Prof. Dr. Jozef Pacolet

1
9th EUCDW Congress For a Europe of social market
economy Vienna, 2-4 September 2005
Maintaining the social market economy and the
welfare state in Europe
Prof. Dr. Jozef Pacolet Hoger Instituut voor de
Arbeid HIVA Katholieke Universiteit Leuven
2

• Content
• Construction and conservation of the social
  market economy trente glorieuses
• The mixed economy in crisis search for boosting
  the European and economic integration is the
  welfare state in danger?
• Place for social protection in European
  construction
• Welfare pluralism of Europe
• Robustness of social protection
• Social protection peoples desire and how to
  respond
• Efficiency, sustainability and adequacy pensions
• Efficiency, sustainability and adequacy of health
  care and long term care
• The future will there be a cornucopia?
• Governance and communication

3
1.1 GDP at current market prices per capita (PPP
US 100), 1960-2006 In the trente glorieuses
1945-1975 the social market economy was
established
1. Construction and conservation of the social
market economy
4
1.1 Comparison EU 15 and USA trade off between
time or money?
1. Construction and conservation of the social
market economy
5
1.2 General government expenditure by COFOG
function,as of GDP, 2003
1. Construction and conservation of the social
market economy
6
1.3 Total employment in the private and public
non-profit sector, per 1 000 inhabitants, 2004
(2e quarter)
1. Construction and conservation of the social
market economy
7
1.4 Total employment in the private and public
non-profit sector, as of total employment, 2004
(2e quarter)
1. Construction and conservation of the social
market economy
8
2. Economy in distress and boosting European
integration

• Since the first two oil shocks in the seventies
  already further expansion of social protection
  was needed, has been created but increasing
  doubts about viability
• Since two decades run up of European economic
  integration took place
• Der Staat ist in Gefahr is the welfare state
  in danger?

9
3. Place for social protection in European
construction
10
4. Welfare pluralism of Europe
11
5. Robustness of social protection
Expenditures
1970
1985
1990
1995
2000
Quantitative
Rationalisation
Further quantitative
expansion
Innovation
expansion
but also
because new risk is accepted
Diversification
because demographic pressure
Differentiation
12
5. Robustness of social protection
13
5.3 Total social protection expenditure as of
GDP, 1992-2002
5. Robustness of social protection
14
6.1 Support for constitution for the European
Union versus Priority for employment and social
inclusion
6. Social protection peoples desire and how to
respond
15
6.2 Support for constitution for the European
Union versus Trust in a better social welfare
situation
6. Social protection peoples desire and how to
respond
16
6.3 Support for constitution for the European
Union versus lack of trust in future pensions
6. Social protection peoples desire and how to
respond
17
6.4 Support for constitution for the European
Union versus Satisfaction with the national
health care system
6. Social protection peoples desire and how to
respond
18
6. Social protection peoples desire and how to
respond
6.4 Need to increase social expenditures for
demographic reasons
Social protection as of national income
Present level
National income
19
6. Social protection peoples desire and how to
respond
6.5 But also as richer economies afford
themselves more expenditures, as in USA today
Social protection as of national income
USA today
Present level
National income
20
6. Social protection peoples desire and how to
respond
6.6 It is also peoples desire
Social protection as of national income
Peoples desire
USA today
Present level
National income
21
6. Social protection peoples desire and how to
respond
6.7 Will we only fill it in partly with a
first pillar
Social protection as of national income
Peoples desire
USA today
first pillar
Present level
National income
22
6. Social protection peoples desire and how to
respond
6.8 And leave the rest to a substantial
second and third pillar
Social protection as of national income
Peoples desire
USA today
second third pillar
first pillar
Present level
National income
23
6. Social protection peoples desire and how to
respond
6.9 Or will we let expand the first pillar
even more
Social protection as of national income
Peoples desire
USA today
second third
first pillar
Present level
National income
24
7.1 Economic reasons for social insurance
pensions
7. Efficiency, sustainability and adequacy
pensions

• People have differences in income but also factor
  endowments
• Public intervention needed for minimum pension
• But should not be limited to low income
• Should be insurance based, actuarial fair what
  implies in favour of Bismarck oriented systems
• There is some argument for diversification in
  PAYG and funded system
• But there is growing doubt about feasibility
  funded systems
• Some doubts about the need optimal funded system
  should have the same characteristics of first
  pillar (annuitisation, redistribution) what makes
  distinction blurred
• Some doubt about public need for public support
  of private pensions
• Cost second and third pillar underestimated
  (contributions, state support, return)
• In growing fragmented labour market and career,
  need for universal systems

25
7.2 Expenditure on old age (as of GDP),
1992-1997-2000-2002
7. Efficiency, sustainability and adequacy
pensions
26
7.3 Expenditure on old age (as of GDP) versus
GDP (euro PPP/capita in current prices), 1992-2002
7. Efficiency, sustainability and adequacy
pensions
14
12
10
8
Expenditure on old age ( of GDP)
6
4
2
0
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
GPD (euro PPP/capita in current prices)
27
7.4 Expenditure on old age (as of GDP) versus
population 65 years and above ( total population)
7. Efficiency, sustainability and adequacy
pensions
28
8.1 Economic reasons for intervention in health
and LTC
8. Efficiency, sustainability and adequacy of
health and LTC

• External effects of public health
• Moral hazard would lead to over consumption
• Adverse selection high risks only look for
  insurance
• Risk selection only low risks are offered
  insurance
• All cost elements should be insured
• There are no reasons to limit it to basic
  provisions
• There is a growing awareness how it contributes
  to economic growth
• And employment
• There is growing interest to underline the value
  of gained life expectation
• Increased longevity contributes to economic
  growth
• Increase care and health expenditures increase
  value of live and increase further demand for care

29
8.1 Expenditure (benefits in kind) on sickness
and health care (as of GDP), 1992-1997-2000-2002
8. Efficiency, sustainability and adequacy of
health and LTC
30
8.2 Expenditure (benefits in kind) on sickness
and health care (as of GDP) versus GDP (euro
PPP per capita in current prices), 1992-2002
8. Efficiency, sustainability and adequacy of
health and LTC
9
8
7
6
5
Expenditure in kind on sickness/health care ( of
GDP)
4
3
2
1
0
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
GPD (euro PPP/capita in current prices)
31
8.6 GDP and total health expenditures, OECD, 2002
8. Efficiency, sustainability and adequacy of
health and LTC
32
9. The future a cornucopia?
9.1 Actual and future health and LTC expenditures
as of GDP, 2000 - 2050 in the EU (EPC)
33
9.2 Growth and social protection 'cornucopia,
cuerno de la abundancia 'hoorn des overvloeds',
'corne de l'abondance', 'Füllhorn'
9. The future a cornucopia?
34
10. Governance and communication

• National policies and stake holders should keep
  ownership of those ambition, and take advantage
  and ownership again of European initiatives in
  this field
• Organising an OMC between stakeholders
• Communication to the citizen could make European
  integration and social protection a self
  fulfilling prophecy