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Social justice and open coordination in Europe. Reflections on Dreze’s Tinber… Frank Vandenbroucke De Economist; Mar 2002; 150, l; ABI/INFORM Research pg. 83 DE ECONOMIST NO. 1, 2002 NOTES AND COMMUNICATIONS SOCIAL JUSTICE OPEN COORDINATION IN EUROPE. REFLECTIONS ON DREZE’S TINBERGEN LECTURE Summary In his Tinbergen lecture Jacques Dreze broaches two interesting themes. He argues, firstly, that we have failed to develop an efficient instrument for income insurance behalf of potentially low­ skilled workers; wage subsidies are such instrument. Secondly, he argues labour market inte­ gration economic union like the EU entails externalities, resulting underprovision insur­ ance; or matching grants could overcome second inefficiency. I largely share policy paradigm. Yet, believe enhancing social European Union requires, at this stage cooperation, a different methodology coordination, which has recently been coined ‘open coordination.’ will my argument favour coordination’ with refer­ ence themes discusses. 1 FIRST-BEST, SECOND-BEST THIRD-BEST WORLDS is right construing problem security 21st century as problem, where moral hazard considerations prevent us from choos­ ing first-best solution. Note that, context, ‘insuring’ given broader interpretation than usual. For myself, veil ignorance quite thick: it includes not only uncertainty specific contingencies illness premature death, but also ex ante about our abilities per­ sonal characteristics, decisive success society. So same, Rawlsian Moral one well-known problems world, econo­ mists solve by looking ‘second-best solutions.’ However, when comes cooperation second-best world might qualify ’third-best.’ Different views implementation – how run system coexist Europe today. Behind every member state lies distinct history. Each ac­ tually embodies welfare sui generis, nearly wants keep way. Thus, functions inform govern- Economist 83-94, 2002. 84 ments’ policies may be very different. Still national states face highly similar challenges. third-best design mechanism grants, proposed Dreze, cannot reduced mere calculus. It result political negotiation decision­ making process. use expression ’third-best’ since apart compro­ mise between commonly shared objectives individual incentives (this usual subject analysis) additional preceding com­ promise necessary level: need process establish common understanding relevant objectives, both level. opinion, importance so-called method coordination,’ first used March 2000 Lisbon Summit, should seen against background. Before turn relevance I’ll briefly comment idea subsidies, illustrate point. 2 THE NORMATIVE RATIONALE FOR WAGE SUBSIDIES much support case subsidies. My just aca­ demic, some measures implemented Belgian government illustrate. Now, choice particular makes alternative instruments instance, minimum wages cum unemployment benefits versus ’technical’ one; presupposes implicit explicit normative stance, is, conception distributive well-being. Therefore, useful assess examining conceptions well-being underpinning their use, without reference created tax benefit systems economies beset involuntary unemployment. Elsewhere presented model admits systematic discussion rationale behind instruments, mutually exclusive: negative taxation, creating unconditional basic income, hand other hand. The egalitarian aims worst-off citizens well off possible (maximin). Individual ‘productive talents,’ they held responsible. levels reward asso­ ciated productive talents; those est productivity. preferences ’time non­ activity’ hand, or, words, propensity work formal (below, summarize ‘individual preferences’). integrates opposite F. (2001), Justice Open Society. Equality, Re­ ponsibility, Incentives, Springer Verlag, Berlin, chapter 3. 85 personal responsibility one’s whole range person’s into single framework. hinge upon question whether responsible preferences. entail ‘metric’ citi­ zens’ government, relative weights attached non-market ‘income’ government’s metric One say reflect ‘burden working time.’ more considers ‘working time’ burden its citizens, higher value activity.’ assume taxes constant rate t (with t’.’S I). To scheme added possibility sub­ sidises individuals uniform way (i.e. independently earned income). That allow must, next taxes, all pay same receive benefit. Denoting fixed amount transfer B, follows complete studied here can take form tax, thus universal (in casu B > 0). subsidy, subsidy s proportional time spent paid work. hence boils down dif­ ferent vectors (t, s), function s. Given charac­ teristics population, then construct figure repro­ duced below. This displays ‘optimal track,’ i.e. locus combining optimal values preferences, model, responsibiliy captured ‘policy stance’ variable a. (I reproduced situ­ ation population characteristics maximin full equal­ ity a.)2 horizontal axis Figure earned-income t, vertical bold line track these instruments: each point a0 (lowest a) (highest combination rates rates. maximises position depending (a) responsi­ bility (b) well-be­ ing. conditions under yields equality described Vanden­ broucke (2001). 86 well-being, does hold people lower a, except limiting cases. following conclusions: (i) Other things being equal, propose sidy (ii) level responsibility, increases counts less people’s starting heavy burden, giving weight measurement At end track, thinks all. measuring maximising citizen’s amounts income. again increase well-being; An 87 becomes important govern­ ment’s yet ex­ clusive attaches ba­ sic be). Finally, points irreducible conflict level, searching policy; decrease (until meets upper limit) parameter rises. hope summary presentation suffices point: depends complex set conceptions; respect, generis. so, even restrict analysis ‘maximin’ governments, manipulate nega­ tive clearing market. real obviously differentiated. implicitly assumes governance differentiation, proposes mechanism, counter caused mobility. Such mecha­ nism requires regulation (‘hard law’) monality (or, ‘social functions,’ economist’s jargon), lacking therefore think engage based ‘soft law’ rather ‘hard law,’ create understanding. 3 METHOD OF AS A LEARNING PROCESS was 2000, although example already 1997 field employment ‘Luxembourg Process.’ pro­ cess explicit, clear agreed defined, after peer review enables examine learn best practices respects local diversity, flexible, simultaneously ensure progress sphere. Commonly indicators help find out stand. exchange information institutionalising mimicking,’ least certain extent. Intelligent mimicking needs actively managed put words Anton Hemerijck Jelle Visser ‘contextualized.’ Well thought­ ‘benchmarking’ three elements: A. J. Learning Mimicking: How Welfare States form, mimeo. 88 first, gathering results; second, evaluation light defined objectives; third, context pursued in. latter important, because otherwise benchmarking would soon ‘compulsive’ flavour actors who themselves completely lo­ cal situation. damage credibility consequently chance exercise. contextual element coordination. Mem­ ber states, regions civil society make vital contributions for­ mulation standards. On still decide (and quickly) want changes own acquired information. These (sub-) ad­ aptations tum basis round learning process, Commission organises means monitoring, reviews. renewed architecture directed ‘from top,’ made through intensive interaction states. Moreover, exercise systematically repeated, facilitates towards medium term si­ multaneously leaves scope development ‘at speeds.’ Vis-a-vis sceptics, stress applied turned substantive so happens guidelines constitute ‘wage subsidies,’ developed Dreze. what extent effectively encouraged imple­ ment various types whole, certainly had impact policies. 4 DEFENSIVE INSTRUMENT ‘open’ pragmatic approach lead progress, precisely pragmatic. found implies credible mitment Until recently, effective anything obvious field, contrary monetary coopera­ tion. So, send message citizen. We signal establishing countervailing power dumping.’ formulation agenda fact ‘defensive weapon’ retrenchment unification. With regard fear dumping,’ there nuances though. First all, unification many Today, adjustment be- 89 cause traditional fields protection, pensions health care, require resources new risks emerged. far history teach necessarily leads retrenchment. exemplified actual reactions Netherlands, Denmark, Ireland, etc. countries, mar­ ket led agreements partners rethinking states.4 Nevertheless, nai”ve extrapolate historical experience. grow­ factor mobility within leave bigger mark long run. Besides, short term, eve expansion Union. develop­ ments, definition so­ cial now greater ever.5 brings me consider principal 5 IS MORE THAN TOOL What kind possibly future protection Europe? goes beyond learn­ contribution ‘race bottom’ Eu­ rope. Defining ‘useful’ view intended Member Common essential, be­ translate discussed often unspecified batriers retrenchment, seems broad societal consensus safe­ guarding per se. (Cf. exainple T. Boeri, Bi:irsch-Supan Guido Tabellini ‘Would you Like Shrink Wel­ fare State? Survey Citizens,’ Economic Policy, 32). ‘Income Redistribution Labour Market’ (American Review, 81, 1991), David Wildasin pointed internalisation fiscal external effects arise fed­ eration decentralised redistributive pursued. increased fac­ tor mobility, stated ‘it interest devising mechanisms EEC (or perhaps means) activities order internalise externalities.’ expansion, plausible airange direct mutual compensation. (Wildasin gives Geiman unification). theory, bears close resemblance Coase theorem, including notice compensation effects. Contrary plainest principle ‘right ownership’ play role final outcome negotiations (see e.g. E.J. Mishan (1981), Introduction Normative Analysis, Oxford University Press, Oxford). If were apply issue stake, imply ‘straightforward confilmation model’ point, and, consequently, accession, compared situation ‘heritance.’ 90 ‘European entrenched ropean cooperation. time, thanks vague values, interpreted precise definitions. Echoing Hemerijck, cognitive tool.6 ‘cognitive’ tool, allows other. restricted practice underlying opinions state. ‘normative’ tool because, substantively, start conviction no citizen must left fend himselve difficult circumstances. pressurised belief practical gradually creates know ‘soft’ character scepticism. Yet co-operation consensus-building go solemn declarations Summits. stage, most promising give concrete shape Europe,’ large region sustainable thrive. am con­ vinced fulfil (hitherto maybe underrated) ambi­ tion, if judicious 6 FIVE KEY PRINCIPLES JUDICIOUS USE During last years, has, along others, advo­ cated dimension politics method. up inclu­ sion, wish pensions. underline recipe whichever issue. Our inclusion differs Luxembourg methodological proposals re­ gard somewhat different: fairly ‘light’ report four years include policy, yearly update en­ able integrate conclusions pension Broad Eco­ nomic Policy Guidelines, drawn year. (In defines ‘no1mative’ dimen­ sions ‘The Self-transfo1mation Model(s)’ G. Esping-Andersen et al. (to published, 2001), New Architecture Europe, Report submitted Presi­ dency 91 report, recommendations states). cookbook contains recipes, lighter heavier ones. judiciously, five key principles kept mind: Firstly, amongst others. magic formula issues. fly wing reach another wing, namely legisla­ refer to, reform 1408/71, guarantees rights move EU. simplification enlargement meet claimants im­ portant part defining commended freedom movement. contribute offsetting protection. Let empha­ size opposition approaches contrary, serve heuristic device discover tensions weaknesses legal focus specifically mix policy. Mixing elements spirit subsidiarity interwoven But reason why insist this. achieve something undeniably think­ ahead significant. aware trivial undertone, sometimes tends forgotten. debate dominated elabo­ comparative analyses pay-as you-as funded systems. analy­ ses tackle instance efficiency macro-economic demographic hypotheses. True, question. sure though get bogged instruments. When coordina­ really eye objectives. 7 respect third ‘comprehensiveness’: analysis, parisons Income redistribution achieved ideas challenge address Royal Netherlands Association, Sustainable Cooperation, Am­ sterdam, 12 October, 2001; available www.vandenbroucke.fgov.be 92 wages, benefits, … comprehensive impor­ tance Principle number concerns ‘benchmarks’ practice: define standards, realistic ambitious time. definitely process: feasible ‘standards excellence’ instead quired standards mediocrity. do not, presenting empty box. fifth application situated measure exclusion poverty comparable quantifiable indicators. reason, finalising top priority Presidency EU, po­ litical agreement 8 pensions, presidency prepares launching agenda.) litmus test readiness Any­ lip service method, action let insist, response interventions, purpose establishment naming shaming ‘rank tournament’ exclusively improving overall record through, things, identification shar­ practices. Indicators vehicle any pecking among Europe’s nations, preserve rejuvenate hallmark citizens. CONCLUSION Without considering formula, convinced extremely enhance deal well-considered intelligently man­ aged defensive tool. handle co­ ordination creative concretely rope’ firmly anchor expert group cmrently finishing proposal. excellent indicators, Atkinson, B. Cantillon, E. Marlier, Nolan, Inclusion Union, Oxford, (forthcoming). 93 good. identify justice. objective. path due speed. \Tandenbroucke* * Professor KULeuven (comparative policy), Minister Affairs Pensions, Government. thank Tom Van Puyenbroeck comments criticism. 94 POSTSCRIPTUM communication ‘Social Coordination pub­ lished elsewhere issue, suggests that: superiority over justice; advocacy commonality objective (welfare functions) plead ‘not guilty’ counts. (i), refers 2001 book, ap­ plies comparison agree judgement in­ strument subsidises whereas leisure bluntly. distinction comparison, conditioned willingness accept (at unskilled workers). ways protecting worker either claim instrument, prior op­ tion provide workers. Efficiency invoke Regarding (ii), recognises idiosyncratic distribution aggregate tween mobile immobile represented ‘welfare functions’ special restrictions imposed. show define, implement, allocation production risk-sharing while addition entailing gains Nothing Pareto invoked. Of course, realism assumption well-defined representable function. Po­ decisions ‘cannot calculus.’ remark applies noted broucke. Method needed levels. comforted careful thinking ‘some subsidies.’ May complementarity evidenced respective lec­ tures tomorrow adoption well! H.