European Integration and the Welfare State

Globalization - Euroepan Integration - EU-Social Policy


Does Integration Protect Member States from Globalization and the Neo-Liberal Resurgence?
How does Integration Compound the Effects of Globalization or are these Two Developments Unrelated?

by Shirley Hixson


During the early 1980s, there was growing concern across Europe -- and especially among business interests -- that important changes were occurring in the global market. Most important was the perception that Europe was falling behind other global leaders, such as the United States and Japan. New industries and technologies were changing the face of business, as well as the way it is performed. A report was commissioned to identify the obstacles that were preventing Europeans from participating fully in the market. Once completed, the findings listed thousands of barriers that existed to business on the European continent.

This report led to the creation of the Single Market Initiative in 1985, which was followed by the Single European Act (SEA) in 1987, resulted in complete mobility of all production factors. Four freedoms were established that would apply uniformly within the EU's borders:

  1. freedom of work and movement;
  2. freedom of residency;
  3. freedom of investment; and
  4. freedom of business

This heralded a significant shift in European integration and would have far-reaching consequences. Prior to the implementation of the SEA, integration was centered around a Customs Union and a Common Market, where national policies were similar but not identical. Within seven years, the SEA sought to create a single market -- with identical policies -- within which all members would participate. The single market initiative and the SEA greatly enhanced the ability of EU members to compete globally; however, because of the economic factors that link almost all aspects of governance, the success of economic integration had unanticipated, but far-reaching, consequences.


As the EU continues to work toward an ever closer union, it has become increasingly ensnared between the pressures of globalization and a complex and diverse array of national policies and social traditions. The motivation for European integration can be argued from several perspectives but, clearly, the globalization of business and trade -- and the need to compete effectively in this global market -- is of paramount importance. European integration has resulted in the creation of a unique multi-tiered system of governance that has required member nations to accept their devolution from a sovereign to semi-sovereign position in economic and pubic policy. In addition, although member nations have retained external sovereignty in the arena of international relations, there have been increasing efforts to harmonize the response of EU member nations to global events - such as the Balkan conflict of the 1990s -- through development of the Common Foreign and Security Policy.

Competing in the global market has required member state to pool both their resources and power in the process of economic integration to achieve the Single Market. This success, however, required surrendering policymaking capability to the EU through five (5) criteria:

  1. Joint Decision-Making. This element is characterized by a complex array of national interests and ideologies that fuel the need for compromise.

  2. Creation of a Policy Network at the European Level. This authority enables policy-making capability that exists above and beyond the EU's member nations. It has evolved to such a degree that interest groups, individual member governments, and the social partners lobby these institutions directly in order to influence decision-making pursuant to their interests.

  3. Creation of a Social Policy Regime beyond the Authoritative Control of its Members. Resistance by member states in this area is clearly present; however, the EU has evolved to the point where it retains its own separate source of power and authority. Treaty abnormalities have allowed various institutions at the European level to increase their maneuverability, while incrementally expanding their role in the policy-making arena. Despite this, significant constraints remain.

  4. Reduction in the Autonomy of National Social Policy through EU-wide regulations. Both regulations and directives (binding and non-binding) by the European Court of Justice (ECJ) have established a minimum criteria for social policy in various areas, including health and safety regulation, gender equality, access to opportunity, and workers rights and protections. Notably, implementation and enforcement are difficult, especially regarding non-binding rulings.

  5. Reduction of National Social Policy Autonomy through Market Compatibility Provisions. Economic integration has allowed the ECJ, through its authoritative role as interpreter of law (treaties), to take an expansive view of EU involvement. This has spilled over into non-economic policies.


In surrendering specific areas of economic, social and judicial authority to EU institutions, member nations have sought to create conditions that will enable them to achieve economic success in both European and overseas markets. In accomplishing this goal, however, member states have constrained themselves to creating and modifying national social policy within the enforceable regulations that have resulted from EU legislation. While these measures have served to increase economic integration and global competitiveness, they have not succeeded in protecting the EU members from the influences of globalization. The opening of internal borders -- physical, financial and social -- has introduced new complications, such as social dumping and competitive deregulation, that have already had a profound impact on national and European social policy.

While social dumping is not a recent phenomena, it has re-emerged with a renewed vigor within the EU's member states, threatening both long held cultural traditions and popular social programs. Social dumping is an inherent element in any competitive market. Simply stated, social dumping occurs when capital flows to regions where labor is cheap and the least protected. With the opening of national borders among EU members, the ability of business to flow freely to those areas that offer an atmosphere conducive to increased competition has been greatly enhanced. However, it has created tremendous problems for individual member states, especially those with a high wage labor force who find themselves at a disadvantage when competing with members who offer a low wage market.

Specifically, three different types of business organization exist within the EU:

  1. High Internal Flexibility with External Rigidity. These states are construed as "externally rigid" because they have highly regulated labor markets that protect employees by assigning a high cost to employers who lay off or fire workers. These labor markets seek to protect employment opportunities through regulation. However, these states are internally flexible because they offer highly trained workers who can easily adapt to other types of work within the company.

  2. High Internal Rigidity with High External Flexibility. Labor markets within these states are called "internally rigid" because they offer low skilled workers who do not adapt easily to shifting types of responsibilities or technological needs, often due to low skill base and training. Flexible external elements are present because the market is deregulated to allow employers to fire or lay-off workers without incurring huge expenses.

  3. High Internal and External Rigidity. These states suffer from a dual challenge in that, while they offer a low wage work force, their labour market is highly regulated to protect employment. Business seeking to layoff or fire employees must offer expensive compensation packages. Internal rigidity is present within these states because of a low skilled workforce that is not easily adaptable in today's constantly changing labor market.

As a result of the diverse nature of European labour markets, the transition from Customs Union to Single Market has placed increasing pressures on national governments to make concessions to business. Indeed, national governments always seek to protect business but, with the ability now to relocate production location, workers and capital to areas that provide greater economic incentives -- without negative consequences -- business has grown an increasingly powerful voice in influencing both national and EU-level policy.

This places national governments in a quandary. The loss of business increases unemployment and creates a drain on social programs while decreasing the amount contributions through taxation. This results in a domino affect as budgets for social programs become constrained, just as the need for them increases. Governments find themselves unable to expand or create new programs because they are unable to sustain growing public deficits to fund the programs. For example, under the pressures of competing in the global market, traditional programs targeted to protect employment need to be modified to focus more on employment promotion.

Controversially, concessions to business can also negatively impact popular social programs by taking away worker protections and employment rights. In addition, the ability of workers to move freely about is problematic in states where a high degree of importance is placed on job training and skill because employers receive little compensation for their investment in human capital. Thus, European national labor markets are adversely affected because the interests of business, efficiency and competitiveness diverge from those of national governments, especially in the area social policy.

As governments pursue policies that will encourage business, the concept of competitive deregulation is frequently at the center of scholarly attention and serves as an example of the influence of economic integration on national social policy. As businesses in areas of low social wages seek to gain a competitive advantage by undercutting the prices of competitors in high wage regions, businesses in high wage states are threatened because, to compete, they must lower prices but cannot lower wages. When high wage businesses seek to renegotiate union contracts to avoid huge losses in profit, workers often find benefits, such as health care, overtime requirements, vacation and sick leave, jeopardized.


For European businesses to compete in the global market, states where labor relations have been historically centralized have experienced increasing pressures to decentralize. Unfamiliar elements have been introduced by multinational corporations, as well as cross-class flexibility alliances between employers and employees in arenas where a tradition of hierarchy and class-separation is firmly entrenched. However, regardless of its organization, the majority of employers seek greater business flexibility in three areas:

  1. internal (or functional) flexibility in the workplace;
  2. external (or numerical) flexibility in the global labor market; and
  3. greater flexibility in wage scales at the local level.

At the same time, counter pressures exist that favor centralization -- through the process of regulated cooperation -- for both national and EU-level employment protection regulations. Regulated cooperation evolved in response to competitive pressures and the spreading of new forms of decision making and work organization that stresses flexible specialization, methods of lean production and the concept of total quality management. For regulated cooperation to be successful, co-operative labor relations must be maintained and the internal environment must possess a high level of trust between the employer and employees. Regulation of the labor market must be carefully constructed because the flexibility of the internal workplace is based on teamwork and low levels of hierarchy, not unilateral management action.

Regulated cooperation seeks to achieve a new balance between business and labor by merging some elements of corporatism (i.e., systems of authorized collective bargaining) with the new global demands of competition and efficiency. While high skill levels remain important under regulated cooperation, special emphasis is placed on skill acquisition and national education systems. In return, employers retain a greater control over their ability to make limited changes through hiring, firing or other form of adjustment to their workforce. It is of vital importance that the balance of these two elements be moderate, because high flexibility -- on either side of the equation -- would result in the destruction of trust and the undermining of internal flexibility.


Clearly, the EU was created in part to enable European nations to compete in the global market. This effort has introduced new concepts in business organization, labor relations and social policy. As the EU's efforts to integrate Europe economically have succeeded, national governments have found themselves reduced to a semi-sovereign status in some areas of policy-making. Changes are occurring and many are unwelcome. Globalization in the form of "American Super Capitalism," as it is sometimes referred to in the European popular press, threatens to change many long-practiced traditions and social programs which will, in turn, affect the European way of life permanently. Acknowledging this, one must realistically conclude that national governments can no longer sustain the large public deficits needed to continue social program if they desire to compete in the global market. While we cannot definitively pinpoint the end result, the European way of life is already changing.


There is a common thread to European life that is best defined by the priority placed on maintaining a sense of balance between professional, social and personal lives. This includes, in a less personal sense, economic stability and security, investment in human capital, social infrastructure and environmental protection. But a very critical part of this equation is the precedence given to leisure, travel, family, friends and personal time. The result is a harmonious lifestyle that is difficult to achieve in America. Indeed, in the fast pace of American life, a common complaint is the lack of time available at the end of the work day. Indeed, for many Americans, overtime, weekend and evening work is a growing fact of life and leisure time has become a scarce commodity.

In this arena, European have succeeded where Americans are still struggling to prevail. Indeed, it often appears that the two continents are seeking to approach the same goal from opposite ends of the spectrum. Europeans have moved toward their ideal strategically by engineering their social policy in such a way that the end result is one of balance among all facets of life. Quality of life is of utmost importance and Europeans are not willing to sacrifice it to the forces of "American Super Capitalism." Americans, in a sense, are attempting to work their way backwards toward the same point on the scale; however, because "super capitalism" is such an inherent part of America's makeup, balance -- at least in the European definition -- is unlikely.

In summary, while the powerful forces of capitalism are clearly changing European lives, it seems reasonable to conclude that Europeans will guide the evolution of social policies in such a way that important cultural traditions will be preserved. Americans often adopt aspects of European life and transform them into something altogether new -- indeed, America's ideals of democracy and republicanism were legacies of European philosophers and statesmen. In a similar manner, Europe will no doubt take America's brand of "super capitalism" and make it into something uniquely European.

Shirley Hixson


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Hervey, Tamara; "European Social Law and Policy;" Longman: London and New York; 1998.
Hine, David; "The European Union, State Autonomy and National Social Policy."
Hine, David and Hussein Kassim; "The European Union, Member States and Social Policy."
Jackman, Richard; "The Impact of the European Union on Unemployment And Unemployment Policy."
Leibfried, Stephen and Paul Pierson; "Multitiered Institutions and the Making of Social Policy."
Leibfried, Stephan and Paul Pierson; "Semisovereign Welfare States: Social Policy in a Multitiered Europe."
Majone, Giandomenico; "Understanding Regulatory Growth in the European Community."
Rhodes, Martin; "A Regulatory Conundrum: Industrial Relations and the Social Dimension."
Rhodes, Martin; "Defending the Social Contract: the EU between Global Constraints and Domestic Imperatives."
Scharpf, Fritz W.; "Economic Integration, Democracy and the Welfare State;" Journal of European Public Policy 4:1 March 1997: 18-36.

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