The Politics of Welfare Reforms in (Bismarckian) - Continental European Countries: Is there a specific way? Bruno Palier Sciences Po - Paris, France

Outline I.The “Bismarck” project II.The characteristics of Bismarckian welfare systems III. The problems IV. The common trajectory: four sequences of reforms

I. The “Bismarck” project The puzzle: In the late 1990s, these systems were characterised as “frozen”, entrapped in the welfare-without-work strategy, “victims” of “path dependence” In the 2000s, important reforms: Activation of the unemployed Multi-pillar pension systems Competition in health care Development of care policies What happened? How to understand this U-turn?

The Bismarck project Focus on the role of institutions, as independent AND dependent variables On the impact of “cumulative” and “transformative” changes On “sequencing”, reforms trajectories On policy/reform feed back (learning/opens new opportunities) Successive reforms can lead to systemic change

The framework of the project: 3 angles National trajectories: Belgium and the Netherlands by Ive Marx and Anton Hemerijck, on the Czech Republic, Poland, Hungary and Slovakia by Alfio Cerami, on France by Bruno Palier, on Germany by Karl Hinrichs, on Italy by Matteo Jessoula, on Spain by Ana Guillen, on Switzerland by Silja Hauserman, on Austria by Herbert Obinger Sectoral reforms (social insurance): "The politics of pension reforms" by Giuliano Bonoli, on "The politics of health care reforms" by Patrick Hassenteufel and Bruno Palier, on "Unemployment compensation and employment policies" by Daniel Clegg, and on "Child and elderly care policies" by Nathalie Morel Structural changes: "The politics of the financing of social protection" by Philip Manow, "Changes in the governance of social protection systems" by Bernhard Ebbinghaus, “The self transformation of Continental welfare systems" by Anton Hemerijck and "The influence of European integration on national social policy reforms" by Philippe Pochet.

II. The characteristics of “Bismarckian” welfare systems The aim: characterising the “Conservative Corporatist” type from within. We look at Principles and Institutions in order to measure changes

Principles To provide income security for workers (Security and not Freedom or Equality) The importance of professional identities; The importance of collective protection and collectively negotiated rights; The importance of proportionality and the equivalence principle (a specific concept of equity); An orientation towards the support of traditional family roles; An emphasis on subsidiarity

Institutions 1.Mode of access to social protection based on work/contribution; these systems were primarily aimed at insuring the salaried workers paying contributions. 2.Benefit structures: merely in cash, transfer based; proportional; earnings related; expressed in terms of replacement rate, 3.Financing mechanisms based principally on social contribution/payroll financing, 4.Administrative structures are para-public, involving social partners in the management of the social insurance Kassen, caisses, caza….

These institutions explain a lot The problems The resistance to changes The reforms trajectory

The common problems Slow growth (slower than the US, the UK or Scandinavian countries or Eastern European countries) High unemployment, low employment rate Huge political resistance against reforms Why? In defense of the family wage: labour shedding strategies

Solutions that create even more problems Low -employment rate, high labour cost: High unemployment, long-term unemployment, de-qualification, social exclusion The few who work have a lot to pay: high level of social contribution, payroll tax, high level of labour cost The trap of jobless growth

Reference to Bismarckian institutions for explaining resistance to changes Those most in difficulty, the most difficult to change Explaining resistance to changes: - entitlements based on work - contributory benefits - social contribution - the role of social partners

Reference to institutions is also necessary to understand the changes: the reforms trajectory

III. A common trajectory? Four main steps (four types of policies and politics): –Before retrenchment –The first wave of (path-dependent) retrenchment (the 1990s) –The institutional reforms –The second wave of reforms, the path-breaking changes of the 2000s

Analysing policy changes: Five dimensions The context The diagnosis (a specific understanding of the context leads to a specific reform) The content of the policy The politics of the reforms The consequences of the reforms (policy or reforms feed back)

Before retrenchment Context Diagnosis Content of the policy Politics of the reforms Consequences - Economic downturn (mid- 1970’s onwards), - Raise in unemploy- ment, - Social budget deficits - Social benefits can help the victims of the crisis - Welfare without work - Raise in social contribution - Change in the generosity of the benefits - Applying good old recipes - It is easier to raise social contributions than taxes, and than cutting social benefits - No big changes to the welfare state, frozen landscape - Increasing inefficiencies of such policies (raise in unemployment, stagflation)

First wave of retrenchment (1990s) ContextDiagnosisContent of the policy Politics of the reforms Consequences - Economic recession (early 1990s) - Single market - Preparation of the single currency; demographic changes, - Maturation of the welfare states - The systems have to be rescued, consolidated - Increase in the contributivity of social insurance benefits - Tax financing of non- contributory benefits - Negotiated on the basis of clarification between insurance and assistance - From social to more individual insurance - “Erosion of share fate” (Jacob Hacker) - Social exclusion

Institutional reforms ContextDiagnosisContent of the policy Politics of the reforms Consequences - Post- industrial economy - End of Keynesianism -Global and European orientation: coordination of economic and social policies - Welfare systems are the cause of the crisis: work-based entitlements re- enforce social exclusion; income maintenance is disincentive to work; social contribution damage competitivity and create unemployment; corporatist management rules hinder reform capacities - Increasing importance of new benefits (universal or targeted), tax- financed, managed by the state - Expansion of private provision - New mode of financing, new taxes, less social contribution - New mode of management (public or private) -Virus/seeds strategy, layering: - new provision, new institution are implemented at a marginal point, - on a contradictory consensus base, - then they develop as to become a second pillar of the system -Weakening of social insurance mechanisms and actors

Path-breaking changes ContextDiagnosisContent of the policy Politics of the reforms Consequences - European Single Market - European Monetary Union - Politics of liberali- sation - Welfare systems need a profound adaptation to the new economic context - Diffusion of the OECD, EES, OMC ideas - Multiplication of pillars in pension, active ageing - Activation of unemployed - Competition in health - Care or employment policies? Divisive reforms - We are all supply- siders now - From income maintenance to activation, incentives, employment-friendly benefits - Re-commodification - Dualisation of the systems (social and private insurance/ assistance)

The realignment of Bismarckian welfare systems After a U-turn, they have joined the common social policy agenda: -Activation of the unemployed -Multi-pillar pension systems, -Competition in health care -Development of care policies But in a “Bismarckian” way which leads to a deeper insider/outsider divide, segmentation.