Pension Politics

Patrik Marier

• Publisher: Routledge
• Year: 2008
• ISBN:
  9781134093205
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Population ageing and slower economic growth have raised serious questions about the willingness and ability of governments to maintain current social policies. Within this new reality, discussions on the future of public pensions have been predominant in political debates across Europe.

This book explains why certain countries have been able to radically transform their pension system while others have simply altered parameters. To answer this question an extensive comparative analysis, including more than 60 interviews, was conducted in Belgium, France, Sweden and the UK. This empirical data provides an interesting contrast between reforms. Parametric reforms have stemmed from the creation of pension administrations outside the traditional state apparatus in France and Belgium and the resulting inclusion of social partners; while the state administrations of Sweden and the UK where debates have been internalised have led to programmatic reforms. Two controversial findings of this book include an explanation for the lack of influence on the part of the labour movement in the 1994/98 Swedish reform and a rejection of arguments claiming that policy change will be minimal with coalition governments. Finally the conclusion seeks to extend the applicability of the model to other industrialized countries.

This book will be of interest to students and scholars of public policy, specifically social policy, political economy, the welfare state and comparative politics.

1
The origins of diversity in pension reform processes

A theoretical approach

Introduction

The literature on the welfare state stresses the difficulties (even the incapacity) of its institutions to adapt to the new socio-economic realities of the twenty-first century (Pierson 1998; Ferrera and Rhodes 2000; Kuhnle and Alestalo 2000). Public pensions are no exception. Prior to World War II few industrial workers reached the age of retirement, and many actually opposed the creation of contribution-based old-age pensions on the basis that few believed they would live long enough to collect them. They referred to them as ‘the pension for the dead’. Owing to recent improvements in the average citizen’s quality of life and overall health, old age is now much more commonly attained, and an ever-increasing percentage of the population lives long enough to collect substantial pension benefits. Public pension systems were not designed, however, with this socio-economic eventuality in mind, leaving politicians and state officials struggling to reform a programme that is continuously expanding, even as governments experience ever-increasing budgetary constraints.

This chapter introduces a new explanatory framework that accounts for the different success rates accompanying various types of pension reforms introduced in the four countries studied (Belgium, France, Sweden and the United Kingdom (UK)), a framework that can then be used to understand this complex process in other industrialized countries. For example, why was Sweden able to radically transform its pension system, while France struggled to introduce relatively minor parametric changes? The typology suggested here differs from others commonly used by emphasizing the role of politicians, civil servants and social partners within the institutional structure of public schemes. The institutional structure matters because it grants specific roles to various actors and generates opportunities to veto suggested reform initiatives (Immergut 1992). Further, it is argued that these structured relationships are tied to state formation and to the creation of pension programmes, both of which shape the policy environment. Strongly rooted in the neo-institutionalist literature, this chapter argues that the electoral system and the management of public pensions are the two dimensions that should be examined in order to comprehend the varying degrees of success different countries experience as they attempt to implement substantial pension reforms.

The institutionalization of social partners and the state, and its influence on public pension reforms

This study contributes to the debate on the retrenchment of the welfare state by comparing pension reform attempts in Belgium, France, Sweden and the United Kingdom. It contributes to our theoretical understanding of the process by emphasizing the importance of electoral and pension institutions in any consideration of the ‘nature’ of the state with respect to analysing both formal and informal relationships within it. This research answers three broad questions: (1) which factors affect the different avenues chosen to reform pensions? (2) How should we account for the inclusion/exclusion of social partners in the process? And a last, related, question, (3) how does the inclusion or exclusion of social partners impact the result of an attempted reform? Thus, the main focuses are the process by which pension reforms are enacted and the outcome of such processes. This research does not seek to challenge the difficulties associated with retrenchment politics. Retrenchment is a more difficult enterprise than expanding welfare rights and benefits. Consequently, governments prefer to retrench public pension programmes via ‘stealth’ methods such as obfuscation, division and/or compensation strategies in order to avoid political backlash (Pierson 1994). This does not, however, necessarily imply stability. Policy change is an inherent outcome of the policy process enacted in the four countries studied, and different outcomes were obtained.

The chief factors are the nature of the state and the institutionalization of relationships among the various political actors such as parties, bureaucrats and interest groups. It is argued that these two variables are crucial aspects that explain divergence in the type and scope of reforms. As these relationships have been structured over time, the construction of the welfare state becomes a central element because it establishes, to use March and Olsen’s (1989) terminology, the ‘appropriate relationships’ among the various political actors. This section discusses the principal elements of current theoretical debates and introduces the theoretical framework used in this research, as well as the methodology employed to evaluate the framework’s utility.

Current theoretical debates: the challenges to welfare states

The re-emergence of institutions as an important consideration within the field of political science (March and Olsen 1989; Peters 1999) applies also to studies related to the retrenchment of the welfare state (for a review, see Green-Pedersen and Haverland 2002). For the most part, institutions have been considered a hindrance to politicians seeking to reform the welfare state, first because of their ability to veto suggested reforms (Immergut 1992; Bonoli 2000) and, second, because of what is referred to as ‘institutional stickiness’ (Pierson 1994, 1998). It is rare to find cases where a simple majority in a national parliament is sufficient to carry out welfare reforms. Even though this assertion has been widely supported in the literature, there have been few studies where institutions supported retrenchment (King 1995; Ross 2000b). For example, King (1995) demonstrates that the reintroduction of ‘workfare’ in both the United States and the United Kingdom was facilitated by the pre-existing institutional structure.

Pierson’s work delineating the difficulties commonly associated with retrenchment politics (Pierson 1993, 1994, 1996, 1998, 2000; Pierson and Weaver 1993) generated an important debate within academic circles on the merits of the ‘new’ politics of the welfare state. It is thus logical to begin our theoretical discussion of pension reform by reviewing his body of work and the criticisms levelled against it.

Strongly rooted within the neo-institutionalist literature, his main contribution is that welfare retrenchment is quite different from welfare expansion. Pierson (1994) argues that retrenchment is a difficult and costly political undertaking: it is much easier to expand benefits than it is to reduce or eliminate them; the latter generates an avoidance of blame rather than a taking of credit. Moreover, the electorate tends to have a negative bias; it is more cognizant of losses than equivalent gains (Weaver 1986). As a result, Pierson claims that the welfare state resembles nothing so much as an immovable elephant.

Pierson outlines three focal elements that contribute to the stability of the welfare state: its popularity, its path dependency and its institutional stickiness. Each is discussed in depth in the following pages. The first factor is the popularity of the welfare state. Social programmes, and public pensions as a prime exemplar of these, enjoy broad support among the electorate owing to the direct benefit received from them. This rests on the argument that ‘policies produce politics’ (Pierson 1994:39). For example, it is very difficult for a politician or a political party to get elected on a platform where cuts to pension benefits are a central feature. This is exacerbated by the fact that older citizens also tend to participate more in elections than do the young. Further, pension recipients currently belong to interest groups that promote their concerns. Pierson claims that the welfare state was actually instrumental in generating the creation of interest groups seeking to protect their benefits (Pierson 1994:30). For example, no American politician can afford to ignore the AARP, with its 30 million members (and votes) (Pierson 1994).

The rising political power of the elderly has been challenged both empirically and theoretically, however, by the realization that they, despite their shared concern about pension benefits, nonetheless do not comprise a single, unified interest group. In the four countries studied in this book, associations representing retirees tend to be divided along ideological (Sweden), occupational (France) and religious (Belgium) lines. Pierson himself acknowledges that Thatcher was able to push her 1986 reform through because the British pensioners’ groups were divided amongst themselves (Pierson 1994:71). Another critique made against the utility of the ‘grey-power’ thesis is the existing amount of variation that Lynch, for example, notes with respect to the percentage of various states’ budgets that are apportioned to the elderly, with the United States and Italy significantly favouring the elderly. She states that ‘younger age groups enjoy significant benefits in many countries’ (Lynch 2001:433). This challenges the generalized applicability of the so-called grey-power thesis.

Another problematic assertion is the assumed link between public opinion and election results. Thatcher introduced what are considered very ‘unpopular’ reforms, yet was elected and re-elected to office for over 10 years. This apparent anomaly is even more puzzling when we consider the fact that the British political system offers little opportunity for blame-avoidance tactics. Contrary to the position in the United States, for example, in the UK a policy cannot be blamed on another political institution like the Congress. In the same vein, Ross (2000a) challenges the power of opinion polls in sustaining the welfare state. She does not dispute this support, but she also directs our attention to other polls suggesting that retrenchment measures such as the Personal Responsibility and Work Opportunity Reconciliation Act (associated with the phrase ‘ending welfare as we know it’) became a very popular initiative under the Democratic Clinton administration in the United States (Ross 2000a: 19).

The cases reviewed in this study support the assertion that it is difficult to retrench the welfare state. Despite that acknowledged difficulty, however, there is widespread consensus among politicians in industrialized countries that the current generous pension plans must be reformed.¹ The main conflicts engendered by pension reform are related to the extent of the reforms and the way they are enacted. Swedish politicians from all major parties went out of their way to ensure that pensions were kept off the electoral agenda, and in this they succeeded. The 2002 French election, however, resulted in both political camps proposing a similar reform to the public sector despite the strength of the opposition such attempts had faced in 1995 from public unions and a large segment of the population. Public-sector reform was implemented soon after the elections by Raffarin’s right-wing government in 2003. The Socialists were deeply divided in their response, and they chose to criticize the process by which the reform occurred, rather than its content (Béland and Marier 2006). Thus, the electorate was faced with a choice between two main parties that were both advocating and endorsing pension reforms; it was thus not possible to link reform initiatives with a single politician or party.

The second important element stressed by the ‘new’ politics of the welfare state is the importance of programme structure, which creates policy paths that restrict reform options. Path dependency has been linked mostly with historical institutionalism, emphasizing the ‘legacy of the past’ (Peters 1999). It suggests that an institutional structure creates a path restraining the number of policy options available by increasing the costs of alternatives. David (1985) describes this phenomenon by explaining why QWERTY persists on computer keyboards despite more efficient alternatives such as the Dvorak configuration. ‘QWERTY-nomics’ stresses that once individuals adopt a standard and invest in it, the costs of switching to another increase over time, even though more efficient alternatives may arise. Similarly, all pension players have invested in, and are comfortable with, their original pension plans and are thus reluctant to change them substantially, despite the fact that the plans may not any longer be workable owing to ongoing demographic change and new socio-economic realities.

Historical institutionalists claim that institutions also delimit the power and even the formation of political preferences at the same time as they emphasize the strength of specific political actors. Even if those actors act rationally, institutional structures generate unintended consequences, thus creating policy outcomes divergent from the original policy preferences. For example, Steinmo concludes Taxation and Democracy with a chapter stressing the close relationship between tax revenues and expansion of the welfare state. He stresses that Sweden has a more comprehensive welfare state than the United States, not because Swedes have a stronger desire for a ...

Table of contents

• Routledge/EUI Studies in the Political Economy of Welfare
• Contents
• Tables
• Acknowledgements
• Abbreviations
• Introduction
• 1 The origins of diversity in pension reform processes
• 2 France
• 3 Belgium
• 4 Sweden
• 5 United Kingdom
• 6 Conclusion
• Notes
• Bibliography
• Index