The COVID pandemic has served to highlight once again the importance of the social market economy. Since the 1980s this model and its most fundamental component – the welfare state – has been discredited with a resulting universal trend towards greater inequality and poverty. The ultimate nail in its coffin was the financial crisis of 2008, where instead of Governments reacting to the failings of liberalised capitalism by moving once more to the social market economy model, they embarked on yet more austerity. Ageing populations, climate change and digitalisation are all reasons that have been used to further pummel the welfare state into a systemic crisis.
Yet when the pandemic struck at the heart of our economies, and forced a complete lockdown of activity, all and sundry clamoured for state assistance. Gone were the recriminations about high deficits or the disincentive impacts of “handouts”. When we were all in the same boat, we understood the importance of having a strong welfare state. It is important that this spirit of unison does not disappear once the pandemic is over.
In 2000 the European Union started to address the fact that while it had harmonised economic policy, social policy had been kept at the complete discretion of each Member State. Through the Lisbon Strategy, poverty reduction became one of the Union’s main social goals. The Member States who joined in 2005 did relatively well, but mainly in reducing the incidence of material deprivation in non-poor households. Meanwhile, the old welfare states redistributed incomes increasingly less effectively, resulting in growing inequality and poverty.
When we were all in the same boat, we understood the importance of having a strong welfare state. It is important that this spirit of unison does not disappear once the pandemic is over.
Social protection spending as a percentage of GDP has risen from 25% of GDP in 2000 to 27% in 2019, but this is just because of higher old-age pensions. If the latter are excluded, social protection has made no progress. The target introduced by the EU to reduce the numbers of those in poverty by 20 million by 2020, has not been achieved.
In most countries, minimum incomes are too low even to allow poor households to aﬀord both adequate housing and adequate food. Social floors have proved inadequate. The pandemic has wreaked further havoc. In 2020 the proportion of the German population in severe material deprivation jumped to 7.2%, or nearly three times the rate in 2019. Clearly even if the famed German social market economy faltered in this way, a significant overhaul is needed.
From social protection to social investment
Malta, like some other EU states, in recent years shifted the focus from social protection to social investment, activation and work-related welfare reforms, to achieve a virtuous circle of growth, employment, and poverty reduction. Malta’s experience has tended to be one of success, though there remain challenges.
This implies that we need to move to the next stage in the reform of the welfare state, which while maintaining a focus on social investment, requires a stronger social redistribution component.
The next stage of poverty reduction necessitates big efforts on many levels. Essential will be adequate minimum wages, minimum income protection, meaningful work for all, lifelong learning and affordable social services.
The recent Porto Social Summit gave some encouraging signals. The European Pillar of Social Rights provides a strong and concrete guide. The €88 billion European Social Fund Plus will make a significant contribution to implementation of social rights, particularly in the light of the severe social impacts of the pandemic.
The Commission’s Action Plan presents concrete initiatives that aim to implement the 20 principles of the European Pillar of Social Rights. It sets three EU objectives in relation to employment, skills and social protection to be achieved by 2030: (i) at least 78% of people aged 20 to 64 should be in employment; (ii) at least 60% of adults should participate in training every year; (iii) the number of people at risk of poverty or social exclusion should be reduced by at least 15 million.
The approximate targets for Malta are shown in the chart. The goal of 78% of adults aged 20-64 appears feasible, given that in 2020 Malta already had 77.4% of adults in employment. More challenging is the objective of reducing people at risk of poverty and social exclusion from 97,000 in 2019 to 81,965. The most ambitious is the goal for adults in training, where we would have to achieve an improvement of some 24%. Malta is not alone in being challenged in certain goals and actions.
The Government is currently working on a post-COVID strategy that puts the right emphasis on the social dimension of the recovery. The quest for social justice is high on the agenda, and the aim is to place social, economic and environmental considerations on an equal footing and become an integral part of the post-COVID society.