European Affairs

More and more Europeans, however, now openly admit that their social model is rapidly decaying and no longer even deserves to be called “social.” In the face of persistently high unemployment, particularly among the young, deteriorating public finances and collapsing social security systems, Europe finds itself unable to generate the economic growth and create the jobs its citizens urgently need.

The Lisbon Council is a Brusselsbased group founded in 2003 to promote the objectives of the European Union’s so-called Lisbon agenda, adopted by EU leaders in 2000 with the aim of making Europe “the most competitive and dynamic knowledge-based economy in the world” by 2010. As this objective recedes ever farther over the horizon, the Lisbon Council’s members have grown tired of the stale old debate about issues of vital importance to our future.

Together with 15 non-governmental organizations from seven EU member states, we have drawn up A Social Contract for the 21st Century, laying out a more contemporary vision of the rights and responsibilities of the state toward the individual and vice versa. The Contract, on which this article is based, is intended to start a wide discussion on revitalizing Europe and its economy. It is already attracting a great deal of attention.

The Contract states that Europe must, as matter of priority, reform its methods of economic governance and re-direct subsidies away from agriculture and smokestack industries.We must invest all our energy in the human capital that will allow us to thrive in a 21st century knowledge-based economy, as well as re-commit ourselves to the spirit of discovery and innovation that originally made European society great. Above all, we must seek to define a healthy, positive vision of a strong and prosperous 21st century Europe.

A good social model is not static. As societies progress and evolve, so must the social contract between citizens and governments. Social models that resist healthy change and do not adapt to modernity are doomed to fail. Trapped in a forgotten logic from a distant era, the model will grow less and less relevant to the society it is intended to shape, and less and less just.

The world has changed dramatically since the principles of our current social contract were first elaborated. In the 18th century, most people worked on farms and could expect to live to about age 50. Early in the 19th century, the industrial revolution began to change the way people lived and worked, triggering massive migration to the cities and the proliferation of urban squalor. Against that backdrop, policy makers took bold and visionary action: they started to erect the modern welfare state, guaranteeing protection for the casualties of such profound economic change.

The labor movement made an invaluable contribution by establishing the vital principle that industry could only exist and thrive if it took proper care of the people it employed. The welfare state reached its peak in Western Europe in the second half of the 20th century.

Now, however, as we move from the industrial age to a networked, knowledge- based economy, the European social model desperately needs to be modernized. At a time when flexibility and speed are the engines of economic growth and wealth creation, our current system breeds inertia and gridlock. Even worse, a social safety net that was once conceived as an “insurance of last resort” has become a permanent life-support system for an ever growing caste of outsiders – people shut out of the labor market by the model’s rigid rules, high entry thresholds and distorted incentives.

The European Union suffers from historically high unemployment, with some 19 million people unable to find work. Eighteen percent of them are under 25. This is a social tragedy that deserves to be condemned as such. Europeans must dare to look in the mirror and ask, Does our society still deserve to call itself ‘social’? What is ‘social’ about a society where long-term unemployment has become an inescapable trap for millions of people? Where is the ‘social cohesion’ in saddling our youngest citizens with more and more debt, funding current commitments at the expense of future taxpayers and provoking generational conflict? What is ‘social’ about pretending to build a knowledge-based economy, when in reality we spend 40 percent less on college-level education than the United States?”

Europe says it wants to compete with the world’s most developed, fastmoving economies, but European labor markets are trapped in an historical straitjacket, mirroring long-gone industrial- age class wars of the 19th century. The principle of job security was originally designed for blue-collar male workers, employed full-time and supported domestically by a housewife.

In today’s economy, where speed and flexibility are key and many people other than middle-aged men want to earn wages, the European system acts as a constant brake on job creation and greater labor-market participation. It takes the hardest toll on the weakest members of society: the young, the old, women, low-skilled workers and immigrants. Nowhere else in the developed world are so many groups of people so consistently discriminated against and prevented from participating in the labor market.

The current system does not work much better for people at the upper end of the job market, including all-important knowledge workers. Hundreds of thousands of Europe’s best and brightest engineers and scientists have emigrated to the United States and other modern economies, where they know their talents will be better rewarded. By voting with their feet, they are sending a serious message that should resound throughout our continent.

Europe is going dangerously adrift because it has failed to resist the pressures from numerous special interest groups, many of which have an explicit mandate to preserve the status quo and prevent change. Over many decades, European governments and institutions have built up forces in civil society which still espouse the 19th century view that businesses recklessly exploit workers and the environment. The truth is that, at the onset of the 21st century, the well being of employees, employers and the environment are inextricably linked to one another. No one can seriously believe that a high degree of social and environmental protection can be sustained without a healthy economy and a thriving job market.

We must re-examine the privileged role that unions have traditionally enjoyed in European public discourse and economic policy making. In many countries, unions are hemorrhaging, losing not only members but also public legitimacy at a record rate. Yet, political leaders and the media act as if labor unions are the only voice that can speak on behalf of the working population.We must recognize that unions represent fewer and fewer people, and their members come largely from the industrial sectors most threatened by globalization and economic integration. At the same time, governments should ensure that other, more moderate and pragmatic voices are encouraged to organize and be included in the consultative process.

Europeans must realize that they are not born with a God-given right to one of the world’s highest standards of living. Our prosperity is entirely dependent on our long-term competitiveness in the global economy. Everybody, therefore, has a vital stake in the economy and the well being of our society.

Today, most people know that Europe’s sclerotic, inflexible labor markets offer neither protection from unemployment nor future security. The working age population is shrinking dramatically as birth rates shrink and people live longer and retire earlier. As a result, there are fewer and fewer workers to support the retired and the many others who draw government benefits. At the same time, public finances are deteriorating, putting an intolerable burden on future generations.

In these circumstances, current reform efforts must be welcomed as an attempt to save the social system, not resisted as an effort to destroy it. We need a broad consensus throughout society that wealth must first be earned before entitlements and redistribution can be considered.

The times urgently demand a new social contract – one that will take account of the seismic shift that Europe is undergoing as it moves from the industrial age to a modern, knowledge-based economy. Such a contract should be built on four guiding principles:

1. Full Employment and Job Creation. Governments owe it to their citizens to produce a healthy economy and a flourishing job market. Policy makers must abandon their habit of protecting only the special interests capable of lobbying them for handouts and subsidies. They must learn to protect the real stakeholders: the millions of honest people who want to work and expect a pension when they retire; the youngsters who leave school ready to contribute to society; the parents whose greatest ambition is to pass on to their children a life as prosperous and safe as the one they themselves inherited. Put simply, a healthy economy and a healthy job market would be the best possible social policy for Europe. We must re-double our efforts to restore economic vigor to our countries and economies, and we must learn to see such vigor not as a drag on social justice and the environment, but as the engine that makes our societies powerful, tolerant and strong.

2. Education and Life-Long Learning. If Europeans are to maintain their enviable living standards, the high-cost European economy can only move in one direction - toward higher value, high-wage jobs. These jobs will ultimately allow us to retain our prosperity, while providing the necessary resources to protect the weakest members of society. Over time, many manufacturing jobs will disappear to countries where workers toil for lower wages, much as many farming jobs disappeared from Europe over the last 200 years.

This is the way the global economy works and should be seen as a natural progression as less developed countries move toward an industrial economy. These countries deserve the opportunity to take part in the global economy and make the best use of their comparative advantage. For their part, Europeans must take urgent steps to ensure that they remain at the forefront of modern economic developments, spending every euro possible on the education, training and intellectual upkeep of their greatest resource: their citizens.

3. Opportunity and Innovation. Hard though it is to believe, European companies like Siemens, Solvay and Philips were once as fast moving and entrepreneurial as Microsoft, Oracle and are today.Where are such companies now? These days, an ambitious European scientist is more likely to emigrate to the United States than to start a business in Europe.

We must restore Europe’s entrepreneurial spirit. We must create an environment in which our best and brightest citizens want to make their careers at home. And we must learn to encourage risk-taking, giving all Europeans the right to develop fully their personal and professional potentials. Society only gains when its citizens embrace opportunities, live their dreams and pursue their ambitions.

4. Sustainable Public Finances. Few issues are less “social” than today’s hideous abuse of public finances.We believe our current leaders are guilty of something akin to child abuse, preferring to hide their lack of political courage behind an ever-growing pile of debt that our children will spend their lifetimes repaying. It is a moral imperative that European political leaders – particularly those of France, Germany and Italy – restore order to public finances.

They must draw up and defend budgets based on economic reality and sound judgment – not because it is thrifty and frugal to do so, but because it is reprehensible and unjust not to do so. Nothing is more precious than our children and their future. It is high time we learned to live within our means, treating the interests of future generations as seriously as we treat our own.

Ann Mettler is Director and Co-Founder of the Lisbon Council, an advocacy group and policy network promoting economic reform and social renewal in Europe. She previously served as Director for Europe at the World Economic Forum. She has held positions on the Governmental Affairs Committee of the U.S. Senate, and the Foreign Policy Division of the European Commission in Brussels. The full version of A Social Contract for the 21st Century can be found at the Lisbon Council website:


This article was published in European Affairs: Volume number 6, Issue number 1-2 in the Winter/Spring of 2005.