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The Worrying Future of Welfare in Austerity Europe

Problematic Regulation and Funding

As shown in Chap. 6, welfare services have been a main target of austerity policies enforced as a response to the financial crisis. Insofar as the crisis has been successfully framed as a crisis of public debt, as opposed to a crisis of the financial markets incurring excessive private debt, cuts in the public sector have been legitimized as a necessary evil. This also means that an increasing number of welfare services are slowly shifting to the realm of the market. Marketization is seen, not least within the EU institutions, as a vector of efficiency and as an alternative source of funding in a context where public resources for welfare are dramatically diminished.

It is difficult to generalize since policy outcomes remain strongly shaped by the economic situation of individual countries (not least their debt level) as well as by the ways in which national politics mediate the larger trend towards marketization. In the highly indebted countries receiving financial assistance from the EU and IMF (namely Southern Europe, parts of Central and Eastern Europe and the Baltics, and Ireland), the cuts in education and healthcare have started to show significant effects on general welfare. In many countries, the increasing taxes on energy and poorly controlled housing markets have made these basic needs unaffordable for large sections of the population. In countries in better economic and budgetary shape, policy outcomes depend on the traditional robustness of the welfare state as well as on political orientations of governments in power. In an increasingly marketized environment, the issue of appropriate means for regulating the relations between private providers and users—who are increasingly seen as consumers rather than citizens—is crucial.

Against this backdrop, there is a blatant lack of systematic assessment of marketization policies in the realm of welfare services. Because many policy measures have been recently adopted (like the leap to full liberalization in the postal sector), or only partially implemented (like in railway transport), the effects of full competition are not visible yet. The key question of appropriate funding and regulation is, at this stage, still wide open. With its clause on the universal service, the postal sector was a main example of socially minded re-regulation at the EU level. Yet, it remains to be seen whether the envisaged means for appropriate funding in a competitive environment, whether lawful state aid or compensation funds, are viable in practice and able to ensure adequate protection of the general interest, especially in terms of service quality and affordability.

Beyond sectoral and national diversity, three main trends can be detected. First, the debasing of public welfare services and their ongoing privatization or marketization have been largely counter-productive with regard to social cohesion in Europe. While it is widely acknowledged that they perform an important role as stabilizers in times of crisis, austerity has brought about job cuts, thus feeding the already skyrocketing levels of unemployment. In turn, austerity has also implied a more difficult access to basic welfare services above all for the newly impoverished groups of unemployed people. Secondly, while marketization through competition is presented as a means to decrease the cost of services, it arguably contributes to shifting costs from the community to individual users in the long run. In a number of sectors, competition means the replacement of national monopolies by multinational oligopolies; in the absence of tight regulation, competition often remains limited, and the general interest easily becomes hostage to profit making. Furthermore, different social groups do not deal equally well with the paradigm of consumer choice which implies a wider—but hardly transparent—offer of services. The range of services also widens in terms of quality to offer more choice. The emerging picture is therefore one of a two-tier system where the most vulnerable and less resource-endowed groups have access to basic services provided or subsidized by the state in a non-profit logic, while wealthier sectors of societies will (have to) pay for better services to enjoy a higher level of welfare. Elementary as well as higher education is a case in point. Ultimately, the dualization in welfare services becomes a vector fostering the social reproduction of inequalities rather than social cohesion. In that sense, the marketization fits in the broader picture of rapidly rising social inequalities in Europe.

The third trend which can be detected concerns the role of the EU. At the outset, the role of the EU was mainly related to negative integration through the building of the Single Market and competition law. The postcrisis framework for macro-economic governance, namely the European Semester, has offered an additional, if more indirect, route through which the EU contributes to shaping welfare services by means of stringent constraints on national budgets and fiscal policy. The healthcare sector is paradigmatic of the combined effects of negative integration and fiscal discipline. On the one hand, the necessities of the single market, notably the free movement of people and services, constitute a first step towards the opening of national welfare states through EU regulation. This goes hand in hand with the emergence of a market for health services at the European scale. The sector is also considered by EU decision makers as a source of competitiveness among large European firms and should, as such, not be excluded from the EU trade policy, as the recent controversy over the TTIP shows. On the other hand, healthcare has become a component of ‘structural reforms’, a mantra of EU governance. A significant number of country-specific recommendations issued by the European Commission (and endorsed by the Council) in the framework of the European Semester address the weight of healthcare on national budgets and admonish the Member States—not least large countries with a traditionally strong public healthcare such as France, Germany or the UK—to take measures aiming at ‘cost-effectiveness’.

Thus, if the EU is moving beyond the scope of the regulatory State (Kelemen 2013), a positive agenda in the realm of welfare is still pending. In 2013, the European Commission adopted a communication putting forward a ‘social investment package’ initiated by its DG for employment and social affairs. In doing so, it embraced the concept developed in academic circles over the past few years for promoting a progressive modernization agenda for European welfare states. Yet, the limited resources involved in the package (part of the European Social Fund) and the prominence of fiscal discipline as an overarching objective has meant that social investment has clearly not been a priority, neither in the EU institutions nor in the Member States. The fact that social investment is totally absent from the Investment Plan for Europe put forward by J.-C. Juncker in July 2015 clearly illustrates that social investment is still far from the top of the European agenda.

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