THE POLITICAL ECONOMY OF EUROPEAN INTEGRATION IN THE POLDER ASYMMETRICAL SUPRANATIONAL GOVERNANCE AND THE LIMITS OF LEGITIMACY OF DUTCH EU POLICY-MAKING E.B. van Apeldoorn WEBPUBLICATIONS 15 The Hague, June 2007 2 The Webpublications series comprises studies carried out as part of the activities of the WRR. Responsibility for the content and views expressed rests with the authors. A list of all Webpublications can be found on the WRR website (www.wrr.nl). 3 CONTENTS 1 Introduction ..........................................................................................................................4 2 The political economy of European Integration since Maastricht: The changing social purpose of European governance and its implications for legitimacy....................................... 8 2.1 The transformation of the European socio-economic order ...................................... 8 2.1.1 The internal market and EMU....................................................................................... 9 2.1.2 A social dimension? : Towards the Lisbon Agenda................................................... 11 2.2 The debate on the European socio-economic governance: market liberalisation, monetary union and the future of the European Social Model ............................................. 12 2.2.1 The pessimistic view: the European Social Model endangered .............................. 12 2.2.2 The optimistic view: the European Social Model revitalised................................... 14 2.3 European socio-economic governance as ‘embedded neo-liberalism’ ...................... 15 2.3.1 The rise of ‘embedded neo-liberalism’........................................................................ 16 2.3.2 The contradictions of ‘embedded neo-liberalism’ and the unfolding European legitimacy crisis .......................................................................................................................... 22 3 European intergration and the Dutch political economy: Winners, losers and the legitimacy of Dutch EU policy ....................................................................................................24 3.1 Form and content of Dutch EU socio-economic policy and societal embedding .....24 3.2 The rise and fall of the Dutch model in comparative and EU perspective: the limits of ‘embedded neo-liberalism’ re-visited................................................................................ 28 3.3 The winners and losers of European market integration and Dutch EU socio- economic policies ....................................................................................................................33 3.3.1 Winners and losers from the internal market and monetary union....................... 33 3.3.2 Winners and losers in the Dutch political economy ................................................. 36 3.4 The 2005 turning point: a politico-economic analysis of the legitimacy crisis as signalled by the referendum .................................................................................................. 38 3.4.1 The political economy of the ‘nee’ ............................................................................... 38 3.4.2 The binary framing of the Dutch referendum debate............................................... 42 4 Counterfactuals and conclusions: Where to go from here?.............................................. 48 4.1 Enhancing output legitimacy? Towards an alternative socio-economic model of European integration? ........................................................................................................... 48 4.1.1 The supranational welfare state model and the re-nationalisation model............ 49 4.1.2 Towards a new ‘Third Way’ for European socio-economic governance: the primacy of politics...................................................................................................................... 52 4.2 Enhancing input legitimacy and improving societal embeddedness: towards a left- right politicisation of Dutch EU policy-making .....................................................................57 4.3 Conclusion ...................................................................................................................62 4 1 INTRODUCTION When the Dutch with an unexpectedly large majority voted ‘nee’ to the European Constitution, it became apparent that in the traditionally pro-European Netherlands too, the project of European integration had entered into a serious legitimacy crisis. Many were quick to proclaim that the resounding no-vote to a large extent reflected several socio-cultural anxieties expressed over European issues, such as a possible future accession of Turkey, that had little to do with the Constitution as such, as well as reflecting a more general anti- establishment mood supposedly having a hold on the Dutch population since a few years. Notwithstanding the undoubtedly great significance of these and related explanations, arguably too little attention thus far has been paid to possibly underlying socio-economic concerns – concerns that may be seen as indicative of a legitimacy problem deriving from the (socio-economic) content of the European project itself. As European integration, primarily in the shape of market liberalisation, has deepened over the past two decades, it has increasingly deeply intervened in the domestic socio-economic order of members states; further undermined the policy autonomy of national governments, and increasingly has come to affect the daily lives of citizens. At the same time that citizens increasingly feel that they have little, not to say, no input into this, they are also increasingly worried about what they get out of it, that is, whether the produced output in any way satisfies their needs and preferences. In this respect, then, the Dutch referendum result, just like the French, as well as other signs of rising Euro-scepticism in other member states, may be very well seen as an expression of a deeper multi-level and transnational legitimacy crisis of the European Union (EU) that is bound up with the political limits of the current integration project as such. Zooming in on the Dutch case, this paper will analyse this legitimacy crisis, examining its causes and implications, from a political economy perspective. Such a perspective seeks to address first of all the cui bono question, or as political scientist Harold Laswell once famously wrote, who gets what when and how? Secondly, it seeks to examine the implications of this in terms of sustaining mass legitimacy – analysing to what extent there are contradictions between actual political practices and the requirements of legitimacy in democratic societies, and if so, how those possible contradictions might be resolved (van Apeldoorn et al 2003: 17). Adopting such a perspective this paper is divided into two main parts. The first part focuses on the European level and on the legitimacy aspects of the transnational political economy of the recent European integration process. The second part switches the perspective to the Dutch case, drawing out the implications of the former analysis for Dutch EU policy-making, taking into account the specificities of the Dutch political economy. 5 In the first part, section 2, the argument is made that the political economy of the European integration has witnessed a transformation of what could be called the socio-economic content of the integration process, or the social purpose underpinning the European project. This social purpose has changed from a model of trade integration leaving national (Keynesian) welfare states intact to a model of much more radical market integration, arguably undermining those very same national welfare states that derive their legitimacy from the public goods they were set up to deliver. Interpreting the current integration process as a political project of market liberalisation the paper thus focuses in the first instance on the question of what with Fritz Scharpf we could call ‘output legitimacy’, that is, legitimacy deriving from the content of the policies made, or the extent to which citizens support those policies because they effectively solve common problems (see Scharpf 1999: 6-13). A central question raised in this context is to what extent the current European project poses fundamental challenges to (aspects of) the so-called (emphasising the commonality of these various national models) ‘European Social Model’. The debate on this question will be reviewed by looking at both more pessimistic and more optimistic assessments (reflecting a variety of analytical as well as normative positions). The latter for instance tends to interpret the evolving EU socio-economic governance regime positively as promoting a kind of European ‘Third Way’ capable of combining competitiveness with social cohesion. This paper will adopt a more sceptical approach, arguing that current EU socio-economic governance ultimately rests upon a number of inherent contradictions that make what I call the synthesis of ‘embedded neo-liberalism’ rather unstable. In the final analysis, the primacy of EU governance clearly lies with market liberalisation, and meeting the so-called exigencies of global competition, with social cohesion being subordinated to the latter goal, and thus reduced to the necessity of national ‘social models’ to adapt to the perceived needs of a globalised world. This way the losers of the integration process are ultimately more compensated on the symbolic