Neoliberalism, EU Integration and Welfare Services

The Contentious Outcomes of Marketization

As pointed out in the introduction, the purpose of this book is not to assess the ‘impact’ of EU policies on the provision of welfare services. National governments certainly have a large leeway to mediate the effects of Europeanization and, insofar, the outcomes of reforms will depend on local, regional and national decisions and on the way in which various public authorities have implemented EU policies and regulations. For that reason, the final picture is necessarily mixed and differentiated across Europe due to various historical backgrounds and policy legacies, on the one hand, and different reform course and political trajectories, on the other hand.

Following Bauby (2011), one can distinguish four ‘worlds’ of welfare services in today’s Europe. In unitary and centralized States like France and the UK, large national public monopolies were established after World War II and defined centrally, even though provided on a regional or local basis. France in particular represents an own archetype of service public, a specific legal concept which has long implied the application of a specific type of law and has been a core element of the French social model. Besides large national companies for telecommunications, transport and so on, the French model also frequently involved delegation and concessions to private companies in other sectors such as water distribution. A number of European countries (such as Spain, Portugal or Belgium) come close to this model. In continental federal states, such as Germany and Austria, the provision of welfare services is traditionally largely decentralized. The Lander retain important competences for the regulation of offentliche Daseinsvorsorge (public essential services) and local authorities have important implementation powers. The markets are extremely fragmented with thousands of providers ranging from small local to larger regional undertakings. In Scandinavian countries, a strong local autonomy goes hand in hand with a demanding conception of welfare services funded by high levels of taxes and rooted in local communities. Lastly, in Central and Eastern European countries, the model of ubiquitous and free-of-charge welfare services during the Communist era was rejected after the transition to capitalism and the different countries have followed various paths with regard to the reintroduction of a notion of ‘public services’ in their legal system and to the degree of centralization of competences in this area.

Most importantly, different countries have also followed different trajectories due to political cycles over the past two decades. The UK, for example, is the only country where there has been a strong shift from entirely public structures to entirely private structures. France, on the other hand, has tended to politically resist liberalization and delay market opening in order to protect its large national companies and indeed to promote their strategic and commercial interests in a now transnational market. The policy changes affecting labour markets have also had a strong impact on employment levels and work conditions. Between the mid-1990s and the mid-2000s, the British government conducted a re-regulation in some respects, whereas in Germany working conditions and wages in the services sector have rapidly deteriorated as a result of the Hartz reforms conducted under Gerhard Schroder (1998-2005). In Denmark and Sweden, higher levels of competition and privatization can now be observed in many sectors as these processes were introduced at a fairly early stage compared to other EU countries. However, as pointed out by Thornqvist (2008), since these services used to function fairly well prior to liberalization, it is difficult to assess the added value of the transformation. In this respect, it is important to stress that in Scandinavia the negative effects of liberalization policies observed elsewhere have been attenuated by continuing high levels of regulation and funding. All of this therefore points to the key role of efficient regulation at all levels of government in order to manage the impact of economic change on workers and users of welfare services.

I n spite of ample national and sectoral variation, a modest body of research and studies attempted to detect common trends in assessing the effects of EU policies on welfare services in a more holistic way. From 1997 and 2007, the EU Commission conducted an evaluation of the performance of network industries providing SGI.1 1 Independent research has showed that, in the face of complex or inconclusive results, the assessment by the Commission was often over-optimistic or methodologically biased (Clifton and Diaz-Fuentes 2010). The negative corollary effects of liberalization policies have been pointed out in a modest number of studies conducted by scholars either for the EU Commission itself (CIRIEC 2004; Griffith and Harrison 2004) or promoted by trade unions (Keune et al. 2008b) and, more recently, in the framework of panEuropean research projects (Frangakis et al. 2008; Flecker and Hermann 2012).[1] [2] In spite of significant sectoral and national variation, a number of common trends can be observed with regard to competition, productivity, employment, wages and working conditions, and service quality and consumer satisfaction. A first, main observation is that liberalization policies did not necessarily lead to the establishment of significantly more competitive market structures, that is, where services are offered by a large number of different providers. In sectors and countries where there was a monopoly, the market may have been opened to competitors but only to a limited extent, as in the postal sector or railway transport or in the electricity supply in Poland and the UK. In countries where the markets were traditionally very fragmented, mainly federal countries, or in sectors like local public transport, there has been, in contrast, a trend to market concentration. All in all, there is a convergent trend towards a limited number of providers, namely large—multinational—firms which are taking over local and smaller providers, may they be emerging private companies or the former national monopolist. While in the neoliberal thought competition among providers is the main mechanism through which consumers’ demands for more choice and lower prices can be met, convergence towards (private) oligopolies is not very likely to reach that objective. Prices tend to drop in the initial years following market opening, but they can also be outstripped in a second phase. Moreover, price decreases tend to benefit large consumers in industry rather than households.

Gains in efficiency and productivity are another main argument put forward by the proponents of welfare services marketization. However, a common result of all studies is that productivity gains are to a large extent due to cuts in jobs and wages subsequent to marketization. These effects cannot be disentangled from real efficiency gains due, for example, to better production processes or technology. Adjustment to competition almost systematically brings about redundancies by the former national monopolist. Sometimes, as in the postal or electricity sector in Germany and Sweden, firms have considerably reduced employment at home but expanded abroad. Furthermore, this is linked to a sensitive deterioration of employment and pay conditions. In particular, new private competitors offer much less attractive work contracts than public companies. The pay gap between public and private companies can range from 16 % to 50 % as in the postal sector in Germany (Keune et al. 2008a, pp. 27-30). New organization and management methods have considerably increased pressure on workers. In France, a wave of suicides among the employees of the former public telecommunications operator France Telecom in 2010 raised awareness among the public and the political class about the extreme pressure for increased productivity put on the labour force under post-privatization managerial conditions.

As far as benefits for consumers are concerned, results are also mitigated with much variation across countries and sectors. In some sectors, like transport or postal services, some quality aspects related to time are more important while in other sectors, like energy or hospitals, costs have become a concern for users. Beyond such variation, however, a survey conducted across six European countries[3] points out two very interesting conclusions (Van Gyes et al. 2009). First, a small majority of users seem to be globally satisfied with SGI provision. While comparing countries where specific sectors are most or least liberalized, the survey nevertheless shows that similar or inversely contrasted levels of satisfaction can be expressed. In other words, users can be equally satisfied or dissatisfied with services provided by the public or the private sector in highly competitive or uncompetitive settings. Second, the level of satisfaction and users’ general assessment displays a strong class dimension. Users with lower income and lower education level tend to be less satisfied with the liberalized provision of SGI than citizens with a higher social status. While the latter tend to be more demanding towards the service quality, the former are dissatisfied with high prices. Correspondingly, liberalization as a policy programme enjoys stronger support among better-off households. This means that the paradigm based on consumer choice is sociologically biased at the expense of modest households who find it hard to gather the relevant information to make the best choice. All in all, a report elaborated by the European Commission which reviews the findings of three pan-European research projects (funded by the Commission itself through the sixth framework programme of the EU) on the liberalization and privatization of SGI concludes that:

finds that most of the positive effects expected did not materialize at all or were very minor (...) these processes have had adverse effects on the European Social Models they resulted in lower social cohesion in access to good-quality public services. (Loefler et al. 2012, p. 3)

Interestingly, the recent theory driven study by Gingrich (2011) brings politics back in. The argument is that the nature and outcome of mar- ketization is shaped by inherited market structure, on the one hand, and political parties’ strategies aiming at pleasing their constituencies, on the other hand. She explains how, fundamentally, ‘markets vary in how they place costs on users and in how they distribute power among (a) the state, (b) users of services, and (c) new producers of services’ (ibid., p. 3).

Looking at health, education and elderly care in England, Sweden and the Netherlands, her book shows that while right-wing parties tend to favour producers and certain categories of users, left-wing parties have promoted reform preserving state control and the interests of different categories of users. This implies different types of reforms according to inherited market structures in various sectors. Interestingly, she notes that:

while, theoretically, economic analysis could offer a rationale for a particular amount of cost-sharing between public and private, in practice externalities are difficult to measure and the countervailing problem of moral hazard means that there is no single perfect balance between public and private financing. (ibid., p. 9)

Ultimately, right-wing and left-wing parties have both pursued the marketization of public services to ‘reshape the state to achieve their long run ideological purposes and their electoral aims’ (ibid., p. 7).

While sidelining the normative debate about whether marketization is good or bad, Gingrich therefore points to the essentially political nature of such reforms. This provides a rationale for the focus on contentious politics as policy making results from expected outcomes in terms of empowering various segments within the economy and society. At the same time, comparative research at a larger scale points to the role of EU integration as a common driver for marketization policies. Looking at privatization in all EU countries since the 1980s, they find that the form, pace and sectoral trend can all be connected to EU integration. Thus, they find that the influence of the EU is more explanatory than ideological matters (and, e.g. to model role of the UK as a pioneer) or idiosyncratic national patterns. They conclude that:

privatization was not an EU policy but, paradoxically, an unintended consequence of EU integration, since, though privatization is distinct from liberalization and deregulation, in practice many EU governments used privatization as a tool to accelerate liberalization in the face of European legislation. (Clifton et al. 2006, p. 752)

By shifting the focus from the national to the supranational level of governance, this book aims to shed light on the role played by EU integration in the broad process of welfare services marketization which has occurred throughout Europe. Like other issues—such as, for example, labour market reforms—welfare services marketization calls the hotly debated question: Is the process of EU integration mainly a process of neoliberalization?

  • [1] For the latest evaluation report, see European Commission, Horizontal evaluation of the performance of network industries providing services of general economic interest, SEC(2007) 1024,12.07.2007.
  • [2] See also the website of the project ‘Privatization of Public Services and the Impact on Quality,Employment and Productivity’,, date accessed 15 November 2014.
  • [3] Austria, Belgium, Germany, Poland, Sweden and the UK.
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