MPIfG Working Paper 97/8, November 1997
Balancing Positive and Negative Integration: The Regulatory Options for
by Fritz W. Scharpf
Fritz W. Scharpf is director at the Max Planck Institute for the Study of Societies, Cologne
(To appear as a Policy Paper of the Robert Schuman
Centre of the European University Institute, Florence. The text is based on the
concluding chapter of a book-length study of multi-level policy making in Europe,
also to be published by the Robert Schuman Centre.)
1Integration and the Loss of Problem-Solving Capacity
During the golden years from the 1950s to the mid-1970s,
the industrial nations of Western Europe had the chance to develop specifically
national versions of the capitalist welfare state - and their choices were in
fact remarkably different (Esping-Andersen 1990). In spite of the considerable
differences between the "Social-Democratic", "Corporatist"
or "Liberal" versions, however, all were remarkably successful in
maintaining full employment and promoting economic growth, while also
controlling, in different ways and to different degrees, the destructive
tendencies of unfettered capitalism in the interest of specific social, cultural,
and/or ecological values (Scharpf 1991a; Merkel 1993). It was not fully realized
at the time, however, how much the success of market-correcting policies did in
fact depend on the capacity of the territorial state to control its economic
boundaries. Once this capacity is lost, countries are forced into a competition
for locational advantage which has all the characteristics of a Prisoner's
Dilemma game (Sinn 1994). It reduces the freedom of national governments and
unions to raise the regulatory and wage costs of national firms above the level
prevailing in competing locations. Moreover, and if nothing else changes, the
"competition of regulatory systems" that is generally welcomed by
neoliberal economists (Streit/Mussler 1995) and politicians may well turn into a
downward spiral of competitive deregulation and tax cuts in which all competing
countries will find themselves reduced to a level of protection that is in fact
lower than that preferred by any of them.
While economic competition has increased globally,
the member states of the European Union also find themselves subjected to a
wider range of legal constraints that are more effectively enforced than
is true under the worldwide regime of the GATT and the WTO. These requirements
of "negative integration" are derived from the commitment, contained
in the original Treaties and reinforced by the Single European Act, to the free
movement of goods, services, capital and workers, and to undistorted competition
throughout the Community. In the abstract, the basic commitment to create a
"Common Market" was certainly shared by the governments that were
parties to the Treaties and by the national parliaments that ratified these
agreements. What may not have been clearly envisaged were the doctrines of
direct effect and supremacy of European law that were established early on
through decisions of the European Court of Justice. Once these doctrines were
accepted, the Commission and the Court of Justice had the opportunity to
continuously expand the scope of negative integration without involving the
Council of Ministers. As a consequence, national policy makers now find
themselves severely constrained in the choice of policy instruments as they try
to cope with rising levels of mass unemployment and other manifestations of a
deepening crisis of the European welfare state.
At the same time, there is now a deep skepticism regarding
the original hopes, in particular on the part of unions and the parties
associated with them, that regulatory capacities lost at the national level
could be re-established through "positive integration" at the European
level. While negative integration was advanced, as it were, behind the back of
political processes by the Commission and the Court, measures of positive
integration have always required the explicit agreement of national governments
in the Council of Ministers. As long as the Luxembourg Compromise still applied,
the price of unanimity was an extremely cumbersome decision process. The Single
European Act of 1986 was supposed to change this by returning, for harmonization
decisions "which have as their object the establishment and functioning of
the internal market" (Art. 100A), to qualified-majority voting in the
Council. However, rules are adjusted in such a way that the opposition of even
small groups of countries united by common interests can rarely be overruled.
In any case, the veto remains available as a last resort even to individual
countries, and the unanimity rule still continues to apply to a wide range of
Council decisions. Thus, the need for consensus remains very high for measures
of positive integration, and when national interests are in serious conflict,
Europe is unable to act at all.
Such conflicts are likely to arise from differences among
member states in the levels of economic development 3/4 and hence differences in
the average productivity of firms and in the ability to pay of consumers. They
will also arise from differences in institutional structures, and hence
differences in the cost of adjustment if one of the other national models were
chosen for uniform European solutions. In addition, there are also ideological
differences among governments, regarding either the division between the market
and state functions, or the division between national and European policy
responsibilities. In short, agreement is difficult to reach, and disagreement
and hence policy blockage quite likely when positive integration is attempted (Scharpf
As a result, national problem-solving capacities are
reduced by the dual constraints of more intense economic competition and by the
legal force of negative integration, while European action is constrained and
often blocked by conflicts of interests under decision rules imposing very high
consensus requirements. There is a real danger, therefore, that in the face of
rising levels of crisis the manifest helplessness of governments at the national
and at the European level will undermine the legitimacy of democratic government
as it had done in some countries in the Great Depression of then 1930s.
2European Support for National Solutions?
There is thus every reason to search for options at both
levels that could increase problem-solving effectiveness even under conditions
of international competition and high consensus requirements. This paper will
focus on the latter possibility. I am convinced, however, that the main burden
must be carried by national governments which, even though constrained by the
legal prohibitions of negative integration in Europe and by the economic
pressures of regulatory and tax competition in the integrated market, are by no
means helpless. As I have shown elsewhere, national solutions do exist in
the critical fields of employment, social policy, and taxation that are more
robust to the challenges of economic integration and systems competition than is
true of present policy patterns (Scharpf 1997). It is also true, however, that
many of these solutions would require far-reaching and deep-cutting policy
changes and institutional reforms on a scale that can only be compared to those
brought about by the Conservative government in Britain. But 18 years of
single-party rule are hard to imagine in other European countries - in many of
which, moreover, multi-party government coalitions, federalism, corporatism,
judicial review and central-bank independence create many more 'veto points' in
the political process than is true in Britain (Tsebelis 1995). Hence, even if
national solutions are available in principle, it is unlikely that they could be
speedily adopted and implemented everywhere.
In any case, high and rising levels of mass unemployment,
tightening fiscal constraints and the growing pressure of political
dissatisfaction and, in some countries, political radicalization, are not
generally conducive to the longer-term perspective required by institutional
reforms of a fundamental nature. Moreover, even if national policy makers were
not incapacitated by internal conflicts and the myopia of crisis politics, they
would still be struggling, as it were, with one arm tied behind their backs by
the legal constraints of European competition policy and regulatory competition
against other member states - both of which tend to create enormous comparative
advantage in domestic politics for political parties and interests favoring the
dismantling, rather than the reconstruction, of welfare state institutions. Thus,
if it is considered important that the social achievements of the postwar
decades should be defended under the conditions of globalized markets and
European economic integration, then there is reason to search for solutions at
the European level that can facilitate and support national efforts, and that
can be adopted even under decision rules requiring near-unanimous agreement.
The Treaty of Amsterdam has done little to increase the
general capacity for 'positive integration' and effective European problem
solving in the face of unresolved conflicts of interest or of ideology among
member governments. The President of the Commission, it is true, will be
strengthened by having a voice in the appointment of Commissioners, and the
European Parliament is strengthened by a considerable expansion of the items on
which it has an effective veto under the co-decision procedure. But no agreement
has been achieved with regard to voting rules in the Council of Ministers -
instead, even countries like Germany and France, which in the past have promoted
majoritarian decision rules, now seem to have been more concerned about the risk
of being outvoted in an enlarged Community.
Nevertheless, the Amsterdam Summit produced some
compromises that represent moves in the right direction - forward on employment
policy and backward (or more cautiously forward) on negative integration. After
considering the possible implications of these agreements, I will then turn to
European options not discussed, or not accepted, at Amsterdam - which, however,
should be sufficiently compatible with the interests of national governments to
make further consideration worthwhile.
3Coordinated National Action on Employment?
The Amsterdam agreements on employment have generally been
criticized as compromises on the level of the lowest common denominator, or as
exercises in symbolic politics (Wolter/ Hasse 1997). They may in fact turn out
to be just that, and they have certainly disappointed those among their
promoters who had hoped for a commitment to Keynesian full employment policies,
pursued through Community programs initiating large-scale infrastructure
investments. But what was agreed upon may in fact have more positive
implications than a return to the deficit-spending philosophy of the 1970s could
A 'New Title on Employment' will now be included in the
Treaty of the European Communities. Its Article 1 commits the member states to 'work
towards developing a coordinated strategy for employment'; Article 2 defines 'promoting
employment as a matter of common concern', and Article 4 requires each member
state to provide the Council and the Commission with an 'annual report on the
principal measures taken to implement its employment policy' - on the basis of
which the Council may 'make recommendations to Member States'. Moreover, the
Council will establish an 'Employment Committee' that is to 'monitor the
employment situation and employment policies' in the member states and to
formulate opinions in preparation of Council proceedings. Taken together, these
provisions hold three important promises.
First, by declaring national employment policies a matter
of common concern of all member states, and by creating the organizational and
procedural conditions for monitoring and evaluation, the Amsterdam Treaty may,
for the first time, provide some safeguards against the temptation of all
countries to protect domestic jobs through 'beggar-my-neighbor' policies,
competitive deregulation and tax cuts. In the past, certainly, European
governments have observed and responded to each others' moves: Just as Britain
had deregulated labor markets, the Netherlands extended the limits on temporary
employment, and Germany eliminated employment security in firms with ten or
fewer employees. Similarly, just as France chose to reduce employers'
contributions to social insurance, Germany and Sweden cut sick pay, and Germany
is now lowering pension levels and requiring patients to bear part of their
health care expenses in order to reduce non-wage labor costs. If others then
respond again, all players in the European competitiveness game may find
themselves at lower levels of social protection without having improved their
relative position. While I am not suggesting that all of these competitive
stratagems should have been prevented, it nevertheless could have been very
useful to have them examined internationally.
Second, the commitment to compare and evaluate national
policies with a view to share information about 'best practices', and to promote
'innovative approaches' (Article 5) creates conditions that are conducive to the
joint discussion of structures and causes of employment problems, and to the
joint exploration of employment policy options at the national level. Since
these discussions in the reconstituted 'Employment Committee' of the Council
will be more detached from immediate political pressures and acute crises than
is true of national politics, there is a hope that innovative solutions to
common problems could be worked out that would not have been found in the
rough-and-tumble of competitive party politics dominating national policy
processes. Given an active role of the Commission, and opportunities for 'deliberative'
interactions in a permanent committee of senior civil servants, there is at
least a chance that an understanding of the causes of the 'European employment
gap', and of potentially effective employment strategies, could emerge that will
go beyond the ubiquitous recipes of the OECD Jobs Study (1994) for labor market
deregulation, public-sector retrenchment, and the reduction of social benefits.
Last, but by no means least, the explicit postulation of
an employment goal, coequal with the fundamental commitment to the four freedoms
of the internal market, may have beneficial effects against the dominance of
neo-liberal interpretations of what European integration is about in the
practice of the Commission and in the decisions of the European Court of Justice.
At any rate, it will now be harder to argue that, as a matter of positive law,
the Community should be strictly limited to achieving, and protecting, the 'four
freedoms' and undistorted market competition (Mestmäcker 1987; 1994). In this
regard, it may also help that the Treaty now incorporates the full set of
fundamental rights guaranteed by the 1950 European Convention for the Protection
of Human Rights and Fundamental Freedoms as well as a more explicit commitment
to 'a high level of protection and improvement of the quality of the
environment'. What is to be hoped for, in other words, is a reconsideration of
the legal scope of negative integration in the light of social and political
goals other than the maximization of market competition.
4Limits on Negative Integration
As a matter of fact, Amsterdam has taken some very
explicit steps in that direction, and there have also been Council directives
and decisions of the European Court of Justice which have had the effect of
limiting the reach of negative integration in order to protect national
solutions that could otherwise be challenged as violating the prohibition of
non-tariff barriers to trade, as interfering with the free movement of services,
or as competition-distorting state aids or regulations.
At the Amsterdam Summit itself, some sort of agreement was
reached on three issues arising from the extension of European competition law
into service areas 'affected with a public interest'. The first, and potentially
most far-reaching, will include a new Article 7d in the Treaty whose delicately
diplomatic formulations are worth being quoted in full:
Without prejudice to Articles 77,
90 and 92, and given the place occupied by services of general economic interest
in the shared values of the Union as well as their role in promoting social and
territorial cohesion, the Community and the Member States, each within their
respective powers and within the scope of application of this Treaty, shall take
care that such services operate on the basis of principles and conditions which
enable them to fulfill their missions.
On its face, this clause, that had long been promoted by
public-service associations (Villeneuve 1997) and the French government, seems
to lack any operative content - which may be due to political disagreement among
member governments over the legitimate scope of a service-public
exemption from European competition law. But even if the Council had been of one
mind, it would have been difficult to constrain the scope of negative
integration in a general way. Since the Commission and the Court had extended
that scope in a case-by-case process of individual decisions, each of which was
accepted and implemented as the law of the land by the governments immediately
affected, the Council could neither enact a wholesale reversal of past decisions
nor could it formulate a clear-cut rule that would satisfy, for an unknown
variety of future cases, the equally legitimate interests in reducing economic
protectionism and in protecting the substantive 'missions' of various service-public
institutions. Since the relative importance of these potentially conflicting
concerns must be determined with a view to the specific circumstances of
concrete cases, the Council could only signal to the Commission, the Court
and the legal profession that - in light of the 'shared values of the Union' -
more weight ought to be given to the purposes served by public service missions.
Whether that signal will be respected or ignored is largely beyond the Council's
The Amsterdam Summit sent a similar signal by its 'Protocol
to the TEC' regarding public service broadcasting which, rather than amending
the text of the Treaty, reminds Commission and Court that 'the system of public
broadcasting in the Member States is directly related to the democratic, social
and cultural needs of each society', and then goes on to formulate 'interpretative
provisions' according to which the Treaty does not rule out the funding of
public service broadcasting. Again, however, the assertion is qualified by the
proviso 'that such funding does not affect trading conditions and competition in
the Community to an extent which would be contrary to the common interest...'
The same is true in the third instance of a 'Declaration
to the Final Act' in which the Intergovernmental Conference notes that 'the
Community's existing competition rules' are not violated by the existence of,
and the facilities granted to, public credit institutions in Germany - an
assertion which once more is followed by the qualification that such 'facilities
may not adversely affect the conditions of competition to an extent beyond that
required' by the infrastructure functions of these institutions. In other words,
the Commission and the Court will retain their role in balancing competing
principles in specific cases, but they have now been alerted to the importance
of some of the countervailing values to be considered. That effect should not be
underestimated - but it is far removed from a reassertion of direct 'intergovernmental'
control over the functions delegated to the Commission and the Court of Justice.
In the field of negative integration, these 'agents' will continue to play their
'supranational' roles (Garrett 1995; Mattli/ Slaughter 1995), but they do so in
the context of a political discourse with governments and the Council over the
proper performance of that role.
In areas where hard and fast rules can be defined, it is
of course possible to limit the impact of negative integration more directly
through the adoption of Council directives - provided that the Commission is
willing to take the initiative, and that the directive is not blocked by
conflicts of interest among member governments within the Council itself. An
example is the 'posted workers directive' (96/71/EC) adopted after many years of
negotiations in December 1996. It deals with a paradoxical problem of labor
mobility that could only arise after the Single-Market program had also
effectuated the guarantees of free movement for services. Whereas the free
movement of workers had previously given rise to numerous directives and court
decisions to assure that foreign workers would receive the wages and social
rights available to national workers (Ireland 1995; Tsoukalis 1997, ch. 6), the
new freedom of cross-border service provision was now to be realized under the
ground rules of 'mutual recognition' - meaning that service firms could operate
anywhere in the Community under the regulations of their home country. The
logical implication was that firms (and even individual workers operating as
independent contractors) could provide services abroad while applying the wage
rates and social insurance rules of their country of origin - conditions that
were particularly attractive to firms located in Portugal, Britain and Ireland,
and that had particularly damaging effects on the construction industries in
high-wage countries such as Germany, France or Austria.
The solution finally arrived at was a Council directive
that, essentially, allows countries of destination to require all firms
operating on their territory to pay at least the minimum wages generally
applicable at the place of work. The directive has the effect of suspending some
of the legal consequences of service liberalization - provided that the country
affected is interested in, and domestically capable of,
taking advantage of that option. In that sense, its logic is similar to that of
the 'safeguard clause' in Art. XIX of the GATT that allows countries to defend
themselves against sectoral crises caused by free trade - an option that is not
generally available to the member states of the European Community.
4.2Court and Commission
Finally, a number of cases have shown that either the
Commission or the European Court of Justice are beginning to limit the reach of
negative integration and of European competition law, especially in the service
public areas. In fact, the Amsterdam 'Declaration' on the status of German
public banks did merely take note of 'the Commission's opinion to the effect
that the Community's existing competition rules allow services of general
economic interest provided by public credit institutions existing in Germany'.
In other words, the Commission itself had refused to intervene against the
distortion of competition that allegedly follows from the fact that the
operation of these public banks is secured by assets of the local and regional
governments that own and use them for industrial policy purposes. Similarly, the
Amsterdam 'Protocol' on Public Service Broadcasting was adopted at a time when
the Commission had not yet taken action against publicly financed networks that
were also allowed to compete with their private counterparts for advertising
revenue. In both instances, therefore, the Commission itself had proceeded with
caution, rather than extending competition rules to their logical conclusion,
and in that sense, the Amsterdam declarations and protocols were not doing much
more than to express approval and political support for the existing practice of
Since the Commission remains a political actor, even if
its accountability is weakly institutionalized, it is perhaps to be expected
that it will hesitate to apply the syllogisms of competition law regardless of
the political salience of countervailing concerns. But to the great surprise of
the legal profession (Reich 1994), the Court itself also seems to have done just
that in the famous Keck decision
that refused to intervene, on the basis of the Cassis doctrine, against
national rules regulating the marketing of products, rather than product quality.
Similarly, after foreign carriers had gained the right of free cabotage through
the liberalization of road haulage, the Court quite unexpectedly allowed the
continuation of compulsory national tariffs, provided that they applied to
foreign and domestic firms alike.
Finally, and most importantly in the present context, the Court also accepted
the possibility that the granting of monopoly rights to the postal service and
to regional suppliers of electricity (with the consequence of excluding
competitors from commercially profitable services) might be acceptable if
justified by a need to cross-subsidize unprofitable services in rural areas.
In other words, the Court itself had begun to strike a balance between the goals
of competition law and the purposes served by national service-public
arrangements (Gerber 1994), well before the Amsterdam Summit explicitly
requested it to do just that.
There is reason to think, therefore, that with the
completion of the Internal-Market program and its extension into core areas of
existing (and highly diverse) service-public solutions of nation states,
political sensitivity to the risks associated with the single-minded
maximization of free market competition has increased, not only among member
governments but also in the Commission. At the same time, the European Court of
Justice has also begun to develop conceptual instruments that allow it to
consider the relative weight that should be accorded, in light of the specific
circumstances of the individual case, to the competing concerns of undistorted
competition on the one hand, and the distributive, cultural or political goals
allegedly served by, say, postal monopolies, subsidized theaters, or public
television on the other hand.
It is true that the Court's 'balancing test' has not yet
produced explicit criteria that would provide clear guidelines to lower-court
judges (Hancher 1995) or national policy makers and the Commission, for that
matter (Maduro 1997). For the time being, however, that may be just as well. The
'creative ambiguity' created by the Court's dicta and the Amsterdam resolutions
is likely to sensitize the zealots of undistorted competition in DG IV and
elsewhere to the opportunity costs of their pursuit of legal syllogisms; at the
same time, however, the ambiguity of the new rules may still appear sufficiently
threatening to the protectionist proclivities of national policy makers to
encourage the search for solutions that will achieve national purposes without
doing so at the expense of their neighbors. In other words, what one might hope
for are approximations of what I described in an earlier article as the bi-polar
criteria of 'community and autonomy' (Scharpf 1994; see also, Joerges 1996;
Joerges/ Neyer 1997). Under present conditions, it is suggested, European
integration can only proceed under rules of 'federal comity', where European
policy of negative as well as positive integration must respect the need for
autonomous solutions at the national level that reflect idiosyncratic
preferences, perceptions, policy traditions and institutions. At the same time,
however, national actors must respect the fact that they are members of a
community of nation states that must take each others' interests, and the
commitment to a common venture, into account when arriving at their autonomous
solutions. If these complementary commitments are translated into law, the
appropriate instrument can only be a balancing test whose specific implications
must unfold through the case-law logic of inductive generalization from one
well-considered precedent to another (Holmes 1881).
My conclusion is, therefore, that the dangers arising from
the direct (legal) effect of negative integration on national problem solving
capacities are now better understood and less likely to get out of hand than
could have been expected a few years ago. That, however, does not reduce the
indirect (economic) effect of increased transnational mobility and competition
on the regulatory and taxing capacities of the nation state. Elsewhere (Scharpf
1997) I have discussed national policy options that might be more robust against
the economic pressures of regulatory competition than existing solutions. But
these will only go so far, and the interest in positive European integration
remains alive among those groups and political parties that in the past have
benefited from state intervention in the capitalist economy.
In the remaining sections, I will therefore discuss
strategies that might increase the European contribution to problem-solving in
ways that are less likely to founder on conflicts of interest or ideology among
national governments in the Council. Among these, 'package deals' and 'side
payments' in the form of EC structural and 'cohesion' funds have in the past
played a considerable role in obtaining the agreement of governments that would
otherwise oppose certain measures (Haas 1980; Kapteyn 1991). Under the present
fiscal constraints of the EU and its member states, however, these opportunities
appear to be more limited, and they will be even less available under the likely
conditions of Eastern enlargement. I will not discuss them further here. Instead,
I will explore the potential of varieties of 'differentiated integration' for
facilitating European action in policy areas of high problem-solving salience
and divergent national interests.
At least since Willy Brandt's suggestion of a two-tier or
two-speed Community was taken up in the Tindemans Report (1975), the idea that
positive integration could be advanced by some form of differentiation among the
member states has been on the agenda of the European Community. But the notion
of what criterion should be decisive for assignment to the metaphoric upper or
lower echelon, to the vanguard or the rearguard, or to the core and the
periphery of European integration was always oscillating between an emphasis on
the political willingness of countries to renounce national sovereignty
and to commit themselves to closer integration on the one hand, and an emphasis
on the economic capacity of countries to cope with more intense
competition or to meet more demanding standards of performance (Grabitz 1984;
Since these conflicting perspectives were never resolved
one way or another, the notion of differentiated integration retained its
connotation of second-class citizenship, even after 'opting out' from common
European commitments had achieved a degree respectability from the British and
Danish precedents. At any rate, the results of the Intergovernmental Conference
leading up to the Amsterdam Summit, which had 'closer cooperation' and 'flexibility'
as one of the major items on its agenda, turned out to be very disappointing.
With regard to matters within the domain of the European Community (as
distinguished from the second and third 'pillars' of the European Union), closer
cooperation among members states is now possible within the institutions,
procedures and mechanisms of the Treaty, but its potential range is closely
circumscribed by the requirements that cooperation
must always include at least a majority of member
states, and that any other member state may later join on application to the
Commission; that it
must be authorized by a qualified majority in the
Council, and even then can be vetoed by a single government; that it
must not affect Community policies, actions or
programs; and that
it must not constitute a restriction of trade or
distortion of competition between member states.
If these conditions are to be respected, closer
cooperation will not provide new opportunities for positive integration in
policy areas where European solutions are presently blocked by fundamental
conflicts among member governments. There are three types of such conflicts that
may involve either:
ideological disagreement over the proper role of the
state vis-à-vis the economy, and the proper role of the European Union vis-à-vis
the nation state; or
fundamental conflicts of economic self-interest
arising from very large differences in the level of economic development as
well as from structural differences in the ability to profit from
unrestrained competition; and
disagreement over the content of common European
policies arising from fundamental differences in existing institutional
structures and policy patterns at the national level.
In the past, these conflicts have impeded or blocked
European solutions in a number of critical policy areas where national solutions
are impeded or blocked by negative integration and the economic pressures of
regulatory competition. These policy areas include
environmental process regulations that significantly
increase the cost of production of products which are exposed to
industrial-relations regulations that are perceived as
interfering with managerial prerogatives or as reducing the flexibility of
social-policy regulations that are perceived as
raising the cost of production or increasing the reservation wages of
the taxation of mobile factors of production, of
capital incomes, and of the incomes of internationally mobile professionals.
It is not obvious that any of these issues could be dealt
with more effectively under the rules and procedures of closer cooperation and
flexibility as they were adopted at Amsterdam. In the sections following below,
I will instead discuss a number of strategic approaches that could allow
progress to be achieved on these conflict-prone issues even within the present
institutional structures and procedures of the Community. I will begin with the
possibility of adopting non-uniform standards for environmental process
5.1Regulations at Two Levels?
Highly industrialized countries are generally affected by
higher levels of environmental pollution (and contribute more to global
pollution) than less developed countries. At the same time, the higher
productivity of their firms, and the greater ability to pay of their consumers
or taxpayers, allow the advanced countries to adopt stringent emission standards.
However, if these same standards were also applied in less developed countries,
they would either destroy the competitiveness of their firms or overtax the
ability to pay of consumers and taxpayers. As a consequence, agreement on
regulations at high levels of protection is difficult or impossible to obtain,
and the European record in the field of environmental process regulations is
spotty at best (Golub 1996a; 1996b; 1997).
But why should that matter if countries with more serious
pollution problems and a preference for more stringent regulations remain free
to adopt the standards that are appropriate to their conditions? Since their
higher costs are compensated by higher productivity, the threat of competition
from less productive economies with lower levels of pollution control should
not, in principle, deter them from doing so. What matters very much, however, is
the regulatory competition among countries producing at roughly the same level
of average productivity. Even if the result is not a 'race to the bottom', the
loss of international competitiveness has become a practically unbeatable 'killer
argument' against all proposals to raise the level of environmental process
regulations, or of 'green' taxes, by unilateral action at the national level.
The impasse might be avoided, however, by a specific
variant of the idea of a 'two-tier Europe' which would allow the adoption of
European regulations defining different levels of protection, rather than a
single, uniform emission standard for all member states. As far as I know, this
possibility has not been specifically considered in the Intergovernmental
Conference. Nevertheless, its underlying logic is by no means alien to the
universe of European policy options which, typically in negotiations over the
entry of new members, include a considerable variety of techniques for softening
or postponing the impact of the full acquis communautaire on countries
that would face specific difficulties in adjusting.
Moreover, articles authorizing Community action may include specific 'safeguard
clauses' allowing temporary exemptions for states that are not yet ready to
shoulder the full load. A specific example is provided by Article 130s, V TEC,
which allows for temporary derogations and/or financial support from the
cohesion funds if environmental policy measures should involve 'costs deemed
disproportionate for the public authorities of a member state'.
However, all of these techniques maintain a pretense of
universality, and they are narrowly constrained by the need to show that the
differences allowed are temporary. As a consequence, countries that could not
economically afford high levels of protection must try either to block European
action, or to soften the impact of European regulations in the process of
implementation. The price of imposing uniform rules on non-uniform economic
constellations is then paid in terms of non-uniform patterns of implementation
that are very difficult to control and which, if not controlled, are likely to
erode the willingness to enforce, or to obey, European rules in other countries
as well. This could be changed by an explicit and general acknowledgment of the
differences in the state of economic development and average productivity among
the member states of the Community, and of the fact that these also imply
differences in the ability to absorb the cost of regulations affecting
Once that premise is accepted, the solution seems obvious:
In order to facilitate the adoption of higher standards, and to eliminate the
temptations of competitive deregulation,
there is a need for the harmonization of process-related regulations at the
European level - but not necessarily for a single, uniform standard. Instead,
there could be two standards, offering different levels of protection at
different levels of cost. Countries
above a specified level of economic development could then adopt the high
standards corresponding to their own needs and preferences. At the same time,
less developed countries could also establish common standards at lower levels
of protection and cost that would
still immunize them against the dangers of ruinous competition within that group.
If that possibility did exist, one could expect that
agreement on two-level standards would be more easily obtained than agreement on
uniform European regulations, which would have to be applied equally by all
member states. As a consequence, European environmental policy could assume a
more active role than seems presently possible. Conversely, if the Eastern
enlargement of the Union is taken into view at all, progress in European
regulations of production processes would come to a stand-still unless
differentiated standards will allow the less developed countries to survive
5.2A Floor under Welfare
Conceivably, the logic of differentiation may also help to
overcome, or at least reduce, some of the difficulties created by regulatory
competition in the social policy field. The harmonization of European welfare
states is extremely difficult as a consequence of the structural and
institutional heterogeneity of existing national solutions. Under these
conditions, any attempt at European harmonization would require fundamental
structural and institutional changes in most of the existing national systems,
and we should expect fierce conflicts over which of the institutional models
should be adopted at the European level. In the countries that lose out in this
battle, it would be necessary to dismantle, or to fundamentally reorganize,
large and powerful organizations from which hundreds of thousands of employees
derive their livelihood and on whose services and transfer payments large parts
of the electorate have come to depend. In short, the political difficulties of
harmonizing the institutional structures of mature welfare states would be so
overwhelming that it is perfectly obvious why nobody, neither governments nor
opposition parties, neither employers associations nor trade unions, are
presently demanding that the harmonization of social policy be put high on the
European agenda. But does that also rule out a positive European role in the
reorganization of existing welfare systems which is presently on all national
There are indeed options for a reorganization of European
welfare states that could reduce mass unemployment and maintain aspirations to
distributive justice even under conditions of an internationalized economy,
including, for example, the reorganization of rules covering the sheltered
sectors of European economies to price low and unskilled labour into work, and
the adoption of a negative income tax to offset the consequent loss of income by
such workers. But these solutions are difficult to design and to adopt (Scharpf
1997). Under the pressures of regulatory competition and acute fiscal crises,
chances are that the changes which are in fact adopted will amount to nothing
more than a piecemeal dismantling of existing social benefits. As all countries
are now competing to attract or retain investment capital and producing firms,
all are trying to reduce the regulatory and tax burdens on capital and firms (S.
Sinn 1993; H.-W. Sinn 1994), and all are then tempted to reduce the claims of
those groups - the young, the sick, the unemployed and the old - that most
depend on public services and welfare transfers.
But in the light of what was said immediately above, how
could European decisions make a difference here? If there is any reason for
optimism at all, it arises from the observation that, regardless of how much
they differ in the patterns of social spending and in their welfare-state
institutions, the member states of the European Union are remarkably alike in
their revealed preferences for total social spending (measured as a share
of GDP). By and large, the richer member states (measured by GDP per capita)
have proportionately larger public social expenditures than less rich countries.
This is by no means a trivial observation, since it does not hold true for the
total set of industrialized OECD countries, for which there is practically no
correlation between wealth and welfare spending (Figure 1).
The correlation is much stronger, however, if analysis is
restricted to the present members of EU 15, and it becomes very high if the
analysis (based on the latest available 1994 and 1993 OECD data) is limited to
the member states of EU 12 (thus eliminating the upper outliers Sweden and
Finland which, at that time, were facing very special problems; Figure 2). By
and large, the richer European countries commit proportionately larger shares of
their GDP to welfare expenditures than do poorer countries. Thus, if we leave
aside Sweden and Finland, past patterns of overall social spending are almost
completely explained by differences in the ability to pay.
These figures suggest the existence of a latent consensus
among the member states of the Union according to which, regardless of
structural and institutional differences, the welfare state should increase in
relative importance as countries become more affluent. Beyond that, the figures
also suggest the possibility that the latent consensus might be transformed into
an explicit agreement among European governments. All countries would then avoid
welfare cutbacks that would push their total welfare expenditures below a lower
threshold which might be defined at, or slightly below, a line connecting the
locations of Portugal and Luxembourg, i.e., the lower outliers in Figure 2. If
such a rule were in force now, in other words, it would limit the extent to
which countries could reduce overall expenditures on social transfers and
services, but it would leave them free to pursue whatever structural or
institutional reforms they consider necessary above that purely quantitative
threshold.  Such an agreement would
eliminate the danger (or the promise) of 'competitive welfare dismantling' from
the mutual perceptions of European countries, and hence from the range of
options that could be considered in debates over welfare reforms at the national
level; and it could thus help to liberate national policy choices from the
tyranny of regulatory competition.
By itself, however, agreement on a lower threshold of
welfare spending would be merely a holding operation that could buy time for the
inevitable structural transformation of European welfare states. These
transformations will have to be performed at the national level, but they could
benefit in various ways from coordination at the European level. These benefits
are, perhaps, more obvious for social policy transfers and services provided by
the state than they are for industrial relations at the level of the firm and
the industry. In fact, however, they are important in either sector of the
European welfare state.
Even if welfare-state reforms must be adopted at the
national level, it is important for the future of social policy in Europe that
the present institutional heterogeneity among national social-policy systems be
reduced. But if institutional heterogeneity presently precludes social-policy
coordination, is there any reason to think that it would not also rule out
convergent institutional reforms? That would indeed be likely if convergence
were to be attempted as a one-step process. The institutional status-quo
positions seem too far apart to make negotiated agreement on common solutions a
practical proposition. But it might nevertheless be possible to proceed in two
steps. At the first stage, one might attempt to reach agreement 'in principle'
on the future contours of European welfare systems that would be able to assure
high levels of employment together with social protection against the risks of
involuntary unemployment, sickness and poverty, under conditions of demographic
change, changing family structures, changing employment patterns, and
intensified economic competition. In fact, as contributions to the OECD
High-Level Conference 'Beyond 2000: The New Social Policy Agenda' have shown,
these contours are already visible. Proposals from quite diverse quarters seem
to converge on a combination of employment-intensive forms of tax-financed basic
income support with health insurance systems and (funded) pension schemes that
will be financed through individual contributions, part of which will be
mandated by law, and subsidized for low income groups (Bovenberg/ van der Linden
1997; Esping-Andersen 1997; Haveman 1997). In fact, proposals of this nature,
even if they represent radical departures from the status quo, seem to be
surprisingly uncontroversial - provided that discussion focuses on the abstract
desirability and effectiveness of solutions within a longer-term perspective
The difficulties of agreement would, of course, be
immensely greater if it came to the second step of designing ways for getting
from here to there - from the divergent status-quo conditions and political
constraints of individual countries to a functionally superior and more
convergent model of the future European welfare state (Esping-Andersen 1996).
But here, the Community might take advantage of the fact that structural and
institutional heterogeneity, while extremely great across all member states, is
not universal. As Harold Wilensky, Peter Flora, G°sta Esping-Andersen and
others have shown, European welfare states can be grouped into institutional 'families'
that share specific historical roots, basic value orientations, solution
concepts and administrative practices, and whose path-dependent evolution has
required them to cope with similar difficulties in comparable ways.
Without going into any more detail here, within the present European Union it is
possible to identify at least four such 'families':
Scandinavian welfare states, which are mainly financed
from general tax revenue and which emphasize generous income replacement
together with universally available and high quality public services,
including public health care;
Continental systems with relatively generous,
income-maintaining social transfers and health care financed primarily from
employment-based social insurance contributions, and with a relatively low
commitment to social services;
Southern systems which represent less comprehensive
and less generous versions of the Continental model;
and the British-Irish system which emphasizes
egalitarian and tax-financed basic pensions, unemployment benefits and
health services, while leaving other forms of income replacement and
services to private initiative and the family.
These groupings are certainly not clearly separated from
each other. The Netherlands, for instance, combines elements of the Continental
and the Scandinavian models, and while Italy corresponds most to the Continental
model, its health care system was reformed along British lines in the 1970s, and
it also shares some of the characteristics of the Southern model (Alber/
Bernardi-Schenkluhn 1991). Nevertheless, there is reason to think that among the
present members of the Union, there are relatively distinct groups of countries
that share important aspects of their welfare state structures and institutions,
that are likely to face similar problems, and that will therefore benefit not
only from examining each others' experiences, but also from coordinating their
reform strategies. If these discussions are managed and monitored by the
Commission, it should at least be possible to initiate moves towards greater
institutional convergence over the longer term.
Coordinated approaches would be equally valuable for the
reform of industrial relations systems, where institutional differences seem to
be even more important than in public or state-sponsored social policy areas (Crouch
1993). At present, pressures for reform are felt most acutely in Scandinavian
and Continental systems characterized by corporatist arrangements at the
sectoral and national level and co-determination at the level of the firm. Since
they are most highly institutionalized, they are seen to suffer from severe
competitive disadvantages in comparison to the flexibility of purely
market-driven Anglo-American systems. Nevertheless, corporatism and cooperative
industrial relations have in the past benefited considerably from their capacity
to control wage inflation and to raise industrial productivity (Scharpf 1991;
Streeck 1992). These advantages are likely to be undermined as each country
responds individually to present pressures for labor-market flexibility and
unfettered managerial prerogatives (Streeck 1995; 1997a).
Given the institutional heterogeneity of national systems,
there is certainly no chance for creating a universal European industrial
relations regime that would institutionalize sectoral corporatism in all member
states or co-determination in the corporate structures of the Societas
Europea (Streeck 1997). Yet it seems obvious that if reforms could be
coordinated among the group of corporatist countries,
there would be a much better chance of defining and adopting path-dependent
institutional changes that would increase flexibility while still preserving the
advantages cooperative corporatism has enjoyed in the past.
There is reason to think, however, that a still heavier
burden of adjustment must be faced by European industrial relations systems that
are neither corporatist nor purely market driven. They seem to be at a
competitive disadvantage compared to both countries with more flexible labor
markets and countries with more disciplined and cooperative unions, and they
probably will need to move one way or another, toward the Austrian or the
British model, in order to increase their competitiveness and their
attractiveness to internationally mobile capital investments. Again, it seems
likely that the need for adjustment and the options available could be clarified,
and the adoption of reforms facilitated, by coordinated approaches among
countries that find themselves confronted with similar problems.
6Needed: Opportunities for Sub-European Coordination
If the Amsterdam decisions on 'closer cooperation and
flexibility' had allowed for the formation of groupings that comprise less than
half of all member states, it might have been most promising to use the
institutional infrastructure of the Community, and especially the analytical and
coordinative services of the Commission, to assist the development of
social-policy and industrial-relations reforms which are suited to the specific
conditions of groups of countries and which, at the same time, would represent
convergent moves toward the common longer-term perspective of European welfare
states. That would have been a most effective arrangement for counteracting any
tendencies toward 'competitive welfare dismantling'. Moreover, and even more
important, in the domestic politics of each of the participating countries, the
reform of existing welfare systems could have benefited, in the face of
ubiquitous opposition, from the legitimacy bonus of internationally coordinated
solutions, and perhaps even from the legal force of EC directives.
At present, however, the institutional infrastructure that
would most facilitate coordination is not in place. The heterogeneity of
existing national structures and institutions, and of the specific problems they
must face, is far too great to allow the development of uniform reform
strategies; at the same time, purely national reform efforts are
operating under constraints of international regulatory competition that are
likely to allow only suboptimal solutions to be adopted by unilateral reform.
Under these conditions, it is nevertheless important to point out that
coordinated reform strategies among countries that share critical institutional
preconditions are more promising, in principle, than unilateral coping
strategies at the national level.
There is a need, therefore, for institutional arrangements
that allow countries sharing similar problems to coordinate their reform
strategies. Conceivably, some of these benefits could be achieved through
Schengen-type arrangements outside of the institutional framework of the
Community - but that would not only lose the organizational support of the
Commission, it would also presuppose a greater degree of prior consensus among
the participating governments than could be expected before the beginning of the
analytical and conceptual work that must be done to identify common solutions.
But perhaps, as was true of Schengen as well, if 'closer cooperation' is
initiated by some countries outside of the Community framework, then perhaps the
next Intergovernmental Conference will again find a way of incorporating such
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1 Conversely, of course, even
large majorities cannot have their way. It is important to realize, in other
words, that the qualified majority and unanimity rules have extremely asymmetric
consequences - favoring inaction and reducing the chances of success of policy
initiatives departing from the status quo.
2 That the message is indeed
intended for the Court is also made clear by a 'Declaration to the Final Act'
which stipulates that '[t]he provisions of Article 7d on public services shall
be implemented with full respect for the jurisprudence of the Court of Justice,
inter alia as regards the principles of equality of treatment, quality and
continuity of such services' - principles that is, which the Court itself had on
occasion accepted as justification for limiting the reach of European
3 There is, of course, the
possibility that national governments might influence the Commission by twisting
the arms of 'their' commissioners and the members of their cabinets (Schmidt
1997). But that option was always considered highly inappropriate (Ross 1995),
and it will become less effective, now that the President of the Commission must
agree to the appointment (and reappointment!) of individual commissioners.
4 The solution is
unproblematic in countries with statutory minimum wages, but creates new
difficulties in countries like Germany, where collective-bargaining agreements
are customarily, but without legal obligation, applied even by firms that do not
belong to an employers' association.
5 Joined Cases 267/91 and
268/91, Keck and Mithouard, (1993).
6 Case 185/91, Bundesanstalt
für den Güterverkehr and Reiff (1993). Ironically, the German Bundestag,
anticipating a negative ruling of the ECJ, had unanimously repealed the
legislation before the case was decided (Héritier 1997).
7 See, Case 320/91P,
Procureur du Roi and Paul Courbeau (1993) with regard to the Belgian postal
monopoly, and Case 393/92, Gemeente Almelo v. Energiebedijf Ijsselmij NV (1994)
with regard to the exclusive-supplier contracts of a Dutch electricity network.
Both cases had come to the Court on a preliminary-opinion procedure, and both
were remanded for additional factual clarification.
8 Overviews of such solutions
are provided by Nicoll (1984), Langeheine/Weinstock (1984) and, most
comprehensively, Ehlermann (1984).
9 It is remarkable that
negative integration in the European Community includes elaborate rules to
prevent distortions of competition arising from subsidies, preferential public
procurement and other forms of 'affirmative action' favoring national producers
- but none against the practices of competitive deregulation and competitive tax
10 If environmental policy
were to rely less on technical standards for emissions and more on 'green taxes'
on energy inputs or emissions, it would be plausible to use a sliding scale
rather than two distinct levels of regulation. Thus it has been proposed that
the revenue to be raised by an EC-wide environmental tax might be defined as a
percentage of GDP in order to avoid disproportionate burdens on the less
developed member states (von Weizsäcker 1989).
11 It is true that the
Commission's move (at British insistence) from emissions standards to
immissions-oriented air quality standards (Héritier et al. 1996) also reduces
the regulatory cost of less polluted (i.e. less industrialized or less windward)
countries. However, wide-ranging or global pollution problems cannot be
controlled through measures oriented at local immissions.
12 Two technical problems
would require attention, however: First, since welfare spending is highly
sensitive to changes in the level of unemployment, reductions of expenditure
that are caused by an increase in employment should probably not be counted in
defining violations of the threshold agreement. The second is that the
definition of what is to be included in the definition of 'Total Social
Expenditure' would require much more careful attention than was required for
purposes of the OECD study on which the diagrams above are based (OECD 1996) -
this will be particularly important at the borderline between what is defined as
'public expenditure', 'mandatory private expenditure' required by statute or by
collective-bargaining agreement, and 'voluntary private expenditure'. But since
the agreement, as well as the data base on which it depends, will be the product
of intergovernmental negotiations that cannot succeed unless governments are
interested in stipulating effective constraints, they can also make sure that
the criteria by which they are willing to be judged fit the specific conditions
of the countries involved.
13 Conceivably, a similar
approach, oriented toward the share of GDP contributed to public revenue by
taxes on income from capital, could also help to overcome the long-standing
blockage of European tax harmonization (Rasch 1996).
14 See, e.g., Wilensky
(1975); Alber (1982); Flora (1986); Esping-Andersen (1990); Alber/ Bernardi-
Schenkluhn (1991); Castles/ Mitchel (1993); J. Schmid (1996).
15 One characteristic
disadvantage of corporatist systems is their seeming complexity and lack of
transparency for foreign investors, which is greatly increased by the variety of
idiosyncratic national corporatisms. At a time when the importance of foreign
direct investment is increasing, therefore, coordination could by itself
increase the attractiveness of all corporatist systems.
Copyright © 1997 Fritz W. Scharpf
No part of this publication may be reproduced or
transmitted without permission in writing from the author.
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Zustimmung des Autors.
MPI für Gesellschaftsforschung, Paulstr. 3, 50676 Köln,