Poverty and Subsidiarity in Europe: Minimum protection from an economic perspective, by Didier Fouarge

Edward Elgar, 2004, 264 pp, hardback, 1 84376 605 1, £59.95 Order this book

Whilst member states of the European Union, and especially those in the Eurozone, have agreed to European Central Bank and European Commission control of economic policy instruments previously under the control of member governments (for instance, interest rates, value added tax rates and the level of budget deficits), social protection systems remain diverse and remain the responsibility of member governments.

Chapter 1 of this timely book studies different methods of economic integration within the European Union, and notes that EU states have chosen a flexible open method of co-ordination (p.10); chapter 2 discusses the notion of subsidiarity; and chapter 3 discusses the idea’s relevance to economics and argues that social protection can be a productive factor in the economy, that it is therefore the proper concern of public authorities, and that “the need for fine-tuning in the social field at the European level follows from the need to prevent distortive competition on the one hand, and to preserve the social character of the European model on the other” (p.71).

This makes it both legitimate and important for member states to agree European levels of social protection.
Chapter 4 employs Esping-Andersen’s categorisation of welfare states regimes and concludes that
“persistent poverty is expected to be lowest in the Netherlands because of its universalistic approach to social protection, next lowest in Germany and highest in Great Britain. Our conjecture is that a status-oriented welfare regime, such as Germany, is best able to absorb temporary income shocks. Such shocks are likely to be large in Great Britain, where market mechanisms play a more important role. For this reason, too, household and employment shocks on income are expected to be larger in Great Britain” (p.92).

Chapter 5 studies income redistribution and poverty data for the Netherlands, Germany and Great Britain, and finds that both inequality and poverty (which are of course related, as a relative definition of poverty is employed) are highest in Great Britain. Chapter 6 studies the dynamics of poverty, for poverty is as much an inability to increase one’s income as it is to be on a low income in the first place, and because persistent poverty is very different from occasional poverty. During the 1990s Great Britain is found to have had 50% more recurrent and persistent poverty than Germany or the Netherlands (p.156). The author hopes to see improved standards of social protection, encouraged by the European institutions; and chapter 8 identifies poverty traps as a particular difficulty faced by any attempt to improve social protection (p.208). An important conclusion, consistent with an open and flexible co-ordination of social policy, is that

“member states should agree on minimum floors that are relative to the economic situation of the individual member states. …… Obviously, in order to avoid poverty traps and to circumvent possible disincentive problems, these minimum floors should not be too high” (p.211).

What might be more usefully co-ordinated are the structures of social protection systems, for it is clear from the discussion of poverty as a dynamic phenomenon that the ability to exit poverty is the way to tackle it. So to co-ordinate a downward trend in deduction rates for people on low incomes might be a more useful co-ordination than agreeing on minimum floors.
What is now required is a comparative study of deduction rates (for a variety of wage levels and a variety of family types and housing tenures) across the EU. The welfare regime structure which gives the lowest deduction rates could then be recommended to member states – and the economic benefits of increasing employment, training and saving incentives would mean that member states would be likely to accept co-ordination around the model which provides the lowest rates.