A Counterproductive Strategy

From a broad perspective, the debasing of welfare services in the name of ‘fiscal consolidation’ has had two sets of negative consequences: (a) it has exacerbated the deterioration of social cohesion; (b) it prevents the implementation of a modernizing agenda on social investment.

The targeting of welfare services for reducing deficits is bound to be counterproductive in a context of economic recession. Where the share of expenses for welfare services (as a share of GDP) has been stagnating or decreasing (with GDP itself stagnating or decreasing), needs within the population have, on the contrary, been strongly accentuated. Due to skyrocketing levels of unemployment, a significant part of the population has found itself deprived of income, and having to rely on benefits and welfare services. Furthermore, in many countries such as Spain, Ireland, the UK and others, the crisis has been a direct consequence of the poor regulation of housing markets which have left people with without homes, expulsed as a result of incapacity to pay or, more simply, with a very low disposable income once unaffordable housing is paid for. Pressure of migration from abroad or concentration in large cities has accentuated needs for healthcare, schools and transport infrastructure. While politicians across the board have acknowledged that social benefits and welfare services serve as a main ‘stabilizer’ to cushion the effects of economic depression, policy measures have nevertheless contributed to undermining this beneficial effect.

In most countries, poverty levels have been on the rise. In 15 out of 28 EU countries, the number of people at risk of poverty (after social transfer) has increased since 2009, sometimes dramatically (Croatia, Slovakia, Greece, Hungary, Slovenia) or significantly (France, Germany, Luxembourg, Malta, Sweden).[1] As early as 2011, Frazer and Marlier conclude in a report on behalf of the DG employment and social affairs of the European Commission that, in spite of a lack of data, it is clear that

One of the key impacts on services highlighted is the loss of jobs in areas like health, education, social housing, police, prisons and the arts. However, this has not been the case in all countries. Housing and related services emerge as one area which has been particularly adversely affected by the economic and financial crisis in several Member States. This is often reflected by increases in evictions, increases in homelessness, growth in waiting lists for social housing, and increased debts in relation to key utilities such as heat and water. (Frazer and Marlier 2011, p. 6)

In over 57 % of the European regions (Nuts 2) for which data is available, the number of hospital beds has decreased between 2009 and 2012 (and supposedly even more so in the following years, especially in the Southern and Eastern periphery). In the vast majority of EU countries, the share of the population reporting unmet medical examination or treatment has increased since 2009.[2] Similarly, the number of severely deprived people has increased since the outbreak of the crisis, sometimes to a dramatic extent as in Cyprus, Greece, Hungary, Ireland, Italy, Malta and the UK.[3] In fact, as a recent report of the OECD stresses, ‘economic hardship (is) felt most acutely among low earners and youth’, as households at the lower end of the spectrum have lost a much larger share of their disposable income than the better-off. Insofar, austerity has accelerated a long-term trend at play, namely the rise of inequalities within European societies. Combined with social transfers, welfare services are a main component of the European social model(s) which contribute to compensating for a lower income. Insofar, one can only echo the claim of Philipp Schmitter that ‘the vision of Europe as the site of an alternative form of “social capitalism” has been seriously tarnished by the crisis’ (Schmitter 2012, p. 26 cited in Hermann 2014,

p. 10).

A second aspect of the issue is that the safeguarding of welfare services is not only a thing of the past, expressing a desire to maintain at all costs the welfare state of the twentieth century: austerity policies which lead to the dismantling of welfare services have also precluded the emergence of a modernizing agenda focused on social investment. Promoted in academic circles over the past few years, the concept of social investment was embraced by the European Commission with an initiative from 2013. The central idea of modernization through social investment is a necessary shift from social insurance and money transfer to an active welfare state providing services (education and training, healthcare, family policy and childcare and so on) which enable individuals to increase their human capital (Esping-Andersen 2010).

Therefore, although it is never framed in these terms, high-quality welfare services are the key component for the coming of age of social investment. Yet, what we have witnessed over the past few years is the cut of social benefits combined with insufficient or absent investment in such services. Public investment has in fact decreased appreciably since 2009: for example, from 2.6 to 1.7 % of GDP in the UK, from 4.5 % to 1.4 % of GDP in Spain and from 2.9 % to 2.1 % in the EU 27 (EPSU 2013, p. 13). In its 2015 Annual Growth Survey, the EU Commission identifies the lack of investment in Europe as a main concern and claims that

Member States with fiscal room for manoeuvre need to invest more. All Member States, but in particular those with more limited fiscal space, should ensure an efficient use of resources, prioritise investment and growth-related expenditure in their budgets, getting more investment out of EU Funds at their disposal and creating an environment more conducive to investment by private actors. (European Commission 2015a, p. 7)

Yet, it seems that the general mantra focused on deficit ban and debt reduction leaves governments with no leeway for investing in policies geared towards the future. In fact, a recent study of the European Commission on social investment brings evidence that countries whose welfare states are most robust historically and have been most resilient throughout the crisis (essentially Scandinavia and continental Europe) are those where social policy is most compatible with the social investment agenda (Bouget et al. 2015). At the European level, the European Commission’s initiative for social investment, which urges the Member States to invest in education, training and healthcare and so on, is supported neither by legal instruments nor by financial resources, with the exception of some part of the European Social Fund. Therefore, it is not very surprising that exhortations for social investment do not result in much result on the ground.

  • [1] Eurostat, ‘People at risk of poverty after social transfer’, http://ec.europa.eu/eurostat/, accessed 21 August 2015.
  • [2] Eurostat, ‘Self-reported unmet need for medical examination or treatment’, http://ec.europa.eu/eurostat/, date accessed 21 August 2015.
  • [3] Eurostat, Severely materially deprived people, www.ec.europa.eu/eurostat , accessed 21 August
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