Can Prosperity Be a Catalyst for Integration?
More and more, in every segment of society, it has become clearer that the dimensions of societal progress must be better understood. As growth and development proved to be less relevant to measure societal progress, experts and decision-makers consider that another concept could be more relevant, namely economic prosperity. In the equation of the new concept, in addition to the economic dimension of development, the social one becomes essential. Reducing discrepancies across member states has always been one of the objectives of integration, but the evolution of each economy made it more difficult for the European entity to reach this goal. Another assumption is that European citizens consider that the European project started to undergo certain changes, a “social deficit”, so it is imperative to define the elements of the new social dimension of the Economic and Monetary Union.
European economic integration has been a complex process overwhelmed by many challenges that have received many solutions (often without the expected success). One of the most challenging elements promoting the integration process was the cohesion policy (economic, social and, recently, territorial) and the desirability of harmonizing the mix between subsidiarity, solidarity and proportionality.
It is worth highlighting the attachment to economic growth (regardless of whether it is more or less sustainable) of the social dimension of integration. Prosperity is the quality of an economy that attempts to express the evolution of societal behaviour beyond the dualism of growth and development. True prosperity is not only for the privileged, but for all stakeholders. A prosperous economy is only the one that offers multiple opportunities for social actors to discover, share and reach the top, becoming the best and helping others become the best.
As resulting from the specialty literature, one of the ways to measure prosperity is to observe and to analyse the quality of life. And for a prosperous Economic and Monetary Union, one of the issues to be discussed is social policy.
Quality of life – vector of prosperity
At the economic level, humanity is experiencing “the fourth industrial revolution”. In order for the results of this stage of societal development to be maximized, it is imperative to achieve at the same time: higher economic results, the highest possible level of social responsibility and the least damage to the environment. For these reasons, it has become less relevant to express the progress at the level of society only by economic growth, but by introducing the concept of economic prosperity into the conceptual landscape.
One of the most challenging elements promoting the integration process was the cohesion policy (economic, social and, recently, territorial) and the desirability of harmonizing the mix between subsidiarity, solidarity and proportionality.
The Stiglitz Report highlights three approaches to measuring the quality of life, going beyond the relevance of GDP. The first approach is closely related to psychological research, relying on the notion of subjective well-being. Traditionally, economic philosophy centred on classical liberal ideas regards individuals as the best judges of their own conditions. This approach is related to the utilitarian tradition, but, more comprehensively, due to many assumptions of ancient and modern culture that claim that the universal purpose of human existence lies in its own happiness and satisfaction. In this analytical paradigm, it is recommended that there should be no involvement of public authority in the societal game, being careful to remain “the night watchman of society” and leaving only the owners to decide how and when they allocate their resources. This (somewhat idealistic) attitude has led to what has been the “great moderation” and its optimistic fundamentals have been short-circuited by the global economic and financial crisis that started in 2008.
The second approach takes capabilities into consideration. It perceives a person’s life as a combination of “doings and beings” (functions) and his/her freedom to choose between these functions (capabilities). Some of these may be elementary, such as food and avoiding premature mortality, while others may be more complex, such as a degree of literacy required for active participation in political life. The basis of this approach, with strong roots in philosophical notions of social justice, reflects a focus on human goals and respect for the individual’s ability to achieve these goals; a rejection of the economic model of individuals acting without emotion; a focus on complementarities between different capacities and a recognition of human diversity that draws attention to the role played by ethical principles in designing a “good” society.
The Stiglitz Report highlights three approaches to measuring the quality of life, going beyond the relevance of GDP.
The third approach, which develops in economic tradition, is based on the concept of fair allocation. The main idea, also common to welfare economy, is the quantification of the different non-monetary dimensions of the quality of life (except goods and services traded on market) respecting people’s preferences. This approach avoids assessments based on an average that can disproportionately reflect the preferences of those with a higher level of well-being and instead focus on equality.
Both differences and similarities can be noticed between the three approaches. For example, subjective well-being refers to abilities and freedoms that people appreciate (so an increase in capabilities will improve the subjective assessments of the people). However, those who support the capacity-based approach point out that subjectivity is not the only issue that matters, and the horizon of opportunities is important in itself, even if it does not manifest in a better subjective well-being. Similarly, both the capacity-based approach and the correct allocation approach are based on information on the objective attributes of each individual, where the way they are used is different. While the choice of these approaches is ultimately a normative decision, they all suggest the importance of features that go beyond a command of resources. Measuring these features (that are not captured by market exchanges) involves the use of a particular methodology (e.g., questionnaire response and personal status observations).
For a long time, referential economic analysts have focused on the idea that it is sufficient to consider individuals’ choices in order to obtain information about their well-being, considering that these correspond to a set of assumptions. In recent years, however, research has focused on the value people give to their actions and how they act in real life, which has led to discrepancies between these hypothesis of economic theory and phenomena that occur in real life.
Subjective ways have always been part of the scientific tools used by economists and statisticians, as many features of economies and societies are measured by the answers individuals give to a standard set of questions. Subjective ways help to anticipate human behaviour (i.e., workers who express greater dissatisfaction at the workplace are more likely to leave) and are valid about a number of other information (i.e., individuals who consider themselves happy tend to smile longer and are seen as happy by people around them, assessments related to the electrical readings of the brain). The subjective approaches make a difference between the dimensions of quality of life and the objective factors which build the algorithmic architecture that shapes these dimensions. Instead, these include several aspects. The first refers to individuals’ assessments of their life as a whole or by domains (work, family, financial conditions). These assessments involve a cognitive exercise and effort in summing up the elements which people appreciate (i.e., their purpose, goals, and how they are perceived by others). The second element is represented by people’s emotions, such as pain, anxiety or pleasure and respect. To the extent that these feelings are real, they are less affected by prejudices, due to the memory and social pressure related to what is “good” in society. Within this category, there is a difference between positive and negative emotions, the two factors that describe experiences of each individual.
All these elements of subjective well-being should be measured individually to achieve a satisfactory assessment of people’s lives. The question about which aspects we give a greater importance and for what purpose remains open. There is more evidence that people are acting to get satisfaction in their choices, based on memories and ratings. But memories and assessments can lead to wrong choices, some made unconsciously, and not based on an analysis of pros and cons of the various alternatives. By measuring the quality of life, information about its determinants at the individual level is also obtained, which include both environmental and living conditions.
The somewhat neglected social dimension
The analysis of the European integration process, especially after it has reached the stage of monetary union, reveals almost exclusively the focus on its economic dimension and a translucent social dimension that has lost opportunities and deepened the vulnerability of the process to the moments in which asymmetric economic shocks appear, whether external or internal. Although growth and development have always been the main benchmarks in economic analysis, prosperity continues the chain of investigation, putting more emphasis on quality of life, a concept that goes beyond production and living standards, including a number of factors that influence well-being, the welfare of people, exceeding material concerns.
Although growth and development have always been the main benchmarks in economic analysis, prosperity continues the chain of investigation, putting more emphasis on quality of life, a concept that goes beyond production and living standards, including a number of factors that influence well-being, the welfare of people, exceeding material concerns.
Convergence must be seen as a link that joins the common purpose, but also as a leitmotif of the Economic and Monetary Union. European citizens should not balance this phenomenon with lower living standards and disposable income, especially as many of them are driven by the member states’ decisions, by strengthening the necessary budget and by increasing taxes on employees or by failing to prepare people to be able to maintain their living standards in a more competitive and innovative global economy. EMU must recognize the importance of convergence and place the social component at the heart of its policy. The Economic and Monetary Union itself is a social project, involving all stakeholders, all the agents part of the economic activity. Its main objective is to create conditions for stronger growth, more and better jobs, as mentioned in EU documents, and higher living standards. The efficiency of the member states’ social systems largely determines the performance of the Euro area member states.
Modern social policy aims to empower and guide every citizen in the use of his/her maximum potential, which involves a special attention and personalized services. A one-size-fits-all approach to social policy is doomed to failure, as individuals looking for different challenges are difficult to satisfy with standardized approaches. Close scrutiny of social protection systems with impact and performance measurement is required. Are social protection systems managing the situation of the poor and the unemployed or helping the disadvantaged to find new opportunities? In the short term, this requires investment and monitoring in social protection systems. The effects of such activities should be to protect, ensure incomes and support effective social welfare systems in the fight against poverty and social exclusion. Protection also includes examining the distributive impact of reforms by addressing the underlying trends in inequality, exclusion and other external measures, while ensuring intergenerational solidarity – an important issue, given the aging process of the European population. However, we are talking about protection with a goal, which provides everyone’s participation in a fair environment and in the member states in the context of the European single market.
The Stiglitz Report identifies three effective ways to address this challenge, which could remedy the long-lasting problems affecting the performance of the labour market.
Labour market benchmarks should be built around an integrative agenda to ensure synergy between the flexibility needed to stimulate entrepreneurial spirit and the security that jobseekers need (a concept designated flexicurity). Such a mix of aspirations, possibilities, means and strategic objectives is defined also by the quality of public administration that reflects the efficiency of public employment services and investment (in skills, job creation etc.); already included in the European Semester, this benchmark deserves a lot of attention, since its failings not only contribute to the worsening crisis, but also hints at the probable social impact.
The analysis on this issue revealed that, at the level of both national and community decision-makers, it is necessary to perform a transition from the public policy management to the economic governance at European level. In this respect, several encouraging steps have been taken recently, one of them being the European Semester. Social policy is a priority for the European Semester but tends to be more general in comparison to the fiscal policy recommendations with specific numerical targets.
The crisis has forced member states to continue fiscal consolidation, which has often led to cuts in the financial component of the social assistance process and to excessive tax increases for the active population, both measures with negative social and economic effects: the poor did not feel the improvements expected, and the active population has seen a reduction in purchasing power and an increase in future concern. It is therefore necessary for the EMU to increase the use of social indicators for a better assessment of the economic impact, both in the short and the long term. Interaction between social and economic indicators may be a tool that discourages countries from making further decreases, as it is easier to consolidate the short-term budget without understanding the implications over time. The European Semester should ensure that policies are ranked according to their short- and long-term effects, employment, income distribution, social impact and fiscal sustainability. For example, we ask ourselves: how socially correct is an unsustainable pension system over time?; or how does a country become more competitive with a lower access to healthcare for the most vulnerable? Social cohesion is one of the pillars that ensures the convergence of the member states and enhances the integration process. A lack of convergence in the labour market is not only counterproductive, it also threatens the sustainability of the Euro area. Moreover, the effects of unemployment manifest in economic and social exclusion, poverty and inequality.
The Stiglitz Report identifies three effective ways to address this challenge, which could remedy the long-lasting problems affecting the performance of the labour market.
In the absence of a single European model for labour market reforms, member states tend to focus primarily on labour flexibility, which has led to a duality of labour markets within the EMU. These malfunctions occur among elderly people who have permanent contracts and enjoy maximum protection compared to an increasing number of young people who have short-term contracts and face bad working conditions. Although this duality generates social tensions, it should not be neglected that short-term contracts often create additional jobs. Prohibition of temporary contracts, as it is sometimes suggested, would have a negative impact on employment. A solution for this situation is to introduce a single employment contract. In such a contract, a low level of protection is offset by granting training rights and other forms of active policies as well as protection against poverty.
Increasing labour mobility is one of the ways to stimulate job creation but also productivity and absorption of asymmetric shocks as workers move from high-pressure regions from the labour market to those with more opportunities and greater demand of skills. This mobility of the labour force is closely linked to the success of the monetary unions, so attention must be drawn to the proposed and adopted policies.
In a changing global economy, which puts skills and competences first, social policy has failed to reduce the number of unemployed. A stronger link between skills and human capital, and economic and social outcomes is needed. We cannot talk about corrections or orders that respond to short-term skills challenges. But an urgent measure is to put human capital at the centre of economic and social policy. Europe will not be able to maintain its advanced economy unless its skills requirements increase innovation standards and improve values. A new approach involves prioritizing social investments and optimizing the use of human capital.
In a changing global economy, which puts skills and competences first, social policy has failed to reduce the number of unemployed. A stronger link between skills and human capital, and economic and social outcomes is needed.
Changes in the techno industrial paradigm are subject to fundamental transformations in the structure of human capital, the most notable ones being the stock of skills that an individual in search of the most suitable job should have. Such a process determines social and economic policy, seeking new limits. Europe needs to find solutions for the lack of an agenda on skills and human capital; nearly half of the existing job categories are at risk of automation over the next two decades – especially in the manufacturing sector –, some skills will not be recognized and some workers will become impossible to hire. In addition, several European societies face the aging phenomenon of population, while training opportunities are exponentially declining for older workers. However, the company relies on workers who stay as long as possible in the workplace. Until Europe fails to activate and develop the skills of human capital, an important share of the labour force will be inactive and unprepared for the future of the labour market, while increasing the burden of pension, insurance and medical assistance systems. Therefore, the European Union must strive to boost human capital. While these are seen as marginal aspects of politics, they are in fact part of the mix that could ensure both Europe’s long-term and Euro area success. There is an urgent need to invest in human capital, where skills are missing while labour market develops, especially for low-skilled workers affected by the crisis and need to be re-qualified. Education and training are not sufficient unless they are tailored to the changing needs of the economy and society.
In modern, advanced economies, economic and social goals are the two faces of the same coin. It is time for the Economic and Monetary Union to place at the centre of its concerns investment in human capital, the functioning of labour markets and mobility.
The quality of life includes those factors that provide value to life, including those that are not quantified by monetary measures or traded on the market. While there are additional elements that measure monetary welfare in economic terms, there are limitations on how many can be achieved using this approach. There are other indicators that play an important role in measuring social progress. These measures, which do not replace conventional economic indicators, provide an opportunity to improve political discussions and inform people about the conditions in their communities.
The quality of life depends on people’s objective conditions as well as opportunities. It is important to take steps to improve health measures, education, personal activities, social connections, environmental conditions and security.
One of the most important questions about quality of life refers to how developments in a particular field influence development in other areas and how they determine the evolution of income. The consequences of a quality of life with multiple disadvantages outweigh the amount of individual effects. Taking measures for these cumulative effects requires the measurement of the most important features of the quality of life (such as affection, health, education) for all people in a country. Although collecting such information will only be possible at a future date, concrete steps in this direction are observed by grouping citizens based on a limited set of characteristics.
In any case, the quality of life remains one of the engines of economic prosperity that seeks to achieve social cohesion, which, along with economic and territorial cohesion, are the pillars of European integration. Although it is impossible to achieve harmony between the three, it is preferable to obtain higher economic results, a higher level of social responsibility and the least damage to the environment.
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 Fritz, M.; Koch, M., 2014. Potentials for prosperity without growth: Ecological sustainability, social inclusion and the quality of life in 38 countries, Ecological Economics, Volume 108, pp. 191-199.
 Stiglitz, J.; Sen, A.; Fitoussi, J., 2010. Report by the Commission on the Measurement of Economic Performance and Social Progress.
 Van Hoorn, A., 2007. A Short Introduction to Subjective Well-being: Its Measurement, Correlates and Policy Uses, Roma.
 Robeyns, I., 2003. The Capability Approach: An Interdisciplinary Introduction, Amsterdam.
 Huck, S.; Oechssler†, J., 1999. The Indirect Evolutionary Approach to Explaining Fair Allocations, Games and Economic Behavior, Volume 28, Issue 1, pp. 13-24.
 Fleurbaey, M., 2008. Individual well-being and social welfare: Notes on the theory, background paper for the first meeting of the CMEPSP.
 Levin, J.; Milgrom, P., 2004, Introduction to Choice Theory.
 Diener, E.; Suh, E., 1997. Measuring quality of life: economic, social, and subjective indicators, Social Indicators Research, Volume 40, pp. 189-216, Netherlands.
 European Commission, 2015. The Social Dimension of Economic and Monetary Union. Towards Convergence and Resilience, European Political Strategy Centre, Issue 5.
 Janning, J., 2016. Keeping Europeans together, European Council on Foreign Relations.
 Grech, A. G., 2010. Assessing the sustainability of pension reforms in Europe, Centre for Analysis of Social Exclusion, London School of Economics.
 Bowles, J., 2014. The Computerisation of European Jobs, Bruegel.