by Dr. Rudolf Pozgay
The amount of economic and social challenges that the European Union has faced to date have given rise to the idea that EU reform is required. An example of such efforts is Juncker’s “White book” with five possible reform scenarios, as well as the resolution of the European Parliament from 16 February 2017 on improving the functioning of the EU. What both of these efforts have in common is that they are trying to reform institutions that are irreformable in the current state of political elites. On the other hand, it must be clearly stated that the EU would be a great organization in the sense of a community of free nations and nationalities living in Europe, provided that the functioning of individual countries as well as the current EU concept were not based on bad, amoral principles.
What bad, unethical principles are we talking about? In essence, there are two complex and interrelated problem areas.
- Governance system
The first problem area is related to the system of governance in individual EU member countries. Following World War I, most countries in Europe turned to political institutions based on representative democracy. This development is not at all encouraging. Democracy has already been highlighted as a bad form of government by Aristotle in his work, and developments so far prove him right. Within the functioning of representative democracies, citizens are important for politicians only during election time. During that time, rival political elites promise the moon to voters. At the same time, there is not much difference between right-wing and left-wing political elites. It is always about some form of benefits and promises for voters. Potential voters are most sensitive to social benefits and in the process of their development, European countries have gradually transformed themselves into social states.
It is characteristic for the social state to take responsibility and care for the lives of a substantial part of the population. However, in life, nothing is free, and the obtained social benefits have associated costs. As election campaigns, in order to secure votes, led to increases in social benefits and government engagement in correcting the so-called mistakes of the invisible hand (subsidies, stimulating demand, regulation, etc.), the financing of such actions required obtaining an increasing amount of funds from productive parts of the society by means of taxes and levies. Tax and levy increases, however, also have their limits. When the state collects on taxes and levies more than half of the income of citizens (which has long been a reality in European countries), citizens’ dissatisfaction starts to threaten political elites. That is why governments have to a large extent started addressing the problem of lack of finances by deficit government budgets. As a result, there is ever-increasing debt, which in turn means society and current generations are being financed at the expense of future generations.
On the other hand, the expansion of the social state, as the state increasingly affects the lives of people, leads to family degradation and the restriction of human freedom. In essence, the state has through its actions eliminated the three-generation household family – the family, which in the past was able to take care of both the upbringing of children and taking care of old family members. However, increasing the tax and levy burden meant that one family member-provider was not enough to feed the whole family. Families were forced to employ two main family members. Thanks to the social state, we are witnessing the decline of the family with all the associated social negatives.
Developments have reached such a stage that the social state is confronted with an inability to resolve issues that it has taken into its competence from a family-based society. This concerns in particular the financial entitlements of the social and pension system, which contribute significantly to expenditure. Particular attention should be paid to the pension system, which is based in most EU countries on an absurd Bismarckian system of intergenerational solidarity. It is worth mentioning that Bismarck introduced this system in 1889 not for social but political reasons.
The unsettling situation of social states in the EU can also be seen from EU statistics (Eurostat). If one hundred years ago an average of 8 to 13% of European GDP funded state expenditure, it is now almost half of GDP: 44.8% in 2017 for the EU28. But such an amount is not enough to cover the expenditures of states that are constantly indebted at the expense of future generations. The EU28 in 2017 spent € 150 billion more than they collected, under threat of punishment, from their citizens and companies on taxes and levies. At the same time, large expenditure items are linked to the non-productive sphere. Social expenditure amounted to more than 45% of expenditure in 2017. At present, contributions to the social system (including the pension system) are not sufficient to cover social spending. In 2017, social spending in the EU28 was up by € 1125 billion compared with social earnings, and therefore had to be subsidized from tax revenues. The situation will become even worse due to unfavorable demographic trends. The share of citizens over 65 will increase to around 28% of the total population in Europe by 2050, an increase of about 75% compared to the current figure. Another significant item of budget expenditure are salaries and wages of public administration employees, which account for over 21% of the EU28 expenditure. The expansion of the social state is also illustrated by the fact that the appropriations for social spending in the EU28 have increased by more than 34% over the last ten years (2007 to 2017), with GDP growing by only 19% over the same period.
The amoral relationship of the ruling elite of the social states to future generations can be illustrated by the evolution of debt. Government debt of the EU28 increased by 68% in the last 10 years and at the end of 2017 reached € 12.5 billion.
The results of the development of the social state so far are a gradual economic as well as moral decline. Why is that so? In representative democracies, democratic elections are used to justify taxing those who are productive in favor of the unproductive ones. The result of taxation is the distribution of taxpayer’s money for the benefit of political parties, their supporters and potential voters. Various social packages in effect lead to the expansion of the non-productive part of society. This reduces the overall production capacity of society. The high tax and levy burden, together with an unfavorable business environment, results in a gradual decline of the former middle class, which on the other hand is confronted with an increase in the wealth of unproductive political elites and a small group of their supporters.
With the rising dependency of citizens on the social state, the cost of political elites also increases in persuading citizens to vote. Playing for election results is increasingly driven by rich individuals as well as wealthy companies that provide political elites with campaign funds, including mass media support. Political elites thus become dependent on a small group of society’s richest members. As a result, the proclaimed democracy has actually turned into an oligarchic system of governance, with a prevalent financial oligarchy. An integral part of such a system of governance is corruption at practically all levels of public administration.
Another economic downside of generous social policies is that they are, by their nature, going against habits of saving, thereby preventing the creation and growth of real capital as a necessary condition for economic development.
Moreover, representative democracies lead political elites to centralist power aspirations. Centralization is a means for unproductive political elites to strengthen their position in society. It is worth noting that a significant part of intellectual elites, whose existence is linked to resources gained by the political elites from the productive sphere, are in great support of these political elites. Centralization is only justified in solving crisis situations of socio-economic significance (e.g., major natural disasters, war, conflict). Otherwise, centralized governments slow down the way to prosperity because they erode autonomy, initiative, association with and sense of belonging to the local community.
The Brussels bureaucracy, including top EU institutions and bodies, is the concentrated expression of the downsides of centralization in governance. To illustrate the incompetence of the EU institutions, it is enough to revisit the fate of the Lisbon Strategy. Early in 2000, senior representatives of states and governments agreed in Lisbon on an ambitious goal to make the EU the most competitive and dynamic knowledge-based economy in the world by 2010, capable of sustainable growth with more jobs and greater social cohesion. Despite the efforts made by the EU institutions, it was clear after a few years that the inflated targets could not be fulfilled and therefore the Lisbon Strategy was corrected first in 2005 and later in 2010 as well, when the European Council adopted the Euro