IS THERE A FUTURE FOR „SOFT” [SOCIAL SENSITIVE] CAPITALISM IN THE POST-SOCIALIST EUROPE?

byPál TAMÁS [Hungarian Academy of Sciences,

Budapest]

THE TAXONOMICAL QUESTION

Is there an East European [post]socialist welfare state model beyond the European „classical 4” welfare regimes?

Yes, the „early-born welfare state” [Janos Kornai] of EE as a fundamental concept for legitimation of the social order.

a. Survival ratio of that E-B welfare state? The strategic debate.

b. How to reduce the social expenditure? Tactics and time-horizons

c. What does happen with the European social model in that context? 2 Europes- with an internal periphery?

EVOLUTION OF THE SOVIET WELFARE REGIME [as a

concept]20-30ies –patchwork of differently

modernized social segments, islands, pockets. Differentiated social services in different segments. Close to the „classical” Chinese communist system of social insurance of the 50-70ies

From the late 50ies-early 60ies de facto universal: Bismarcian instruments, but universal in its system via obligatory and permanent full employment.

The system collapsed in the early 90ies.

THE TRANSITION DEBATE OF SOCIAL POLICIES IN THE

90iesSocial expectations of the universal regime

in the public opinion are there, the sources and tools of the service providers for the new situation are absent.

Discoursive mode of the political-intellectual debate in the early 90ies dominated by the „Americal model” and and neoliberal hardliners.

Social democratic alternatives emerge with the Eastern Enlargment of the EU- from the late 90ies

IS THERE ONLY ONE „EAST-EUROPEAN REGIME”?

Argentinian, Mexican economy- with ambitions of the Swedish social policy programs

different hybrids- more loyal to the past [HU]- more hostal to the past [PL] and between

Basic elements:1. Early gender mobilization [pre 1989]2. Strong pro-population policies [pre 1989]3. Forced integration of poverty [pre 1989]4. Weak civil society [pre + post 1989]5. Neoliberal pro-growth policies fpost 1989]6. „transformation costs” transfered to the lower

social classes and strata [post 1989]

THE „SCANDINAVIAN DREAM”

„Scandinavia” as an ideal case [like the romantic concept of the „pure love”] is there at least from 1968 [the Prague Spring], but after 1989-90 everybody is realistic, and tries to „marry the first potential reach partner; wife, husband”]

Special cases : a. the Finnish model” in Hungaryb. The ambivalence of the Baltics- Scandinavian

modernization but without scandinavian social policies [Estonia, Latvia- brutal neoliberal growth regimes with Scandinavian foreign policy umbrella and economic domination]

STRATEGIC DILEMMAS

A. „optimal” and „acceptable” social inequalities [the „Atlantic” and the East Asian developmental states].

B. The post-communist underclass and the social reproduction

C. Changing social justice concepts as tools for legitimation of transition

D. Limits for a new social contract [political assets of transformation]

E. Re-integration of alienated generations after the transition

BIFURCATION OF THE EUROPEAN SOCIAL MODEL

„Eastern options”- short- and medium-term: there isn’t free choice there

Obligations of the eurozone, minization of budget deficits +flat-tax competition in the region [ECE]

Actual ECE social expenditures: 19-21% of the GDP [Scandinavia- 29-30%, DE, AU -26-27%]

The new „Eastern model” [overgeneralization!] 16-18% of the GDP- strong public education + growing share of private investment in health +minimalistic social assistance [deep poverty + some population policies]

A strategic example: share of education and health sectors in the % of the

Hungarian GDP, 2005-2007

Share of strategic sectors in the GDP, in %

sector 2005 2006 2007

education 6,44 6,21 5,67

health 5,27 4,77 4,49

Gross National Income Per Capita (PPP)

0

2,000

4,000

6,000

8,000

10,000

12,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Central Europe

Baltic States

Western CISBulgaria and Romania

Other South-Eastern Europe

Central Asia

Caucasus

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

1994 1995 1996 1997 1998 1999 2000 2001

Georgia

Moldova

Russia

Estonia

Serbia and Montenegro

Kyrgyzstan

Azerbaijan

Romania

Poland

Hungary

Income inequality, 1994 - 2001 (Gini coefficients)

At-risk-of- poverty rate and needed social transfers

Source: Eurostat Yearbook 2006-07:118

Further life expectancy for men aged 65 (Eurostat 2005)

10

11

12

13

14

15

16

17

1992 1994 1996 1998 2000 2002

Life

exp

ecta

ncy

(yea

rs)

EST

LAT

LIT

POL

CZ

SK

HU

SLO

ROM

BUL

EU15

Further life expectancy for women aged 65 (Eurostat 2005)

14

15

16

17

18

19

20

1992 1994 1996 1998 2000 2002

Life

exp

ecta

ncy

(yea

rs)

EST

LAT

LIT

POL

CZ

SK

HU

SLO

ROM

BUL

EU15

Hypothesis on determinants of demographic development in Western and Eastern Europe

Determinants Western Europe

Eastern Europe

Life expectancy

Fertility / /

Migration patterns

Immigration Emigration

Immigration/emigration patterns (Eurostat 2005)

-30

-20

-10

0

10

20

30

1992 1994 1996 1998 2000 2002

Net

bal

ance

imm

igra

tion/

emig

ratio

n (in

thou

sand

s)

EST

LAT

LIT

POL

CZ

SK

HU

SLO

ROM

BUL

Social risk indicators for EMU accession (2003)

Social Risk Indicators: Absolute Values

Risks Derived from the Labour Market Risks Derived from

Ageing Risks Derived from

Insufficient Income Support

Long-Term Unemployment

Rate (2003) Unemployment

Rate (2002) Old Age Dependency

Ratio % (2001)

At Risk of Poverty Rate After Social Transfers

(2001-2003) (1)

BG 8,9 17,8 24 13

Cyp 1,1 3,9 17,3 16

CZ 3,8 7,3 19,8 8

EE 4,6 9,5 22,7 18

HU 2,4 5,6 21,4 10

LV 4,3 12,6 22,6 16

LT 6,1 13,5 20,2 17

MT 3,5 7,7 18,1 15

PL 10,7 19,8 17,8 17

RO 4,1 7,5 19,6 18

SK 11,1 18,7 16,5 21

SL 3,4 6,1 20,2 10 Source: Eurostat

Which Values? Evidence versus Ideology

• Social solidarity– Focus on fairness and

equity– Explicit cross-subsidy– Social protection– Universal Access, not

related to income– Role of state usually

important– State capture?– Most prevalent in

OECD

• Individual responsibility– Focus on efficiency– Little cross-subsidy– Limited Access– Stratification by income– Individual risk rating– Limited risk pooling– Consumer protection?– US Model and attempts

in FSU

Tax revenue is high for income level, especially in Central Europe …

Source: IMF World Economic Outlook database; IMF Government Financial Statistics database;

New member states EU-15; Other high-income OECD*; Middle-income high-performing countries**; *USA, Australia and New Zealand; **The choice of middle-income high-performing countries varies from one chart to the next, in part dictated by data availability. This does not affect the comparisons made.

Tax Revenue of the Consolidated Central Government Including Social Security (percent of GDP) average 00-03

0

5

10

15

20

25

30

35

40

45

0 5000 10000 15000 20000 25000 30000 35000 40000 45000

Latvia

Poland

Lithuania

Slovak Rep. Czech Rep.

Hungary

Slovenia

Estonia

Israel

SingaporeKorea

Hong KongCosta Rica

Mauritius

Thailand Malaysia

Tunisia

… health spending is comparable to other European countries, and may even be on

the low side in some new member states…

Source: WB SIMA; IMF World Economic Outlook database

0

2

4

6

8

10

12

0 10000 20000 30000 40000 50000 60000

GDP per capita

To

tal h

ealt

h e

xp

en

dit

ure

(%

of

GD

P)

EstoniaLatvia

PolandLithuaniaSlovak Rep.

Czech Rep.

Hungary Slovenia

New member states EU-15; Other high-income Europe* *Switzerland and Norway

….amongst a comparator group which includes well-performing middle-income countries pension spending

looks high in Central Europe

Source: “International Patterns of Pension Provision” by Palacious and Parrales-Miralles, 2000; IMF World Economic Outlook database; EUROSTAT

New member states EU-15; Other high-income Europe*; Middle-income high-performing countries**; * Switzerland and Norway; ** Chile, Costa Rica, Israel, Korea, Malaysia, Mauritius, Singapore and Tunisia

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0 10000 20000 30000 40000 50000 60000 70000

GDP per capita

Pen

sio

ns a

s a

sh

are

of

GD

P

EstoniaLithuania

Slovak Rep.Latvia

Czech Rep.Hungary

Slovenia

Poland

….amongst a comparator group which includes well-performing middle-income countries pension spending

looks high in Central Europe

Source: “International Patterns of Pension Provision” by Palacious and Parrales-Miralles, 2000; IMF World Economic Outlook database; EUROSTAT

New member states EU-15; Other high-income Europe*; Middle-income high-performing countries**; * Switzerland and Norway; ** Chile, Costa Rica, Israel, Korea, Malaysia, Mauritius, Singapore and Tunisia

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0 10000 20000 30000 40000 50000 60000 70000

GDP per capita

Pen

sio

ns a

s a

sh

are

of

GD

P

EstoniaLithuania

Slovak Rep.Latvia

Czech Rep.Hungary

Slovenia

Poland

Total health expenditure as % of GDP

<= 12<= 10<= 8<= 6<= 4<= 2No data

EU-15: 8.9 (2001)

Central, South East Europe & Baltics: 5.8 (2001)

Impact of Early Reforms in the Last Decade

– Slowly improving health status but low user satisfaction

– Separation of funding from supply, Social Insurance– High growth rates of (mostly private) providers and

increase in providers revenue– Devolution of ownership structure of hospitals– From budget to fee-for-Service to budget caps– Funding fragmentation creates considerable

administrative costs (>3%)– Comparatively low health care wages curtail even

higher growth of expenditures– Public Health collapse

The impacts on growth of public spending and revenues also depend on

the quality of governance.

Size of government and spending mix matter most when governance is poor; Spending and revenue mix matters

more when governance is good.SPENDING Good governance Poor governance

“Unproductive” expenditures

No measurable impact

Negative impact

“Productive” expenditures

Positive impact No measurable impact

TAXATION“Distorting” taxes Negative impact No measurable

impact

“Non distorting” taxes

Positive impact No measurable impact