Globally organised work needs a global social security system.

Dr. Sch.-W. – 07/2019

Professor Enzo Weber, Head of Research at the Institute for Employment Research, is taking a trailblazing approach to the debate on the future of social security. The European Social Policy Expert Group, consisting of representatives from the umbrella associations of the German social insurance system, have already had the opportunity to discuss his proposals thoroughly (see article Oct 2018). 

Digital Social Security

Weber’s concept has now been revised and a more detailed, refined version of the global and standardised Digital Social Security (DSS) model is now available. It was published by the Hans Böckler Foundation in May 2019 under the title ‘Digital Social Security – Outline of a concept for the 21st century’. The latest version clearly shows that it is about more than simply shifting certain administrative processes to the international level. Rather, the scope and level of social protection for certain economic sectors has to be restructured on a global level and, if the model is successful, the power of the participating countries to structure social security has to be partially withdrawn.

At the core of Weber’s model is a global DSS account for each individual platform worker. Each platform operator, regardless of their location, transfers a certain percentage of the worker’s remuneration from their platform work to this account, where it is held temporarily. The system could be administered by an international institution such ad the World Bank or the ILO.  The DSS account ‘collects the globally generated contributions and transfers them on a regular basis to the social security system of the platform worker’s home country.’ The responsible social security institutions would then divide the incoming funds among themselves, possibility with the consequence that the cash benefits generated from this, such as pensions, would be reduced proportionately. 

For more details see our background information.

A version of the German Artist’s Social Insurance Fund?

Even if Weber does not want his model to be confused with the ‘creation of a new fully-fledged international social insurance’, it is much more than an international collection agency working on behalf of the social security institutions. Weber would even forego the DSS account and allow direct contributions to be transferred to the national systems, as long as the principle of a uniform contribution rate is maintained. In essence, the model resembles an international version of the German Artists’ Social Insurance Fund (KSK), although Weber does not refer to this at all. It is not necessary to fully understand the somewhat peculiar structure of the KSK in order to use it as a comparison. It is enough to know that the Fund deals with artists in the true sense, but not only artists; it is certainly not a fund in the traditional sense of a social insurance institution, such as a health insurance fund; and the social element consists in particular of a massive subsidy from taxpayer funds.

The KSK collects contributions and subsidies, then transfers them to the competent ‘traditional’ social insurance institutions, which provide insurance coverage according to their general rules. Like the DSS model, all contributions are collected from market operators; like the DSS model, benefits are claimed from the user due to a lack of employer; like the DSS model, the ‘generator of income’ gains access to high-quality social protection at extremely favourable conditions; and like the DSS model, the endemic financing gaps must be filled by an anonymous third-party.

It is therefore understandable that the KSK model is greatly popular on all sides of the German platform economy. Weber takes up this unseen thread and weaves it consistently on a global level, beyond the purely national dimension.

EU Digital Single Window

Weber’s concept has now been taken up and further developed by a High-Level Expert Group appointed by the EU Commission. It has proposed the creation of a Digital Single Window by the European Union. The aim is to exchange the social security and tax-relevant data of self-employed persons who work for multiple clients via electronic platforms and all other types of labour market intermediaries. Platform operators would have to automatically transmit all relevant income data to the Window in a standardised format, regardless of where the client is based or lives.

The Window would then forward the data to the national institutions responsible for taxation and the collection of the social security contributions of the platform worker concerned. From the point of view of the platform operator, the project would also have major advantages because it would simplify reporting and compliance, regardless of whether national law requires the operator or (typically) the self-employed platform worker to report income.

The aim of this European solution is to prevent platforms from having to report to a large number of national institutions – a step towards the completion of a harmonised Digital Single Market. However, it should be explicitly left to the Member States to decide whether they want the system or not. What Weber sees as the core of a global Digital Social Security model would be optional according to the proposal of the High-Level Expert Group, namely a module that would enable platforms to collect contributions at the source on behalf of the competent institutions and pass them on to these authorities. This variant would also have the advantage that it would not interfere with the competence of the Member States to define the contribution rate themselves, including for platform workers.

Which country is ultimately responsible?

The question of the geographical location of the country ultimately responsible for the social security (and taxes) of the platform worker must be strictly separated from the issue of establishing a digital account of any kind. This is no trivial matter, because in the event of any doubts it also determines the level of benefits and, if one follows Weber’s DSS model, it determines which country has to bear the burden of underfunded social security. In principle, there are three possibilities: the place where the service is produced, the place of residence of the recipient of the service, or the place where the service is delivered.

According to the applicable rules, the place where the service is provided is the ‘place of work’. Obviously for practical reasons, Enzo Weber would like to start with the service provider’s country of residence, which would normally be the same country where the services are provided. Such a regulation would be contrary to the system, but could be steered in the right direction with a little effort.

This would look quite different according to a model proposed by Joachim Schuster, Member of the European Parliament. He would like platform workers to be subject to the rules of the Member State in which the service is physically or digitally received for the duration of the service provision. This approach is difficult to implement, but not inherently inconsistent, because it follows the country of destination principle of the European rules on the posting of workers and the Services Directive. It is only somewhat surprising because it comes from a Socialist MEP and not from business representatives.

Consumption makes you rich – production makes you poor?

It should also be mentioned that the topic plays a role in the macroeconomic debate, namely in the issue of which countries are net payers and which are net recipients in the European ‘fiscal adjustment’. In a publication for the left-wing network Social Europe, a Portuguese economist argued that net payers in Europe were not those countries whose domestic exports exceeded imports, but that the true correlations had to be looked at the other way around. The largest net contribution comes from the countries that import the most or, to put it another way, those that consume more than they produce.

This thesis may be considered somewhat audacious, because, according to this model, if all European countries were net contributors, the EU as a whole would be financially dependent and externally controlled by the producing rest of the world. This would mean that social security could not be sustainably financed either nationally or by the EU. However, this thesis is part of a more general trend. At the centre of value creation, the role of the producer is becoming less and less important and that of the consumer more and more prominent - for example, as a ‘co-producer’. This will initially have consequences for global tax rules, followed by a flow-on effect to social security.