Time to slay the EU ‘sacred cow’ of welfare state

Date: 11/04/1996

When Zeus fell in love with the young Europa, he transformed himself into a bull and abducted her. That story is fairly famous. What happened next is less well-known. Europe gave birth to a calf which grew up to be the sacred cow of the European Union. Considering the Union's origins, it is no wonder that, from its early days, the European Community took a particular interest in agriculture, especially beef and dairy produce.

Is it surprising, then, that the launch of the Intergovernmental Conference was dominated by the problems of mad cows? The question on everybody's lips now is whether the sacred cow of the EU has also been infected with a similar disease. Is the Union rotting away before our very eyes? Unfortunately, it is.

For nearly two decades now, the social-democratic welfare systems of western Europe have, slowly but surely, been moving towards total financial, political and moral collapse. Under former Commission President Jacques Delors, the EU transformed itself from a liberal free-market institution into a gigantic supranational welfare system. In the process, the virus affecting the welfare state has infected the Union as well.

When will the age of patronisation end for Europe's citizens? The absolutist monarchies that ruled Europe until the late 18th century were replaced in the 19th century by nationalistic nation-states, which in turn were replaced by social democratic welfare states in the 1950s. Europe's citizens, having been “children of the King” and “children of the nation-state”, had become “children of the welfare state”, rather than independent “grown-ups” able to take care of themselves. The latter was, and is, considered to be the government's task. The state is held to be primarily responsible for the protection and promotion of the economic and social welfare of the citizens. For the state, this provides a handsome alibi as it can claim a right to be absolutist in the interest of citizens.

The transformation of the national states into welfare states took place between 1950 and 1960, during exactly the same period as the Community was set up. This process virtually aborted the goal of the founding fathers - economic liberalisation - from the beginning. The European Economic Community was set up as an instrument for economic liberalisation. Ironically, it would end up as a vehicle for welfare state absolutism.

As long as the EEC remained a vehicle for economic liberalisation, member states were always very reluctant to surrender sovereignty. This attitude was due more to socialism than to nationalism. The acceptance of the notion that a citizen has a right to state aid whenever he finds himself in social or economic difficulties implies that any project limiting the power of the national state is almost doomed from the beginning - unless the institution replacing the national state takes over its welfare functions.

This was the case with the Common Agricultural Policy, set up in 1962, which is a multinational welfare operation for farmers. It has proved a financial and economic disaster. But in terms of supranational cooperation, it was a success.

In 1966, the so-called Luxembourg Compromise granted member states the right to veto any Community decision whenever they felt a “vital interest” threatened. EEC welfare-state governments invoked vital interests each time a segment of their population risked experiencing a social or economic disadvantage as a result of economic liberalisation at the European level. As a result, on New Year's Day 1970, the frontier-free market for goods and services promised by the Treaty of Rome was nowhere in sight.

Although not very successful, the EEC remained more or less an instrument for economic liberalisation until the end of the 1970s. However, as the original six members of 1957 were joined by others, it became ever more difficult to set up mechanisms for a supranational liberalisation of the market. The more welfare states were involved, the greater the probability of welfare state-inspired vetoes.

The Commission's outlook also changed. Its goal shifted from the economic liberalisation envisaged by the Rome Treaty to sometimes plain economic interventionism. This was almost inevitable given the composition of the Commission. Because it encompasses the whole political spectrum, it includes advocates of free-market principles and a planned economy. Inevitably, the economic policy it creates is a mixed bag. The EU has become the champion of a 'mixed economy' - or, as its defenders would say, “capitalism tempered by socialism”.

In 1985, Delors became president of the Commission thanks to an unwritten agreement between member states to apply a rotation system, based on both nationality and ideological affiliation. In 1985, it was the turn of a Frenchman and a Socialist. Delors was a former French Socialist minister. He was not a principled hard-line Socialist who believed in a planned economy, but a moderate one who believed in the mixed economy of the welfare state. And he clearly understood the enormous potential of the EC, not as a vehicle of economic liberalisation, but as a vehicle of the welfare state.

Delors was one of the first to notice that, by the early 1980s, economies had become increasingly international, making it impossible for individual welfare states to retain national control over their economies. Consequently, the welfare state, which depended on the money and wealth generated by the free economy, had to follow the economy to the supranational level. Delors acted fast. He started improving the EC's institutional mechanisms so that integration would proceed smoothly and quickly. Within a year, the Single European Act had been passed.

This abolished the unilateral veto of the member states (except for various welfare reasons, such as “health, safety, environmental protection, consumer protection, or protection of the working environment”) and introduced a weighted voting system. It also reset the date by which the EC should be a frontier-free market for goods and services to 31 December 1992. The latter could be seen as a paradox: a goal of liberalisation to serve an interventionist welfare purpose. But Delors understood that a frontier-free market would lead to the economic growth needed to generate the money for the survival of the ever expanding welfare mechanism.

Delors reversed the EC's mentality. He officially added a 'social dimension' to the European project and turned the EC bureaucracy into an instrument which was to intervene regularly in the national economies in order to actively create a free market. But Delors did not understand that a bureaucracy cannot construct a free market - a free market creates itself, spontaneously. Liberty, as Isaiah Berlin warned, should be a negative concept rather than a positive one. It has more to do with what a political authority does not do, rather than with what it does.

However, the Commissioners and the European bureaucracy were pleased with Delors' message to start “constructing Europe”. It made them feel important. This was the fatal conceit. Socialism, as Friedrich Hayek wrote, is a form of constructivism, and constructivism is immodest: certain politicians and bureaucrats think that they know better than the people themselves what is good for the people. The problem is not that these constructivists do not mean well, but that they suffer from a lack of knowledge. The constructivist mentality sees society as a system that can be centrally directed. The government centralises all knowledge which is present in society and then formulates the collective goals accordingly.

However, as society grows increasingly complicated, it becomes more difficult to centralise all knowledge in one huge bureaucratic centre. The system becomes self-defeating because of its lack of knowledge about reality.

The Maastricht Treaty was the culmination of the Delors' mentality. Maastricht cannot work because constructivism cannot work. Maastricht imposes a Union from above, but federalism from above is not federalism.

The Commission's Europe will turn out to have been an unattainable vision, but before this is realised it may cause great damage to Europe. Indeed, the new EC mentality which led to the change from the Founding Fathers' negative concept of liberty, as expressed in the Treaty of Rome, into the positive concept embodied in Maastricht, is also apparent in the Community's attitude towards other nations, especially in Eastern Europe. So long as the EEC was an instrument for true liberalisation, it was an open organisation, welcoming new members even when this brought additional problems. When the mentality of group egoism gained hold of the institution, it acted as Socialist systems do everywhere - it closed its borders to the outside world. European nations applying for membership were told to wait until the group had consolidated.

When the Iron Curtain fell in 1989, the EC did not welcome in the liberated East Europeans and did not open its market to their goods. They were no welfare states, as they did not generate any wealth (yet) for redistribution by national, let alone supranational welfare mechanisms.

The loyalty of the constructivist Europhiles to Europe is only a loyalty to the welfare state. Their European adherence is conditional. It depends on the 'social dimension' that is given to it.

Europe should be an open society, a liberal economy, driven by modest political projects. Instead, it promises to be a closed society with a mixed economy and ever more interventionism by the EU bureaucracy in all areas of life. All this is sold under the label of federalism and subsidiarity, but is in fact their opposite. It is absolutism.

However, the policy is self-defeating in our expanding world where the need for the optimisation of human knowledge is growing, an optimisation which can only be provided by the spontaneous communication channel of the open, free and extended market. The real danger is that if this concept of the EU as a supranational welfare state becomes discredited, the whole idea of European federalism, political cooperation and economic integration will also be discredited in the eyes of the public. No one will want to eat a steak from a cow that has suddenly collapsed in a state of madness.

Paul Belien is research director of the Centre for the New Europe (CNE), a pan-European think tank based in Zellik.