Social Models in Western Europe

Introduction

Europe’s diverse social models are rigid and protectionist and were a result of years of steady global economic growth. However, the rapid changes of the global economy in the twenty-first century have created a multitude of threats and opportunities for the European economy. Two of the crucial policies – the Single Market and the monetary union could enable the transformation of its economy to address the challenges of globalization. In this paper, we analyze the affects of these social models on European firms through the eyes of the German auto industry and Volkswagen. We explore how some of the proposed reforms could allow these firms to respond to changing demand with speed and intensity and discuss its impact on firm and industry competition.

Issues with current social models in Western Europe

The current social models are segmented into four geographical areas and have the following characteristics:

1. Nordic (Denmark, Finland, Sweden, Netherlands) – Delivers both efficiency and equity

These regions have the highest levels of social protection and universal welfare. There is extensive fiscal intervention in the labor markets with strong unions leading to highly compressed wage structures. There is a low incidence of poverty with high rates of employment.

2. Anglo-Saxon (Ireland, UK) - Delivers efficiency with low equity

These regions have weak unions with wide wage dispersion, high incidence of poverty, and high rates of employment.

3. Continental (Austria, Belgium, France, Germany, Luxemborg) - Delivers equity with low efficiency

Insurance based unemployment benefits along with strong labor unions have resulted in an unsustainable model with negative perceptions of globalization.

4. Mediterranean ...

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...de successful through focused social programs driven by the EU concurrently with these reforms.

As this transformation develops, the resulting industry changes will lead to improved shareholder value creation in the private sector. The key success factors to measure this will be job creation in the Eurozone and the resulting GDP growth. The precise balance between the different policy facets will depend on individual country circumstances and institutions. With relaxed labor market policies, European firms stand to become highly productive and develop into an efficient global melting pot enabling economic outsiders to create opportunities to inject dynamism into the economy. The reforms listed in this paper should demonstrably provide the catalyst required to dramatically increase the competitiveness of Western European firms both domestically and internationally.