REFORMS OF THE EUROPEAN WELFARE STATE MODEL

Eger, Hungary

In 1942 William Beveridge, a British academic and civil servant, published his blueprint of a welfare state for Great Britain in his account of the “Five Giants”: disease, idleness, ignorance, squalor and want. He proposed new benefits for the retired, disabled and unemployed, a universal allowance for children and a nationwide health service. Polls found that majorities of all social classes backed these proposals. The blueprint was translated into 22 languages and the Royal Air Force dropped summaries on Allied troops and behind enemy lines. Such zeal for the welfare state is rare nowadays. Liberals such as Beveridge believed that people should take more responsibility for their own lives, but that government should support them. They did not see it as industrialised charity, but as a complement to free-market capitalism. In the second half of the 19th century the rise of unfettered markets brought demands for protection against its effects. Charity and churches were seen as failing to cope with poverty, as mass urbanisation weakened traditional bonds. Pressure came from socialists, but liberals responded, too. “New liberals” such as John Stuart Mill and Leonard Hobhouse argued that freedom meant ensuring that people had the health, education and security to lead the life they wanted. The development of welfare states was then hastened by the Great Depression and World War II. The war fostered a sense of unity and as middle classes shared the risks, their demands for support meant the welfare state became about more than just looking after the poor. The post-war government in Britain implemented most of Beveridge’s plan and similar reforms soon followed elsewhere in Europe. Welfare states have always differed from country to country, but from the 1970s on approaches diverged further. In the 1990s the Danish sociologist Esping-Anderson distinguished three varieties of “welfare capitalism”. First were the “social democratic” versions in Scandinavian countries with high public spending, strong trade unions, universal benefits and support for women to stay in the workplace. Second, “conservative” welfare states, such as Germany’s were built around the traditional family and had a strong contributory principle. Third, the “Anglo-American” welfare states, which put greater emphasis on guaranteed minimums than on universal benefits as in Britain.

Perhaps the most common charge against European mature welfare states is that they have created a culture of dependency. So policy makers have made programmes more “conditional”, forcing recipients to look for work, for example; and to help them, many countries expanded “active labour market policies”, such as retraining. The wide-spread notion that the welfare state is mainly about redistribution from rich to poor is a myth. Nowadays its role is more to allow people to smooth consumption over their lifetimes, in effect shifting money from their younger selves to their older selves. As countries become wealthier, public spending increases as a share of GDP. Spending on social protection, like pensions, health care and benefits, in OECD countries has increased from 5 per cent in 1960 to 15 per cent in 1980 to 21 per cent in 2016. Nevertheless, since 2000, some Scandinavian countries, for example, have combined high levels of public spending with high rates of economic growth. The effects of welfare depend not just on how much is spent, but how. Subsidised child care, which helps mostly women stay in the labour market, is more growth-friendly than pensions. The difficulties welfare states in rich European countries face are about more than just their size. The three main difficulties relate to demography, migration and changing labour markets. The fact of the ageing European population means that welfare spending is increasingly shifted towards the elderly. This threatens the implicit contract between generations. Meanwhile Denmark and Finland have linked state retirement ages to life expectancy, so will the Netherlands. In Germany, Portugal and Sweden pension levels are adjusted according to the ratios of workers to non-workers.

Immigration poses another challenge to the welfare state. In 1978 Milton Friedman argued that you could have open borders or generous welfare states open to all, but not both, without swamping the welfare system. Moreover, taxpayers are more tolerant of benefits that are seen to look after “people like them”. A study published in 2017 using survey data from 114 European regions found a correlation between areas with higher shares of migrants and a lack of support for a generous welfare state. Another survey of changing attitudes in European countries between 2002 and 2012 found both rising support for redistribution for “natives” and sharp opposition to migration and automatic access to benefits for new arrivals. Such popular views form a core part of the appeal of populists in Europe such as the Front National in France, the Sweden Democrats or the Danish People’s Party. The nature of the benefits influences attitudes as well. Immediate access to health care and public education for immigrants is widely supported by European populations, but benefits should not extend to unemployment or child benefit. Moreover, attitudes towards immigrants are volatile and swayed by the political climate. In 2011, for example, 40 per cent of Britons said immigrants “undermined” the country’s cultural life, and just 26 per cent believed they enriched it. By 2017, in the wake of the Brexit vote, only 23 per cent believed immigrants undermined British culture, compared to 44 per cent who believed they enriched British culture. Immigration might offer a partial solution to the first problem of ageing because since at least 2002 EU migrants have contributed much more in taxes than they have cost in public services, as economic research in Britain and Denmark has found out.

The third issue is adapting to changing labour markets. The welfare state developed at a time of powerful government, powerful companies and powerful trade unions. The economic aim after World War II was full male employment. Recent research by the OECD in seven of its member countries estimated that 60 per cent of the working-age population had stable full-time work. Of the other 40 per cent, no more than a quarter met the typical definition of unemployed, namely out of a job, but looking for one. Most had dropped out of the labour market completely or worked volatile hours. The causes are complex and overlapping, but hey include the incentives and disincentives to work that complex benefits systems produce. Universal basic income (UBI) may be one way to avoid such problems. It may take many different forms, but basically replaces a wide range of means-tested benefits with a single unconditional one, paid to everyone. Scotland and the Netherlands are running experiments involving UBI, but in no country is it yet the foundation of the benefits system of working-age adults. The OECD recently modelled two forms of basic income. Under the first one, a country’s spending in benefits is divided equally among everyone – a revenue-neutral form. Under the second one, everyone would receive benefits equal to the current minimum-income guarantee, and taxes would rise to pay for it, if necessary.

BREXIT AND ITS CONSEQUENCES FOR EUROPE’S CENTRE

Trieste, Italy

Britain’s current decline is relative rather than absolute. The average citizen of today’s Britain is far richer than was the average citizen at the time of the British Empire. Other advanced economies have suffered from years of slow growth while Britain’s science and medical research boom. But the evidence of decline is too evident to ignore. Britain’s core political institutions are in a state of decay. In the past, big crises have produced great leaders, such as Lloyd George during World War I and Winston Churchill during World War II, but today’s politicians range among the mediocre. In a recent survey a quarter of Britons say they would vote for a far-right party because the mainstream parties have let them down. Economic growth has been slow since 2015 despite low interest rates and a fall in the value of the pound. Productivity growth has been marginal and real wages have been falling for a decade. A growing proportion of the population is trapped in a cut-throat economy, in which the young fear to be much worse off in future than their baby-boomer parents.

This is not the first time Britons have been gripped by fears about decline. In the 1890s they worried that America and Germany were replacing Britain as the workshop of the world. In the 1950s they worried that an old-fashioned establishment was strangling the forces of progress. The 1970s saw a particularly fierce debate, as the country was plagued by strikes and three-day weeks. But three aspects make today’s worries especially troublesome. The first is disappointment. For the past 40 years Britain felt that it had put decline behind it. Margret Thatcher, John Major, Tony Blair and David Cameron cemented the new consensus that economic growth, deregulation and privatisation were the key to permanent wealth increase. This was a huge benefit to the new elite that could pride itself that it was more progressive than the old one while stuffing its pockets with gold. But this new consensus also suffered from mounting problems. There was the problem of one-off windfalls: selling off council houses was wonderful for the tenants and the Treasury, but left Britain short of social housing. There was the problem of regional imbalance. The boom in financial services poured money into the south-east while the north remained in economic trouble. This Thatcher-Blair consensus finally ended with the financial crisis of 2008 and the Brexit vote of 2016.

The second problem Britain is facing is the lack of collective agreement in deciding to leave the European Union. Brexit was driven by a particular combination of despair about the way the old consensus had left so many people behind and of optimism that by freeing itself from the EU Britain would be able to reignite its growth engine. The despair was probably justified, but the optimism definitely not because most of Britain’s problems are internally generated. There is nothing about membership in the EU that prevents British entrepreneurs from trading with the rest of the world. Indeed the EU has just signed a trade deal with Japan and is negotiating with the USA about lowering trade barriers. Most economists predict that any version of Brexit – hard or soft – will depress Britain’s growth rate. If Britain leaves without a deal, the consequences will be dramatic. The Brexit secretariat is already drawing up contingency plans to stockpile medicine and food and put electricity generators on barges in the Irish Sea. The third problem is that of compounded error. Irresponsible politicians may well feed the people’s appetites for populist and nationalistic decisions. The Brexit debacle has already injected the poisonous charge of betrayal into the heart of politics. Tony Blair said that politics at the moment is about either riding the anger of finding the answer. The trouble is that fresh answers are hard to find and the anger is mounting daily.

CENTRAL EUROPE AND THE FUTURE OF THE EUROPEAN UNION IN THE 21st CENTURY

Debrecen, Hungary, University

In 2018 Jaguar Land Rover ((JLR) opened a new plant with 640 robots on a former farmland in Nitra in western Slovakia. The robots together with 2,800 workers can assemble a Land Rover Discovery every two minutes. JLR was just another carmaker to come to Slovakia. VW arrived in 1991, followed by Kia and PSA. These firms together turn out over one million cars annually; more per head of population than any other country. Nitra is close to the motorway and Slovakia has an impressive supply chain with more than 300 factories making car parts. This spoke for Slovakia. The JLR factory gives a fair picture of Slovakia’s, and more broadly Central Europe’s model of economic development. First, it was built with foreign capital and largely by foreign contractors. Membership in the EU has facilitated the flow of capital from the western members to the eastern ones. Second, the economy of Central Europe depends on customers in economies to the west purchasing goods made relatively cheaply in the hinterland. Third, government support was essential for this economic take off. Government subsidies luring foreign companies into the country are common in Central Europe. Investors flock to special economic zones across the region, attracted by tax advantages. Furthermore EU funds have boosted investment in infrastructure that appeals to foreign investors like, road and rail. Even in Poland, the region’s biggest and most diversified economy, these EU funds matter: by 2022 they will make up 22 per cent of public spending each year.

This foreign-led development model has had much success. Countries from the Baltic states in the north to littoral Black Sea states have become considerably richer over the last two decades. GDP per person in the Czech Republic is now close to Spain. Bulgaria and Romania are much poorer in terms of GDP, but managing to win investment and to grow, too. The European Commission tracks the progress of five EU members immediately east of Germany and Austria, namely the Czech Republic, Hungary, Poland, Slovakia and Slovenia, compared with a group of four western frontier EU countries, namely Austria, Denmark, the Netherlands and Sweden. In 1995 the average GDP per person at purchasing power parity was around 55 per cent lower in the five Central European countries than in the western frontier countries. By 2016 the difference had shrunk to 39 per cent. Average incomes in the five countries are now equal to those in Portugal and far above those in Greece, of course also due to the financial crisis and sovereign debt crisis since 2008. Of all the Central European countries Slovakia saw the most dramatic gains.

But the challenge for these countries, as for any hinterland reliant on supplying labour to produce goods for richer neighbours, is to keep closing the income gap. The next step of economic development is going to be harder, requiring more productive firms, more private capital and more skilled labour. The region was not that hit by the financial crisis and is growing strongly once again. The IMF expects these countries to expand nearly twice as fast as Western Europe and this expansion looks more sustainable than the one that ended with the financial crisis in 2008. Back then cheap foreign loans, including Swiss franc mortgages taken out by individual households had boosted consumption but became hard to pay back. Nowadays banks are in better shape and consumption is less supported by debt and more by rising incomes. Despite nationalistic policies by populist governments in some countries foreign companies are not retreating. Corruption and some political instability seem not to deter investors as long as other economic conditions are beneficial. Building firms are doing particularly well. Construction activity in the region has typically grown twice as fast as GDP in recent years. Central Europe accounts for a fifth of Strabag’s – Austria’s biggest construction company – business. Business in Poland has gone so well that Strabag is branching out from EU-funded infrastructure into hotels, shopping centres and office blocks. Wienerberger, an Austrian building-materials supplier, has 64 plants across Central and Eastern Europe (CEE), including the ones in Austria and Turkey. 30 per cent in the region are not connected to a sewer system, compared with 5 per cent in Western Europe, which means big business for the firm. Subsidies for better housing, for instance in Hungary, have meant a boom in brick sales.

Services are playing a bigger part in this expansion in Central Europe than in the pre-crisis boom. This means that also white-collar work is doing well. Western banks are moving back-office jobs east to pleasant and affordable spots such as Krakow. McKinsey has 1,000 analysts in Poznan in central Poland, serving clients world-wide. Brexit is moving some mid-level finance jobs away from London as well. Erste Bank, an Austrian bank with 16 million customers in Poland, the Czech Republic, Slovakia, Croatia, Serbia, Romania and Turkey, expects banking in the region to grow faster than in Western Europe for many years to come. Central Europe has also transformed Vienna Insurance Group, a nearly 200-year old Austrian institution. Its 21 companies across CEE now provide half of all VIG’s premiums and profits because as income rises, spending on insurance increases, too. So it seems that Central European economies are well set for sustainable economic growth. Yet there are still three reasons for worries, namely a lack of innovation in local firms, a coming demographic squeeze and an over-dependence on foreigners, especially Germans, to drive development.

CENTRAL EUROPE AND THE AUSTRO-HUNGARIAN EMPIRE: ATTEMPTS AT CREATING A UNIFYING IDENTITY DESPITE RISING NATIONALISM

Brno, Czech Republic

In the last years researchers of Central and Eastern Europe have revised the widespread assumptions of the Austro-Hungarian Empire that comprised a large part of this area and ended in 1918. They no longer see it as an economically inefficient multi-national anachronism to the late 19th century nation states of Europe. New studies focus on the vibrant political cultures and the interesting attempts at interpreting local and regional phenomena in this multi-ethnic and multi-religious empire. General studies of Europe and modern history tend to treat the region of Central Europe as an exceptional corner of Europe due to the presence of several ethnic and religious groups in its societies, but also because of its economic development, often – unjustly – characterised as “backward”. Historians of self-styled nation states might have to think more creatively about cultural differences that may lurk just below the surface of assertions of national homogeneity. This is especially necessary at the time when the European Union is again facing new outbreaks of nationalism and even regions in the established nation states of Western Europe show serious tendencies of separation, e.g. Catalonia or Scotland.

Even some books written recently on the topic of World War I continued the tradition of portraying the Habsburg Empire as a state on the verge of collapse even before the outbreak of the war due to nationalist conflicts. Since the collapse of the empire narratives of nationhood have dominated its history. This interpretation ignores the fact that the Austro-Hungarian Empire was very similar to the other European states of the time, but at the same time pioneered new ideas of nationhood and new practices of governance thanks to its multi-ethnic population of 50 million. Some of the character, the developments and the enduring legacies of this Habsburg Empire are still visible in Central Europe. Therefore it is essential for once to abandon traditional presumptions about the primacy of nationhood in the region and to focus on the Austro-Hungarian institutions such as schools, the judicial system or the Austrian census that managed practical issues surrounding linguistic and ethnic diversity. This research undermines the notion that the existence of language differences dominated social relationships and institutional developments in Central Europe. On the contrary, imperial institutions and administrative practices helped shape nationalist efforts. Furthermore the surviving presumptions of economic backwardness or unbridgeable difference that allegedly made Central Europe different from the rest of Europe were revised in recent decades and historians have pointed out the remarkable creativity and innovation of the empire’s institutions in tackling diversity. Looking at the last decades of the Habsburg Empire might offer different views at subjects like nationhood, multilingualism and indifference to nationhood, especially at times of crisis of solidarity in the European Union.

THE BALKANS & THE AUSTRO-HUNGARIAN EMPIRE AROUND 1914

Novi Sad, Serbia

In the context of World War I the marginalization of the Serbian and thereby of the larger Balkan dimension already began during the July crisis itself. Serbia and its actions occupied a subordinate place. Furthermore the fact that Serbian-dominated Yugoslavia emerged as one of the victor states of the war seemed implicitly to vindicate the act of the murder of the Austro-Hungarian crown prince and his wife on 28 June 2014. In an era when the national idea was still full of promise, there was sympathy with south Slav nationalism and little affection for the ponderous multinational commonwealth of the Habsburg Empire. But our moral compass has shifted by now. The Yugoslav wars of the 1990s have reminded us of the lethality of Balkan nationalism. Since Srebrenica and the siege of Sarajevo, it has become harder to think of Serbia as the mere object or victim of great power politics and easier to conceive of Serbian nationalism as a historical force in its own right. From the perspective of today’s European Union we are inclined to look more sympathetically on the vanished imperial patchwork of Habsburg Austro-Hungary. Putting Sarajevo and the Balkans back at the centre of the outbreak of World War I does not mean demonizing the Balkans or their politicians. We need to understand the July crisis of 1914 as a complex event. Far from being inevitable this war was in fact inconceivable for most Europeans of the time, at least until it actually happened. So the conflict was not the consequence of a long-run deterioration, but of short-term shocks with the Balkans at the centre.

THE BALKANS: ANCIENT TRADITIONS & SOCIAL STRUCTURES

Belgrade, capital city of Serbia

On the Balkans nationalism has been a significant characteristic of political and social life since the 19th century. There was an ethnic nationalism in former Yugoslavia that is still very powerful and which has to be differentiated from a bourgeois or political nationalism. Bourgeois nationalism is based on the idea of common blood relations, common culture and excludes any kind of multiculturalism. The concept of political nationalism is based on a common territory and the acceptance of the laws in this territory. In contrast ethnic nationalism is founded on myths and legends of a nation that is God-sent. Even nowadays these myths dominate public communication in the Balkans. The fascination with such myths concerning their own nation which are propagated and perpetuated by autocratic and democratic leaders alike is the reason why the people in these countries are often prevented from seeing  future potential and realising it. One famous example is the “Kosovo myth”. The Serbian historian Popovic already stated in 1976 that that was a secondary artificial myth developed by politicians from folklore legend dealing with the historical battle between Turks and Serbs on the Kosovo Polje in 1389. The rather irrelevant defeat escalated in the historical memory of the Serbs to a catastrophe and was scandalously distorted.

 

The various national movements in the Southern Slavonic countries concerned themselves thoroughly with their respective village cultures. In them they sought to find their origins in a world of rapid modernisation. This resulted in a romantic transfiguration and idealisation of rural or village value patterns. These patterns were supposed to be “characteristic” of the nation and should serve as models. The processes of industrialisation and urbanisation fundamentally changed and influenced the existing traditional society. In spite of the growing economic and social differences between the urban and the rural world the influence of the village culture in the development of the nation and society must not be underestimated. These “traditional” values had persevered despite the processes of modernisation in the socialist society of former Yugoslavia. In the Balkans rural traditions had their impact on life in the cities and shaped the cities rather than the other way round. Mass migration to cities led to the urbanisation of the villages, but also to the ruralisation of the cities. Almost all Serbian cities for example, due to centuries under Turkish domination, developed only in the last 150 years from small villages and market communities. Until the 20th century there existed no specific Serbian urban tradition whatsoever. The village roots remained strong, mutual obligations between the family in the city and the kin in the country further strengthened these ties. Children often still spend their holidays in the country and village children move in with their relatives in the city for higher education. The process of urbanisation began very late in former Yugoslavia. In the beginning of the 20th century the urban populations began to grow and then especially after World War II.

FIN-DE-SIECLE CULTURE IN VIENNA AROUND 1900

  

Vienna Secession, architect: Joseph Maria Olbrich 1898

In most fields of intellectual activity, the early 20th century Europe proudly asserted its independence of the past. The modern mind was growing indifferent to history because history, conceived as a continuous nourishing tradition, seemed useless to it. The sharp break from the tie with the past could be seen as involving generational rebellion against parents and a search for new self-definitions. Emergent “modernism” tended to take the specific form of a “reshuffling of the self”. Here historical change not only forced upon the individual a search for a new identity, but also imposesd upon whole social groups the task of revising or replacing defunct belief systems. The attempt to shake off the shackles of history paradoxically speeded up the process of history, for indifference to any relationship with the past liberates the imagination to proliferate new forms and new constructs. Thus complex changes appeared where once continuity reigned. Vienna around 1900 with its acutely felt tremors of social and political disintegration, proved one of the most fertile breeding grounds of the 20th century’s a-historical culture. Its great intellectual innovators – in music, art and philosophy, in economics and architecture, and, of course, in psychoanalysis – all broke, more or less deliberately, their ties to the historical outlook central to the 19th century liberal culture in which they had been reared. This secession from liberalism grasped a social-psychological reality that the liberals could not see. This intellectual development in Vienna constituted part of the wider cultural revolution that ushered in the 20th century.

 

The era of political ascendancy of the liberal middle class in Austria began later than elsewhere in Western Europe and entered earlier than elsewhere into a deep crisis. Actual constitutional government lasted only about four decades before its defeat and the whole process took place in a temporal compression unknown elsewhere in Europe. In France this process gradually started in 1848 and lasted until World War I, in Austria however modern movements appeared in most fields in the 1890s and were fully matured two decades later. Thus the growth of a new culture seemed to take place as in a hothouse, with political crisis providing the heat. Austria became, as the poet Hebbel, said “the little world in which the big one holds its try-outs.” In Vienna, contrary to Paris, London or Berlin, until about 1900 the cohesiveness of the whole social elite was very strong. The salon and the cafe retained their vitality as institutions where intellectuals of different kinds shared ideas and values with each other and still mingled with a business and professional elite proud of its humanistic education and artistic culture. The development of an avant-garde subculture, detached from the political and social values of the upper middle class, came later in Vienna, though it was perhaps swifter and more self-confident. Most of the pioneering generation of culture-makers were alienated along with their class in its exclusion from political power, not against it as a ruling class. Only in the last decade before World War I does there appear alienation of the intellectual from the whole society.

“RED VIENNA” 1923-1933: EDUCATIONAL REFORMS

Vienna Urania, built in 1910 by the architect Max Fabiani as a “Workers’ University”

 

The cultural and educational policy was dedicated to pedagogical experiments. The city of Vienna carried out six model experiments for a general school for all 10- to 14-year olds in order to break up the educational privileges of the well-to-do. The educational policy for primary schools heavily relied on the principle of the then new and revolutionary Montessori concepts: free provision of schoolbooks and equipment, creative and practice-oriented learning. The Pedagogical Institute was founded to train teachers and link teacher training to scientific research. The competing schools of experimental psychology, individual psychology and psychoanalysis were represented there. Vienna developed into the centre for developmental psychology and developmental therapy with the foundation of the Viennese Psychological Institute, where Charlotte and Karl Bühler worked.

 

In the 1920s and early 1930s a gigantic educational and pedagogical movement characterised Vienna which could not be found in any other city in those days. Ellen Kay called Vienna “the capital city of the child”. In this place a variety of educational and pedagogical concepts were developed, public and private initiatives and institutions abounded. All this would not have been possible without the development of Freud’s psychoanalysis and Alfred Adler’s “psychology of the individual” Education was seen as a complex concept and had the highest priority, not only in the family, schools and day care centres, but also in cultural, sports and leisure clubs and party organisations.…

“RED VIENNA” 1923-1933: HOUSING REFORMS

Vienna council house complex “Sandleiten” in the 16th district

For the Christian Socialists Catholicism remained the central value, whereas the focus of the Social Democrats was on a welfare system that cared for the individual from the “cradle to the grave”. By establishing numerous clubs, societies and associations they tried to build a “counter-culture” to the traditional conservative Catholic Austrian culture. The centre of this huge reform project was “Red Vienna”, which was an independent federal state since 1921 and ruled by Social Democrats. There they could realise all their ideas for a new society. The new council houses were not only symbols of a new and better life style for the working classes but also architectural landmarks. They represented the centres of this counter-culture and harboured also offices of the various clubs and party organisations. By the conservatives they were viewed as the fortresses of the left.…

“RED VIENNA” 1923-1933: SOCIAL WELFARE

Städtisches Jörgerbad, Vienna, public bath opened in 1914, built by Friedrich Jäckel, Heinrich Goldemund and Franz Wejmola

 

Three areas of social reform dominate the impressive and internationally renowned social policy of “Red Vienna”: communal social welfare, social housing and the Viennese cultural and educational policy. Mayor Karl Seitz together with the city councillors Hugo Breitner for Finance, Julius Tandler for Social Welfare and Otto Glöckel for Education started a huge reform project from 1923 to 1933 that was admired elsewhere. Breitner introduced a new tax system for Vienna that taxed people progressively according to their expenditure. A high tax was levied on “consumption of luxury and pleasure”, such as champagne, night clubs, dancing halls, horse-race betting or theatres.  The proceeds from this new tax were used for building a new welfare and healthcare system and for constructing affordable and comfortable housing and schools. Several big community housing estates built during this time still exist, nowadays inhabited by tenants with a migration background as well as by indigenous Viennese. Many people, however, opposed this “housing construction tax” and Hugo Breitner was subject to very aggressive political attacks, partly with an anti-Semitic tendency.…