The Open Method of Coordination - Friend or Foe?

Content

1. Abstract

2. The OMC - An Overview
2.1. The Open Method of Coordination -Decentralized Coordination
2.2. The Actors Involved

3. The OMC and the Old-Age Security System
3.1. Bismarck vs. Beveridge
3.2. Different Approaches on the Old-Age Security Issues

4. Examples of Pension Systems
4.1. Germany
4.2. Sweden

5. Conclusion

6. References

1. Abstract

For decades one of the main goals of the European Union has been the harmonisation of social security. Lately the harmonisation of social security systems has proved to be too complex and difficult to implement and thus has been replaced by convergence , meaning the aim to converge the goals and objectives of social systems within the member states (Sommer 2003: 6).

The Open Method of Coordination (OMC) is the new instrument to help monitor and promote this convergence, as it is already being applied on various areas such as: employment, social inclusion, old-age security, health and long-term care. The OMC doesn't establish legal sanctions on irregular policy, it rather aims to give examples of best- practice and promote a „learning-by-seeing“ process (Sommer 2003: 10 ; Eckardt 2005: 247f.).

The objective of this term-paper is to analyse the potential impact of the OMC on the old- age security systems of the European Union. First we will have a general look on what the OMC is, how it started off, where it got so far and how it works on the European level. The second part will draw a map of the actors involved in this process. Since the OMC is a so called „soft law“ promoted by the European Union, the main actors will be found on European level. Here we can distinguish two levels on which actors are interacting: the decision-making level and the committee-level (Sommer 2003: 12ff.). Third we will take the example of old-age security and the pension reforms in the European Union and look at the findings and prospects and ask ourselves whether the OMC is the right process to promote development and the urgent needed reforms in this area or not. We will also take a look on empirical data for the EU member states on expanditure on old-age security and try to maybe find the country with the most suitable best practice method so far.

By the end I hope to have found enough data, so that I can have a critical look on the OMC and its outcomings, in order to be able to conclude whether this process is a friend or a foe to the social security systems and pension reforms across the member states of the European Union.

2. The OMC - An Overview

2.1. The Open Method of Coordination - Decentralised Coordination

The Open Method of Coordination has been initiated in the year 2000 by the the European Council of Lisbon as a response to the latest aim they have set for the European Union. Namely: „to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion. Implementing this strategy will be achieved by improving the existing processes, introducing a new open method of coordination at all levels, coupled with a stronger guiding and coordinating role for the European Council to ensure more coherent strategic direction and effective monitoring of progress“. (European Council 2000: 1f.; also cf. Sommer 2003: 5 and Preunkert 2009: 27f.).

The Open Method of Coordination is a new type of policy-making instrument on European level. The most obvious difference between the OMC and the old instruments is its soft approach. It doesn't go along with sanctions, it just gives an overview of best-practice models. So on one side it is softer than the old regulations, because the member states won't be obliged to implement any rules, or at least won't be sanctioned if they don't, but on the other side it is more than a simple non-binding recommendantion which could really lead to some changes. Learning-by-seeing is the right term to be used in this case (Sommer 2003: 5,10; Eckardt 2005: 247).

The principle by which the OMC is lead is called the subsidiarity principle (European Council 2000: 4), meaning that problems within a country should first be approached on a national or even regional or local level, rather than on European level, because the locals, the people who are affected mostly, know best what has to be done and how it can be done.

According to the European Council (2000), the four main elements of the OMC are:

“fixing guidelines for the Union combined with specific timetables for achieving the goals which they set in the short, medium and long terms;

establishing, where appropriate, quantitative and qualitative indicators and benchmarks against the best in the world and tailored to the needs of different

Member States and sectors as a means of comparing best-practice;

translating these European guidelines into national and regional policies by setting specific targets and adopting measures, taking into account national and regional differences;

periodic monitoring, evaluation and peer review organised as mutual learning processes” (S. 12f.).

Figure 1 shows the stages that are undertaken in the case of the OMC. First we have guidelines and ojectives that are drafted by the Commission. These are being implemented by the member states, according to a national plan or strategy, which is being monitored on a national level. Each participating country then has to write an annual report about whether the implementation was successful or not. Then the Commission evaluates the national reports and names best-practice-methods which have proven to work in some countries. And then these best-practice initiatives are going back to the member states, where each one can pick out something and apply it to their own situation.

Figure 1: The Design of the OMC

illustration not visible in this excerpt

Source: Eckardt (2005), page 252

The OMC can been seen as the reaction on the European integration, which reached a level where the welfare state and its social security systems are at stake (Hérier 2002: 2). Social security and labour force policies are not included in the European treaties and therefore they have to be monitored and developed using other methods. The OMC seems to be the answer, being more than a simple recommendation, but less than a law which has to be implemented. The hope was and is that the OMC can help each member state find the right solution, without putting pressure on it - the so called „learning-by-seeing“ method.

The main property of the OMC is its flexibility. It allows each member state to pick out those practices that turned out to be successful in other countries and implement them in their country, by fitting it to its needs (Dehouse 2004: 3).

Dehousse (2003) states that the permanent monitoring and the periodical reports about the implementation of the set goals and the convergence is a very important part when we talk about such a flexible and „open“ method as the OMC is (Dehousse 2003: 4f.). Even without formal sanctions, the participating actors can be motived by the benchmarking and the incentive that the best-practice example could also make a change for the better in their case.

So we can conclude this section by naming two of the benefits on the OMC. First it would be the effectiveness: by monitoring different countries with different social systems, the participating actors have a multitude of solutions at hand from which they can pick the one that fits best for their country's needs. Also the actors phrasing the recommendations will be the ones to work with them and implement them later, so we can expect a high expertise quality (Héretier 2002: 19). The second benefit of the OMC is the efficiency. Héretier says that finding a consens is much easier via the OMC, because there are no sanctions attached to strong laws or regulations involved (Héretier 2003: 5,9).

Next we are going to take a look at the actors involved in the process of the OMC and the different approaches they have, before we can move on to the pension systems and how the OMC influences their reforms.

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