The State as Dynamic Actor in Corporatist Political Economies

53

Essay

The State as Dynamic Actor in Corporatist Political Economies

Since the 1970s, a well-developed literature has explored the dynamics of policy-making in corporatist countries, emphasizing a high degree of involvement of societal interests, particularly employers and trade unions, in public-policy formation and implementation. For the classic formulation of corporatism, see Philippe C. Schmitter, “Modes of Interest Intermediation and Models of Societal Change in Western Europe,” Comparative Political Studies 10 (April 1977), 9. Other seminal works include Wolfgang Streeck and Philippe C. Schmitter, eds., Private Interest Government: Beyond Market and State (Sage: Beverly Hills, Calif., 1985); and Gerhard Lehmbruch and Philippe C. Schmitter, eds., Patterns of Corporatist Policy-Making (Sage: Beverly Hills, Calif., 1982). A number of scholars have shown how regularized channels of deliberation, consultation, and negotiation between labor and capital have contributed to economic growth and social peace in systems that often perform better, politically and economically, than liberal political economies, where questions of economic distribution and the organization of production are addressed primarily through (or remain unaddressed by) markets. While this rich body of work has provided an analytical framework for exploring policy and institutional regularities in non-liberal political economies, it has by and large neglected the role of the state, whose role is crucial to understanding how corporatist polities respond to shifting social and economic challenges. This flaw has resulted in a misleading image of corporatist systems requiring little regulation and in which the interests of social groups almost seamlessly produce policies concomitant with the public good.

This theoretical underdevelopment of the state in traditional accounts of corporatist governance, we suggest, renders them poorly equipped to account for recent political developments in many advanced industrial countries, corporatist and non-corporatist alike. Like much of the literature on corporatism, recent work on “Varieties-of-Capitalism” similarly under-theorizes the role of the state in corporatist, or “coordinated market economies.” See Peter A. Hall and David Soskice, “An Introduction to Varieties of Capitalism,” in idem, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford: Oxford University Press, 2001). By doing so, such work offers limited analytical purchase on sources of political variation across corporatist systems, including the nature of the party system, the ideological postures of unions and employers' associations, and idiosyncratic political factors such as the partisan character and strategic predilections of particular governments. Such variation noted, in all corporatist systems adjustment invariably entails a significant and continued level of involvement by the state, whose purview for autonomous action is critical to promoting needed reforms and institutional adjustment.

Although the positive economic climate of the corporatist heyday of the 1970s and 1980s has yielded to high rates of unemployment, sluggish growth, and fiscal austerity associated with the policy constraints of European Economic and Monetary Union (EMU), state intervention in facilitating adjustment in corporatist systems has remained vital. In fact, we contend that it is in hard economic times, when the relative scarcity of resources engenders competition among social groups and increases discrepancies between private interests and public weal, that the state's coordinating functions are particularly important. Such adverse economic contexts tend to intensify pressures on policy-makers, not only to formulate just and viable policies that reduce economic uncertainty, but also to promote negotiation between social partners whom strained circumstances have made more likely to dig in their heels.

Germany and the Netherlands represent excellent prima facie cases for a comparative study of the role of the state in corporatist systems for several reasons. First, the state in both countries has a tradition of sharing political space with the social partners. Employers are well organized, especially among large and medium-sized firms, and collective bargaining occurs predominantly at the sectoral level. German industrial relations take place under the de facto leadership of the metalworking sector, and separate wage bargaining from plant-level management. See Wolfgang Streeck, Works Councils: Consultation, Representation, and Cooperation in Industrial Relations (Chicago: University of Chicago Press, 1995); and Kathleen Thelen, Union of Parts: Labor Politics in Postwar Germany (Ithaca, N.Y.: Cornell University Press, 1991). Furthermore, the Netherlands and Germany both possess “Bismarckian,” or “Christian Democratic,” welfare states, characterized by occupationally distinct, employment-related social insurance programs co-managed by worker and employer representatives and financed by earmarked payroll contributions from employers and workers. For the characteristics of Continental welfare states, see Kees van Kersbergen, Social Capitalism: A Study of Christian Democracy and the Welfare State (London: Routledge, 1995); Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, N.J.: Princeton University Press, 1990), 27 and passim; Fritz W. Scharpf and Vivien Schmidt, “Introduction,” in idem, eds., Welfare and Work in the Open Economy, vol. II, Diverse Responses to Common Challenges (Oxford: Oxford University Press, 2000), 11-13; and Maurizio Ferrera, Anton Hemerijck, and Martin Rhodes, The Future of Social Europe: Recasting Work and Welfare in the New Economy (Oeiras: Celta Editoria, 2000), 40-45.

At the same time, however, the two countries are distinct in terms of the institutional frameworks of the political economy within which their welfare states and industrial-relations systems are embedded, suggesting possible sources of variation in policy outcomes. For example, state intervention has traditionally been very strong in Dutch industrial relations, John P. Windmuller, Labor Relations in the Netherlands (Ithaca, N.Y.: Cornell University Press, 1969). while in Germany the constitutionally enshrined principle of Tarifautonomie, or “wage independence,” has limited intervention in this area. Likewise, in the Netherlands a decentralized but unitary state retains final authority in a wide range of policy domains, while German federalism and jurisdictional limits on state authority represent more substantial constraints on policy-makers, not only in wage bargaining but also in a whole host of other policy areas. Peter J. Katzenstein, Policy and Politics in West Germany: The Growth of a Semisovereign State (Philadelphia: Temple University Press, 1987). As a result, the mechanisms through which the German state has facilitated adjustment have tended to be more informal and subtle than those in the Netherlands, although recent German governments have been far from passive observers of social and economic change, as we shall see.

During the past fifteen years, the Dutch and German states have been instrumental to promoting reform and compensating for the policy failures of corporatist institutions. Previously, corporatist policy-making, in Germany and the Netherlands as elsewhere, was widely celebrated for promoting social peace, wage restraint, and vibrant economic growth, and both countries served as standard-bearers for the possibilities of adjustment through organized political and social bargaining. In the 1990s, however, these stories of corporatist success yielded to narratives of failure, as past economic successes have been overshadowed by more recent economic problems, including sluggish or even stagnant growth, high levels of structural unemployment, apparently unbridgeable insider-outsider cleavages, and increasingly severe pressures on wage-based social-policy financing. As the Dutch and German economic picture has darkened, the same corporatist institutions that had once been credited with underpinning national prosperity came to be seen as the sources of sclerosis and failed adjustment. In response, the state in both countries (beginning in the 1980s in Germany and somewhat later in the Netherlands) has employed a variety of forms of intervention in an effort to fix dysfunctional corporatist policy-making structures. At times, both states have used administrative and financial pressure to coerce the social partners into undertaking desired policy changes. At others, they have bypassed corporatism and imposed policies of its own devising, while in a few instances they have suspended corporatist bargaining or even dismantled it altogether.

While the character of intervention has varied significantly between the two countries and within them over time, Germany and the Netherlands thus represent two salient examples of corporatist political economies in which state authorities have worked to devise effective responses to institutional and policy dysfunctions. In Germany, the 1980s witnessed a series of relatively timid reforms in social and labor-market policy, followed by a period of increasing state intervention in response to the seismic social and economic shocks of reunification in 1990. Thereafter, German governments of both Left and Right worked to promote corporatist negotiation, most notably in the case of the tripartite Bundnis fur Arbeit, or “Alliance for Jobs,” even as they began to formulate policies that bypassed or suspended corporatist arrangements, given the limits placed Tarifautonomie on direct intervention in collective bargaining. The failure of attempts to reinvigorate corporatist wage-bargaining and social-protection reform in turn led German governments to adopt a series of “second-best” strategies for promoting reform, characterized by a more aggressive, interventionist posture and waning receptiveness to the concerns of the social partners and political opposition. In labor-market policy, for example, they have introduced a wide variety of training and placement programs, boosted subsidies to employers to create jobs, and stepped up pressure on the unemployed to search for work. In social policy, where there are fewer constitutional limits on their authority, governments have been even more successful in securing reforms, such as in the case of the recent restructuring of the pension system. Although federalism and the frequent control of the Bundesrat, or upper house of Parliament, by the political opposition, place significant limitations on state capacity even in the realm of social security, governments have often been able to secure reforms in this area by buying off or otherwise undermining the opposition politically.

In the 1980s, the Netherlands witnessed a resurgence of corporatist bargaining in the wake of a severe recession, spiraling unemployment, and significant inflation. Under the threat of government-imposed austerity and mandated liberalization, the social partners chose to negotiate, with unions wishing to limit the pain resulting from reform and employers hoping to forestall a government takeover of the policy-making process. The resulting “Wassenaar Accord,” concluded in late 1982, provided for the de-indexation of wages, negotiations over work-time reduction and job creation, and the partial decentralization of wage bargaining. This agreement ushered in a period of vibrant, negotiated reform in the 1980s and early 1990s that underpinned the celebrated “Dutch miracle” of rapid job growth. See Jelle Visser and Anton Hemerijck, “A Dutch Miracle”: Job Growth, Welfare Reform and Corporatism in the Netherlands (Amsterdam: Amsterdam University Press, 1997), esp. ch. 5. With respect to social security and labor market, the Dutch picture has been more mixed, with alternating patterns of state intervention, suspensions of corporatism in social insurance, and, much to the chagrin of the social partners, independent state efforts to shape active labor-market policy after the failure of a tripartite experiment in the early 1990s.

These nationally distinct patterns of state intervention provide clear support for the two central arguments of this chapter. First, they demonstrate that careful attention to the state's shifting role in remedying political-economic problems is crucial to a nuanced account of the dynamics of corporatist politics, particularly in periods of reform, fiscal austerity, and slowed economic growth. Second, they illustrate that corporatism is a dynamic and evolving process of dialogue and political exchange between the state and social partners, rather than a fixed institutional structure producing stable and predictable political patterns and policy trajectories. In our contribution to this volume, we focus on wage policy, social policy, and labor-market policy, domains that have moved to the center of recent policy debates. In each of these areas, the state has been instrumental to securing reforms, whether by promoting compromise among unions and employers, working indirectly to reshape the policy incentives faced by the social partners, or intervening directly to compensate for the failures of existing corporatist institutions. By exploring these areas of reform, we hope to shed light on how national constitutional and institutional particularities shape both the options available to state authorities and the resulting character of their efforts to repair broken corporatist arrangements. In the following section, we undertake a brief review of the literature on corporatism as a theoretical construct and empirical heuristic, emphasizing the extent to which leading scholars have addressed, or failed to speak to, the vibrant role of the state in corporatist governance.

The Forgotten Center: The State as Dynamic Actor in Corporatist Political Economies

The corporatist literature of the 1970s and 1980s made important contributions to the revival of the study of institutions mediating between state and market in advanced capitalist democracies. In the midst of the allegedly “ungovernable” 1970s, there was significant empirical support for the hypothesis that the capacity of advanced industrial societies to cope with social conflict and improve economic performance is increased by an institutional infrastructure which incorporates the societal interests of organized capital and labor into national economic-policy formation and implementation. See Lehmbruch and Schmitter, eds., op. cit.; Suzanne Berger, ed., Organizing Interests in Western Europe: Pluralism, Corporatism, and the Transformation of Politics (Cambridge: Cambridge University Press, 1981); and John H. Goldthorpe, ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984). Corporatist research during his period focused primarily upon the organizational attributes of organized interest groups and argued that tripartite incomes policies were almost indispensable tools of crisis management. In particular, so-called “encompassing organizations,” or highly centralized and concentrated functional interests, were believed likely to pursue responsible strategies of collective action supportive of the public goals of full employment and price stability. Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven, Conn.: Yale University Press, 1982); Michael Bruno and Jeffrey D. Sachs, Economics of Worldwide Stagflation (Cambridge, Mass.: Harvard University Press, 1985); and Peter Lange and Geoffrey Garrett, “The Politics of Growth: Strategic Interaction and Economic Performance in the Advanced Industrial Democracies,” Journal of Politics 47 (1985): 792-828. To a considerable extent, corporatist success in achieving economic and social stability was believed to be largely self-reinforcing, due to positive demonstration effects that reinforce mutual trust among the social partners and between them and the state.

In the 1980s, however, corporatist theory seemingly lost much of its rationale, as many corporatist political economies ran into serious employment, fiscal, and monetary difficulties, providing ammunition for neoliberal and other criticisms of political “interference” with market mechanisms. As the structural recovery of Western economies seemed increasingly elusive, a number of arguments were advanced for the putative demise of corporatism. Some authors were ready to predict “the end of organized capitalism,” Scott Lash and John Urry, The End of Organized Capitalism (Oxford: Polity Press, 1987). while others discovered the “challenge of flexibility,” Guido Baglioni and Colin Crouch, eds., European Industrial Relations: The Challenge of Flexibility (London: Sage, 1990). arguing that pressures to decentralize collective bargaining and the shift from Fordist, standardized mass production toward craft-based, diversified methods of production were difficult to reconcile with corporatist interest intermediation. Michael J. Piore and Charles F. Sabel, The Second Industrial Divide: Possibilities for Prosperity (New York: Basic Books, 1984); and Richard Locke, Thomas Kochan, and Michael Piore, Employment Relations in a Changing World Economy (Cambridge, Mass.: MIT Press, 1995). Highlighting the historical correlation of corporatist success with Keynesian macro-economic intervention, other observers suggested that the liberalization of international capital markets in the 1980s had sharply curtailed the political capacities of national governments to offer full employment, in exchange for wage restraint, through the use of fiscal and monetary policy. Fritz W. Scharpf, Crisis and Choice in European Social Democracy (Ithaca, N.Y.: Cornell University Press, 1991). Finally, with the introduction of the Stability and Growth Pact in the lead-up to EMU and the resulting shift toward hard currency policies across Europe, many observers feared that intensified regime competition would further jeopardize corporatist bargaining frameworks.

Departing from the prevailing intellectual fashion, Philippe Schmitter, one of the founding fathers of corporatist research, suggested the continued relevance of societal interest intermediation in an era of liberalization and slowed economic growth. Philippe C. Schmitter, “Corporatism Is Dead! Long Live Corporatism!,” Government and Opposition 24 (1989): 54-73. Bearing out Schmitter's contention, the fiscal and monetary pressures associated with qualifying for EMU generally did not lead to bold strategies of liberalization and deregulation. On the contrary, EMU seemed to spur a resurgence of national social pacts aimed at ensuring welfare-state sustainability, as the shift to a hard currency regime unexpectedly brought the social partners in many countries closer together. Giuseppe Fajertag and Philippe Pochet, eds., Social Pacts in Europe (Brussels: ETUI, 2000). This trend began in the Netherlands with the 1982 “Wassenaar” accord, followed by Denmark and Ireland in 1987 and Finland, Italy, Spain, and Portugal in the early to mid-1990s. David Cameron, “Unemployment, Job Creation, and Economic and Monetary Union,” and Martin Rhodes, “Globalization, Welfare States, and Employment: Is There a European `Third Way'?,” both in Nancy Bermeo, ed., Unemployment in the New Europe (Cambridge: Cambridge University Press, 2001).

Even many of those who pointed to the continued relevance of corporatist scholarship, however, tended to neglect the dynamic role of the state in facilitating and sustaining corporatist bargaining. From their earliest incarnations, most treatments of corporatist governance employed a rather narrow, “society-centered” perspective, centering on the organizational attributes of functional organized interests and largely neglecting the dynamic role of the state in what purported to be self-regulating political-economic models. To be sure, the state played a significant role in some of the earlier corporatist literature. According to Schmitter's famous definition, for example, “societal corporatism” is characterized by a “limited number of singular, compulsory, non-competitive, hierarchically ordered and functionally differentiated categories, recognized, or licenced (if not created) by the state, and granted a deliberate representational monopoly.” Philippe Schmitter, “Still the Century of Corporatism?”, in idem and Gerhard Lehmbruch, eds., Trends Towards Corporatist Intermediation (Beverly Hills and London: Sage, 1979), 13. Emphases added. Although such scholars acknowledged the importance of the state, they tended to limit their analysis of its role to the initial construction of corporatist systems, which thereafter were supposed to be more or less left to regulate themselves.

Not limited to such first-generation studies of corporatism, the absence of a dynamic conception of the state continues to characterize more recent work, such as the emerging literature on “Varieties of Capitalism” founded by Peter Hall and David Soskice. Hall and Soskice, op. cit. Viewing the political-economic dynamics of both “Coordinated Market Economies” (CMEs), such as Germany, and “Liberal Market Economies” (LMEs), such as the US and Britain, as self-reinforcing and highly path-dependent, Hall and Soskice overlook the role of politics and the state's capacity to engineer novel adaptive strategies, except to argue that, over time, government policies reinforce the tendency of both CMEs and LMEs to revert to established practices. Ibid., 62-64, 66-67. Accordingly, while Soskice and Hall admit that governments are important, they see their role as limited to supporting established patterns of coordination, particularly in CMEs, in response to pressure from economic shocks, both exogenous and endogenous. Ibid., 63. As a result, not only is the state's role reduced to reinforcing established economic structures, but a whole host of other, political factors, including systems of social partnership and evolving relationships among governments and electorates, is largely ignored.

Recognizing the neglect of the state in such approaches, a separate strain of research since the mid-1980s has attempted to develop a more complex, “state-centered” perspective, emphasizing the state as an autonomous actor that critically affects the ways in which corporatist political economies adjust to shifting economic, social, and political challenges. Gianfranco Poggi, The State: Its Development, Nature and Prospects (Stanford: Stanford University

Press, 1990). Colin Crouch, in particular, has shown in great detail how organized interests define their strategies of collective action within an institutional setting involving distinctive state traditions and complex linkages between state and society. Colin Crouch, Industrial Relations and European State Traditions (Oxford: Clarendon Press, 1993). Insights such as Crouch's point to the fact that nearly all aspects of corporatist governance are profoundly affected by the state, which plays several key roles related to the construction of corporatist frameworks and support of vibrant political exchange within them. First, the state is an institutional regulator providing Ordnungspolitik, the legal framework and ground rules that govern corporatist negotiation among the social partners. Second, the state's legislative capacity in economic, social, and labor market policy-formation has a direct influence on relations among the government, trade unions, and employer organizations. Third, beyond facilitating the initial institutional infrastructure for corporatist encounters, the state frames and facilitates corporatist exchange, whether through side-payments or threats to bypass corporatist institutions. As new policy pressures and dysfunctions arise over time, state intervention in each of these areas is required to sustain a responsive system of meaningful corporatist exchange.

The defining feature of the corporatist state lies in its willingness to share political authority with organized interests, with which it develops complex, reciprocal relationships, Wolfgang Streeck, Social Institutions and Economic Performance: Studies of Industrial Relations in Advanced Capitalist Economies (London: Sage, 1992). a dynamic which Colin Crouch has aptly termed the “sharing of political space.” Ibid. Neither state capacity nor the power of interest organizations, in other words, is the sole determinant of the dynamics of corporatist governance. Colin Crouch and Alessandro Pizzorno, eds., The Resurgence of Class Conflict in Western Europe since 1968 (London: Macmillan, 1978); and Marino Regini, “The Conditions for Political Exchange: How Concertation Emerged and Collapsed in Britain and Italy,” in Goldthorpe, ed., op. cit. In exchange for their acquisition of the status of public authorities and increased access to public-policy formation, voluntary associations share the burden of public administration, thereby becoming staatstragende Krafte, or “state-supporting powers.” By sharing public decision-making authority with civil society, the state devolves a portion of its most distinctive resources--namely legitimate coercion and the capacity to enforce binding agreements--to organized groups that it does not fully control administratively. At the same time, by bestowing private interests with circumscribed public authority, the state is able to expand its sources of information and professional expertise, resolve problems of public-policy implementation, and overcome dilemmas of policy coordination.

Effective corporatist adjustment is also crucially dependent upon a number of other institutional preconditions which cannot be taken for granted. For example, the role of bi- and tripartite institutional structures, which bring together state officials and the social partners within institutions for policy analysis, deliberation, and negotiation, is critically important. Repeated encounters within these fora encourage the development of solutions to distributive problems by allowing certain parties to accept outcomes undesirable to them in the knowledge that these arrangements can be adjusted in succeeding rounds of negotiations. This dynamic facilitates the realization of gains associated with positive coordination, the transformation of short-run, parochial interests into solidaristic interaction across the bargaining table, and, over time, the emergence of a shared view of political-economic problems and desirable policy solutions. It is therefore misleading to view corporatist governance as inherently associated with state weakness. On the contrary, social compromise may well enhance the state's capacity to secure its policy objectives by mobilizing intellectual and administrative resources from the social partners and other stakeholders. Effective corporatist governance, therefore, requires state actors not merely to create and maintain a framework for exchange among organized interests, but also to use important capacities to guide policy outcomes.

The state's authority to approve and ratify also implies the power to nullify undesirable agreements, enabling it to ensure bona fide processes of negotiation. In this respect, the multifarious role of the state in corporatist governance corresponds to Scharpf's notion of the “shadow of hierarchy” in strategic games, Fritz W. Scharpf, Games Real Actors Play (Boulder, Colo.: Westview, 1997). as the ultimate availability of hierarchical intervention and state ratification of agreements among private interests helps to curb distributive conflict and opportunistic “rent-seeking” among bargainers. This “relative autonomy of the state,” however, does not suggest that state actors can change the institutional environment as if they were operating a lever; rather, state responses to corporatist policy exchanges shape and are shaped in turn by both the institutional framework within which they operate and the strategies of organized interests with which they are confronted.

Even in the presence of an active state role in guiding corporatist bargaining, however, conflicts among the multiple interests involved can result in failure, a situation to which Fritz Scharpf aptly refers as a “joint-decision trap.” Fritz W. Scharpf, “Die Politikverflechtungs-Falle: Europaische Integration und Deutscher Foderalismus im Vergleich,” Politische Vierteljahresschrift 26, no. 4 (1985): 323-356. The state will inevitably be confronted with tensions between recognized social partners, whose needs to represent rank-and-file demands effectively and regulate these demands are in constant tension. When the strain between what Schmitter and Streeck have called the “logic of influence” and the “logic of membership” is not successfully managed by the social partners, a “representation crisis” can result, jeopardizing the entire edifice of corporatist exchange. Streeck and Schmitter, eds., op. cit. In such a situation, capital and labor pursue their own versions of the national economic interest, and their respective strategies are influenced not only by divergent ideologies and economic doctrines, but also by perceptions of their respective roles in the political economy and their self-regarding concerns with organizational survival and growth. Given that it is forced to rely upon the often-self-interested social partners for policy implementation, the government's capacity to respond creatively to changing external demands can become constrained in such a scenario. The advantages accruing from Staatsentlastung, or the state's sharing of policy responsibilities with the social partners, thus comes at a price, and much depends upon the institutional capacity of “consensus engineering” to generate, maintain, and adjust agreements in the face of changing political-economic circumstances and divergent interests, goals, and perceptions. Furthermore, the social partners' requisite willingness to accept unilateral sacrifices, on the understanding that they will not be exploited but rather reciprocated by others when the occasion arises, presupposes a high degree of mutual trust, which must be nurtured over time by enlightened state intervention.

Without effective consensus engineering, which relies heavily upon actual or potential state intervention, corporatist institutions can become barriers to effective policy coordination, economic performance, and social peace. Under such conditions of a corporatist “joint-decision trap,” the state becomes imprisoned in an institutional setting that no longer functions as intended. Faced with such a situation, state authorities can choose one of two options. On the one hand, they can work actively to reinvigorate societal consensus in an attempt to relaunch more responsive corporatist bargaining processes. On the other, they can distance themselves from corporatist arrangements in an attempt to extricate the state from its dependence on the support of the social partners. Such a strategy of “corporatist disengagement” constitutes a reaction to prolonged corporatist immobility and is often accompanied by state's move to devise reforms directly rather than negotiating them with the social partners, or, in extreme circumstances, even by dismantling of part of the corporatist political apparatus.

This possibility noted, the availability of state-led corporatist disengagement is limited by the “path-dependent” character of established corporatist institutions, as the state's ability to dismantle or bypass corporatism very much relies upon the institutional capacities at its disposal. While enjoying a certain autonomy to address problems in an authoritative fashion, state actors will most likely believe themselves to be in need of societal consensus and will thus be reluctant to break out of the stagnant corporatist policy framework or dismantle corporatist institutions in favor of untried alternatives. In the event of failed corporatist bargaining, state actors tend first to try to persuade organized interests by offering them side payments and other incentives, or work to adjust and recalibrate the corporatist model in order to revitalize joint policy-formation and implementation. While corporatism works best when there is a credible commitment on the part of the state not to intervene, however, accumulated failures on the part of the social partners to perform delegated policy functions create both opportunity and political pressure for the state to do just that. In short, neither the resurgence of social pacts nor the suspension of corporatist institutions is predetermined, and, in the event of corporatist failure, a series of carrots and sticks may or may not encourage participants to return to negotiated reform. Anton C. Hemerijck, “Corporatist Immobility in the Netherlands,” in Colin Crouch and Franz Traxler, eds., Organized Industrial Relations in Europe: What Future? (Brookfield, Vt.: Avebury, 1995).

In the sections that follow, we show that such indeterminacy has characterized recent reform experiences in both Germany and the Netherlands. In each, state responses to the failures of corporatist institutions and the character of policy outcomes have been shaped by nationally distinct institutional and policy legacies. Institutional differences in the two countries, relating to both the character of their corporatist institutions and the broader political economy within which they are embedded, have shaped pressures and opportunities for particular kinds of state intervention designed to repair broken corporatist arrangements. We begin with the Dutch case, where the revitalization of corporatist wage bargaining in the 1980s and 1990s was prompted by an effective “shadow of hierarchy” supported by a high degree of institutionalized state capacity.

State Responses to the Contingencies of Dutch Corporatism. Most observers agree with Gerhard Lehmbruch's characterization of the Dutch political economy as an example of corporatism “par excellence.” Gerhard Lehmbruch, “Concertation and the Structure of Corporatist Networks,” in Goldthorpe, ed., op. cit., 165. Far more than Germany, the Dutch political economy is furnished with a firmly established apparatus of bi- and tripartite boards for nation-wide social and economic policy-making. The Foundation of Labor (STAR, or Stichting van de Arbeid), owned by the central union and employers' organizations, is a private foundation, established in 1945 as a forum for meetings between the social partners. These meetings, attended by a delegation from the Cabinet, occur twice every year, once in the spring when the budget for the following year is prepared, and again in the fall, when a new round of wage negotiations is about to begin. The Social-Economic Council (SER, or Sociaal-Economische Raad), founded in 1950, is a tripartite advisory board. Since its recent reorganization in 1995, employers and unions each have eleven seats, while the other eleven are occupied by independent crown members appointed by the government, usually professors of Economics, the President of the Central Bank, and the Director of the Central Planning Bureau. As the foremost Dutch economic forecasting agency, the Central Planning Bureau (CPB, or Centraal Planbureau), enjoys a great deal of influence as the key supplier of economic projections, on the basis of which the social partners define their strategies of collective action. In this section, we focus on state responses to the constraints and opportunities of Dutch corporatism in the areas of wage bargaining, social security, labor-market policy and regulation, and pensions. As these components of the welfare state are governed by different mixes of associational self-regulation and government intervention, state strategies have differed widely across these domains, ranging from attempts to reinvigorate Dutch corporatism in the area of wage bargaining to deliberate efforts to dismantle corporatism in social insurance.

A distinctive feature of Dutch post-war economic policy has long been its state-led wage policy. Windmuller, op. cit. In the 1960s and 1970s, responsibility for wage policy reverted to unions and employers. However, since they were unable to agree among themselves, actual negotiations frequently ended with state intervention. Particularly in the wake of the first oil shock of 1973, the center-Left Den Uyl government opted for a strategy of fiscal stimulation. This set the stage for a conventional Keynesian corporatist package of fiscal reflation in exchange for wage restraint. This strategy failed, however, due to the radicalizing Dutch trade unions' refusal to support the government's loose budgetary policies with wage moderation. In response, in 1974 and 1976 the state imposed a wage freeze, but to no avail. A center-Right government was also forced to resort to wage intervention in 1979, 1980, and 1981.

Having failed to adjust to the first oil shock, the Netherlands experienced a much more severe recession in the wake of the second oil crisis in 1979 than did most other OECD countries. Levels of unemployment not seen since the Great Depression raised the degree of frustration over divided governments and repeated corporatist failures. New elections in 1982 brought to power an austerity coalition of the CDA and the VVD, led by the Christian Democrat Ruud Lubbers. The Lubbers government presented itself as a “no-nonsense” administration that was “there to govern.” Ready to take on vested interests, the new government immediately suspended cost-of-living indexation in wage agreements and social benefits, while freezing minimum wages, social benefits, and public-sector wages. The stage was thus set for tough confrontation between the state and the social partners, especially the unions. Surprisingly, however, the inauguration of the new government was greeted with a social pact, the now famous Wassenaar accord of 24 November 1982, named after the place where it was signed. Visser and Hemerijck, op. cit. After a decade of corporatist failure, the Dutch social partners had come to recognize that promoting investment, essential for job-creation and the struggle against unemployment, required a higher level of profits, and hence, a lower wage share. Moreover, the unions, weakened by the severe recession, were hardly in a position to engage in industrial conflict, while the employers' organization feared political interference in the form of a statutory and uniform reduction of the working week. Trade unions accepted protracted real wage restraint in exchange for a so-called “cost-neutral” reduction of working hours and job-sharing.

The Wassenaar accord marked a shift from the failed tripartism in the 1970s to successful bipartism in the 1980s and 1990s. Despite the celebrated voluntary character of the bipartite agreement, it is crucial to emphasize that Wassenaar was prompted by an effective threat on the part of the Lubbers administration to intervene in wage setting. Compelled by this “shadow of hierarchy,” the social partners joined forces in striking a bipartite deal. Once the accord was signed, the government withdrew this “sword of Damocles” from the policy agenda. Helped by an international economic upswing, rising levels of profits and investment, and significant job-creation, Lubbers' austerity policy paid off politically. In 1986 the center-right coalition was re-elected with gains for his CDA party. Two successive center-Right governments then engineered a clear break with corporatist immobility of the 1970s.

The resurgence of corporatism significantly altered the relationships among unions, employers, and the state. A new pattern emerged, characterized by centralized dialogue over legislative and substantive policy issues, combined with sectoral wage bargaining based on the primacy of industrial self-regulation. Jan Peter van Toren, Achter Gesloten Deuren? CAO-overleg in de Jaren Negentig (Amsterdam: Welboom, 1996). In the wake of the Wassenaar Accord, the tripartite Social and Economic Council also gained a new lease on life and issued a range of unanimous policy recommendations regarding youth unemployment (1984 and 1986), training (1986 and 1987), long-term unemployment (1986 and 1987), minimum-wage costs (1988), and part-time work (1989).

This new corporatism proved fairly robust, although it was certainly not free of conflict. In 1989, the Christian Democrats exchanged their Liberal coalition partners for the Social Democrats after a break in the old coalition over environmental policy led to new elections in 1989. At the turn of the 1990s, German unification boosted Dutch economic growth, but high interest rates soon dampened economic activity, leading to a reversal of employment gains. In these troubled waters, the credibility and legitimacy of Dutch social partnership came under attack from parliamentary leaders of the liberal opposition and the social democrats in the government. While the Christian Democrats still defended social partnership, the secular VVD and PvdA maintained that consensual, negotiated adjustment occurred at to slow a pace to respond to economic crises.

Alarmed by mounting political pressures, the central employers' and union organizations moved closer together in the early 1990s. In another attempt to stave off government intervention, the social partners signed yet another multi-year agreement, the so-called “New Course” accord, in December 1993. Anton Hemerijck, Marc van de Meer, and Jelle Visser, “Innovation through Co-ordination: Two Decades of Social Pacts in the Netherlands,” in Fajertag and Pochet, eds., op. cit. This accord was an heir to Wassenaar but went further down the path of organized decentralization and flexibility. Employers abandoned their categorical refusal of shorter working hours, and unions promised further wage restraint. This accord also embraced a new balance between flexibility and security by reducing levels of protection of existing (“core”) workers, coupled with enhanced employment opportunities and social security for atypical workers. Jelle Visser, “The First Part-time Economy in the World: Does it Work?,” AIAS-CESAR research paper, Amsterdam, 1999.

While the social partners agreed in 1982 to a long-term strategy of organized wage restraint, it became increasingly clear towards the end of the 1980s that the intimate ties between sectoral industrial relations and payroll-tax-financed social security had allowed the social partners to externalize the costs of economic adjustment onto the social-security system, resulting in uncontrollable growth in the volume of claimants. In response, the second Lubbers coalition of Christian Democrats and conservative Liberals, in office between 1986 and 1989, enacted a package of cost-containment measures, including a reduction of replacement rate of social-security benefits from 80% to 70% of previous wages. Despite these cuts, in the second half of the 1980s the number of people receiving disability benefits continued to rise, leading to an explosion in costs. As the politically unacceptable number of one million disability claimants loomed in 1989, Prime Minister Lubbers publicly dramatized the issue by saying that the country was “sick” and required “tough medication.” Using the mechanism of sickness and disability payments instead of layoffs, employers bought off worker resistance and maintained good relations with the unions. Leo Aarts and Philip de Jong, eds., Curing the Dutch Disease (Brookfield, Vt.: Avebury, 1996).

Lubbers I and II had exhausted the “price” policy of bringing social expenditures under control by freezing and lowering benefits. Lubbers recognized that he needed the Social Democrats (Partij van de Arbeid, or PvdA), led by ex-union leader and Wassenaar negotiator Wim Kok, in the government to share responsibility for the unfinished business of welfare reform. As the PvdA re-entered the government in 1989 as a partner in Lubbers' third cabinet, the low employment/population ratio was singled out as the root cause of the crisis of the Dutch welfare state. Wetenschappelijke Raad voor het Regeringsbeleid (WRR), Een Werkend Perspectief. Arbeidsparticipatie in de Jaren '90, Reports to the Government no. 38, The Hague, SDU, 1990. In response, the emphasis shifted to a “volume” policy, which aimed at reducing the number of benefit recipients. A new crisis of Dutch corporatism loomed large. The Social Economic Council proved unable to draft a unanimous recommendation on changes to the disability insurance scheme. This meant that the government had to act unilaterally. In the summer of 1991, after a great deal of agonizing, the government decided to restrict disability programs (WAO) and close off other routes to labor-market exit. The legal requirement that partially-disabled WAO benefit recipients accept alternative employment was strengthened. At the same time, access criteria for the WAO scheme were tightened. The proposal also included a reduction of replacement rates for all workers under the age of 50. Benefits would ultimately decrease to 70% of the statutory minimum wage plus an additional, age-related allowance. Furthermore, workers under age 50 filing disability claims would be subjected to new, stricter medical examinations. This episode had far-reaching political consequences, as the unions organized their largest post-war protest, with nearly one million participants, in The Hague. This unrest led to a profound internal crisis in the PvdA, nearly leading Kok to resign as party leader.

In 1992, the Public Audit Office (Algemene Rekenkamer) published a report highlighting the ambiguous distribution of power and responsibilities within the Dutch welfare system. In response, Parliament decided to apply the heaviest weapon, an All-Party Parliamentary Inquiry involving testimony gathered by numerous legal authorities. The commission undertaking the inquiry (often referred to as the Buurmeijer Commission after the name of its chairman) was crucial in triggering path-breaking institutional changes in the Dutch social-security system. In September 1993, the Buurmeijer report revealed what everybody already knew, namely, that social security was being misused by the social partners for the purpose of industrial restructuring--a clear case of perverse corporatism--and advocated a fundamental recasting of bipartite governance in Dutch social security. Unsurprisingly, the social partners disputed this diagnosis, but, confronted with the Commission's tough conclusions, they were in no position to defend the institutional status quo.

The 1994 elections took place in the shadow of popular discontent over welfare reform, and the Lubbers-Kok coalition was effectively voted out of power, losing 32 of its 103 parliamentary seats. The PvdA, losing 12 of its 49 seats, became the largest party. The progressive Liberals (the Democrats 66) persuaded the PvdA and the conservative-liberal VVD to form a coalition, resulting in the first government since 1917 without a confessional party as one of its members. Ruud Koole, Politieke Partijen in Nederland: Ontstaan en Ontwikkeling van Partijen en Partijstelsel (Utrecht: Het Spectrum, 1997). This new, so-called “purple” coalition, a mixture of socialist red and liberal blue, placed “jobs, jobs, jobs” at the center of its social- and economic-policy agenda when it took office in 1994. Its primary objective was maximizing employment, rather than combating unemployment through labor-supply reduction. The PvdA, however, stipulated a non-negotiable condition for its co-operation, based on a political hangover from the WAO crisis, namely, that the level and duration of social benefits remain untouched. Thus starting on the defensive, the new government was forced to turn to financial incentives for employers to create jobs, institutional reforms, and the development of active labor-market policies.

The restructuring of Dutch social security by the two “purple” governments under Wim Kok is best characterized as a case of “managed liberalization.” Romke van der Veen and Willem Trommel, “Managed Liberalization of the Dutch Welfare State,”

Governance 12, no. 3 (1999); and OECD, OECD Economic Surveys 2000: Netherlands (Paris: OECD, 2000). This approach entailed two central components. In substantive terms, financial incentives were developed through a partial privatization of social risks, while, with respect to institutional design, a path-breaking overhaul in Dutch social-security administration was enacted in three steps between 1995 and 2000. Visser and Hemerijck, op. cit. The majority of programmatic changes to the Dutch social-security system placed a heavier financial burden for covering sickness and disability risks on the shoulders of employers, so as to create incentives that would limit sickness- and disability-related absences, even as the state assumed a more active responsibility for the reintegration of sick-listed employees. Beginning with the privatization of the sickness scheme (through the ZW, or Sickness Benefits Act) in 1994, the responsibility for the first few weeks of workers' sickness-related absence was transferred from the sectoral funds to individual employers. In 1996, all employers became responsible for coverage of benefits up to a maximum of twelve months, at a rate of 70% of the most-recently-earned wage. SZW, Sociale Nota, The Hague, SDU, 1998.

The findings of Buurmeijer inquiry opened a policy window for a groundbreaking overhaul of the Dutch system of social security. In May 1998, the Kok administration was re-elected, thus rewarded for its excellent employment record and tough stance on social-security reform. The blessings of the Dutch “Polder Model,” something of an alternative to both neo-liberal deregulation and traditional social democracy, were celebrated in the international media. Gunther Schmid, “The Dutch Employment Miracle? A Comparison of Employment Systems in the Netherlands and Germany,” Discussion Paper FS 96-206, Wissenschaftszentrum Berlin fur Sozialforschung Berlin, 1996; Anton Hemerijck and Jelle Visser, “The Dutch Model: An Obvious Candidate for the Third Way?,” Archives Europeennes de Sociologie, vol. XL (1999), 102-121; and Joop Hartog, Country Employment Policy Review: The Netherlands, report for Symposium on “Social Dialogue and Employment Success” (Geneva: ILO, 1999). For a more critical reading, see Uwe Becker, “Miracle by Consensus? Consensualism and Dominance in Dutch Employment Development,” Economic and Industrial Democracy 22 (2001): 453-483. While the economy grew in the 1990s by 2.9% per annum, the rate of unemployment fell to 3%, the lowest in the EU after Luxembourg. With 1.4 million new jobs, labor force participation rose from 59% to 67%, in 2000 a structural surplus of 0.3% of GDP was realized, and the public debt was reduced from 80% of GDP in 1994 to 54% in 2001.