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Subsidiarity needs to take its rightful place in the EU

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Diego Zuluaga is a Research Fellow at the Institute of Economic Affairs

Philip Booth 2

Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs

The subsidiary principle is a well-established notion in Catholic social teaching. It was also intended to be a core principle of the 1992 Maastricht Treaty.

Subsidiarity is commonly taken to mean that legislative decisions should be made at the lowest possible level, yet there is a tension between the original – Christian – definition of the subsidiary principle, and the way it has been adopted by the EU.

The Christian conception of subsidiarity is best captured by the following passage of Quadragesimo anno, Pope Pius XI’s 1931 encyclical:

Just as it is gravely wrong to take from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organisations can do. For every social activity ought of its very nature to furnish help to the members of the body social, and never destroy and absorb them.

The supreme authority of the State ought, therefore, to let subordinate groups handle matters and concerns of lesser importance, which would otherwise dissipate its efforts greatly. Thereby the State will more freely, powerfully, and effectively do all those things that belong to it alone because it alone can do them: directing, watching, urging, restraining, as occasion requires and necessity demands.

Four things are of note here.

Firstly, Pope Pius says that higher-level organisations should not do those things that can be done at the lower level. In other words, the hurdle for action by the state (still less by the EU) is a high one: it is not that the EU should do those things it might be able to do better, it should do those things that cannot be done at the lower level.

543532Secondly, insofar as the state (or the EU) does act, it should do so in a way such that it helps society and families rather than directs them or takes over their functions. A good example here – though not relevant to the EU – would be in the field of education. It is not for the state to direct parents as to how they should educate their children; however, it can help parents educate their children by providing finance if necessary.

Thirdly, the state is charged with those things that are most important. We could argue about what these things should be but they would intend to include the administration of justice, keeping the peace, and so on. These things are often important in a somewhat abstract sense (because we only notice their importance when they are not provided properly and society disintegrates).

Finally, subsidiarity is not just about hierarchies of government. Functions that can be undertaken by civil society (health, welfare functions and so on) should be left to such organisations.

The conception of subsidiarity in Quadragesimo Anno contrasts with the definition given in Article 5 of the Treaty on European Union:

Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.

In other words, the EU is obliged to act where it believes it is more effective or could achieve the objectives better. Indeed, it gets worse. In a further explanation of the principle of subsidiarity, the EU argues that: “The principle of subsidiarity also aims at bringing the EU and its citizens closer by guaranteeing that action is taken at local level where it proves to be necessary.” This inverts the burden of proof. There is also the other question of who decides what is to be done. In Catholic teaching the state is there to serve society and the family, not the other way round. Initiative should not be assumed to come from the top.

In summary, the Christian conception implies a bias towards decentralisation. The EU interpretation introduces a centralising bias.

stars and armsUnder the existing EU definition, the transfer of virtually any power can be justified on the basis that EU institutions are better placed to promote trade and more equal conditions across the Union. Consider, for example, the issue of the regulation of insurance. There is no question that this can be done by member states (or, for that matter, by professional bodies and other intermediary organisations). Indeed, insurance is largely regulated by member states at the moment, though this will change in the near future.

Whilst insurance regulation can be undertaken by member states, the EU argues that trade is less costly and economic outcomes better if there is a single rulebook for all insurance firms in the EU. This is the basis of the programme known as “Solvency II”. So, the EU fulfills the principle of subsidiarity as it appears in the treaties but, without question, the Catholic interpretation of the principle has been breached.

There are many reasons to prefer the Catholic definition from a constitutional and an economic perspective. There is, to begin with, the normative argument that power and authority belong as close as possible to the people affected. Lower-level organisations are, by definition, closer to individual people and families than higher-level ones. Thus, so long as the former can achieve the desired objectives, it would seem improper to assign the relevant powers to higher bodies.

Higher level political organisations have a tendency to acquire powers and to drift towards centralisation. And, this is the difficult with the Single Market Act and the powers it gives to the EU. Almost any action can be justified on the grounds that it promotes uniformity within the single market and therefore makes the single market more effective – and thus the principle of subsidiarity is almost never applied.

GrinderInstead, the treaties of the EU should have been devised so that different questions are asked such as: “is this measure necessary for the free movement of goods and services across the EU?”. If a measure is desirable to those at the centre, but not necessary, it would not pass the principle of subsidiarity. That does not mean, of course, that member states could not combine together to take action themselves (for example, to unify their regulatory systems in the case of insurance). But, the problem is that the burden of proof is the wrong way round and we need a system whereby member states devolve powers upwards at their choosing rather than the EU pontificating from above.

Decentralisation allows different communities to try different approaches to solving economic and social problems in a way that best fits their local circumstances and the preferences of their members. And decentralisation is empirically vindicated. The OECD has found that fiscal decentralisation is associated with higher economic growth.

The process of European integration has, for many years, been plagued by a wrong-headed interpretation of the division of powers among the different levels of government. The EU’s interpretation of subsidiarity lies at the heart of this misguided trend. If we wish European integration to work and to allow individuals, families and communities to flourish, we need to return to the original conception of the subsidiarity principle – one that emphasises free will and encourages responsibility.

About the authors

Diego Zuluaga is a Research Fellow at the Institute of Economic Affairs, and Head of Research of EPICENTER, an EU network of free market think tanks. He writes on regulation, with a focus on innovative industries and financial services. Diego read Economics at McGill University in Montreal.

Philip Booth  is Editorial and Programme Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. Philip is a Fellow of the Royal Statistical Society and a Fellow of the Institute of Actuaries.

 

2 Responses on “Subsidiarity needs to take its rightful place in the EU

  1. James says:

    If Pope Pius was so fond of subsidiarity, why is the Catholic Church the largest centralised religious bureacracy in the world, and why does it feel it has a right to interfere in activities being competently run by lower-level organisations?

  2. Tony Dickinson says:

    In three words (two words and a number, actually): John Paul II.

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