pres-ent phase of raw capitalism wasgiven its new lease of life by theend of the Cold War and thesharp and sudden growth of theglobal economy – particularlyby the entrance of China andIndia (and, to a lesser extent,eastern Europe). This huge newlabour force and market hasallowed raw capitalism to runwild by avoiding the constraintsand limitations placed upon itduring the Cold War. By weak-ening both governments andfree trade unions the new globaleconomy has given a new leaseof life to corporate profits, andto global finance (throughmobile hedge funds and thelike). In sum, globalisation –used here in the sense of eco-nomic globalisation – has madeour ‘neo-liberal’ world orderpossible. In the words of the oldsong, the global economy and‘neo-liberalism’ go together like‘love and marriage’. For this rea-son, if for no other, socialdemocrats need to focus a seri-ous sceptical eye not just onmarkets but also on the funda-mental dynamics of the broaderglobal economy.

Yet amidst this serious reap-praisal, many on the Europeancentre-left are still seduced by


“Blair’s and Clinton’s approach hadno room in it for resisting, or evenmuch limiting, the rules and impera-tives of the global market”

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

High unemployment (whetheropen or hidden) clearly weak-ens demand, and in turn weak-ens the tax take upon which theEuropean welfare states andsocieties are so dependent. So,should the current high unem-ployment/low demand trendscontinue, Europeans are lookingat nothing less than the seriouserosion of their post-war welfarestates. And if these welfarestates collapse then we are fac-ing the appalling prospect of thepauperisation of large sectionsof the workforce – particularlythose who cannot compete inthe global economy. And, tomake matters worse, all of thiswill go hand in hand with a fur-ther growth in highly visibleinequality. Clear evidence nowshows that globalisation is badnews for the social democraticobjective of more equal and justsocieties – as those economiesmost open to globalisation, forinstance the USA, Britain andNew Zealand, are also theeconomies most prone to grow-ing inequality. Global capitalism

Figures on job losses are noto-riously difficult to assess.British Chancellor of theExchequer, Gordon Brown,recently hazarded a guess andargued, very conservatively, thatbecause of globalisation theWest had witnessed ‘one million[manufacturing] jobs lost fromAmerica, Europe and Japan’ andalso that ‘one quarter of a mil-lion service jobs [have] gone off-shore.’ But Western unemploy-ment can also be measuredindirectly by the growth inEurope of low paid (low pen-sionable) work and in part-timework as well as in the highbasic unemployment numbers.In the European home of marketfundamentalism – Great Britain– we have only hidden, notsolved, the jobs crisis. We havedone so by creating low paidwork in the lower end of theservice sector (in call centres,retailing and fast food outlets) alow pay regime reinforced bythe new addition of low costEast European labour. To count-er this low pay environment wehave kept up demand by highlevels of public spending andby a huge, and seriously irre-

tinue with this enthusiasm.Brown argues in favour ofaccepting the ‘reality of globali-sation’, and of ‘embracingchange’, but, at the same time,his seeming heartfelt commit-ment to relatively high publicspending may well lead him torevise this approach.

But there is a sense now thatglobal market fundamentalistshave few long-term answers tothe really big economic andsocial problems facing the peo-ples of the European continent.By common consent by far thegreatest, and most urgent, ofthese problems is the jobs crisis.And at the heart of this crisis isthe fateful process – recognisedby both supporters and oppo-nents of market globalisation – ofcapital, and job flight. Thedynamic is now well estab-lished: European jobs moveirrevocably away from high cost,high tax Europe and towardsAsia, principally China andIndia, where wages and taxes –and standards – are lower.


Geopolitical blocs

resisted. Some commentatorsare now suggesting that theChinese low-cost system is sofragile that a ‘revolutionary’ sit-uation may soon develop – onewhich would might stop therural rush into the coastal areasand thus, by draining the poolof labour available, see thedemise of the coastal cheaplabour policy.

Of course, anything is possi-ble, but Westerners should notbank their futures on it. We inthe West sometimes forget thatauthoritarian regimes have farbetter coercive mechanisms forsocial and political control, andadjustment, open to them thando democratic western govern-ments.

The Rise of ‘Neo-Protectionism’These great economic under-currents flowing from Asia toEurope and America are alreadyproducing a truly historic crisis,one which the ‘neo-liberal’ glob-alist true believers (and the gov-ernments that agree with them)can no longer deal with. And,without any answers them-selves, globalists are reduced toa constant negativity of warn-ings about the perils of chang-ing course, and about the dan-gers of any alternativeapproach, normally labelled as‘protectionism’. The simplistic‘neo-liberal’ mantra is repeatedtime and time again: that anyinterference by political authori-ties in the global ‘free market’ is‘protectionist’ and that ‘protec-tionism’ is not only inefficientbut also leads to nineteen-thir-ties- style isolationism andnationalism. Thus, in theprocess, any alternative strategyis demonised, considered noteven worthy of consideration,and thus dismissed.

sation debate in Europe and theWest. The first is the almost wil-ful belief that this competitionis only restricted to manufactur-ing, and that the European serv-ice and high-tech sectors are notthreatened. Some northernEuropeans in Sweden, Britainand Germany exhibit this com-placency and are less than keen,and collegial, in supportinghard pressed manufacturers inItaly, France and Spain whenthey pressure TradeCommissioner Peter Mandelsonto take a tough line in EU trade-bargaining with China. Yet thisnorthern European complacen-cy is very short-sighted becausethe clear reality is that burgeon-ing Asia (particularly China) isnow moving seriously into theservice and hi-tech sector and ata much lower cost-structurethan their Western competitors.We in Europe need to realise asalient fact – that Chinamen cando banking, and insurance! Ascan Chinese women.

The second fallacy is thatAsia will over the next fewdecades cease to be relativelylow cost – and therefore lesscompetitive – as a Chinese mid-dle class grows and begins todemand higher conditions andstandards. This particular com-placency ignores the stark factof the massive pool of potentialcheap labour (millions uponmillions) still available to enterthe commercial coastal regionsfrom the agricultural and ruralparts of China. And we can becertain that as long as theChinese regime remains author-itarian, and controlled by theCommunist party, free tradeunions will, to say the least, notbe encouraged – and thus pres-sure for seriously higher wagesand costs will continue to be

has also produced a damagingegregious inequality in the formof the arrival of a new globaland mobile class of ‘Super-Rich’people whose outlandish richesoften depend on capital notwork, who have no allegiance toany society at all, and spendtheir time moving moneyaround the world – oftenthrough the mechanism ofhedge funds – to the most prof-itable (in most cases the lowesttax) haven.

Yet, even in the face of allthis, ‘neo-liberals’ remain com-placent. They argue that eventhough competition from Asiawill inevitably continue toerode manufacturing industriesin Europe, European publicswill benefit by low prices and,crucially, by a growing demandfrom Asia for Europe’s serviceand hi-tech sectors. This is clas-sic free trade theory, an updatedversion of the comparative costadvantage thesis of eighteenthcentury classical economistsDavid Ricardo and Adam Smith.Of course, at a deep theoreticallevel this theory may well beright, or indeed wrong; but evenif it works today, the timing ofthe return to balance remains itscentral problem, and inadequa-cy. For in the long run every-thing might well balance out asthe free trade theorists argue, inthe all too important short-run(which could last for ten totwenty years) the really severeproblems of social adjustment –around job losses, inequalitygrowth and welfare erosion –could build up to the pointwhere they fracture and desta-bilise Western societies and leadto political extremism.

Also, there are two great falla-cies about Asian competitionthat bedevil the current globali-


ness around the world is basedin large part upon its lack ofself-sufficiency in key resources– such as energy; and it is theseexigencies of geo-politics thatwill, over time, lead Europeansto prize self-sufficiency – partic-ularly in energy and in food – aself-sufficiency that is under-mined by the pressures of global‘free trade’.

Of course, a profound reactionagainst the excesses of globalismand ‘free trade’ was only to beexpected should Europeans wantto keep their prized ‘Social

Model’. The French veto of theConstitution, the German sup-port for their welfare state, andthe new ‘economic patriotism’can be viewed as a European ver-sion of the more general world-wide phenomenon of blowback.Six years ago I suggested that ‘agreat world drama is beingplayed out before our eyesbetween the ‘neo-liberal’ globaleconomy and the Europeansocial model’ (Haseler 2000), thatthey were mutually contradicto-ry, and that, over time, onewould have to give way to theother. Today, the battle lines arestill tightly drawn. And it isincreasingly apparent that thevery existence of the EuropeanSocial Model – with its regulato-ry frameworks, its social spend-ing, its protected labour markets

ing the single market. However,many of the Commission’s singlemarket improvements are justthat – nothing to do with blindlyaccepting globalisation, butrather increasing competitionwithin the EU economy, an alto-gether different proposition.Today’s Commission, like thebroader European polity, is in noway under the sway of the ‘neo-liberal’ globalist ideologes. It isbetter seen as containing a spec-trum from ‘neo-liberals’ to socialdemocrats – from moderate glob-alisers to moderate protectionists

– with the winner not yet decid-ed, and all to play for.

In one sense, of course, theCommission will, by the verydynamic inherent in its‘European-wide’ vision, viewthings through a ‘protectionist’lens, a focus which, as the worldmorphs into continental tradeblocs, will sharpen. Already, theEuropean Commission is secur-ing quasi-protectionist tradeagreements with Asian countriesabout shoes and clothing andcontinues to protect Europeanagriculture in its trading agree-ments. Intriguingly, ‘protection-ism’ in agriculture is slowlybecoming less subject to criti-cism as people become aware ofthe need for the continent, in adangerous world, to remain self-sufficient in food. US aggressive-

But, no matter the demonis-ing, Europeans are more andmore eager to find sensible alter-natives to the ravages inflictedby the ‘neo-liberal’ global order.A fully developed and intellectu-ally coherent paradigm toreplace ‘neo-liberal’ globalismhas not yet been secured, but theoutline of a new approach isbeginning to emerge. It can beseen in the recent stirrings ofwhat is often described as ‘eco-nomic patriotism’ as, one afteranother, European nation-stateshave sought to protect theirindustries and services from for-eign take-overs – often global,though often, too, European inorigin. This ‘patriotic protection-ism’ is often short-sighted andcounter-productive – certainly sowhen aimed against fellowEuropeans – but its objective, forsocial democrats, is understand-able, for it amounts to anattempt to shore up Europe’s stilldecent social and economic lifeagainst the ravages of global cap-ital. It is also born out of a realfrustration – exhibited particular-ly in France but much morewidely too – with the EuropeanCommission’s perceived ‘neo-lib-eral’ impulses. From this per-spective, if the Commission wasdoing its job at the continentallevel then national governmentswould not need to resort to‘patriotic protectionism’.

Yet, in many respects theCommission is unfairly criti-cised. It certainly contains its fairshare of ‘neo-liberal’ and globalistenthusiasts (President Barossohimself has a strong ‘neo-liberal’background). Also, the originalun-amended Bolkestein directivewas an example of theCommission’s ‘neo-liberal’impulses, as seemingly are manyof the directives aimed at perfect-


“A fully developed and intellectuallycoherent paradigm to replace neo-liberal globalism has not yet beensecured, but the outline of a newapproach is beginning to emerge”

tained in a global economywhich demands that Europeremain ‘competitive’ – in otherwords, cut its costs. These costs,primarily wages and taxes (whatbusinesses call ‘social costs’),are deemed too high and thus, itis argued, mobile capital willmove (outsource) from Europeor blackmail governments (bythreatening to move) or both. Itis a compelling argument.

And social democrats canonly counter this argument by anew approach to trade. In thiscontest between welfare statesand mobile capital the onlyasset in the hands of the govern-ments of the welfare states isthe control of the market – inEurope, the largest single mar-ket in the world. Global corpo-rations might want to cut costsby moving their operationsabroad, but, even more impor-tant to them is access to the bigmarkets of the world for theirgoods and services. ‘Free-trade’is not just a mantra it is neces-sary for the survival. But as longas social democratic govern-ments can be persuaded not tointerfere in the ‘free trade’ sys-tem, in the almost sacred flowof ‘free trade’, then democrati-cally elected politicians willremain, compared to their cor-porate contestants, completelyimpotent.

This is why social democratsneed to supplement the protec-tion of their welfare states by a‘strategic’ – as opposed to anideological or indeed religious –view of ‘free trade.’ We need tolook at trade policy as a key tool– a strategic tool – in interven-ing in and thus shaping theglobal economy – that is shap-ing to the needs of the Europeanpublics and European jobsrather than global businesses.

ously seek to encourage thetruly progressive aspects of theglobalist system – the greatercommunications, the greaterpossibilities for understandingcultural diversity, the opportu-nities for travel, the universal-ism of human rights. But, at thesame time no-one should befooled into believing that weneed to accept the totality of theglobal system, to accept globali-sation ‘warts and all’. There isabsolutely no contradictionbetween accepting positiveaspects of globalism and, at thesame time, intervening in theeconomic globalisation processto place a limit on the ability offootloose global capital to weak-en and coarsen societies.

Of course, it is easier to assertthe need to shape globalisationthan to answer the question:how can it be done? In onesense European social democ-rats do not need to do anythingexcept defend what they have.For simply by resisting dilutionsto Europe’s Social Model – bysticking with social democraticlabour policies, tax policies, reg-ulatory system and welfare pro-visions – we are effectivelyintervening in the global marketby not letting footloose capitalhave its sway. It is this resist-ance to the suzerainty of mobilecapital – and to the potentialexample it sets around theworld – which so often drives‘neo-liberals’ and ‘neo-conserva-tives’ in Washington and WallStreet into wild opposition toour European Social Modelleading to propagandisticattacks on the ‘sclerosis’ of theEuropean economy.

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

as much as its trade policies – isitself an intervention in the ‘neo-liberal’ globalisation process, anda form of protectionism. Indeedpreserving the ‘Social Model’ rep-resents a key building bloc of thenew protectionism – nothing lessthan an intervention in theprocess and an attempt to shapeglobalisation to meet our needsrather than having it impose itsrules upon us.

What Europe’s resistance toglobalisation now adds up to isnot just a simple rejection of itseconomic and financial rules,but, rather, the emergence of a‘strategic’ and ‘continental’, asopposed to an ‘ideological’ and’universalist’, approach to worldproblems. Social democratsmust be clear that we do notreject the idea of universalismwhen it is used politically andmorally – to affirm the equalityof humankind and the value ofeach person no matter nation,race or religion. But when usedeconomically ‘universalism’ – orglobalisation or globalism – isoften used simply as a cloak fora universal imposition of corpo-rate business-led economics,politics and ethics. In otherwords a ‘universal’ world orderproductive of huge inequalitiesin the Western world and in thedeveloping world the binding ofpoor areas into a system thatwill keep them poor.

BY CONTRAST, INSTEADof accepting the business-dominated global system

social democrats should seek toshape it. And shaping the sys-tem means what is says: neitherthe craven acceptance of allglobalisation’s characteristics,nor the blind opposition to itspositive features. For instance,social democrats would obvi-


great transnational corporations.Yet, the stark fact remains

that the European nation statesare too small for this strategicpurpose. Even the biggest(Germany) finds it difficult towithstand the global pressuresexerted on it, and without theunified power of the single mar-ket and single currency, mightalready have succumbed to theerosion of its welfare state. Thatis why a ‘neo-protectionist’strategic approach will onlywork in a Europe-wide context.Compared to nation states of 50million or so, a single market ofover 450 million people with asingle currency of over 350 mil-lion has real power – and pos-sesses the tools to properlynegotiate with corporations andmobile global capital.

It all amounts to the urgentneed, for those who believe in‘Social Europe’, to continue withthe integration of the continentand the building of a Europeanpolity – that is, a ‘continent-state’to replace the old fashioned andincreasingly impotent nationstates. The American global the-orist Philip Bobbitt in his large,portentous work The Sheild ofAchilles; War, Peace and theCourse of History, has pioneeredthe clear and, by its own lights,compelling, US vision of a future‘neo-liberal’ order in which thepresent European nation statesmorph into ‘market states’ inwhich they become little morethan subordinate agents of theneeds of global capital in a mar-ketised globe. This indeed is thefate that awaits the Europeannations (even the large ones)should they turn their backs onthe building of their ‘continent-state’.

Fear of this fate is alreadyleading other continents to fol-

to show some solidarity withsouthern European workerswhose jobs are.

Nowhere is a European strate-gic approach needed more thanin the now urgent issue of energysupplies. Market forces – particu-larly global market forces – will,given free rein, simply placeEurope at a huge disadvantage inattempting to negotiate a single,unified European policy with theenergy producers. Indeed, theobvious public understanding ofthe need for a Europe-wide ener-gy strategy will help pro-Europeans and social democratsin their domestic political battleswith Eurosceptic globalists and‘neo-liberals’ by telling the story,loud and clear, about how global-ists place these ‘market forces(usually code for big corporatemoney making) ahead of thesecurity of the people.

This new strategic approach,as hopefully it supplants the uni-versalist ideology of the market,cannot, however, be wholly neu-tral on the great sensitive ques-tion of the role of the state withinthe domestic European economy.In this sense this new paradigmcan only be a left-of-centre idea –for it demands a state strongenough to be able to intervene inthe global market and/or to bal-ance off and negotiate with glob-al market forces, normally the

To some extent the Counciland Commission already takesuch a strategic view, butEuropean trade policy couldmake a greater distinction – inprinciple and not just whenpressed – between sectors (forinstance between those at riskfrom low-cost centres and thosenot at risk, and those necessaryfor security and those not); andit could also distinguishbetween trade policies whichserved to featherbed domesticproducers against fair foreigncompetition (bad), and, on theother hand, trade policies whichprotect domestic producersagainst unfair low-cost globalcompetitors (good).

Above all, a social-democratic,strategic trade policy wouldresist the now very powerfuland essentially short-term pressures exerted on TradeCommissioner Peter Mandelsonfrom European retailers to allowunfair low-cost imports at theexpense of manufacturing jobs.Also, a strategic view of trademeans a long-term view, or, atthe very least, a medium-termview – a vantage-point whichwould lead those northernEuropean social democrats, incountries like Sweden andBritain where services and hi-tech industries are not yetthreatened by low-cost trade,


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

into the last half of the nine-teenth century, and then therewas, as John Ralston Saul haspointed out, a ‘wonderfully hyp-ocritical debate’ on Englishcloth versus Indian as ‘even atthe height of the free trade mor-alizing furor, the Manchestermerchants – the true believersof true believers – saw no con-tradiction in yet again not giv-ing India its fair tradingchance.’ (Saul 2005)

In an excellent, technical,example of the needed strategic– indeed protectionist –approach to trade, Robert Wade,Professor of Political Economy atthe London School ofEconomics, has argued that thedeveloping countries shouldpush for rules that allow them‘more latitude to set tariff levelsin line with the maturity of theirindustries, and with variation

the poor areas of the world bycutting them off from Westernmarkets. Yet, a very powerfulbody of critical literature – ledby Joseph Stiglitz amongst oth-ers – has amply shown the limi-tations of this line of argumentby pointing to how the‘Washington Consensus’ hasforced less developed countriesto order their economic andsocial life according to westernneeds. In essence, the globalistorder has served the often unin-tended – but nonetheless devas-tating – function of blockingthese poor regions from devel-oping strong domestic markets.After all, during the rise of theirown capitalist economies, theDutch, British and Americansall protected their own fledglingdomestic markets. In Britain’scase the ‘free trade’ mania didnot get off the ground until well

low the EU lead by developingincipient ‘continent states’based around regional economicgroupings – such as Mercosurand ASEAN. And the sub-text ofthese groupings is obvious: theywill enable these less developedeconomies to develop a way for-ward based upon a more ‘pro-tectionist’ and strategicapproach. Indeed, they repre-sent a recognition, ofteninchoate, that ideologically driv-en global ‘free trade’ and theglobal ‘free market’ have beenruinous for many of these poorareas of the world.

‘Neo-liberal’ advocates oftenappeal to the liberal and com-passionate instincts ofEuropeans and Americans byarguing that a world of tradeblocs, of protectionism, evenmoderate strategic ‘neo-protec-tionism’, will seriously damage


Social EuropeA continent's answer to market fundamentalismEdited by Detlev Albers, Stephen Haseler and Henning Meyer

European integration is more, much more, than the economic integra-tion of markets. It has, and needs, a strong political dimension. Indeed,social democrats need to emphasise the primacy of politics; and, withinpolitics, the primacy of democracy.

In future debates about the European Social Model we cannot dilutethe universal objectives of economic democracy and social justice,which have been visionary in the past and remain highly relevanttoday. The European Social Model needs a much bigger European con-sciousness with much more conscious European players if it is to besustained against internal and external pressures. Only if this isachieved will the European Social Model also become attractive toother parts of the world. Who else other than the European Left is fit tolead this undertaking?

£12.99 RRPorder your copy at

www.social-europe.com

References

Bobbitt, Philip (2002): TheShield of Achilles: War, Peaceand the Course of History,London.

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

Haseler, Stephen (2000): TheSuper-Rich. The unjust newworld of global capitalism,London.

Krugman, Paul (2003): TheGreat Unraveling: Losing OurWay in the New Century, NewYork.

Rifkin, Jeremy (2004): TheEuropean Dream: How Europe’sVision of the Future is QuietlyEclipsing the American Dream,New York.

Saul, John Ralston (2005): TheCollapse of Globalism: And theRe-Invention of the World,London.

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

Wade, Robert (2006): ‘The DohaTalks Must Fail For The Sake ofthe World’s Poor’ The Guardian,3rd July.

ing the hey-day of the ‘neo-liber-al’ order, about advocating sucha strong state. This, of course, isa reaction against the type ofoverweening state that was pro-posed by the left-wing socialistsof the 1970’s and 1980’s; but, wenow have an overweening ‘mar-ket state’ and business culturethat desperately needs to be con-strained.

It should also be remem-bered that only if the state(whether local, regional,national or ‘continental’) is suf-ficiently powerful will it beable to guarantee and enforcethe great liberal idea of humanrights. And only if it is strongenough will it be able to takeon the entrenched power ofbusiness and begin to bring thegreat social democratic idea of‘democracy in the workplace’to the modern company andcorporation through employees,trade unions and stakeholdershaving a real say in the firmsthey work for.

Europeans discovered capital-ism. It has served us very well –but the beginning of wisdomtells us that it serves us wellonly when it is limited and con-strained. However, the raw andrampant global capitalismunleashed in the last twodecades threatens to undermineeverything that European socialdemocrats stand for. That iswhy in the coming era theEuropean left and left-of-centrewill need not only to challenge‘neo-liberal’ globalisation butbegin to define itself, andEurope, by such a challenge.Put another way, the EuropeanSocial Model, and the neo-pro-tectionist strategy needed todefend it, may well become thekey to establishing that elusiveEuropean identity.

rather than uniformity in tariffsacross industries in line with dif-ferences in the time needed forupgrading.’ (Wade 2006)

And in this sense, therefore,in the great game of globalisa-tion’s winners and losers, theless developed poorer regions ofthe world line up, so to speak,with the working populations ofEurope and America against thepresent ‘neo-liberal’ globalorder, whereas the large Westerncorporations line up with Chinaand India in favour.

Thus the arguments for a newstrategic protectionism are notjust economic. They are alsofundamentally moral and politi-cal – in the sense that the global‘neo-liberal’ order, if leftunchecked, will not only dra-matically increase inequalityand poverty but will also – byvirtue of this inequality andpauperisation – put at risk themechanisms that nourish andprotect democracy and humanrights. Democracy and civil andhuman rights are, essentially,political conceptions, the prod-uct of and nurtured by politicalinstitutions. Thus, defendingdemocracy inevitably involves areassertion of the power of poli-tics over economics. In thisbusiness-dominated era inwhich economics is becomingreligion, a rebalancing of poli-tics and economics remains aformidable task.

But such a rebalancing willnot emerge out of thin air. Socialdemocrats will need to acceptthat counterbalancing corporateand business power can only beachieved by a strong state – thatis, the kind of mixed economystate Europeans got used to inthe 1960’s. But many socialdemocrats have been squeamishand defensive, particularly dur-


To Reform or to Start from Scratch?

INNOVATIONS DO NOT fallfrom heaven like manna. Norcan they be jump-started by

policy campaigns no matter howmuch money is pumped in.Innovations are the result ofgradually acquired abilities inscience, business, and society.They involve receptive patternsof thinking and acting nested ina framework of economic andsocial institutions, in an estab-lished social system of produc-tion that, ideally, becomes asmoothly functioning innovationmachine. The ability to innovatemeans the art of creating new

markets and new rules of thegame whose adoption improvespeople’s productivity and oppor-tunities in life, whether throughnovel developments, inventions,other scientific insights, or cre-ative thinking and behavior. Theability to innovate is associatedwith the hope for a better life

and for other kinds of ‘progress.’It is essential to every societyresting on the belief that it canshape its own future.

Germany has long had a first-rate innovation machine. It isthus all the more poignant thatits ability to innovate and,hence, its competitiveness andsustainability is now sorelydoubted at home and abroad.According to critics and others,it is not innovative ability per sethat the German economy lacksbut rather the power to innovateon certain markets that thewhole world assumes to be aus-picious. They are commonlyconsidered part of the neweconomy. Opinion differs onwhat to do about this weaknessin innovation. Some observersadvocate reform of the existingsocial system of production.They seek to free it of sclerosis,overextension, and the runawaygrowth of welfare state activitiesthroughout decades of success.Others regard this system asobsolete and see a compellingneed to start anew. They arguefor replacing the existing pro-duction regime with a new oneand for adopting new socialrules modeled on those in theUnited States. Most participantsin the present discussion, how-ever, see the cure in a motleycombination of reforms and rad-ical changes that they stir

The German InnovationMachine: Dead or Alive?

Werner AbelshauserProfessor of Economic History atBielefeld University in Germany

“The ability to innovate is associatedwith the hope for a better life and forother kinds of ‘progress’. It is essentialto every society resting on the beliefthat it can shape its own future”


make it difficult for today’sGerman economy to accommo-date new circumstances quickly.The system has strengths andweaknesses that condition eachother. What it gains throughcooperation, stability, and sus-tainability, and the competitive-ness it enjoys on many marketsbecause of these comparativeinstitutional cost advantages,keep it from adapting rapidly inhighly innovative markets. Itselements are so tightly inter-linked that they preclude selec-tive strategies for innovation. Adecision must be made for oragainst the entire existing socialsystem of production. It is all ornothing.

incapable of adapting to new,innovative product markets, forwhich globalisation is said torequire highly flexible entrepre-neurial decision-makingprocesses. Although faith in theeconomic and social superiorityof the ‘Rhenish model of capi-talism’ (Michel Albert) publiclyprevailed just ten years ago (andstill does among many experts),mounting scepticism hasprompted speculation about thenecessity of retreat, given thepolitical, media-related, andcultural influences of itsAmerican competitor. The prop-erties of the ‘German model’that were prized by earlierreformers abroad - the long-termcharacter of entrepreneurialdecision-making and theGerman production regime’sclose-knit cooperative structures- are the very ones that seem to

together without too muchbother. A clear basis for deci-sions is possible only if thisconfusion is overcome.

The German Model under the GunThe cardinal question iswhether the German innovationmachine - the country’s prevail-ing social system of productionand its social rules - can copewith contemporary challenges.At first glance, one might not besure, for most of its parts aremore than a century old (seeTable 1). Reservations have cen-tered on the specificallyGerman principles underlyingthe organisation of the economy(production regimes). Persistentmass unemployment since thelate 1970s has led to increasing-ly frequent claims that theGerman production regime is


Table: Institutional Framework ofthe German Economy

sionally driving it almost com-pletely from the public mind.There is broad agreement, too,that the rise of intangible factorsof production and the centralrole of science and research inthe innovativeness of postindus-trial national economies alsobegan in the late nineteenth cen-tury. Not a few economists seethis second economic revolutionand its associated new institu-tional frameworks as the onset ofan economic watershed whosemagnitude far surpassed that ofthe eighteenth century’sIndustrial Revolution and ush-ered in the end of the industrialage more than a century ago.

Indisputably, Germany rankedwith the United States as one ofthe pioneers of that develop-ment and is still stronglymarked by it. This fact is reflect-ed in Germany’s extreme orien-tation to the world market andthe dominance of New Industry,whose value-added is of anessentially intangible nature.Given this historical back-ground, there is little reason toassume that the establishedsocial system of production inGermany is less conducive toinnovation than the Americansystem or that it fails to preparethe country for current chal-lenges, which, historicallyspeaking, are not all that new.

The German economy isunder fire. Dissatisfaction withcorporate governance is espe-cially intense. It extends to thefinancial system, whose focuson all-purpose banks is blamedfor the alleged undersupply ofventure capital in Germany’sNew Economy. There is alsodiscontent with the system ofindustrial relations, whoseGerman flagship - codetermi-nation, or the right of workersto participate in controllingshop-floor conditions and man-agement decision-making - pre-vents quick decisions by seniormanagement. The organisationof businesses at the intercom-pany level is reproached forbeing excessively coordinatedby the associations, whichleads to restraint of competi-tion and overregulation of thelabour market. Lastly, the dualsystem of vocational trainingstands accused of compound-ing and perpetuating the entirequandary through standardisa-tion of qualifications andthrough creation of long-termmutual commitments betweenemployer and employee.

Ask, however, what kind ofchallenges the system is expect-ed to cope with, and the per-spective changes. The two keyones facing the economy andsociety in the early twenty-firstcentury - globalisation of themarkets and the primacy of sci-entific methods and theories inthe production process - werealready playing their part whentoday’s innovation machine tookshape more than a hundredyears ago. Almost all economichistorians agree that the globali-sation process started in the latenineteenth century and thecatastrophes of the twentiethcentury only interrupted it, occa-


Equally clear, however, is acertain market weakness forhighly innovative products.This point lies where the flowof results from basic researchmust be converted quickly intoprofitable economic and socialpossibilities, as on the marketfor information technology (IT),biotechnology, and geneticengineering. A classic case isthe embarrassing fiasco of theattempt to equip Germanexpressways with a toll-collec-tion system based on highlyinnovative IT. Unable to con-centrate fully on solving theproblem, the managements ofthe two global businesses main-

ly involved, DaimlerChryslerand Deutsche Telekom, evident-ly cannot do what would be amatter of course in U.S. compa-nies: respond flexibly to thefatal consequences that thelooming flop would have fortheir reputations. It is not co-determination that limits themaneuvering room of theseGerman corporations. Nor isthere any lack of technical solu-tions to the problems. The mis-management clearly resultsfrom a lack of experience indealing with enormously com-plex and exceedingly innova-tive production processes.

In Germany the social systemof production is geared to what

“There is little reason to assume that the established social system of production in Germany is less conducive to innovation than theAmerican system”

with a relatively high degree ofspecialisation and productivity.The nation therefore weatherscompetition and cyclical fluctua-tions especially well. This capac-ity is manifested in the Germanexport economy’s ability todefend its position despite thesoaring number of competitorson the world market in the pre-vious decade.

Of course, Germany’s contin-uous success with exports sincethe early 1950s is still based onthe comparative institutionalcost advantages that the Germaneconomy enjoys on markets fordiversified quality products.Machine building, for example,a pivotal industry in every com-petitive export ‘cluster’, is noexception. Germany has vastlymore competitive lines ofmachine building than theUnited States does. Conversely,the United States is far betterpositioned than Germany on themarket for international servic-es, where the management oflarge and complex systemscounts as much as access to theskills of well-trained self-employed persons. The numeri-cal relations of the two coun-tries’ national sectors are evenmore imbalanced in sectorswhere the use of electroniccomponents is escalating, as isthe case on the market for officeappliances and Telecom prod-ucts. Fears that this gap couldquickly widen have provenunfounded. In fact, a market hasdeveloped in the manufacturingof machines for products of theNew Economy, with the innova-tiveness of the Germanmachine-building industrybeing demonstrated by a dispro-portionately great increase inpatent registrations. TheGerman economy appears to be

referred to as ‘corporations’)exist between the individualand the state. As a historicalcompromise consisting of theconservative social welfarestate, Catholic social doctrine,and social democratic will forreform, the German economicorder has long stood for socialstability and new economicpossibilities. It opens long-termhorizons for adventurous business strategies and deci-sions, ensures a superior stan-dard of quality and a motivatedworkforce, and affords the col-lective inputs from basicresearch that were crucial tothis production pattern. Thehigh density and integration ofthe institutional framework andthe capacity for market sociabil-ity -the basis for building trustand reducing costs - areresources that have grown overlong periods (see Table 1) andowe their existence to the pecu-liarities of German industrialdevelopment.

This system still has notablepotential for innovation, asshown by both the specialisationindex for patents and by the bal-ance-of-trade accounts. The mostdynamic performance ofGermany’s export economy is inautomotive manufacturing,machine building, and the chem-ical industry, whereas it has hadto curtail its presence consider-ably on the market for modernoffice machines and other ITcomponents. Although theGerman export economy, unlikeits American or Japanese coun-terparts, is not the completemaster of any segment of theworld market, the breadth anddepth of its international posi-tion is surprising. This breadthindicates a strategy of differenti-ation centering on industries

Wolfgang Streeck calls ‘diversi-fied quality production’. Aswith highly innovative tech-nologies, this (post)industrialmass customisation for theworld market is about produc-tion processes in which value-added stems ever less from theconversion of material, as itused to with the classical OldIndustry. It originates instead inintegrated knowledge aboutmany things, including marketneeds, solutions to problemsthrough research and develop-ment, manufacturing processes,applications and processingpossibilities, and integratedservices that facilitate timelyproduction, delivery, financing,and the assurance of other qual-itative aspects. The Germaneconomy’s strengths tend to liewhere business, science, andindustry, working on the basisof established technologies andrules, develop economic andsocial process innovationswhose market success rests onthe ability to offer diversifiedquality production and trust-building sociability. Thisdescription defines the neweconomy that developed earlyin Germany and still dominatesnumerous markets. It differsfrom the New Economy only inits applications and markets,not in its ability to innovate.

Germany’s Resources: Quality,Networking, TrustThis manner of production isembedded in a coordinatedmarket economy, which isorganised in such a way thatneither the individual nor thestate sets the tone. The rules bywhich it operates stem from adense network of institutionsand organisations whose actorsin civil society (which Hegel


regime has really become obso-lete or whether it requires inter-nal reform in order to adapt it tonew external developments, towhich it has long been orientedin principle. In contrast, theonly response that seems out ofthe question is that of replacingindividual elements of the sys-tem with ‘modules’ alien to it.The discrete components meshtightly with each other. Theresulting synergies account formuch of the system’s success.

There are already clear signsthat entrepreneurial reformstrategies based on conceptsimported from the U.S. produc-tion regime have failed, as is thecase with numerous transna-tional companies. Having expe-rienced an initial phase ofunconditional adaptation toAmerican practices of corporategovernance, financing, or indus-trial relations, German multina-tionals are beginning to ponderwhether that change itself is thecause of their acute problems.The major German banks, abranch of the New Economythat has compelled this strategyof fleeing the portfolio of itsown, long-standing sectorialculture, have not been servedwell by this strategy. What hashappened to them could jeopar-dise the entire economy if itsportfolio is overextended byselective reform. Despite mas-sive efforts, the German bankshave neither gained a footing ininvestment banking nor man-aged to straddle both cultureswithout neglecting their tradi-tional core business. The eco-nomic and moral decline ofDeutsche Bank is an instructiveexample.

Change in the social systemof production is thereforebound to encroach on the iden-

Is the German Economy inDanger of Failing to Keep Up?The cardinal question for thefuture then becomes whetherthe German production regimecan keep proving its strength inthe phase of a product cyclewhen basic innovations moveon to process innovations. Canit repeatedly come throughwhen newly developed tech-nologies reach the stage atwhich the main thing is toutilise them for specific eco-nomic purposes? If so, that iswhere the German productionregime could bring its compara-tive advantages fully into play.The German production regimewould be able to demonstrateits strengths again and again.

Lingering weaknesses wouldthen be all the easier to offsetthrough compensatory strate-gies, such as direct foreigninvestment, in order to exploitdifferent comparative institu-tional and material advantages.

However, if the German econ-omy steadily loses its ability todevelop new product cycles onits own, it could eventually failto keep up with shaping newproduct cycles. The overhaul ofthe German economy’s institu-tional framework would thenhave to be tackled seriously.Given the present discussion,however, the question would bewhether the German production

catching up with the U.S. econ-omy and seems to be pressingon with ‘innovative productmodernisation,’ albeit along dif-ferent paths.

Not surprisingly, Germancompanies have intensifiedtheir focus on technology,innovation, and customer-friendly product design.Pursuing this strategy, theyoften tend towards over-engi-neering and favour qualityover price to a greater degreethan competition necessitates.American companies aspire toprice leadership more fre-quently than German compa-nies do. No longer completelydominating electronic busi-ness, American companies

have allowed their Germanrivals to take the lead in apply-ing methods that link comput-er-aided design, work plan-ning, and production, althoughthese CAD systems originatedin American software laborato-ries of the aerospace industry.This example reveals thatGermany’s New Economy isstrong primarily at convertingestablished technologies intoeconomic and social processinnovations whose successrests partly on the capacity fordiversified quality productionand trust-building sociability.Germany’s New Economycould live well with that role.


“American companies have allowedtheir German rivals to take the leadin applying methods that link com-puter-aided design, work planning,and production”

roots challenging Windows.Germany, by contrast, lacks eco-nomic incentives for reforms, aproblem resulting from satiationand a desire to maintain the sta-tus quo. But the country doeshave what it takes for reform.

Build on Your Own StrengthsRather than Imitate Those ofOthersThe most important thing thatGerman policy currently needsis a clear picture of the coun-try’s economic portfolio. Whatthe economy can and cannot dois less a function of heroic deci-sions by policy-makers or eco-nomic elites than of abidingexperience on markets and withcorporate or economic cultures.Research on organisationalbehaviour teaches that attemptsto move against the grain ofone’s corporate culture can fail,and often has failed, when itmeans leaving an establishedportfolio so as to succeed onweaker markets. Since the1990s, most German companieshave therefore concentrated ontheir core business in order tooptimise their strengths. Thisrecommendation would suit theGerman social system of pro-duction with its powerful eco-nomic culture. Institutions thathave taken shape of extendedperiods can be destroyed quick-ly, but it takes a long time tobuild new rules and economicstructures - with no guaranteethat such a radical operationwill succeed.

As long as the German inno-vation machine is not certifiablydrawing its last breath, there isno meaningful alternative to try-ing to liberate it from decades ofslag and to keep it compatiblewith new developments, includ-ing demographic ones. This per-

tion of the global New Economy.On the contrary, theScandinavians have succeededin transforming the characteris-tics of their own social systemof production into comparativecompetitive advantages. Aunion membership rate of 80per cent - as is the case with theworkforce in Finland -need notcontradict the inherent laws ofthe new economy. That degreeof organization can insteadguarantee the stability of labourrelations, which facilitates flexi-bility in shaping venturesomebusiness strategies on innova-tive markets. In return, theunions have the security of thewelfare state and the advantagesthat a growing economy meansfor employment and wage poli-cy. A comparatively high rate oftaxes and levies is productiveand politically tolerable as longas it provides all citizens withan attractive level of welfarebenefits, a high quality of life,and the infrastructure that isnecessary for people and mar-kets to perform well. The wel-fare state need not hinder thecontinued development of thenew economy. It can open newmarkets, as is shown by theFinnish example of linkinghealth care and IT.

As similar as Finland andGermany are in the patternunderlying their respectivesocial systems of production,they are just as different inanother respect. Emerging in the1990s from relative poverty anda state of absolute backward-ness in IT, Finland joined theworld’s top ranks in that field,boasting a cluster of more than3,000 IT businesses with Nokiaas corporate icon - not to men-tion Linux, an open sourceoperating system with Finnish

tity of German society more pro-foundly than most critics areaware when they call for thor-ough modernisation. That kindof discontinuity would not beunprecedented in German eco-nomic history. The era of theGerman empire gives an idea ofhow a production regime (theliberal market economy) can bequickly replaced by another (thecoordinated market economy)after a long-smoldering crisis.But it also illustrates the ordealsthat a society may have toendure in the process.

Efficiency in the Welfare State: FinlandThere is no reason to doubt thatthe coordinated market econo-my can creatively adopt thenew developments arising fromthe knowledge and informationsociety. Evidence that it cantake them on lies in Germany’sown historical experience.There are also other examplesbearing out the experience thata welfare state in which cooper-ative labour relations prevailand in which government poli-cies shape much of the overallcontext in which business isconducted is quite able to standup to the American model on itsown ground. Finland’s rise toglobal leadership as a supplierof IT in the 1990s verified thepossibility of achieving a highlevel of technology and compet-itiveness from quite differentpoints of departure and eco-nomic development. TheScandinavians have not suf-fered the social inequality thatthe Californian model seems tofoster, nor have they resorted tothe authoritarian politicalmeans that Singapore and othersoutheast Asian ‘Tiger States’use to survive in the competi-


seems indispensable to the com-prehensive financing of invest-ment in a national economy asdecentralised and oriented tosmall business as Germany’s is.Above all, a production regimebased on diversified qualitywork is inconceivable without atraining and research systemwhose unrestricted access guar-antees equal economic opportu-nity as well as the full mobilisa-tion and use of human capital.Elite universities are notrequired in order to providethose essentials. The Germaninnovation machine dependsinstead on high-quality broadeducation. Once that quality isensured, however, elite univer-sities would not hurt. Cuttingedge research, too, has longbeen among the institutionalfoundations of the innovative-ness of Germany’s social systemof production.

Since the end of the greatantagonism between the eco-nomic systems in East andWest, divergent cultural factorshave conditioned the globaleconomy more and more. Thatreality suggests a course ofaction focused on streamliningthe institutional framework yetalso retaining its characteristicfeatures and emphasizing itscompetitiveness. A good deal ofevidence refutes the notion thatthere is only one way to ensurelong-term competitiveness onthe world market. That pathneed not be that of homoge-neous entrepreneurial ‘bestpractice’ shaped by the neoclas-sical ideal of deregulated mar-kets and unrestricted entrepre-neurial prerogatives. Historydemonstrates that different mar-ket conditions veritably demandinstitutional variants on thesupply side. Production regimes

spective should direct the atten-tion of reformers first to theerroneous decisions of the1970s, which centered on theanachronistic industrial world-view rooted in the period of theeconomic miracle. There is nota moment to lose in adaptingGermany’s economic and socialpolicy to postindustrial condi-tions. That adjustment is longoverdue.

State intervention policyshould begin at home, that is,

with a redefinition of the gov-ernment’s role in the economy.Granted, the German innovationmachine is inconceivable with-out its integration in the collec-tive flow of goods attributable tothe government’s macroeconom-ic policies that set the overallcontext in which business isconducted. But that relationshipdoes not mean unconditionalacceptance of every protracted,rampant increase of state influ-ence on the economy. Havingissued from specific nineteenthcentury conditions that do notpertain anymore, many econom-ic activities of the state, localcommunities, and regionalauthorities no longer automati-cally seem to warrant continua-tion. The areas of state involve-ment include public electricutilities; the transport and com-munications sector; financialinstitutions; the health-care sys-


tem; public and private safety;and the broad field of educa-tion, training, and research. Themore structural change hasmoved macroeconomic demandfor goods and services intothese traditionally state-run sec-tors in Germany, the less thestate has been able to respondappropriately on the supplyside. A number of restrictionsprevent the public sector fromflexibly adapting its economicactivity to market conditions

and from expanding its capacityto meet rising demand. Legaland mental vestiges of cameral-ist accounting, lack of manage-ment praxis, underdevelopedcost-consciousness, legal andpolitical resistance to deregulat-ed pricing of public goods andservices, and, most of all, politi-cal constraints on using tax rev-enues to finance additional jobs- all these problems make thepublic sector appear unsuitablefor managing the very areas ofthe economy that are the mostdynamic.

Privatisation usually seems aproven remedy - provided itdoes not encroach on the state’seconomic role where it is stillimportant for ensuring the effi-ciency of the social system ofproduction. Savings banks aresuch an exception, for theircommitment to the commonweal and to regional tasks still

“There is not a moment to lose inadapting Germany’s economic andsocial policy to postindustrial conditions. That adjustment is long overdue”

It was first presented at theFriedrich Ebert Foundation inter-national seminar ‘European SocialModels and the future of socialdemocracy’ in Berlin on Friday,31st March 2006.

characterised by a dense institu-tional landscape in which fixedrules have evolved, as in mostEuropean countries, need not beless competitive than U.S.-stylenational economies with weakinstitutions, which leave organi-sation and controllability prima-rily up to markets and hierar-chies. German economic policyat the dawn of the twenty-firstcentury should therefore not beconfined to imitating innovationregimes of successful competi-tors but rather should creativelyexpand the economy’s owncomparative institutional advan-tages.

This essay is based on theauthor’s recent study TheDynamics of German Industry.Germany’s Path toward the NewEconomy and the AmericanChallenge, New York, Oxford 2005.


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NEXT TO THE draft proposal fora European Constitution, theservice directive is the most

difficult and important legislative proj-ect being discussed at present in theEuropean Union.

After two years of negotiations in theEuropean Parliament, we have suc-ceeded in re-drafting and thoroughlychanging the text of the EuropeanCommission, which was entirely unsat-isfactory.

In February 2006, the EuropeanParliament adopted a proposal after thefirst reading and with a large majorityof almost 400 votes. This draft is nowthe basis for the next stage of the leg-islative procedure.

Ever since the beginning, the SocialistGroup has played a predominant role.During the debate in the EuropeanParliament, we were always very criticalof the guiding principle of the draftdirective, namely the ‘country of origin’principle, which we always saw as adanger for social benefits in Europe.

After long and difficult discussions,we managed to convince the otherpolitical groups that neither an overallrejection of the directive nor a rejectionof the Commission’s particular draftwould be reasonable solutions.

As rapporteur for the EuropeanParliament, I am very happy to havebeen able to come up with a strongcompromise between the differentpolitical groups. For a long time, thisseemed totally impossible because ourrespective stands on the more appro-priate instruments to open up markets

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

The negotiation marathon in theEuropean Parliament was marred byideological discussions. The breachbetween those defending the liberalproject of the Commission, and thosewho wanted to reject the overall direc-tive seemed impossible to heal. Onlywhen we managed to go beyond thediscussion on principles and started tolook for concrete responses to the realprotectionist barriers to the free trans-border movement of services, was acompromise possible.

The result is a good balance betweenopening up the service market and pre-serving the member states’ and theEuropean Union’s social benefits. Thefree movement of services is guaran-teed. At the same time, the existingrules and regulations in the memberstates on important fields such as pub-lic services, employment law, con-sumer protection and the environmentare safeguarded.

Another important asset is that theprinciple of country of origin has beentaken out of the draft. This principle,invented by the European Commissionand long defended by the conservativeand liberal Members of the EuropeanParliament, is not only removed fromthe legislative text but also disappearsas a basic principle of the directive.The service directive beast has there-fore lost its poison fangs.

The primacy of the rules and regula-tions of the service provider’s country oforigin would undoubtedly have led to a

The Service Directive – aSuccess for Social Europe


Evelyne GebhardtGerman Member ofthe EuropeanParliament (PES) andthe EP Rapporteur onthe Services Directive

negative competition between solidari-ty-based systems in the member statesand would have resulted in a race to thebottom for the working and living con-ditions of workers and their families.

An unregulated market would havedeveloped. Social benefits, environ-mental and consumer protection, andquality standards would have reachedthe lowest levels in the EU.

There would also have been greaterlegal insecurity because initially theEuropean Commission wanted to leavethe control of services solely to thecountry of origin. This regulation couldnot have been applied. Moreover, smalland medium-sized enterprises withoutstrong legal support would have beennegatively affected by these provisions.

The danger has now been removed.In the well-known article 16, the prin-ciple of country of origin no longerappears and has been replaced by afree movement of services.

According to the text of theEuropean Parliament, member statesshould guarantee the free access andprovision of services on their territo-ries. This general opening is importantto develop the great potential of theservice sector as an engine of economicgrowth and employment.

Protectionist barriers still to befound on the internal market are to beremoved. Some of the scenarios havebeen become famous: the Romaniantour guide, who had to have been bornin Rome or the painter from Aachenworking in Belgium, who can onlytransport his working tools in a carwith a Belgian number plate.

Such access restrictions are excludedthanks to a list of unacceptable prereq-uisites clearly spelled out in the direc-tive in order to set a legal precedent forthe European Court of Justice. Otherprerequisites are deemed unacceptableif they are discriminatory or unjustifiedfor reasons of public order, security orhealth or if they are not proportionateto the objective they aim to reach.

The peculiarity of the EuropeanParliament’s decision lies in the factthat market access is simplified but atthe same time, the rules and regula-tions of the country of destinationmust be respected. In order to do that,we have set powerful tools at the mem-ber states’ disposal: specific require-ments for service provision can bedefined for reasons of public order andsecurity, protection of the environmentand public health.

Likewise, services can be condi-tioned by specific authorisation rulesif necessary for pressing reasons ofgeneral interest. In addition to publicorder, health and security, thisincludes financial balance, socialsecurity, access to medical care for all,consumer protection, worker protec-tion, the fight against fraud, animalhealth, environmental protection andprotection of the cultural heritage orsocial, political and cultural objec-tives.

The suppression of the ‘country oforigin’ principle is highly importantbecause it has become the key motto ofthe Commission’s liberal efforts.However, the Parliament’s decisionleaves member states a good margin ofmanoeuvre to keep their own rules andregulations as destination countries,provided they do not behave in a pro-tectionist manner. Of course, the liber-als and conservatives were against theremoval of the ‘country of origin’ prin-ciple. The British Chamber ofCommerce even launched an appeal tokeep this principle.

Reason finally prevailed, as shownby the numerous positive reactions I


“The Parliament’s decision leaves mem-ber states a good margin of manoeuvre tokeep their own rules and regulations asdestination countries, provided they donot behave in a protectionist manner”

received, not only from the tradeunions but also from different localauthorities, arts and crafts organisa-tions, professional associations andnon-governmental organisations.

Contrary to the initial proposal ofthe European Commission, we man-aged to take important sectors out ofthe scope of the directive. These aremainly related to very sensitive serv-ices such as health care and socialservices or sectors that are alreadygoverned by sectoral directives suchas the directive on the posting ofworkers or the mutual recognition ofdegrees.

Services of general interest asdefined by the member states areexcluded, as well as social legislationor employment law, rules on healthand security in the workplace and evencollective agreements and the right tostrike. Temporary work agencies, portservices, audiovisual services, games,security services, criminal law andlawyers and notaries are also excludedfrom the scope of the directive.

One particular achievement is theexclusion of health services, independ-ently of their organisation, their func-tioning or of whether they are privateor public.

Another very important success isthat we managed to gather a majorityfor a total exclusion of social services,such as social housing, childcare andfamily services.

HOWEVER, IT IS still necessaryto improve the draft on theissue of services of general eco-

nomic interest. Indeed, in spite of somepossible restrictions available to mem-ber states, they are still under the scopeof the directive because of their eco-nomic nature. Member states can them-selves define services of general eco-nomic interest (SGEI), how they are tobe financed and organised and whichobligations they should be subjected to.The topic of SGEI is still pending andtherefore it will be an important issue

for the next legislative step.The PES Group in the European

Parliament has worked on the issue ofservices of general interest for sometime now and demands that a separatelegislative instrument be created forservices of general economic interest.Therefore, our group has launched theinitiative to elaborate a draft frame-work directive for these services incooperation with a group of experts.

The European Parliament’s decisionwas a great success for the socialdemocrats in Europe. Despite differ-ences in the Parliament that seemedirreconcilable, we managed to set theservices directive on the right trackthanks to a lot of commitment andstamina. At the first reading, already90per cent of the necessary changeswere adopted. This was already a verygood basis on which to pursue the leg-islative procedure and I will not allowany step backwards on what we havealready achieved.

The amended proposal made publicby the European Commission at thebeginning of April shows thatCommission President Barroso andCommissioner McCreevy have reallyunderstood the message of theEuropean Parliament and civil societyand have largely taken into account thevote in the EP. They have kept theirword and as they had promised duringthe plenary debate, they accepted theclear vote of the European Parliament.

Of course, some important demandsof the EP were not taken into account.However, the European Commissionhas understood that the Parliament’sproposal is the only possible solutionto advance quickly on the servicesdirective.

The European Parliament’s voteshows the right way: in the end, wewill need a directive without too muchred tape, and at the service of workersbecause competitiveness in Europedepends on them. This directiveshould also respect the member states’specificities and stop any danger of a


deterioration of working conditionsand salaries, quality and consumer andenvironmental protection. TheEuropean Union’s task is to see to thewell being of 470 million citizens, menand women, and not to serve the mar-ket and liberalisation freaks.

I feel it is very important to put citi-zens at the centre of our politicalaction and of our legislative work.Workers and their families should be atthe core of our concerns, not big com-panies and markets.

The European Parliament and thePES Group have done everything possi-ble to come up with a reasonable solu-tion for the services directive. Now, theball is in the Council’s court. In thelast Spring Summit, there was a clearmessage that the Council wants to goon with its work on the basis of theEP’s proposal. If this is the case, therewill indeed be a possibility to makequick progress in the legislativeprocess and conclude the wholeprocess by the end of the year. If not,nobody knows whether we will finallyhave a services directive or not.


“The European Parliament’s vote showsthe right way: in the end, we will need adirective without too much red tape, andat the service of workers because compet-itiveness in Europe depends on them”

ONE YEAR AGO almost tothe day, Europe experi-enced its greatest trial.

Two founding countries, Franceand the Netherlands, said ‘No’ tothe Constitutional Treaty theirgovernment and governmentalparties had unanimously sup-ported. This led to politicalshock and a psychological earth-quake. European constructionhad conveyed hidden languagesince its advent and this hadbeen expressed in all its ferocity.Europe’s weaknesses appeared inbroad daylight. Paralysis over-came all its decision makingprocesses.

The aim here is not to retracethe history of the French refer-endum or to restage the ‘Yes’and ‘No’ drama. I in no wayrepudiate my commitment tothe Treaty which representedthe progress of our values.However, I feel it is impossibleto speak of the future of theEuropean Social Model withoutunderstanding the underlyingcauses that led to this crisis,and without trying to find solu-tions to it.

I. State of the Situation in theEuropean Union To be honest, it must first beadmitted that the ‘No’ caused asmuch as revealed this crisis ofEurope. Two years ago, Iobserved that the four pillars on

which the European SocialModel is based have been shak-en: social inclusion throughwork has been undermined bymass unemployment and jobinsecurity; social advancementthrough education no long man-ages to curb the growth ininequality; redistribution by tax-ation is challenged by thosenations levying the lowest taxrates both inside and outsidethe Union; collective protectionfor health and retirement iscoming up against the problemof demographic ageing and therising imbalance between theemployed and unemployed.

I also highlighted the sever-ance between Europe and thepopular mass of society, whichwas caused by this rapid andill-managed evolution. It is thispopular mass which is theworst affected by the increasingprecariousness of the job mar-ket, delocalisation, productiveinvestments fuelling stockexchange speculation, andrestrictions on protection. It isthey who are the worst offbecause of the weakening of thesocial welfare state which usedto protect them against theunforeseen events of life. Itshould be acknowledged thatthey never saw Europe’s suc-cesses – the single market andthe currency – as real opportu-nities.

Europe’s Social Model

Jean-Marc AyraultChairman of the Socialist Group inthe French National Assembly


thing but minor: dilution of theEuropean political project; itsincapacity to respond to thenew economic and social inse-curities caused by globalisation;and ill-prepared, ill-explainedand all in all misunderstoodenlargement.

The dilution of the politicalproject is present before ourvery eyes: in the deadlock of theEuropean Council; in the lack ofany initiatives worthy of thename; in inward-lookingnations; and in a leadership cri-sis unprecedented since thefoundation of the EuropeanCommunity.

A political project to be rebuiltFor several years now, theFranco-German couple has nolonger shared a joint outlook.We see one another, speak toeach other and continue to holdexchanges. But the fervour hasdisappeared. Apart from thecommon opposition to the warin Iraq, the impetus formerlyprovided by our two nations isabating in meaningless rituals.This can be seen in the questionof the future of theConstitutional Treaty. Berlin isseeking to save whatever possi-ble. Paris wants to turn thepage. Other examples of thesedisputes could be quoted: taxa-tion; industrial mergers; thetransatlantic tie… Mrs Merkel’sspeech at the Bundestagexpressed the German desire togo beyond these disputes andinfuse new life into the Franco-German motor. But we will haveto wait for a replacement presi-dent in France if we want tomake a new start.

In this context, England felt itstime had come. Tony Blair’sspeech before the EuropeanParliament gave him the image

evolution, and on what theConstitutional Treaty proposed.They did so with full knowl-edge of the facts, after a debatethat was an honour to ourdemocracy.

Future of the Constitutional TreatyI wish to recall the following toavoid any nonsense. Many inBrussels and in European chan-celleries believe that a bit oftime, a change of president inParis, and a few marginal alter-ations to the text will suffice toget the French to vote again, thistime in favour. The minister forthe interior, Nicolas Sarkozy, apresidential candidate, nolonger proposes to consult thepeople or call a parliamentaryvote.

I still believe the Union needsa Constitutional Treaty. Thestates which ratified the Treatywant to safeguard it and Irespect that right. I acknowledgethe right of the others to vote.But politics consists of lookingsquarely at the reality. Nobodyshould believe that the Frenchcan be persuaded to revote onthe same text, with the samearguments. Nobody shouldbelieve that they will allow theirdecision to be circumvented bymeans of institutional trickery.

My compatriots said ‘No’ forthree reasons which are any-


The rejection of the EuropeanConstitution in France and theNetherlands was an illustrationof this severance. A single fig-ure says it all: 80 per cent ofworkers and employees inFrance voted ‘No’. And for thefirst time ever in a Europeanpoll, they were supported by amajority of middle class voters.

The double crisisMany analysts, especially inGermany, ascribed this fractureto a national identity crisis spe-cific to France. This dimensiondoes exist. France, a symbol ofthe nation state, has more thanany other country been under-cut by globalisation and thederegulation it has brought withit. French society is the mosthostile to liberal theses, asdemonstrated again by the mas-sive social movement againstthe First Job Contract (CPE).

Nor can the responsibility ofthe French government bepassed over in silence. Its errat-ic management and unfair, inef-fective and ill-conceivedreforms have exacerbated thecountry’s ills and largely con-tributed to the failure of the ref-erendum.

Yet I want to stress the fol-lowing point. The French thor-oughly understood the question.They voted on Europe, on its

“A single figure says it all: 80 percent of workers and employees inFrance voted ‘No’. And for the firsttime ever in a European poll, theywere supported by a majority of middle class voters”

countries to adapt to thechanges in the world, I amamong those who believe thatFrance has not managed to setthe terms of a new social con-tract and that this will be amajor challenge in the forth-coming presidential election.

Of course Europe must set anexample of this determinationto introduce underlying reform.It must introduce the means tobecome, I quote, ‘the world’smost dynamic and competitiveknowledge-based economy.’The stability pact reform was afirst step. The latitudes ofaction it gives states dependingon economic cycles are anencouragement to publicinvestment policies.

Urgent reform of the common policiesBut this reform remains unfin-ished. I argue for the Eurozonebecoming the core of Europeanintegration. The impetus mustcome from the Eurozone. AEurope of projects, in short apractical Europe, must resultfrom it. What it is lacking iseconomic coordination, whichwould allow the organisation ofa growth support strategy, and acomplete overhaul of its priori-ties and financial choices.Everyone knows that theUnion’s budget is insufficient.Everyone knows that its com-mon policies no longer corre-spond to the requirements ofworld competition. We devote40 per cent of the Europeanbudget to agriculture and lessthan 10 per cent to researchand education.

The 2008 deadline regardingbudget orientation is in thisrespect decisive. Everythingmust be looked at freshly, with-out any taboos: the CAP and the

Union cannot continue to existwith unanimous procedureswhich paralyse it on all impor-tant issues. I am convinced thatthe only workable solution is toenable enhanced cooperationbetween groups of states thatwould provide the impetus forprecise projects: industry,research, education, training,energy. Without new politicalarchitecture, without the capac-ity given to a few to take initia-tives, Europe will condemnitself to the lowest commondenominator, as we have seenwith the budget.

II. A European Social ContractMoving on, the second urgenttask is to reconnect the Unionwith its people and prove tothem that it is capable of keep-ing its growth and employmentpromises. In this respect, ideasand projects have not beenlacking: the white paper byJacques Delors; the Nice socialagenda; the Lisbon process; theSapir report; and a task force.All have gone unheeded forwant of political determination.The last European Councildevoted to assessing the growthstrategy set in place six yearsago in Lisbon observes ‘theincapacity to respect the sched-ule and the planned objectives.’What does it propose as aremedial measure? Nothing. Noeconomic coordination instru-ment. No social support. Noindustrial component. As forthe budget assigned for thispurpose, it is pathetic. TheCouncil’s sole obsession is torecommend the states to pur-sue relaxation of the labourmarket and to adapt social pro-tection systems.

Without underestimating thescale of the effort of each of our

of a refounder ready to take theplace of the old Franco-Germancouple. His six months of presi-dency was enough to dispel thatmirage. By clinging to the obso-lete aim of keeping the Britishrebate, he proved that ‘RuleBritannia’ remained stronger inDowning Street than continentalambition.

This political dilution alsohas deeper roots. Never has thedebate on the purpose of theUnion been conducted to itslogical end. Never has theUnion dared to define its placeand role in the world. A federa-tion or an association of nation-states? A power in the makingor a mere area of exchange andcooperation? An original model,or the dumping ground of glob-alisation? For want of any jointoutlook shared by the memberstates, the Constitutional Treatyhas not settled any of theseissues, attracting the most con-tradictory refusals.

What then are the possibilitiesopen to us? I feel that enlargement by majortreaties is frozen for a long timeto come. I find it hard to imag-ine that states will be able toagree on a new Constitution,after having experienced somuch difficulty finding a com-promise on the present text.

The real urgency lies in theneed to provide the Union withthe political means to get backinto action. I suggest that theEuropean Council should goback over the institutional andpolitical chapters of the text onwhich there is a consensus andthat it should submit those pas-sages to ratification. I know ofthe hesitation of some memberstates, including Germany, withrespect to this proposal. But the


them. And it is not continuedunanimity on these issueswhich will help improve matters.

The acts of a social reconciliationIn this field more than in oth-ers, Europe must stop witteringon. Concrete, tangible action isneeded. Two years ago I pre-sented a series of proposals thatI feel are now more topical thanever before. May I recall themain ones:

• Assign part of the structuralfunds to support programmescombating poverty and rundown areas.

• Create a European social min-imum which would be calcu-lated in each state dependingon the evolution of GDP.

• Extend the directive on workscouncils to the monitoring ofrestructuring, merger anddelocalisation procedures.

• Introduce the right to life-long training which wouldhelp to secure employees’careers by enabling employ-ees to adapt when theychange activity or the compa-ny they work for.

• Doubling investments for uni-versities in order to create aEuropean higher educationnetwork based on excellencepoles.

competition and privatisationfirst. The same trend can beseen in the member states. Thereforms implemented havemostly aimed at whittling downlabour legislation and socialrights. And long political andsocial tugs-of-war are too oftennecessary to obtain more accept-able compromises as is the casewith the famous Bolkesteindirective. In this respect, I wishto hail the work performed byEvelyn Gebhardt and the PESGroup in the EuropeanParliament. Thanks to them, weobtained a good agreement.

Despite this breakthrough,the labour world questions the

existence of a social model spe-cific to Europe. TheConstitutional Treaty admitted-ly integrated the charter of fun-damental rights into theUnion’s founding values. Butno concrete Council andCommission policy has imple-mented it for people to enjoyon a daily basis. Neither thesocial treaty nor the directiveon public services, which havebeen promised for twentyyears, have come into exis-tence. Similarly, the aims of theLisbon strategy regarding thereduction of unemploymentand exclusion have been dele-gated to the states without theUnion contemplating helping

British rebate; the ceiling onexpenditure and where it goes;national contributions and thelaunch of a loan. Taking a lookat the United States and Japan,budget policies there are usedfor massive investment in prom-ising, job-creating sectors: high-er education; research; industri-al policy; and equipment. Aslong as Europe clings onto itsdogmatic accounting rules, aslong as it pursues antiquatedpolicies, and as long as it failsto invest massively in high-techprogrammes, it will continue toremain a stagnate area. This isnot a question of inventing any-thing impossible but merelybuilding on the momentum ofwhat exists.

I have made this big detourvia politics and the economybecause they are the Union’sprimary competences. Withouta breakthrough in these twofields, without concretechanges in the choices madeover the past twenty years,there will be neither any socialadvances nor any reconciliationwith the people.

From the virtual to the realThe debate we had with theCommission President, MrBarroso, at the NationalAssembly, a few months agowas enlightening in this respect.While constantly mentioningthe efforts Europeans had tomake to adapt to globalisation,at no time did he mention theidea that the Commission couldinfluence the process of globali-sation and offer alternatives.Most European leaders sharethis resignation.

Many directives adopted inrecent years on working hours,transport, and the opening up ofservices, have put deregulation,


“Many directives adopted in recentyears on working hours, transport,and the opening up of services, haveput deregulation, competition andprivatisation first”

Objectively, the rise in the liv-ing standard in the new mem-ber countries has been prof-itable to everyone. On the otherhand, they are lagging behind inintroducing the minimum wage,labour law and social legisla-tion, which has led to an imbal-ance in competition and hasaccelerated a downwards trendin the level of protections.

Here again we should knowhow to learn lessons. The mythof never-ending integration,with one enlargement leading toanother, should be ditched forgood. Our people are no longerfollowing us, as can be seen inthe debate on the membershipof Turkey. They feel that Europeno longer knows where it stops.However much I may be infavour of Turkish membership,it cannot take place until thepresent enlargement has been

sary to have the courage to ques-tion oneself openly about thenature of enlargement. I detestedthe shameful exploitation thesupporters of the ‘No’ vote madeof the caricature of the ‘Polishplumber’. People who have livedfifty years under the Communistyoke were entitled to member-ship. Solidarity in helping themcatch up from slow growth is adebt we owe them. They havethe same rights and the sameduties as the others. But whatev-er aversion we may feel withrespect to such caricatures, itshould be acknowledged thatthey relate to the questions pes-tering our compatriots. Doesenlargement elevate or lower thelevel of the European SocialModel? Has it helped the newmember states to catch up orhas it merely weakened the pro-tections of the others?

• Promote fundamental labourstandards in internationalbodies.

• Create a European levy whichwould relieve national contri-butions, would fund solidari-ty programmes and wouldprepare a harmonisation ofour taxations.

These proposals have nothingrevolutionary. They require nei-ther a major proclamation nor aspecific treaty. They result froma political determination to putemployees at the heart of theEuropean project, to give themthe means to cope with econom-ic change and set up a socialmodel which is something elseother than the erosion of peo-ple’s rights.

The frontiers of enlargementWith this approach, it is neces-


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

http://www.compassonline.org.uk

described, in tandem withEuropean social democracy.Having the same discourse inFrance and in Europe is the pre-requisite to restore the rank andcredibility of my country in theeyes of its partners.

At the time of the referen-dum, socialists and socialdemocrats went into battle sideby side. Together we made com-mitments to voters: to imple-ment a European employmentpolicy; to establish a frameworklaw on public services; and tomake headway with social poli-cies. After the victories of theleft in Italy, Finland andHungary, the Council again hasa progressive majority. Let’s useit! Let’s implement our commit-ments! Let’s set short- andmedium-term prospects for theUnion! We no longer have theright to disappoint. We have anobligation to produce results.

With this in mind I have pro-posed the holding of an assem-bly of socialists and socialdemocrats of all the Union. Weneed a relaunch of Europe. Weneed to set down the basis for arenaissance programme for thecoming decades. A renaissanceby the people. A renaissance forthe people.

This text is an updated version ofJean-Marc Ayrault’s speech at theSymposium ‘Think social, thinkEuropean’ organised by theFriedrich Ebert Foundation inBerlin on the 29th May 2006.

assimilated and the perimeter ofthe Union debated. Europe mustgive itself time to make up forthe economic and social dividebetween its member states andaccept to define its ultimate bor-ders. A political project is alsobased on cohesion and geogra-phy.

The appointments of socialdemocracyI am convinced that we cannotdeal again with the constitu-tional issue without havingtackled these political, econom-ic, social and geographic uncer-tainties. We are faced with ahistoric challenge: safeguardingand renovating the biggest polit-ical project the world has nur-tured since the war.

Social democracy has a deci-sive role to play. Its unity andcapacity to transcend nationalinterests will depend to a largeextent on Europe’s fresh start.We no longer are entitled tomiss the opportunity like wedid when the left held themajority at the EuropeanCouncil in 2000. This is particu-larly true of my party. The refer-endum tore us apart. Our divi-sions never allowed us to getthe message across of theadvances the Constitution rep-resented and the mechanisms itoffered to conquer new areas.

Since the general review pre-pared by the Socialist Party atits Congress in Le Mans at theend of last year, we have sharedthe same determination to gobeyond the ‘Yes’ and the ‘No’.The choice of our presidentialcandidate is still interferingsomewhat with the main bodyof our doctrine. But I can assureyou that our project and ourcandidate will fit in with theEuropean dynamic I have just


Introduction

THE ‘THIRD WAY’ of Bill Clintonand Tony Blair was conceived inthe early 1990s as the industri-

alised world was being swept along byadvances in globalisation, the emer-gence of the New Economy, and therise of new social risks in an era ofgreater complexity and diversity.

The West was apparently experienc-ing another fast-forward spurt of tech-nologies, values and lifestyles compa-rable to the industrial revolutions of19th century Europe. This proceededto gradually overturn traditional insti-tutions and assumptions, leaving in itswake a transformed economic andsocial landscape as the 20th centurydrew to a close.

Yet the pace of change is so fast thatremarkably the environment in whichthat ‘Third Way’ approach originallytook shape has already passed away.What progressive politics is strugglingwith today is how to reconcile the con-flicting impulses of voters as the triballoyalties of the post-war age steadilydissipate.

People want to be protected from themyriad insecurities and inequities that

arise in the global economy. They fearfor their future and their children’sfuture in a world of intense globalcompetition – but want to be shieldedtoo from terrorism and threats to physi-cal security. At the same time, modernelectorates have never been more indi-vidualistic, more demanding as con-sumers, or more enthusiastic to asserttheir rights to autonomy.

The battleground of conflictingimpulses between ‘interdependence andindependence’ will determine the futureof progressive politics for decades tocome. The centre-left has natural advan-tages, as citizens identify the state as thecollective means of insurance againstthe perils of globalisation and social tur-moil. The threat of the right to disman-tle ‘big government’ and shrink the sizeof publicly funded services would dam-age the interests of the hard-workingmajority.

Yet while effective government is intune with the times, an over-mightystate that fails to treat individuals asconsumers – as well as citizens – willdivide the left from its natural base ofelectoral support. For the latter half ofthe 20th century, centre-left revision-ism sought to reconcile social democra-cy to the realities of the market econo-my. Today, the challenge is embracingthe reform of the state in a more com-plex, aspirational and uncertain world.

The challenge of progressive governanceProgressive governments must alsolearn from the experience of policies

The Future of Progressive Politics


Patrick DiamondDirector of PolicyNetwork and a SeniorVisiting Fellow at theLondon School ofEconomics. He is aformer Special Adviserto the British PrimeMinister

“People want to be protected from themyriad insecurities and inequities thatarise in the global economy... but want to be shielded too from terrorism andthreats to physical security”

tried and tested by others, striving toachieve best practice in what are oftencomplex fields: from crime and child-hood, to social exclusion, environmen-tal degradation, and global economicchange. We should encourage theopening up of new frontiers and thecrafting of new policy instrumentsappropriate to this new epoch.

In every era, policy debate is shapedby the compelling challenges of thetimes. In the 1940s, the priority wasreconstructing economies ravaged bywar, with wide acceptance of thevirtues of collective planning and pub-lic ownership. In the 1960s, attentionshifted to tackling social inequalitiesand advancing personal freedoms. Inthe 1980s, the ascendancy of the newright meant the triumph of monetaristeconomics and free market ideology –matched by successive assaults on theefficacy of government.

The future of the ‘Third Way’The Third Way of the 1990s was itselfa response to the hard-line anti-govern-ment, anti-state rhetoric of theThatcher-Reagan era. The ‘Third Way’label refers to the revitalisation ofsocial democracy in the light ofchanges in society, the economy andculture. It is fundamentally concernedwith how centre-left parties shouldrespond to change. Critics such asPerry Anderson have defined it as, ‘thewinning formula to seal the victory ofthe market…not to attack, but to pre-serve the placebo of a compassionatepublic authority, extolling the compati-bility of competition with solidarity’.(Anderson 2000)

However, the Third Way, as AnthonyGiddens has reminded us, should notbe identified solely with the outlookand policies of the New Democrats,New Labour or any other specific party.It is a broad ideological stream withseveral tributaries flowing through it.The doctrinal changes made by socialdemocratic parties in the Scandinaviancountries, and in Spain, the

Netherlands, Italy, and France since thelate 1980s are as much part of ThirdWay politics as those developed inAnglo-Saxon countries.

Third Way politics has been thesource of electoral success in a multi-tude of countries. It has also demon-strated its utility as a governing strate-gy, not just an electoral tactic. Indeed,the Third Way enabled the centre-leftto solve many of its old problems, asthe American political commentator E.J. Dionne has incisively commented. Inmost western countries, the left is nolonger regarded as fiscally irresponsi-ble. No one believes that social democ-rats aspire to seize control of themeans of production, or weaken themarket. Our parties no longer existmerely to defend the gains of the past,representing only declining sectors andregions of the national economy.

However, in truth that Third Wayformula has proved better as a critiqueof the past than as a guide to thefuture. The next generation has tomove beyond the glib assertion thatprogressive parties should not movefrom the centre-ground. This might betrue, but it does not constitute a strate-gy, as Peter Hyman, the former NewLabour strategist has remarked.

The centre ground is not given, butshifts according to who is in power. Sothe real question for social democraticparties is not whether to abandon thecentre-ground, but how to construct afuture agenda that gives it the bestchance of holding on to power, whileshifting the centre in a progressivedirection.

Modern social democracy must holdtrue to its radical vision: a stable econ-omy in which all have the chance ofsuccess; an education system thatspreads opportunity to all; a belief inusing the public, private and voluntarysectors to strengthen communities; abalanced approach to law and orderthat tackles crime and its causes; aninternationalism that deals with pover-ty and environmental damage as well


as terrorism; and a belief in tacklinginequality, devolving power, and help-ing the powerless.

The rise of economic insecurityYet as new priorities evolve, that visionmust be interrogated anew. Among themost compelling is the rise of econom-ic insecurity. The rapid integration ofthe world’s economies is promotinghuge upheaval. Certainly, large minori-ties are not yet sharing in the benefitsof economic growth and technologicalprogress, yet everyone is affected byproblems of crime, drug abuse andsocial fragmentation.

In the post-industrial societies,workers have evidently never felt soanxious about the future. For example,nearly 70 per cent of Americans in arecent poll remark that they believetheir country is heading in the wrongdirection. A majority believe that theirchildren will be worse off than theyare. Stagnating wages are accompaniedby soaring inequality, as Robert Gordonof Northwestern University has recent-ly shown.

Since 1973, the annual incomegrowth of the top one per cent ofAmericans was 3.4 per cent. For thetop 0.1 per cent, it was 5.2 per cent.But for the bottom 90 per cent, it roseby just 0.3 per cent a year. Thesetrends are not confined to the UnitedStates, as the sociologist Gøsta Esping-Anderson has noted. He finds thatthere is a significant reversal under-way in many nations, including histor-ical bastions of equality such asSweden. There is, indeed, striking evi-dence of declining upward mobility inalmost every industrialised society.

Wider income disparities, the loss ofmanufacturing jobs, and a weakeningof healthcare and pension provisionare also fuelling potent protectionistsentiments.

The drivers of the new inequalityare, inevitably, profoundly complex.The impact of low-wage competitionfrom China, South Korea and India isto reduce the bargaining power ofmany workers in tradable sectors of theeconomy. Most economists also attrib-ute widening income disparities to theincreasing returns that education andskills deliver when they combine withnew technology. The majority of newjobs are at the low-wage, low-skill endof the non-unionised service sector.

There is no simple solution to thetidal wave of insecurity. It is true thateconomic openness often creates suc-cessful societies, attracting a ‘creativeclass’, as Richard Florida has broadlydefined it. But the centre-left has to dobetter than simply decry ‘populism’ asnaïve, or economically illiterate. It hasto show that it is on the side of thosewhose economic power is weakeningor indeed, has already declined.Initiatives such as the Hamilton Projectlaunched under the auspices of theBrookings Institute in Washington DCare absolutely vital, stimulating inno-vative policy ideas that aim to temperthe extremities of globalisation, whilemaking growth fairer to all.

Populism is ugly when it plays toprotectionism or xenophobia. The leftshould be staunch in its defence ofeconomic and cultural openness, andthe cosmopolitan world which globali-sation has made an unavoidable reality.But in rejecting unacceptable populistsentiments, progressives cannot jointhe new class of complacent elitistswho revel selfishly in the fruits andfreedoms of the present age.

An economic populism for the globaleconomy of the 21st century is nowrequired. In truth, social democratshave done too little in recent decadesto back up their vow to be parties of


“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”

the people who in Bill Clinton’s stillresonant phrase, ‘work hard and playby the rules’. To thrive, they mustenact programmes that result in meas-urable, durable changes in the econom-ic fortunes of working people asMichael Kazin reminds us in his bril-liant portrait of the early 20th centuryAmerican populist, William Jennings-Bryan.

That also requires opening up thepolicy field to a greater range and qual-ity of innovation. Politics and policyhave always been international endeav-ours. But the sheer speed and volumeat which ideas travel in the global mar-ket is unprecedented – and the net-work of ideas has itself become moreheterogeneous since the late 1970s.There are also new sources of innova-tion, from smaller countries experi-menting with new ideas and projects,to the growth of the voluntary sectorand not for profit movement.

ConclusionThe challenge for progressive politicsin the decades to come will be recon-ciling the impulse towards independ-ence with the basic need for interde-pendence and solidarity. There is nosimple choice between globalisationand security: the left has to find a com-pelling future prospectus that offersboth. The social democratic agendamust be relevant to the world of 2010,not that of the early 1990s.

References

Anderson, Perry (2000): Editorial, TheNew Left Review, no 1, Oxford.

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

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

Luce, Ed (2006): Out on a limb: whyblue-collar Americans see their future asprecarious, Financial Times, 3rd May.

Kazin, Michael (2006): An UngodlyHero: The Life of William Jennings Bryan,New York.


I. Argument

RECOGNISING THE spe-cific features of post-communist societies

within the debate concerningthe European Social Model isan objective necessity. There isa social sub-model of Europe intransition, in which neither theneo-liberal solutions nor thesocial state built in the West areapplicable. A specific ‘triangle’between the need for socialprogress, accelerated moderni-sation and state reform repre-sents the progressive recipeapplicable to Central andEastern Europe.

Romania is the country thatstarted with a specific handi-cap compared to the rest ofcommunist Europe. Romaniantransition has been also markedby tensions and social frac-tures. Sixteen years after thefall of communism and afterencountering the EuropeanUnion, Romania is today apolarised country, with a highlevel of poverty, with an acuteneed for massive public invest-ments in all fields, lacking suf-ficient quality public goods. Acountry that would need,under current public policies,30 years of 5 per cent annualeconomic growth in order toeliminate the gap separating usfrom the European average. Acountry where intellectual and

economic elites are fragile orunconvincing, in which socialcapital and community andcivic spirit have been seriouslyimpaired.

The Romanian social modelrepresents more than an ideo-logical, political and govern-mental action platform. It is astringent necessity for a societythat has not yet developed fun-damental features of post-com-munist capitalism. It can onlybe offered by a modern and pro-gressive European left ofRomanian social democrats rep-resented by the SocialDemocratic Party (PSD).

II. The European Social ModelThe main critique of theEuropean social model concernsthe low levels of economicgrowth, slow changes, and thegreat distance from the applica-tion of re-launching measuresuntil competitiveness advances.

Population ageing, the con-servative management of pen-sion funds (risk aversionregarding the transfer of publicfunds into private pensionfunds), competition from coun-tries with lower wages, butwith valuable human capital,‘the transfer of jobs’ to othercountries which are morefriendly from a fiscal point ofview, the growing heterogeneityof social policies from EU mem-

The Romanian Social Model

Mircea GeoanaPresident of the Romanian SocialDemocratic Party, Former Minister ofForeign Affairs


post-communist social modelcloser to the needs of the peo-ple.

For 50 years, the communiststate, a paternalistic structure,has perpetrated massive socialspending. For that reason, theexpectations of the populationfor the state to intervene arevery high. But we must notignore the macroeconomic reali-ties.

A large inactive populationleads to unbearable budgetarypressures. And the social stateis forced into bankruptcy as,although the fall of the authori-tarian regime has led to a pro-gressive retreat of the state fromthe economy, it did not lead toits retreat from traditional socialprotection.

Post-communist capitalismhas led to an uneven societywith dim perspectives ofimproved living conditions forthe larger part of the popula-tion. In Eastern Europe, andespecially in Romania, there aremajor discrepancies concerningincome and living standardsbetween urban and the ruralareas, and social polarisation,emphasized by disastrous ultra-liberal measures – the flat tax –produces dangerous imbalancesfor social stability and for peo-ple’s trust in democracy and themarket economy.

Post-communist economieshave been excessively exposedto global competition, withouthaving the necessary time todevelop internationally compet-itive companies. The foreigncontrolled companies havebecome the backbone of theindustrial structure, while thelocal companies (SMEs) concen-trate on the pockets that are notinteresting for foreign capital.But attracting foreign invest-

III. The East European SpecificEastern Europe needs a socialmodel that would provide a newtype of sustainable balancebetween social protection andeconomic competitiveness.

In Eastern Europe poverty isdiscussed in other terms thanin the West. And the chancesand the rhythm of equalisationare different. Therefore, thevariables that we must intro-duce before proceeding to theelaboration of the Romaniansocial model are more numer-ous than in other parts of theworld.

The target of Romanian socialdemocracy is to tame capitalismin order that the markets’dynamics do not slip towardsexcessively privileging somesocial categories in comparisonwith others.

But, more than in the rest ofthe world, Romanian andEastern Block social democracy,in general, must be more vigi-lant and active in tempering thepost-communist capitalism gen-erating lasting social exclusion.

If we want to direct transitiontowards Western style massprosperity, we need a socialmodel that will equally takeinto account the need forstrengthening the state anddemocratic and economic liber-ties, of creating the incentives ofwelfare and redistribution ofincomes in favour of the poor.

Eastern Europe and especiallyRomania has its own develop-ment premises, starting fromsocial realities differing fromthose of the rest of Europe. Thecommunist experience and theexperience of a more difficulttransition than that of otherEastern countries makeRomania a decisive actor in out-lining a synthesis defining a

ber states, and growing unem-ployment are many threats thathave brought into the open theneed for reform of the EuropeanSocial Model.

The main coordinates of thereform of the European SocialModel are:

• Redefining the social contract(from welfare to workfare:flexible labour markets; socialresponsibility of firms; morepowerful incentives foraccepting new jobs; assis-tance in finding a new job;creating new jobs, mainly inthe service sector; socialinsurances according to per-sonal contributions);

• Investments in human capi-tal;

• Strengthening economic andsocial cohesion, promotingpermanent education;

• The need for a more consis-tent dialogue between socialpractices of differentEuropean models (continen-tal, Anglo-Saxon,Mediterranean and Nordic).

The continental and Anglo-Saxon social models function onthe basis of an imbalancebetween wage distribution equityand labour force employmentefficiency. The continental modelis imbalanced in the sense of alower efficiency, the Anglo-Saxonmodel in favour of lower equity.

The Mediterranean andNordic models are based on bal-ance between efficiency andequity. In the Mediterraneancase however, both efficiencyand equity are reduced, andthus the system is not sustain-able. The Nordic model seemsto ensure a high level of equityin conditions of increased effi-ciency.


have to take with the help ofthis compass, in order to reachour destination, would be theassembly of substantial politicaldecisions I call the ‘New SocialContract’.

Originally, the social contractis an exchange relation, a trans-action through which citizenscontribute, each according tohis possibilities, to the estab-lishment of a public fortune. Inexchange for this contribution,the state pledges to offer its citi-zens public services or access topublic goods.

When services provided bythe state are insufficient andqualitatively poor, the socialcontract must be redrawn, both by re-establishing the citizens’ obligations and bystrengthening the duty of thestate. A change in this kind of transaction between citizens and state can only beachieved within a ‘New SocialContract’.

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

our ambition to build a simpli-fied theoretical background,expressed in a triangle of classi-cal concepts of the left, con-tained at the end in a pyramidalformula (see Figure 1). The threefundamental dimensions of theRomanian Social Model – strongeconomy, social policies and theactive social state – are complet-ed by a fourth – national dignity– which brings a specific featurefor Romania.

The Romanian Social Modelhas as its target the fight againstthe three fundamental evils ofsociety: poverty, ignorance anddisbelief. These phenomena donot disappear by themselvesand are not cancelled out bythe invisible hand sanctified byneo-liberals.

IV. a. A New Social Contract If we imagined a social map of afuture Romania, with citizensliving in welfare, with a societyoffering quality public goodsaccessible to all citizens, with aclass of political leaders under-standing their purpose, firstlythrough their capacity of pro-ducing public policies and, onlythen, through their talent forintrigues and discourse, then theRomanian Social Model wouldbe the compass guiding oursteps. And the good path we

ment grants an insufficientnumber of decently paid jobsfor everybody.

Local companies (small,medium and large companiesalike) play an important role, intheir turn, by hiring labour.This includes the traditionalindustries, which are less capi-tal intensive. The main chal-lenge for any social democraticstrategy of fighting social exclu-sion is to create jobs – orincome substitutes – for the restof the labour force.

Another problem of the Eastregards the excessively largepercentage of labour forceemployed in the primary sector.A comparative advantage ofRomania is the fact that theurban labour force is educatedand disciplined, but not at thelevel of the young generation.

The new capitalist class is notyet oriented towards ‘produc-tion’, but towards getting privi-leges by manipulating politics.For that reason, domestic capi-talists are not yet a resource ofsocial progress and balanceddevelopment of society.

The use of state power for thebenefit of new classes in searchof privileges goes together withthe retreat of the state from thefunction of poverty-reducingagent. The state must renounceits alliance with the new capi-talists. Instead of the state pro-tecting economic interestgroups, we need an active socialstate.

IV. Elements for a RomanianSocial ModelThe Romanian Social Modelmust not be seen in terms of amechanic comparison with theEuropean Social Model. Beyondthe Romanian particular fea-tures, the difference is given by


Figure 1: The Pyramid of theRomanian Social Model

the private enterprises or of thecivic structures. Moreover, suchaction will lead to the develop-ment of civil society and of theassociated life. I support theprovision of fiscal facilities forfirms investing in developmentof services and infrastructuresnecessary for social policies. Ialso support targeted fiscal facil-ities granted to the NGOs.Romania needs to compensatefor the social capital and civicand communitarian spirit’sweaknesses through the intro-duction of a culture of volun-tarism.

(4) Investment in social policies(education, health, environ-ment) as a productive factorand not just as social spendingAlso in the spirit of stimulatingsocial responsibility of the pri-vate and civic environments, Isupport granting fiscal facilitiesto firms / foundations that offerscholarships. At the same time,creating the culture of sustain-able development that wouldpropitiate the demands of theeconomic environment withthe natural environment, theefficient use of European fundsconcerning the environment(an activity implying the cre-ation of numerous jobs),increasing investments inhuman capital, which will leadto an increase in labour pro-ductivity, are compulsoryactions that must be includedin the public policy plans ofsocial democrats.

The ‘New Social Contract’sets in the centre of its actionsredefining the relation of the cit-izen with the state, includingthe assistance dimension. Thefact that a country has a greatnumber of socially assistedpeople does not indicate a

(1) Giving up lower incomesand pensions as a comparativeadvantageIf Western European countrieswish to have lucrative outlets inEastern Europe they need pur-chasing power to increase inthis area. In these conditions,an option we must consider isto reduce social contributionsand adopting private pensionsystems.

(2) The policy of intelligentpublic investments in physicaland virtual infrastructures (bymodifying the supply-side eco-nomics paradigm)Increasing investments in infra-structure, increasing invest-ments in research and develop-ment, are elements of publicpolicies that are compulsory forthe countries in the East andespecially for Romania. Theywill lead to the general develop-ment of society, to increasingconsumption, to business devel-opment and, most importantly,to the creation of more and bet-ter paid jobs.

(3) Creating a beneficial socialpartnership for business andcitizens The state can and must berelieved from social spendingthrough an added responsibility,from a social point of view, of

and their responsibility to getinvolved in the decisions ofpublic interest and to take theirfate into their hands. Romanianeeds such a contract becausethe old one does not function,is not respected by any of theparticipants.

Today, with its present stateformula, Romania cannot walkthe difficult road from povertyto welfare. The Romanian stateas we know it, and as it wasbuilt in the 20th century, willnot be up to the new challenges.It cannot ensure the security,the welfare or the dignity ofRomanians.

Fewer people contribute tothe state fortune, politics triesto favour its supporting groups(for example the flat tax), andthe state accomplishes its taskswith growing difficulty, as ithas no more money andresources to mobilise. Buildingthe new state pillars that wouldensure Romania’s developmentin the decade 2007-2017 is thepolitical mission of the mod-ernised PSD.

The ‘New Social Contract’ canbe put into practice through areform of the state and of itsinstitutions that would increasecompetitive conditions of theeconomy so that more consis-tent funds could be employedfor social policies.


“The Romanian state as we know it,and as it was built in the 20th century, will not be up to the newchallenges. It cannot ensure thesecurity, the welfare or the dignity of Romanians”

V. ConclusionThis is a part of our project forsociety: until 2017, a reallywealthy Romania, where for-tunes are not grounded on theftbut on competence, talent andlabour. A Romania where soli-darity functions in order to givea chance to the poor, where eco-nomic progress comes togetherwith social justice. A Romaniaproud of its top industries or ofan economy based on the coun-try’s well-exploited traditionalassets. A Romania that distrib-utes justice and the benefits ofsociety in an equitable manner.A powerful and responsibleRomania concerning foreign andthe European affairs, whichgains respect through earnest-ness, labour, and measurableperformance.

success of social policies inthat country, but rather theirfailure. The final purpose ofsocial policies cannot be but tohelp those that cannot helpthemselves. And, in order thattheir number remains minimal,active social policies become anecessity. Protecting youngfamilies, supporting the elderly,those with small revenues orthose having no revenue, thosewhose work was necessary dur-ing communism and nownobody needs any more, sup-porting the village peopleinvolved in a sector generatingno wealth but only subsistence,are the landmarks of the socialpolicies mixture Romanianeeds. Social policies musteventually translate into anequitable access to education,to medical services. A child oftoday who does not study inschool is unemployed or adelinquent of tomorrow. Socialpolicy offers, first of all, equalchances that will lead to animprovement of the quality oflife for the many.

IV. b. The National SocialNetworkThe ‘New Social Contract’recognises the limits of stateactions, both in terms offinances/budget and in termsof effectiveness. Therefore, Ipropose the creation of a‘National Social Network’,based on the partnership state– citizens – firms – NGOs. The‘National Social Network’ isbased on four principles: statesupport for the least favouredcategories, freedom to choosethe providers of social servic-es, social responsibility of cor-porations and extended fiscaldeductibility of spending onsocial services.


Deregulation lagged, and the bankingsystem remained fragmented, protect-ed, and stagnant. Government-encour-aged tax evasion again reached alarm-ing levels. The same occurred for theunderground and criminal economies.The school, university, and researchsystem, traditionally weak points inour country’s competitiveness, tookfurther steps backwards. Real inflationleapt to among the highest in Europe.The only positive indicator – theemployment rate – owes its growthchiefly to the legalisation of about800,000 immigrant workers and to themultiplication of insecure jobs, a situa-tion deemed unsustainable even byConfindustria and the Central Bank.Moreover, improved employment fig-ures conceal a substantial withdrawalof women from the labour market, andmay draw attention away from the factthat the economically active popula-tion rate is among Europe’s lowest.Lastly, southern Italy, home to one halfof the country’s population, has, on thewhole, completely stalled – in botheconomic and civil terms; the gapbetween north and south – traditional-ly an aspect of Italy’s fragile unity andweak international competitiveness –grew even wider. Unlike the right,which governed in years of decline inthe European economic cycle, the cen-tre-left government may enjoy the cur-rent rebound; but to jumpstart growthbeyond the conditioning factors origi-nating from its harsh inheritance fromthe previous government, particularlyin terms of restoring macroeconomic

The Olive Tree Party (L’Ulivo)


Giuseppe VaccaPresident of theGramsci Foundationin Rome

THE ELECTIONS OF 9th and 10thApril saw the centre-left coalitionreturn to govern Italy. The politi-

cal significance of the event may besummed up in the alternation betweena Europeanist coalition – the Union(l’Unione) – led by Romano Prodi, andthe Eurosceptic one led by SilvioBerlusconi that had governed from 2001to 2006: the House of Freedoms (Casadelle libertà). The Union coalition isnow up against a situation fraught withdifficulties – economic, social, political,and institutional.

In five years of administration by theright, the economy plummeted towardszero growth. The deficit rose by 4.5 percent, and public debt spiralled after tenyears of decline – exceeding 108 percent of GDP. Public spending also spunout of control, wiping out the primarysurplus that in 2000 stood at about 5per cent of GDP. The internationalcompetitiveness of the Italian economydeclined steeply. Big industry wenteven deeper into crisis, due in part tothe collapse of two major groups in thefood sector, Cirio and Parmalat.

“In five years of administrationby the right, the economy plum-meted towards zero growth. Thedeficit rose by 4.5 per cent, andpublic debt spiralled after tenyears of decline”

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

The most significant aspects of theUnion’s victory are medium-term. Thefirst is the fact that, for the first timesince 1994 (when the changed electionlaw introduced bipolarity and alterna-tion), a vast centre-left alliance wasforged, cemented by a detailed commonlegislative programme. The second isthat – also for the first time – the centre-left now outnumbers the centre-right.This is the result of a popularity crisisthat Forza Italia (the party founded andled by Silvio Berlusconi) has been goingthrough for over three years; since itsorigins lie in Forza Italia’s more thandisappointing stint in government, thiscrisis appears difficult to overcome. Butvictory was paper thin, and in theSenate (which in Italy has the same leg-islative powers as the Chamber ofDeputies), the Prodi government enjoysa mere three-vote majority. The near tiein April’s elections was due to a highlyskilled electoral campaign byBerlusconi, whose domination of thetelevision system allowed him, in thelast two weeks of campaigning, toimpose issues characterised byunscrupulous social demagoguery,while increasing his support in thenorth. The centre-left leadership wasentirely unfocused, vociferous, con-fused, and contradictory, and allowedits political agenda, soberly orientedtowards resuming growth, to be expro-priated. The considerable six-pointadvantage gained over the past twoyears and reliably recorded by all votersurveys thus melted away. But it lookslike the right will have a hard time capi-talising on the result, because the Houseof Freedoms has been torn apart by apolitical crisis for over two years andApril’s vote does not appear to haverepaired it. We cannot go into this moredeeply – although for the developmentsof the Italian situation, this crisis is per-haps the main issue. We shall thus limitourselves to discussing the problemsregarding the Union coalition.

The winning coalition is fragmentedand heterogeneous. It consists of tenparties, chief among which are theDemocrats of the Left (Democratici diSinistra – DS), who garnered 17 percent of the vote. Meanwhile, the coali-tion’s third largest party, theCommunist Refoundation Party(Rifondazione Comunista – PRC), fromthe radical left, obtained 7 per cent.The Union’s lines of division aredrawn around foreign policy and theeconomy: in these areas, the Union issplit into two distinct groups. The firstis a reformist group enjoying a broadmajority (in addition to the Democratsof the Left, this group also includes theMargherita, or ‘Daisy Party’ of demo-cratic Catholics – second largest in thecoalition with a little more than a 10per cent share of the vote). These twoparties, united in the Olive Tree, arejoined by a cluster of small parties,such as: the Rose in the Fist (Rosa nelPugno – democratic socialists and radi-cals); the Italy of Values (Italia deiValori) party led by the former magis-trate who was a major figure in the‘clean hands’ (mani pulite) investiga-tion of the 1990s; Udeur, another smallcentrist Catholic party led by currentJustice Minister Clemente Mastella;and a regional Christian Democraticparty, the South Tyrolese People’s Party(Südtiroler Volkspartei). The radical leftgrouping, which garnered in excess of12 per cent of the votes, includes, inaddition to the small CommunistRefoundation Party, the Party of ItalianCommunists (Partito dei ComunistiItaliani), which split from theRefoundation Party in 1998, and theGreen Party. But there are other impor-tant lines of division, which run alongethically sensitive issues, separatingnot only reformers from radicals, butalso splitting reformers up amongthemselves. Moreover, the parties ofthe Union are scattered between thedifferent supranational political fami-lies of Europe, excluding the EuropeanPeople’s Party (EPP). Lastly, they are


divided on the question of election lawand the architecture of the politicalsystem: i.e., the form of governmentand form of state. All these various dif-ferences have a negative impact onboth political stability and the effec-tiveness of governmental action. Theyalso hinder the constitutional reformsthat were to a large degree stalled bythe manner in which a revolving doordemocracy took shape, in which thecentre-right and centre-left coalitionsderived internal strength from de-legit-imising the opposition. The centre-right now consists of new, Europhobicand xenophobic parties like Forza Italiaand the Northern League (Lega Nord),whose political culture is hostile to, orremoved from, republican Italy; a mod-erate Catholic party like the CentreUnion created from the ruins of the oldChristian Democrats (DC) but verymuch in the minority; and the NationalAlliance (Alleanza Nazionale), heir tothe neo-Fascist Italian SocialMovement. The Union coalition on theother hand brings together new andold political formations, all appealingto the bedrock cultures of republicandemocracy. The two coalitions’ ideolo-gies are shaped by their mutual disavowal of the other’s legitimacy togovern.

Herein lays the chief reason for thestill incomplete transition from thepolitical system of the First Republic,which imploded between 1992 and1994, and a Second Republic which intruth has yet to be born. This is theheritage of the political history ofrepublican Italy, in which the presenceof a Communist Party, that until 1989had represented the chief force ofopposition, did not permit change.Despite the special features of theItalian Communist Party (PCI) – partyof the Republic’s founding pact, alwaysloyal to the Constitution and inhabit-ing a role similar to that of Europe’sgreat social democracies – anti-Communism was a powerful argumentagainst its legitimacy to govern, andone which prevailed until the end ofthe Cold War and the First Republic. Itworks not only as an effective propa-ganda weapon for the undisputedleader of the House of Freedoms, but isalso present in the centre-left coalition:although they were among thefounders of the PES, the Democrats ofthe Left – heirs to the PCI – are not yetconsidered qualified within the Unionto put forward their own candidate forthe country’s leadership. A significantstep forward in overcoming this prob-lem may be seen in the fact that, afterthe April elections, the Union, with itsvotes alone, elected Giorgio Napolitano– a historic leader of the former PCI –as President of the Republic, and PRCSecretary Fausto Bertinotti as Presidentof the Chamber of Deputies. But, atleast for the time being, institutionaltransition appears stalled. As the lastlegislature was about to end, the Houseof Freedoms unilaterally changed thesecond part of the Constitution, includ-ing the form of state and the form ofgovernment. The change followed onfrom an earlier, more limited reformregarding the powers of the regions.This was also introduced unilaterally,this time by the centre-left at the endof the 1996-2001 legislature, by a slimmargin of votes. The House of


Romano Prodi

Freedoms’ constitutional reform was upfor ratification. Following the rejectionof it, initiatives can now be developedto help put an end to the constitutionalunilateralism that has marked bothcoalitions’ behaviour over the past sixyears.

The inconsistent alignment of thetwo poles and the stalling of constitu-tional reforms are consequences of theparties’ long crisis of democracy(which has characterised the life of theRepublic since the mid 1970s), its sub-sequent implosion (alone among themajor countries of Western Europe,between 1989 and 1993 Italy witnessedthe end of all the parties of the FirstRepublic) and the fact that the transi-tion from the old party system to thenew one took place solely throughelectoral reform. Until 2003, the politi-cal class made no significant effort toconstruct governing parties on the leftor right, rooted as it was in the historyof Italian democracy and in the socialcomposition originating from an infor-mation economy and market globalisa-tion. Only in 2003 did we see the slowand contested start of a serious attemptto unify the main currents of Italianreformism into a single party. Thismeant merging into a single politicalformation the parties that, from 1995onwards, identified with the Olive Tree– the engine of reform and the domi-nant grouping of the centre-left. Theproject, promoted by the leaders ofpolitical Catholicism and by the DS,accelerated as the crises of theBerlusconi government became clear,along with the need to come up with acredible alternative. This was setagainst the backdrop of a well-estab-lished collaboration between the cen-tre-left parties – and above all betweenthose in the Olive Tree coalition in theregions, provinces, and municipalities.After more than a decade, this collabo-ration selected a new administrativeclass, and recently conquered a broadmajority of territorial bodies in localelections. But acceleration was, above

all, thanks to the formation of a singleDS and Daisy party list in the 2004European elections. These elections,despite being run on the basis of pro-portional representation, and despitethe two parties’ differing placement inthe European Parliament (DS in thePES, and the Daisy party in theAlliance of Liberals and Democrats),managed to minimise the competitionbetween them, thus strengthening theOlive Tree’s cohesion. The result of thesingle list was encouraging, as theOlive Tree garnered support equal tothe sum of the two parties. But thiswas not enough to overcome resistanceto the project, particularly within theDaisy party. At the regional elections of2005, in which the centre-left outper-formed the centre-right, the unified listwas presented in only nine of the four-teen Regions where voting took place,and after the elections – with theupcoming national election on thehorizon – the process stalled. This wascaused by the fact that Romano Prodi,upon taking the helm of the Olive Treeimmediately after concluding his termas President of the EuropeanCommission, together with the mostinfluential leaders of the reformist left(Massimo D’Alema, Giuliano Amato,and Piero Fassino) set themselves theobjective of funnelling the experienceof the Olive Tree into the formation ofa single party. Resistance came mainlyfrom the Daisy party leadership, andwas motivated by the spectre of annex-ation by the DS and possible mergerwith the PES. Given the latter’s config-uration, this approach was not palat-able to a party like the Daisy, which isrooted in the tradition of politicalCatholicism.

This resistance was defeated by thetenacity with which Prodi and the DSforced the primaries to choose the can-didate for Prime Minister. Prodi wasalready the centre-left candidate,acknowledged by all the parties in thenow-established Union coalition, andhad no real rivals. The primaries,


which were open to all voters willingto declare their vote for the centre-leftand to subscribe to its programme,could have seemed an empty ritual. Onthe other hand, they could not berejected because Prodi belongs to noparty in the coalition, his candidacyrequired democratic legitimisation, andhe certainly stood to benefit from pri-mary elections that strengthened theUnion’s appeal at the same time. On 16October 2005, more than 4,300,000voters visited the 10,000 polling placesset up for the voting operations. Prodigarnered 75 per cent of the public vote– more than 3,000,000 people. Hisopponent Fausto Bertinotti managedonly 17 per cent. Participation by the

PRC leader and by other minor candi-dates increased the event’s politicalsignificance and the Union’s cohesion,because Prodi was undeniably recog-nised as the prime ministerial candi-date by all those taking part in the pri-maries. In truth, as the political leadersand the most informed observers werewell aware, the celebration of the pri-maries had a value much greater thanthe selection of the prime ministerialcandidate: they were the founding actof the coalition’s political unity, anddubbed Prodi not only as possibleprime minister, but as its leader aswell. They marked a decisive passagein the Olive Tree’s transformation intoa party, and it is to this that I wouldlike to dedicate some concludingremarks.

Due to a political miscalculation

originating from the new electoral lawvoted in by the House of Freedoms atthe end of the Berlusconi government,which involves assigning the majoritypremium on a regional basis for theSenate, the Olive Tree list, formed bythe DS and the Daisy party, was pre-sented only for the Chamber ofDeputies election. Olive Tree votesexceeded by 2,400,000 – equal to 3 percent – the sum of votes obtained by thetwo parties for the Senate, where theDS and the Margherita ran under theirown symbols. The Olive Tree garneredthe most support from younger voters,thus unequivocally confirming its pop-ularity with the electorate, and its sta-tus as a unitary political player. Stalledat the lowest threshold of support inthe Senate vote, the DS and the Daisyparty appear to have run out of steam.Consequently, in both the Chamberand the Senate, Olive Tree parliamen-tary groups were established, and thereconvening of parliament in theautumn should herald the birth of thenew party. The party’s path is stilluncertain, and is of an unforeseeablelength. But an argument can be madefor its historical justification. For well-known reasons, republican Italy hashad a party system unlike those thathave taken hold in the other countriesof the European Union (before theenlargement to 25). This impeded thebirth of a European-level democraticsocialist party, and divided thereformist currents, in the long decadesof the Cold War, between governingparties and opposition parties. TheOlive Tree was created by the conflu-ence of reformist factions derived fromthe history of the PCI, the DC, the PSI(Italian Socialist Party), and the partiesof lay democracy. Although they stemfrom different political cultures, whatunites them is stronger: the Europeanoption (supranational integration, mul-tilateralism, and affirmation of ‘Europeas a civil power’) and their vision ofsociety (to put it extremely briefly, therule of law, liberal democracy, and wel-


“Despite the difficult problem ofits placement within Europe’spolitical families, the Olive Treeappears to be an authentic Italianversion of the more mature expe-rience of European reformism”

fare values reoriented from ‘guarantees’to ‘opportunities’). What differentiatesthem regards a redefinition of lay poli-tics, triggered by the new challenges ofthe technical and scientific revolution,the multiethnic society, and the crisisof the nation state’s historical preroga-tives. These problems are in varyingdegrees present in all the countries ofthe European Union, and everywherethey generate new challenges for theparty system and their political cul-tures. But what makes the difference inItaly is the influence the Church ofRome has over political Catholicismand society, and the fact that the newchallenges are being faced not by his-torically consolidated parties, or by alarge reform party already in existence,but by a party yet to be createdthrough the fusion of political cultureslong divided by fissures betweenbelievers and non-believers. All thesame, we are not starting from scratch,because from the birth of the Republiconwards, there has been a positive andwell-established history of political col-laboration between Catholics, social-ists, and liberals. The challenge oftransforming the Olive Tree into areformist party of European scope thusappears possible.

Despite the difficult problem of itsplacement within Europe’s politicalfamilies, the Olive Tree appears to bean authentic Italian version of themore mature experience of Europeanreformism. Seen from Europe, it maybe considered the equivalent of a majorsocial democratic party – but one bornduring times quite different from thosethat surrounded the birth and develop-ment of the great social democracies,in a country that stands alone, onaccount of the simultaneous presenceof a ‘Vatican question’, a ‘Catholicquestion’, and a ‘religious question’.


ASOCIAL EUROPE IS notpossible withoutEuropean democracy

and the support of strongEuropean political parties.Without denying that Europeanintegration is a success story,one must acknowledge thattoday’s concerns of the citizens– high quality employment,social protection, the guaranteeof fundamental rights and phys-ical security – have not yet beenmet by the EU. Creating a com-mon market, guaranteeing thefour freedoms, introducing theEuro and integrating the eco-nomic policy were favourableconditions for a strongEuropean economy. But thesesteps have contributed too littleto a secure social situation forthe Union’s citizens. The EU isso far missing the vision for aSocial Europe; also the lobby forthe citizens’ interests is tooweak. Both can only be provid-ed once European parties stimu-late European-wide dialogueand have the power to link theinterests of their voters with thedecisions of the institutions.

Strong European Parties areNecessaryThe European Union has for along time developed as a Unionof states. There was the assump-tion that the interests of themember states equal the inter-

ests of the citizens. While thiswas true at the beginning of theintegration project, it is not anylonger. While citizens expectthe Union to play a leading rolein responding to their concerns,such as high unemploymentrates, rising poverty levels andincreasing social and physicalinsecurity, heads of governmenttalk behind closed doors aboutmajority rules in the institutionsand negligible issues such asthe seat of a European foodagency. National governmentsseem to be more concerned andcapable of securing their ownpower base and protectingnational sovereignty than find-ing solutions for the more press-ing issues such as unemploy-ment.

A reason for this increasinggap between expectation anddelivery lies in the structure ofthe Union. Major decisionsabout the future of Europe aretaken in the European Counciland the Council of Ministers.This is problematic insofar asthe member states have littlescrutiny from citizens when tak-ing these decisions: negotiationsare held in secret, there is noEuropean public sphere wheredecisions are reflected; themember states are not takingresponsibility for their owndecisions on the European levelbut instead blame “Brussels” for

Stronger European Parties for a Social Europe

Jo LeinenGerman Member of the EuropeanParliament (PES) and Chairman of theConstitutional Affairs Committee

“Stronger EuropeanParties could play acrucial role in democ-ratising decision making in the EU”


competing political pro-grammes, which are representedby their candidates for theEuropean elections. The politi-cal direction the Union takeswould be decided by the citi-zens’ vote.

European Parties today: too little influence on the importantdecisionsThe historic development of theUnion did not foresee Europeanpolitical parties as decisiveactors in the political system.Steps towards more integrationhave always been a result ofnegotiations between memberstates. Parties played no role.National parties that were not inpower in their country had nochance to influence Europeandecisions. Only the introductionof direct European elections in1979 led to the establishment ofparliamentary groups. Once theEuropean Parliament wasstrengthened step by step, thepower of the party groups toshape the Union’s policyincreased. However, it was onlyrecently that independentEuropean parties were formedand emancipated from thegroups in the EuropeanParliament.

Looking at today’s decisionmaking system in the EU, madeup of the EuropeanCommission, the Council andthe European Parliament,European Parties still play aminor role. Different to nationalgovernments, the EuropeanCommission neither depends ona parliamentary majority, nor isit made up of members of oneparty or one coalition. There isno clear party-political directionthe Commission has to follow.Although the CommissionPresident was nominated after

also motivate more people toparticipate in the Europeanelections and therefore strength-en the legitimacy of theEuropean institutions.

Strong European Parties couldalso play an important role indeveloping the economicEurope into a political Europe.In the first decades of theEuropean project it was mainlyeconomic tools that contributedto further integration: the estab-lishment of an integrated mar-ket, the introduction of a com-mon currency and an integratedforeign trade and customs poli-cy. There were no historicalprecedents of implementingtrans-national economic struc-tures of this scale. To ensuresuccessful economic integra-tion, decision makers relied onthe expert knowledge of eco-nomic specialists. In this envi-ronment it was economic“experts” that gained a stronginfluence on political decisions,often much stronger than that ofpoliticians. This structure ofdecision making contributed todeveloping a common market,enabled the introduction of theEuro and contributed to eco-nomic growth in all memberstates. But it failed to ensurethat all Union citizens couldprofit from integration. The citi-zens had so far too few spokes-people in the EU. European par-ties, whether social democratic,conservative, liberal or left, aremore likely to represent theinterests of the citizens thaneconomic actors. The reason issimple: a party’s success isdependent on citizens’ votes inupcoming elections, while lob-byists are only accountable totheir contractor. Once the struc-ture of the European Union isreformed, the parties can offer

them; and last but not least, thenational parliaments do nothave enough interest to monitortheir government’s decisions inthe EU.

Stronger European partiescould play a crucial role indemocratising decision makingin the EU. First of all, theycould stimulate European-widedebate about major topics. Thediscussion on the Bolkesteindirective was the first exampleof the usefulness of trans-national discussions about thepros and cons of EU directivesand regulations. It was especial-ly the Party of EuropeanSocialists (PES) that tookonboard concerns of citizensexpressed in demonstrationsand public debates. TheSocialist Group in the EuropeanParliament succeeded in chang-ing the proposal considerablyby putting forward amendmentsto the original proposal from theCommission. On the project ofthe European Constitution atruly pan-European debatewould have been necessary too.Whether the Constitution is animprovement compared to theTreaty of Nice was so far onlydiscussed from a national pointof view.

It is also true that until today,the Union’s citizens have hadtoo little influence on the politi-cal direction of the EU and itsleaders. The result of theEuropean Parliament electionshas so far had too little influ-ence on the political directionof the European Commissionand the Council. For politiciansin these two institutions, thepositions of their Europeanparty should serve as orienta-tion. Thus, election resultswould be decisive for the poli-tics of the Union. This would


also respected in areas withqualified majority voting. Thereality is that decisions in theCouncil of Ministers are takenon a consensual basis. Thisdoes not allow for one of theparties to show a clear profile interms of shaping Council deci-sions in their direction.

Only in the EuropeanParliament are the Europeanparties a decisive force. Mostmembers of the Parliament areorganised into parties and allthe party groups existing in theEuropean Parliament haveestablished independent party-families outside the Parliament.Nevertheless, unlike in mostmember states, the parties inthe European Parliament do notform stable coalitions. Neitherthe conservatives nor the socialdemocrats can dominate thepolitical direction of theEuropean Parliament. Firstly, inthe committees and in the vari-ous areas of politics, the majori-ties in the parties differ.Secondly, in the EuropeanUnion the main political con-flicts generally arise betweenthe three institutions:Commission, Parliament andCouncil. To be a strong actor inthe inter-institutional contest,the Parliament wants to showunity, which is why the big par-ties aim at voting en bloque onimportant decisions. This wasshown during the vote on theUnion’s budget for the years2007 – 2013 that received,despite being highly controver-cial until the end, a big majorityin the final vote in theEuropean Parliament.

Even if there was no need tomake decisions with clearmajorities, the European partieswould find it difficult to formcoalitions in the European

put forward during the electioncampaign.

Besides the Commission, it isthe member states – throughtheir participation in meetingsof the European Council andthe Council of Ministers – thatexert control over the politicaldirection of the Union. Sincethe European Council decidesin unanimity, a similar problemto that of the Commissionapplies: even if there were aclear majority of heads of gov-ernments from one party or oneparty coalition, they could notmake a decision without takinginto consideration the positionsof all other parties representedin the European Council.Implementing a party-politicalprogramme in this environmentis very difficult, even for strongand united parties.

Meetings of the Council ofMinisters provide more possibil-ities for European parties to beinvolved. In the past years moreCouncil meetings were openedfrom unanimity to qualifiedmajority decisions. In theorythis would allow the formationof coalitions of parties in theCouncil, which could pushthrough their programmes.Since some decisions in theCouncil of Ministers are stilltaken in unanimity, there is alsothe threat that ‘opposition’ gov-ernments would block thesedecisions until their views were

the last elections of theEuropean Parliament in 2004 inlight of the election results, theconsensus decision procedurein the Commission preventshim from acting against theinterests of the otherCommissioners. In such a struc-ture, it is impossible to imple-ment the political programmethat the strongest party was pre-senting during the election cam-paign. Since the political fate ofthe Commission is not depend-ent on the support of a majoritycoalition in the EuropeanParliament, European Partiescan exert only little pressure onthe Commission through theirparliamentary groups.

Another structural problemprevents the Commission fromimplementing a clear politicalprogramme: legislative initia-tives will not be automaticallywithdrawn when the term of anoutgoing Commission ends.This means the newCommission has to defend theproposals of its predecessors,irrespective of whether thepolitical direction of theCommission has changed withthe election. Even if there was astrong party of EuropeanSocialists, which would clearlywin the elections and had amajority in the Commission col-lege, they would have littlechance to implement the entirepolitical programme they had


“Only in the European Parliament are theEuropean Parties a decisive force. Most mem-bers of the Parliament are organised into partiesand all the party groups existing in theEuropean Parliament have established inde-pendent party-families outside the parliament”

questions such as social protec-tion or tax policy are very diffi-cult to harmonise, as on thelocal, regional and nationallevel these topics are not dis-cussed with a European view inmind. That there are too fewcommon positions is very obvi-ous in the manifestoes of theparties for the European elec-tions. They are very short andindefinite.

Possible functions for EuropeanPartiesThe complicated structure ofthe European Union institutionsand the rules of decision mak-ing mostly developed beforeEuropean parties were founded.European parties still have tofind their role to play, as someof the traditional functions theyfulfil in the nation states havebeen taken over by other insti-tutions. The party’s functionson the national level are mainlyto work out a political pro-gramme that will guide thework of the government, the for-mation and education of politi-cal personnel and the connec-tion of political decisions withvoters’ interests.

To draw up a political pro-gramme that can guide thedevelopment of the EU is verydifficult. The European politicalparties consist mainly of like-minded national parties. Sincethe respective national partieshave gone through very differ-ent historic developments, sincethey are embedded in differentpolitical systems and since theyare influenced by the positionsof their leaders, it is very diffi-cult for them to agree on a com-mon European position. One ofmany examples for these differ-ences is the debate about possi-ble options for a Social Europe,

elected members. Unless theinstitutions are reformed,European parties therefore haveno possibility of exerting influ-ence on the Union’s directioncomparable to that which theyenjoy on a national level.

However, one must admit thatthe weakness of European par-ties is not only due to theunhelpful structure of theUnion. The European partieshave until today not been ableto achieve a strong profile and acommon position in the impor-tant political debates. Even inthe European Parliament, thebirthplace of the European par-ties, it is often difficult to find acommon position for all mem-bers of a political family.Whether on environmental, eco-nomic or social policy, thediverging political traditionsoften lead to different positionsand views in these fields of pol-itics. These differences aremuch bigger when theEuropean parties try to find acompromise outside of theParliament. The differentnational party positions on

Parliament. Besides the five ‘act-ing parties’, conservatives,social democrats, liberals,greens and left, there are alsotwo broadly euro-sceptic partiesand some of the independentdeputies are completely againstthe EU. In order to achieve amajority under these circum-stances, at least three of the“acting parties” would need toform a coalition, which wouldcover a very wide political spec-trum.

The main reason for the non-existence of a ‘governing coali-tion’ in the European Parliamentis that in today’s structure thiswould be of little use. A ‘gov-erning coalition’ could neitherdominate the political directionof the EU, as it could not influ-ence the direction of theEuropean Council and theCouncil of Ministers, nor couldit elect the head of theEuropean government, theCommission President, out of its


Jo Leinen talking about EuropeanParties. Click to watch. (AcrobatReader Version 6 and later only.)

remain loyal to the Council,rather than to the European par-ties. This argument is evenmore valid for the ministers andheads of states represented inthe Council of Ministers and theEuropean Council. Howeverthere are good reasons for opti-mism. The elections in Italy,resulting in the election of a for-mer Commission President asnew Prime Minister and a for-mer chairperson of theConstitutional AffairsCommittee in the EuropeanParliament as the newPresident, show that it is alsopossible that politicians developa strong profile on the Europeanlevel and bring back theirEuropean spirit to the nationallevel.

The future of European PartiesDespite the current challengesfacing European parties, recentyears have seen a very positivedevelopment. Since the adop-tion of the Leinen-Report onEuropean parties in 2003, thenumber of European Parties hasrisen to 10. The European par-ties have been emancipatedfrom the party groups and are inthe process of developing theirown profile. Fundamentalimprovements for the roleEuropean parties can play in theEuropean structures, are linkedto the constitutional process.

Reforms of the institutionalframework of the EU, foreseenin the European Constitution,point in the right direction.The role parties can playthrough their groups in theEuropean Parliament will bestrengthened through theextension of co-decision votingin many areas. This step willstrengthen the ability of theEuropean parties to play an

European parties have not yethad a lot of influence. The nom-ination for the CommissionPresident is made after long andenduring negotiations betweenthe member states in theEuropean Council. Indeed, thisnomination is done in the lightof the election results. But thecandidate for the CommissionPresident is neither presented tothe voters before the elections,nor do the political bodies ofthe European Parties take partin the decision. The other mem-bers of the Commission Collegeare nominated by the memberstates and, except for some‘experts’, come from the respec-tive governing party. Bodies ofthe European parties have noinfluence on these purelynational decisions, except forthe possibility of rejecting indi-vidual candidates in theEuropean Parliament. A bettercoordination of the nominationof Commissioners from socialdemocratic parties could, forexample, result in better genderequality inside the EuropeanCommission (today only 7 outof 25 Commissioners arefemale).

On the formation and educa-tion of the political leadership,European parties again have lit-tle impact. CommissionPresidents and Commissionershave usually gathered theirexperiences as former ministersor prime ministers and will

which range in the PES frommore liberalisation to more pro-tectionism, from harmonisationto integration, from commonminimum standards of socialprotection to harmonisedEuropean social security sys-tems. So far it has therefore notbeen possible to draw up strongand detailed political mani-festoes for election campaigns.Elected political leaders there-fore had a certain freedom tointerpret the political pro-gramme of their party.

Even though the parliamen-tary groups follow the politicalmanifestoes, looking at all deci-sion makers in the EU it is onlya minority that follows thepolitical line of one of theEuropean parties. The EuropeanCouncil and the Council followthe aggregated interests of themember states, whereas theCommission defends the com-mon interest of the Union, notthat of one of the political par-ties. And economic actors, whostill have a considerable weighton decisions in many politicalfields, follow the interests oftheir financiers. Therefore, evenif the European parties couldagree on comprehensive politi-cal programmes, they could notyet have the same influence ondecisions on the European levelthat they have in the memberstates.

Also on the selection of thepolitical leadership of the EU,


“Even if the European Parties could agree oncomprehensive political programmes, theycould not yet have the same influence ondecisions on the European level that theyhave in the member states”

be adequately financed and sup-ported.

ConclusionThe principle of a participatoryand parliamentary democracy iscontained in the EuropeanConstitution. Only a democraticEuropean Union will be sup-ported by a broad majority ofthe citizens and only when theinstitutional framework of theUnion provides for democraticprocedures can a Social Europebe achieved. European partiesare an essential instrument inrealising European democracy.Before the elections of theEuropean Parliament in 2009,decisive progress should bemade concerning the develop-ment of a political programmeas well as the selection of theleadership for the Union.

European political campaignsand European referenda.

A crucial role in the develop-ment of European democracywill also have to be played byEuropean political foundations.In many member states theyplay a key part in democraticeducation. To achieveEuropean democracy, it wouldbe essential to supportEuropean political foundationsthat are linked to the partiesand represent the different ide-ological mainstreams inEurope, while yet remainingindependent from the parties.The difficult debates about thefuture of Europe and theEuropean Constitution haveshown that there are too fewspokespersons of Europeaninterests. European politicalfoundations will have in com-mon a European perspective onpolitics but will follow differ-ent ideological directions, thusoffering different politicalvisions for the future ofEurope. Thus, they can play animportant role as think tanks ofthe European parties, withoutbeing part of them.

Last but not least, also thepolitical youth organisationshave to be strengthened. Theyplay a vital role in educating thefuture leaders of Europe.Already today, the existingpolitical youth organisationsoffer a wide range of activitiesfor the members of the nationalyouth parties and thus providefor European education fromthe beginning of politicalcareers. This will contribute to agreater understanding of theEuropean dimension of allnational politics. To fulfil theirincreasing role in the future,political youth organisations onthe European level will have to

important role in shaping thedirection of the EuropeanUnion. Furthermore, thestrengthened influence of theEuropean Parliament in elect-ing the Commission Presidentwill bring the Union closer tothe democratic ideal: with thehelp of political parties, citi-zens can choose the politicalprogramme and the politicalleadership for the EU.

However, ratifying theEuropean Constitution will notbe sufficient. For European par-ties to play a decisive role,there need to be set rules con-cerning the function and work-ing methods of the Europeanparties. This can best be donewithin the framework of aEuropean party statute. On the23rd of March 2006, theEuropean Parliament adopted areport which requests theEuropean Commission to putforward a proposal for such astatute. The aim of such astatute is to regulate detailsconcerning the function, objec-tives and financing ofEuropean parties. Until today,all European parties are regis-tered under national law, most-ly in Belgium. A Europeanstatute could ensure that allEuropean parties receive thestatus of a European legal per-sonality and would benefitfrom equal rights and duties inall member states. Further, thestatute should define whetherand in what way individualmembership is allowed orrequired from European partiesand it could set minimum stan-dards concerning party internaldemocracy. Last but not least,the party statute has to under-line that European parties areallowed to participate inEuropean election campaigns,



Endnotes

We would like to express our special gratitude to Chloé Aublin andJeannette Ladzik who helped a great deal in the development ofthis issue.

All the views expressed in the articles of this issue are those of theauthors and do not necessarily represent the views of SocialEurope Forum.

All rights reservedSocial Europe Forum© 2006

Social Europe Journal Vol. 2 No. 1

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Transcript of Social Europe Journal Vol. 2 No. 1