The Dutch government’s recent announcement that the welfare state will be substituted by an undefined “participative society” may be the news story of the year — or at least deserves to be. No doubt the headlines oversimplify as usual. But the alarm is sounding: if the Dutch, who are a paradigm of wealth, efficiency, and democracy and are at home in the globalised world, declare the European social model defunct, what can we expect in politically hobbled, closed societies like ours? How not to be depressed if we are told that the havoc wrought by austerity policies will mean the unsustainability of the chief hallmarks of the EU social model, which we see as a natural aspiration for any individual or nation? Does this mean that Europe will no longer progress, that it has hit a ceiling and can now only recede?
Society is based on three contracts. The first is between generations: those of working age sustain the rest, both elder and younger. Though this is sometimes forgotten, pensions are not really paid out of the savings of pensioners, but out of taxes on those who are working. This massive inter-generational income transfer (€121 billion in Spain in 2013, 12 percent of GDP) is accepted without question. The old, as the politicians put it, are “our” elders. A pension system based entirely on the recovery of the private savings made by each individual throughout their working life would amount to a radical change in our political, economic, and social model.
The second contract is between classes. Also underlying our coexistence is the acceptance of income transfers from the wealthier classes to the poorer. Progressive taxation, which we also accept, is the proof of this. Why should those who have more pay more? Shouldn’t we all pay the same percentage? These are questions frequently asked by the American libertarians, partisans of a minimal state limited to guaranteeing private property and the fulfilment of contracts. But in “welfare” Europe no party would go into elections with a programme proposing to suppress progressive taxation, and with it the equal-opportunity (education, healthcare) policies that (at least in theory) ensure that one’s position in society will be determined, not entirely by birth and social origin but, at least to some extent, by merit.
The third contract is between territories. Every state has richer and poorer regions, and cannot accept this divide and its perpetuation merely as a symbol of the natural order of things. Independently of the debate on the causes of these disparities and the ways to moderate them, the consensus is that they have to be corrected by means of income transfers, and that without such “territorial cohesion” it is impossible to maintain the stability and unity of a country.
These three contracts express, as the Americans like to say, the European way of life. In Europe, democracy is the result of a broad pact between capital and labour, substantiated precisely in the general acceptance of an economy based on private initiative in exchange for a social state that is redistributive in each of these three dimensions.
The Dutch government now thinks that some aspects of welfare should again be the business of the individual, while others should devolve upon local rather than national authorities.
What is surprising in debates of this sort is their disregard for an obvious alternative: that the only way to keep this triple contract working is to phase these responsibilities progressively upward to the European level, building a continental welfare state. This promises to be a rocky road; but to throw in the towel, dig trenches around each portion of national turf, and hide behind them does not seem to be the best road to the future.
This piece first appeared in Spanish in El Pais. The English version was first published by the ECFR.