The Limits of Europeanization: explaining low reform capacity in Greece? [Work in Progress] Kevin Featherstone LSE

Greece & Europeanization ‘Europeanization’ is everywhere: recent growth of studies of domestic change attributed to ‘Europeanization’. ‘Europeanization’ is everywhere: recent growth of studies of domestic change attributed to ‘Europeanization’. Risk of normative bias. Risk of normative bias. Looking at cause & too readily accepting the effect. Convincing empirical evidence? Looking at cause & too readily accepting the effect. Convincing empirical evidence?

Europeanization as the frame Such studies face major challenges in establishing rigorous causal explanations: identifying Such studies face major challenges in establishing rigorous causal explanations: identifying –‘linking mechanisms’ (Goetz, 2000) between EU & domestic sphere; –key intervening variables (e.g. actors, institutional capability, discourse, policy structure: Radaelli, 2003); –significance relative to other stimuli (external, domestic). –Non-deterministic outcomes.

Europeanization frustrated? Despite: Despite: –high public support for EU membership in Greece; –Declared commitments of successive governments for EU’s EMU; Lisbon 2000 Agenda & ‘modernisation’. Greece has been one of the worst in implementing EU laws, adopting single market legislation & Lisbon reforms. Greece has been one of the worst in implementing EU laws, adopting single market legislation & Lisbon reforms. Why? Why?

How to explain relative failure? Europeanization perspective helps to explain agenda & identify response, but there are limits: Europeanization perspective helps to explain agenda & identify response, but there are limits: –Greece displays a paradox of capability: ‘integrated political leadership’ condition (a simple polity: unitary; centralised; unicameral; majoritarian) appears to be met, but ‘reform capacity’ is low. –To explain non-adaptation, we should not start from ‘Europe’: accounting for actor interests & ideas in domestic setting requires other conceptual frames. What are we missing in the domestic system to deepen our explanation of low reform capacity? What are we missing in the domestic system to deepen our explanation of low reform capacity?

Structuring interests… Structuring interests… How does domestic ‘system’ structure rational interests, behaviour? How does domestic ‘system’ structure rational interests, behaviour? Modelling the domestic ‘system’: mode of interest mediation (unions-employers- government); politics of the welfare regime; interests derived from economic model. Modelling the domestic ‘system’: mode of interest mediation (unions-employers- government); politics of the welfare regime; interests derived from economic model.

What model? Interest mediation Unions: ‘parentela pluralism’ (Pagoulatos, 2003): diverse but ‘rent-seeking’ behaviour from state. ‘Disjointed corporatism’ (Lavdas, 1997): corporatist structures lacking compromise & trust, unable to sustain stable pacts. Unions: ‘parentela pluralism’ (Pagoulatos, 2003): diverse but ‘rent-seeking’ behaviour from state. ‘Disjointed corporatism’ (Lavdas, 1997): corporatist structures lacking compromise & trust, unable to sustain stable pacts. Historically, ‘statism’ has structured expectations of each of the social partners (including the government) Historically, ‘statism’ has structured expectations of each of the social partners (including the government) Conflictual: e.g. tripartite social dialogue in 1997, 2000 failed. Conflictual: e.g. tripartite social dialogue in 1997, 2000 failed.

What model? Welfare regime Mediterranean-type (Ferrera, 1996): highly fragmented provision. Peaks of generosity (e.g. public sector pensions); lack of coverage (e.g. unemployment benefit). Affects rational interests: undermines labour mobility. Mediterranean-type (Ferrera, 1996): highly fragmented provision. Peaks of generosity (e.g. public sector pensions); lack of coverage (e.g. unemployment benefit). Affects rational interests: undermines labour mobility. ‘Late-comers’ agenda (Pierson, 1998): provision still being created alongside defence of privileges: ‘immovable objects’ versus agenda on equity. Powerful vetoes. ‘Late-comers’ agenda (Pierson, 1998): provision still being created alongside defence of privileges: ‘immovable objects’ versus agenda on equity. Powerful vetoes. High fiscal burden of pension privileges with social inequity – result of political interests, as well as available resources. High fiscal burden of pension privileges with social inequity – result of political interests, as well as available resources.

Politics of pensions To some significant extent, technocratic consensus on need for reform. To some significant extent, technocratic consensus on need for reform. Yet, sub-optimal outcomes: slow, piecemeal. Yet, sub-optimal outcomes: slow, piecemeal. No ‘crafted’ social model to defend, bare interests rather than social choice. No ‘crafted’ social model to defend, bare interests rather than social choice. Actors defend interests in knowledge of welfare gaps & vulnerabilities in provision, and expectations of reform weakness. System encourages them to be ‘risk averse’ & ‘rent- seeking’. Actors defend interests in knowledge of welfare gaps & vulnerabilities in provision, and expectations of reform weakness. System encourages them to be ‘risk averse’ & ‘rent- seeking’.

What model : varieties of capitalism More ‘state capitalist’ (Schmidt, 2002) than LMEs (UK), CMEs (Germany) (Hall & Soskice, 2001), but state’s impact varies. More ‘state capitalist’ (Schmidt, 2002) than LMEs (UK), CMEs (Germany) (Hall & Soskice, 2001), but state’s impact varies. Mixed Market Economy (Molina & Rhodes, 2005): more corporatist than in LMEs, but more fragmented & less able to coordinate than CMEs or deliver collective goods. Mixed Market Economy (Molina & Rhodes, 2005): more corporatist than in LMEs, but more fragmented & less able to coordinate than CMEs or deliver collective goods. –Lacks complementarity: low social protection, high jobs protection. Strong domestic veto points, low reform capacity. Prisoners’ dilemmas.

Modelling interests in the Greek economy Company structure: very few large enterprises and very many micro- and small- firms Company structure: very few large enterprises and very many micro- and small- firms Employment structure reflects late industrialisation: importance of services; disproportionate size of agriculture; relatively small manufacturing sector; Employment structure reflects late industrialisation: importance of services; disproportionate size of agriculture; relatively small manufacturing sector; Participation: low participation of women & part-time workers; significant problem of long-term unemployed. Participation: low participation of women & part-time workers; significant problem of long-term unemployed. Services 65%; Agric12% Female % one of lowest in OECD; part-time a third of EU15 average Self-employed % more than double EU15 av. Family workers 3x EU15

Structuring representation: Business voice favours few large firms (SEV), rather than myriad of very small enterprises. GSEVEE, not representative of small and medium size businesses in Greece. A fragmented coalition with no clear agenda. Thus a consensus emerges in the business community for a domestic market of anti- competitive regulation, barriers to entry, relatively cheap labour & stable product demand. Business constituency for liberal market measures is thus limited and shallow. Business voice favours few large firms (SEV), rather than myriad of very small enterprises. GSEVEE, not representative of small and medium size businesses in Greece. A fragmented coalition with no clear agenda. Thus a consensus emerges in the business community for a domestic market of anti- competitive regulation, barriers to entry, relatively cheap labour & stable product demand. Business constituency for liberal market measures is thus limited and shallow. Union voices over-represent the public (and ‘wider’ public) sector (GSEE, ADEDY), favouring the interests of a highly protected core group of workers, rather than temporary & irregular, informal workforce. Prioritises rigidity over flexibility & irregularity. Union voices over-represent the public (and ‘wider’ public) sector (GSEE, ADEDY), favouring the interests of a highly protected core group of workers, rather than temporary & irregular, informal workforce. Prioritises rigidity over flexibility & irregularity. Total Employers’ organisation density is half that of EU15 average Overall, union density is above EU15 average, but unionisation in private sector is low Product market regulation 2 nd most restrictive in EU15; worst in ‘ease of doing business’ (World Bank). Ratio labour cost/ hours almost half EU15

Split rationality & differential political voice VoC: follow ‘median voter’. But where is the median voter? VoC: follow ‘median voter’. But where is the median voter? Split rationality & differential political voice (private sector versus public sector workers) (few large firms & myrid of small enterprises) Split rationality & differential political voice (private sector versus public sector workers) (few large firms & myrid of small enterprises) Affects rational actor interests towards privatisation; labour mobility & pensions. Affects rational actor interests towards privatisation; labour mobility & pensions. A problem of governance: low reform capacity from a set of structural conditions – distorted representation, conflictual interests, skewed & limited public provision. A problem of governance: low reform capacity from a set of structural conditions – distorted representation, conflictual interests, skewed & limited public provision.

Bringing the State back in: 1. A long-term statist tradition (a ‘developmental state’) but its effectiveness and efficiency is comparatively low, undermining the capability to deliver public goods. 2. Perceived corruption and tax evasion is very high, undermining competition and the effective delivery of public services and functions. Large informal economy. 3. State spending on social protection is relatively high, but skewed and this affects actor rationality on welfare & employment. Govt sector cost highest in EU15; one of lowest in effectiveness scores Total Social Expend as % of GDP close to EU median 2 nd worst in EU in Global Corruption Index Shadow economy (28% of GDP?) largest in EU15

Addressing the puzzle: modelling responses There is a weak domestic constituency for market and welfare reforms, with the rational interests of key social actors defined by (a) the limitations of current (welfare) provision and compensating employment protection; (b) protected markets with stable product demand. There is a weak domestic constituency for market and welfare reforms, with the rational interests of key social actors defined by (a) the limitations of current (welfare) provision and compensating employment protection; (b) protected markets with stable product demand. Stop-go, incremental policy reform is the most likely outcome across such sectors. Stop-go, incremental policy reform is the most likely outcome across such sectors.

Limits of VoC Not a simple problem of selfish unions & inertia of few big firms (nor of party or personality). Not a simple problem of selfish unions & inertia of few big firms (nor of party or personality). Wider systemic conditions need to be incorporated: e.g. Wider systemic conditions need to be incorporated: e.g. –Inefficiency, low resources of state administration: low implementational strength. –Conflicting interests of clientelism: undermines will to reform. –Cultural factors: corruption, mistrust,non-compliance. –Limited public space for debate on options. Above consistent with Simitis, Above consistent with Simitis, 2007.

Reform deficit in a conducive economic climate Period here is not one of economic difficulty (with higher adaptational costs), but one of exceptional growth (with more scope for side payments); Period here is not one of economic difficulty (with higher adaptational costs), but one of exceptional growth (with more scope for side payments); Thus: strength of opposition indicates (a) the embedded strength of the current system; (b) the failure of new social forces to emerge in the boom years; (c) failure of government to advance ideas to win support from potential ‘winners’ & build a reform coalition. Thus: strength of opposition indicates (a) the embedded strength of the current system; (b) the failure of new social forces to emerge in the boom years; (c) failure of government to advance ideas to win support from potential ‘winners’ & build a reform coalition.

Yet: Greek contrasts Capability: Greek performance has varied between sectors. Capability: Greek performance has varied between sectors. Very good macro-economic performance since 1996: high GDP growth; convergence in inflation, deficit & debt levels. Distinctive features here: external commitment device of EMU; relative autonomy & exclusivity of domestic policy management in this area. Very good macro-economic performance since 1996: high GDP growth; convergence in inflation, deficit & debt levels. Distinctive features here: external commitment device of EMU; relative autonomy & exclusivity of domestic policy management in this area. Contrast with problems in enacting ‘supply-side’ reforms & welfare modernisation: weaker EU leverage; a more open and diffuse domestic policy process. Contrast with problems in enacting ‘supply-side’ reforms & welfare modernisation: weaker EU leverage; a more open and diffuse domestic policy process. Testifies to: nature of EU policy instrument (adoption- implementation); how contrasting domestic settings structure actor access & interests. Testifies to: nature of EU policy instrument (adoption- implementation); how contrasting domestic settings structure actor access & interests.

So: limits to Europeanization For Greece, domestically, a systemic problem of governance. Low reform capacity from both state weakness & structure of interest mediation. For Greece, domestically, a systemic problem of governance. Low reform capacity from both state weakness & structure of interest mediation. For EU: issues of its ability to coordinate a programme of economic & social reform – weakness of Lisbon process in face of domestic opposition. Capability-expectations gap? For EU: issues of its ability to coordinate a programme of economic & social reform – weakness of Lisbon process in face of domestic opposition. Capability-expectations gap? Conceptually: ‘Europeanization’ & ‘VoC’ approaches need not be incompatible. One extends limits of the other. Delve deeper into structures of rational interest, vetoes to explain EU effects & domestic response; contrasting Greek sectoral performance. Conceptually: ‘Europeanization’ & ‘VoC’ approaches need not be incompatible. One extends limits of the other. Delve deeper into structures of rational interest, vetoes to explain EU effects & domestic response; contrasting Greek sectoral performance.