People frequently talk today of the challenges of globalization, and in particular of the changes that it imposes on the economic and social systems o...

People frequently talk today of the challenges of globalization, and in particular of the changes that it imposes on the economic and social systems of our societies in the name of a competitivity which must be pursued at all costs if we want to survive in this world that has become global. Many take for granted solutions that require lower taxes, less State, more flexibility in the labour market. Neo-liberal theories appear to be dominant at present in the Western world, and the defense of the welfare levels attained in the past decades is viewed as a rearguard battle to protect privileges by now absurd and unsustainable. There are certainly big differences among the various countries: for historical reasons in Europe in particular there is greater consideration for social aspects than, for example, in the United States. We can then ask ourselves whether one can, for a start, talk of a European model in respect of the problems just mentioned and more generally of the criteria that guide the organization of society and the economy, and of living together.
In the opinion of many scholars a European model does exist, and it differs from other models in various aspects. C. Buhigas Schubert and H. Martens¹, for example, point out three features: first, as proclaimed in the EU Constitution (still to be ratified) and in common with other Western countries, it is founded on such values as democracy, the rule of law, and respect of human rights. In addition, it is characterized by relying on multilateralism and "soft power" as the means of solving international disputes. Secondly, Europe is characterized by social economies, and by its willingness to balance economic achievements with such other goals as social cohesion, leisure and environmental sustainability. Thirdly, it is consequently characterized by having a larger public sector than most other countries.
To give some figures, social transfers (pensions, sickness and disability schemes, unemployment benefits, housing programs, etc.), aimed at reducing poverty and helping to achieve greater social equality, affect (excluding pensions) 52% of the EU population, with however significant differences between countries (from 70% in Denmark to 17% in Italy). This is reflected in the level of taxation, which is 26% of GDP in the USA (and similarly in Japan and Russia), while in Europe it is around 41,8%; and in the size of the public sector which is around 50% of GDP in Europe, with the UK at 40% and Sweden at 67%.
The role of the public sector therefore, which as we said is peculiar in Europe for its significant size, is fundamental for the economy and for social cohesion. It may be, as some believe, an unbearable burden, an elephantine bureaucracy, a big obstacle to national competitivity and to the good functioning of the market. But, if efficient, it may also be a protagonist of development, as we will see.
Going in greater depth into the economic and social realities of the 25 European countries, one can immediately see that there is no single European social model, but four or five, commonly defined by geographical area (but also with matching statistical indicators, see Fig.1), as, for example, in the recent Sapir Report², or in the European Policy Center's Working Paper No. 20 of September 2005³. Thus we have:
• the Nordic model (Denmark, Finland, Sweden, plus The Netherlands), where the highest levels of social protection expenditure can be found. Government intervention in the market economy is low; instead, it is significant in providing "active" policies for the unemployed. Workers' unions are strong.
• the Anglo-Saxon model (the UK and Ireland), where social expenditure amounts to 21,8% of GDP (2001). The attitude to markets is quite liberal; social benefits are targeted and work-conditional, and privately paid welfare plans are growing. Employment rate is higher than the average in the EU, and the national welfare system looks financially sustainable. Trade unions are weak, salary dispersion is high and growing, with a large presence of low paid jobs, hinting at a non-negligible probability of falling into poverty (see Fig.1).
• the Continental model (Austria, Belgium, France, Germany and Luxemburg), is characterized by good welfare coverage, which, however, is financed to a large degree by employment-adverse taxes. So relatively low employment rates and the demographic challenge of aging population, determining a shrinkage in active population, risk making the system financially unsustainable. Germany in particular, as well as Southern Europe, finds itself in a "welfare without work trap" in which young people and women in particular are penalized by the scarcity of jobs.
• the Mediterranean model (Greece, Italy, Portugal and Spain) has many features in common with the Continental model. It is further conditioned by the sizeable incidence of pensions on social budgets, and by frequently resorting to early retirement to put segments of working age population out of the labour market. Workers' unions are still rather strong, although their membership is declining and they are criticized for protecting traditional jobs without sufficient openness to the new professions and a more modern (and equitable) approach to welfare.
(A fifth group would be that of the Eastern countries that have recently joined the EU, but this is considered a transitional group, as pretty soon they will very likely adopt one of the previous models).
Fig.1, taken from Ref. 2, shows how the EU-15 countries are placed with reference to two parameters, namely the Employment Rate and the Probability of Escaping Poverty (= 1 - Poverty Rate). The countries group together around the point representing the European average values, which is taken as the origin of the horizontal and vertical reference lines according to the definitions given above, the only exceptions being Austria and Portugal which would be more similar, respectively, to the Nordic and Anglo-Saxon models. Sapir gives also a different, telling interpretation of the same diagram. As a model can be considered "efficient" if it creates enough employment, and "equitable" - if it keeps the risk of poverty among the most disadvantaged part of its population low -, then the two axes may represent respectively the "Efficiency" and the "Equity" of a model. So, the Nordic model is both efficient and equitable, the Continental is equitable but inefficient, the Anglo-Saxon is efficient but not very equitable, and the Mediterranean delivers neither efficiency nor equity.
Let us now consider the model that from what we have seen so far looks the most interesting: the Nordic model. Its success appears to be due to a good mix of the Anglo-Saxon model with its liberal approach to the market and the Continental model with its provision of good social protection; hence the presence of a strong role of the public sector (taxes in the Nordic model countries are at 45-51% of GDP, as opposed to 31-37% in the Anglo-Saxon model).
The Nordic countries also rank consistently among the first when countries are compared according to other indexes which take into account not only strictly economic factors, but also factors measuring the satisfaction of citizens with regard to government, the business environment, their own lives, etc. So, among the top ten countries in the Human Development Index (UN, 2001) we can find five Nordic countries (NCs), in the Quality of Life Index (Economist Intelligence Unit, 2005) 4 NCs, in the Responsible Competitiveness Index (AccountAbility, 2004/5) 5 NCs. The World Economic Forum has published the rankings in the Growth Competitiveness Index for 2005, and Finland is once more first, followed by the United States, and then Sweden and Denmark; and also in the nine "pillars" of the Global Index (comprising, for example, Institutions, Higher Education and Training, Innovation) Finland is always in the first twelve. And so it is in the Corruption Perception Index by Transparency International.
What is particularly striking in these statistics is the fact that the countries excelling in competitiveness are also the ones which simultaneously exact the highest levels of taxation. How is it possible? Does it not contradict the maxims of neo-liberal theories?
For sure there are many elements that make such a remarkable result possible. First of all, there is the efficiency of the public sector, both in providing services (education, health, etc.), and in managing the redistribution of resources, and in particular social transfers. Also, it becomes itself a propeller of the economy when, for example, it directly invests in research and development, in environmental technologies, in the technological innovation of the state administration (e-government), or the ever more widespread care of the elderly. Transparency and the virtual absence of corruption were mentioned already. These are things that require a highly developed civic conscience in all levels of the population, a conscience that took a long time to truly become a national cultural trait.
A second element is the institutionalized dialogue between workers, entrepreneurs and the State which in the Nordic countries, in particular in Denmark, has become known as "flexicurity". Briefly, it consists in a combination of (very liberal) regulations on labour flexibility; a generous and efficient system of assistance to the unemployed; and an "active" public policy towards the labour market, which aims to requalify those out of work. It is to be noted that about 80% of workers are members of a union, and yet about 30% of Denmark's work force change jobs every year. They do not lose their pension rights or paid holidays, etc., and they receive benefits and training. Thus the entrepreneurs have a very flexible work force available. Rather than job security, the trade unions protect the possibility of developing workers' competences. They and the whole system aim not at avoiding unemployment but rather "at getting the unemployed back to work by making them employable". The idea is that "security does not come from having the same job for as long as possible, but from being able to qualify progressively for the many new job opportunities which arise in a dynamic labour market"⁴.
The result is that in those countries globalization is not seen as a frightening threat. According to a Gallup poll carried out this year, only 40% of Danish workers think there is a "very large" or "large" risk that their jobs might be relocated in another country, while 90% judge the risk to be "low" or "non-existent". And if they should indeed lose their job, 59% of Danes think it will be "easy" or "very easy" to find a new one.
The question that comes naturally is: can the Nordic model be exported? Can it become the Europe-wide model? "Unfortunately not" is the answer most experts give. Too many elements are linked to intrinsic features in those societies and cultures; and there is not even complete uniformity among the Nordic countries themselves. However, at least two general indicators can be drawn from this quick presentation of the European social models.
The first is that some reform of the Continental and Mediterranean social models in the direction of opening the labour market to a greater flexibility is necessary, but balanced by "active" and efficient means of social protection. Only thus can social reforms in Europe acquire the consensus necessary to become acceptable.
The second indicator is that, despite what the neo-liberals assert, advanced social models which aim at a good level of national competitiveness hand-in-hand with an important role for the State in maintaining social cohesion, protecting and promoting citizens' welfare and education, can be financially possible and sustainable. The success of the Nordic countries is there to prove it.

1 C. Buhigas Schubert and H. Martens eds., The Nordic Model: A Recipe for European Success?, EPC Working Paper No. 20, September 2005.
2 A. Sapir, Globalization and the Reform of European Social Models, Bruegel, September 2005, http://www.bruegel.org.
3 Schubert and Martens, op. cit.
4 Ibid.