What's new
		New Volume The promise and perils of participatory policy making by Lucio Baccaro, Konstantinos Papadakis Discussion Paper 190 Executive compensation: Trends and policy issues by Franz Christian Ebert Raymond Torres Konstantinos Papadakis Discussion Paper 192 Labour, Globalization and Inequality: Are Trade Unions Still Redistributive? by Lucio Baccaro Discussion Paper 193 Impact of changing work patterns on income inequality, by Uma Rani Subscribe to our mailing list and we will keep you informed about our new publications

Agenda List of Participants Opening speech by Ms. Guigou Speech by Mr. Somavia Background Document Annecy Conference Papers ILO Press Release

Maurizo Ferrera
Poleis - Università Luigi Bocconi
Via Sarfatti, 25
20136 MILANO
Italy

I would like to make two comments on F. Scharpf's paper, which may possibly lead to questions, and then make a few remarks expanding on a footnote of Scharpf's paper which has to do to Southern Europe. The first comment is on the remarks in the paper about the European economic government. Now, Scharpf rightly says that possible mismatches between an EMU-wide monetary policy and national economic conditions may lead to dangerous employment losses in individual member States. And he also says that a possible way of neutralizing such dangerous implications is that of strengthening the remaining national capabilities for macroeconomic management. And I agree with that. But then Scharpf drops a negative hint at the idea of moving towards some sort of European economic government. On this front, I would be a little bit less negative and would understand the European economic government as a positive development in two ways, both in a soft sense, (what is currently known as the "Cologne process" involving input from the social partners and other institutions into the policy formation of the decision of the Central Bank) but also in a "harder" sense, as a strategy allowing the redefinition of some of those rules of the growth and stability pact that had to do with budget deficits, their origin, and their timing, and that could be rediscussed in as much as they have or might have negative implications when an asymmetric shock hits.

The second comment has to do with Scharpf's diagnosis of the continental predicament. He does not expand much on possible solutions and tends to concentrate essentially on strategies that can promote the expansion of private service markets via the reduction of the tax wage, in-work benefits, flexibility and so on. In this respect I have two points. First, in the context of such strategies, how do we view the idea of a social dividend, i.e. of some mechanism that works via the integration of tax and benefit schemes at the bottom of the income distribution? There are some countries that are discussing this kind of solution: the Italian centre-left is playing with the idea of offering the social dividend as a key ingredient of its electoral programme and I just learned that the French Government is taking serious steps in this direction too. I have a feeling that this is a promising direction.

The second point that I have regarding possible solutions is the following: Scharpf seems to rule out, for the continental countries, the idea of finding ways of expanding public social services primarily because of budgetary constraints and the political unfeasibility of raising taxes. I agree and I am fully aware of these difficulties, but I wonder whether there might not be alternative ways for generating revenues? For example, charging affluent users of public services, especially in the fields of education, culture and entertainment and also in health and social services. Private health care expenditure ranges from 10 to 30 per cent of total health expenditure in European countries, and I wonder whether there might not be ways of better exploiting this solvent demand for services: for example, through the establishment of "second pillar" heath insurance schemes, offering additional treatments with regards to the status quo. A second possibility for generating revenues is that of introducing or raising social security contributions especially health care contributions, for pensioners, especially higher-income pensioners. This is politically difficult but we could offer a kind of quid pro quo, for example by granting or expanding long-term care guarantees to this age group, or offering them a greater choice of opportunities while introducing or raising the contributions on their pensions. Both user charges and contributions and pensions are potentially unpopular measures, but there might be political strategies of discursive persuasion that could be seriously considered to move in this direction. At least, I think that continental governments should be wise enough not to step back on these two fronts in respect of the status quo.

My third and last point has to do with Southern Europe. In the footnote of the paper, Scharpf says that Southern Europe has its own special variant of the continental syndrome. On top of the problems that are faced by the other continental countries, South European countries face at least two extra challenges which are quite dramatic: that of an extensive black economy and that of a wide territorial disparity in the distribution of employment and in the distribution of incomes, especially in the largest countries, of Italy and Spain. Now, several things can be done to tackle these two challenges: by exploiting those remaining margins of policy discretion and by mobilizing national capabilities of socio-economic management. But European competition law is causing very heavy and, possibly insurmountable, obstacles for winning this challenge. A challenge which will become much greater once the enlargement is completed, because the enlargement is going to exasperate the two problems. In order to win these two challenges, we need policies that grant some sort of differential treatment in order to promote or encourage a gradual compliance with the tax and social security contribution codes on the side of the underground actors. We cannot expect them to emerge out of the blue from one day to the other.

In order to tackle the problem of wide and persisting territorial North-South or East-West geographical cleavages, you need a geographical differentiation of rates, especially social security contributions, and that is not allowed. Half of Italy cannot get what Ireland has: the possibility of reducing its social security contributions, even for a short-time span, which could allow a gradual catching up. Fritz Scharpf has insisted very much in the last ten years in his publications on the risks of what he calls "negative integration" and on the perverse effects of what he calls "joint decision traps". I think that, in this respect, the current predicament and the rather bleak prospects of what I have called the "South of the South" is an emblematic victim of a faulty institutional set-up at the EU level, an institutional set-up which may be very difficult to modify, but which should at least be identified for what it is: a faulty institutional design.