Why Have the Countries of the Same Type Welfare Capitalism Taken

Different Paths of Regime Transition?

Jae-Hung Ahn

Department of Political Science and Diplomacy

Division of Social Sciences

Ajou University

Suwon, Republic of Korea

E-mail Address: [email protected]

Paper presented at International Conference on Public Policy in Milan, Italy on July 1-July 4, 2015

1

Introduction

Political democracy and capitalist market develop in tandem, not necessarily proceeding in complementary ways, however. Historically, capitalist market was an arena bringing forth free individuals, but, at the same time, deepening social inequalities and thus separating small numbers of haves from large numbers of have-nots. In contrast, political democracy is sustained by a game of election in which only numbers of votes determine who hold political power. Furthermore, as Dahl argues, electoral politics can not represent the intensities of voters' interests (Dahl 1956, ch. 4). A seemingly paradoxical, i.e., complementary but antagonistic, interactions are inherent in the relationship between market and democracy: Political democracy is sustained by capitalist market, but has to mediate its effects.

Western democracies have mitigated these paradoxical interactions by constructing the institutional linkages between political representation and functional representation (Lipset and Rokkan 1967), on the one hand, and by implementing policies aimed at the virtuous circle of social welfare and economic growth, on the other hand. During the golden age of capitalism, welfare capitalism fulfilled its roles of mitigation successfully. However, welfare capitalism has since transformed itself while responding to exogenous factors such as oil shocks in the 1970s and globalization thereafter as well as to endogenously produced reactions against policy regimes of the virtuous circle. Nowadays, it is widely accepted that new politics of welfare retrenchment proceeds differently from old politics of welfare expansion (Pierson 1996; Pierson 2001).

This study analyze regime transitions in welfare capitalism. Theoretically, we assume that political economy regimes of welfare capitalism transforms themselves when political coalitions－electoral regime, party system, the executive-parliament relationship, and/or tripartite relations－change, and/or when the combination of policies－economic policy, income policy, social policy and so on－do not produce the virtuous circle between social welfare and economic growth. The existing studies are concentrated on politics of welfare retrenchment. In contrast, this study argues that it is not only politics of, but also political economy regimes of welfare capitalism that have undergone a

2 transformation after the golden age of capitalism. Furthermore, the countries belonging to the same type of welfare capitalism have taken different paths of regime transition, implying that the well- known typology of welfare capitalism (Esping-Andersen 1990; Huber, Ragin, and Stephens 1993) is no longer valid as far as it concerns regime changes.

First, we deal with the institutional affinity between political representation and functional representation in welfare capitalism. According to the existing studies, there has been an institutional affinity between consensus model democracy, on the one hand, and corporatism and coordinated market economy (CME), on the other hand (Lijphart and Crepaz 1991; Lijphart 1999; Kitschelt et al.

1999; Cusack, Iversen and Soskice 2007; Iversen and Soskice 2009). However, these studies do not pose a question whether consociationalism－a variable to measure the concept of consensus model democracy (Armingeon 2002)－is positively correlated with corporatism and CME. As will be discussed, consociationalism is negatively correlated with corporatism and with CME among those countries adopting proportional representation (PR), a key variable of consensus model democracy. It seems an irony. It is the countries having adopted PR that corporatism and CME developed to a high extent. But corporatism and CME are negatively correlated with consociationalism.

We handle this puzzle from the following theoretical perspective: Proportional representation may contribute to enlarging the political space for consensus-making but does not ensure the making of consensus. Good governance in democratic societies is realized when political institutions allow comprehensive participation but, at the same time, govern well enough to successfully coordinate conflicting interests (Lipset and Rokkan 1967; Gering et al. 2005). As Blondel and Cotta pinpoint, governments are "at the crossroads between representation and administration" (Blondel and Cotta

2001, 3). This study explains the negative correlation between consociationalism and corporatism with the variables of political governance―the executive-parliamentary relations and party politics.

Second, we discuss dynamics of policy and politics. As mentioned, welfare capitalism regimes are likely to undergo a transformation when failing to produce the virtuous circle between social welfare and economic growth. We argue that income policy is a core bringing about the virtuous circle, thereby sustaining the political economy regime of welfare capitalism. In fact, the welfare states in 3

Western Europe adopted social policies as a way to compensate for workers' acceptance of wage restraints during the golden age of capitalism (Lehmbruch 1984; Katzenstein 1985). The problem is that a successful implementation of income policy endogenously provokes reactions against the very regime of income policy, i.e., concertative tripartite relations. As will be discussed, once the goal of income policy, i.e., full employment, is achieved, the union movement would no longer accept wage restraints, going thourgh conflicts against employers’ associations. When industrial relations are in conflict, the executive-parliamentary relation matters. That is, when the executive does not control the legislative processes, both labor and capital tend to influence the legislative processes directly in order to realize their interests rather than participating in corporatism. From this theoretical perspective, we trace the processes in which the political economy regimes of consensus model democracy and corporatism have undergone a series of transformation after the golden age of capitalism.

We take case of two types of welfare capitalism: social democratic welfare states (Sweden and

Denmark) and Christian democratic welfare states (the Netherlands and Austria). We employ method of difference when conducting a pair-wise comparison within the same type of welfare capitalism, and method of agreement when comparing the states across the types of welfare capitalism. We analyze how the dynamics of policy and policy, on the one hand, and the executive-parliamentary relations, on the other hand, affected regime transitions in welfare capitalism.

Theory and Method

Institutional Affinity

The existing studies argue that consensus model democracy has an institutional affinity with corporatism and CME whereas majoritarian model democracy is congruent with pluralism. They count electoral regime as a key variable affecting the formation of institutional affinity. According to

Lijphart, pluralism is positively correlated with the percentage of minimal winning, one-party cabinet, and negatively correlated with the effective number of parliamentary parties. Based upon these

4 findings, he presumes that corporatism, the opposite variable of pluralism, is positively correlated with the variables of consensus model democracy (Lijphart 1999, ch. 4; Lijphart 2002, 108). 'Varieties of capitalism' approaches also argue that CME has been positively correlated with PR. They examined how employers voluntarily supported PR. The origin went far as back as to the transition period from proto-industrialization to industrialization. In the countries where locally coordinated economies had already been developed, even employers preferred PR in the processes of nation-wide industrialization because it “permitted coordination in regulatory policy” in legislative institutions

(Cusack, Iversen and Soskice 2007; Iversen and Soskice 2009).

Has consensus model democracy always been congruent with corporatism and with CME? It is true that corporatism and CME have developed in the countries of consensus model democracy.

Depending upon the political and policy contexts, however, the politics of consensus broke down, and corporatism of restraining wages stopped working. As will be discussed, in Denmark, after the election of 1973 in which effective number of parliamentary parties substantially increased, the executive-parliamentary relation suffered from the conflicts between the cabinet and opposition parties, and the centralized wage bargaining failed in 1973, 1975, 1977 and 1979. For another example, in the Netherlands, corporatism of centralized wage bargaining as well as politics of consociationalism no longer worked after around the mid-1960s.

Since the consensus model democracy has not always kept an institutional affinity with corporatism, we need to analytically divide political representation and functional representation into separate dimensions. Armingeon also argues that corporatism should be “treated separately from consociationalism” because each has different decision-making rules and produced different policy effects (Armingeon 2002, 88; Keman and Pennings 1995, 276). We classify the political economy regimes of welfare capitalism as in

. We may assume that political economy regimes of the small, European welfare states were located in IV after the end of the World War II. Sweden,

Denmark, the Netherlands and Austria got down to reconstructing economy through corporatist policy-making, recording high scores of corporatism throughout the golden age of capitalism

(Schonfield 1965; Lehmbruch 1984; Siaroff 1999).

5

Political Economy Regimes of Welfare Capitalism

Why did political economy regimes of welfare capitalism change after the golden age of capitalism?

Theoretically, we assume that changes in the executive-parliamentary relationship affected tripartite relations to shift. When the cabinet loses control over the legislative processes in the parliament, interest groups would increase contacts with the parliament rather than participate in the tripartite relations of corporatism. Then, political economy regimes may shift from IV towards II. To the contrary, when the cabinet succeeded in mobilizing a majority in the parliament, thus holding control over the legislative processes, political economy regimes may shift from IV towards III.

Scandinavian scholars have already conducted a series of research regarding this issue and showed that the frequency of lobbyism increased after the 1970s when the executive was in a weak position relative to the parliament (Hermansson et al. 1999; Christiansen and Rommetvedt 1999; Binderkranz

2003). However, these studies do hold the position that there exists an institutional affinity between consensus model democracy and corporatism (Anthonsen and Linvall 2009; Christiansen et al. 2010;

Ö berg et al. 2011). In contrast, we will show in the section on empirical test that corporatism is negatively correlated with the variable of consensus model democracy, i.e., consociationalism, among the countries adopting PR. In the section on the comparative case studies using methods of difference and agreement, we argue that it was changes in the executive-parliament relationship that affected the

6 break-down of the tripartite relations of corporatism after the golden age of capitalism and the resurrection of corporatism in the changed form of social concertation after globalization.

Dynamics of Policy and Politics

Public policy has traditionally been treated as a dependent variable to be explained in terms of politics

(Heclo 1974, 5, 315). A public policy is cast into a mold through the political processes of policy- making. But the implementation of the public policy entails feedback effects which in turn may bring about changes in the preferences, interests and meanings of actors as well as in the capacities of the organizations involved (Pierson 1993; Skocpol 1992). Then, these changes reversely affect the contexts of politics in which the public policy had been made. That is, policy and politics are interacted with each in the dynamic processes in which the theoretical role of a public policy transforms itself to be an independent variable affecting politics. As Schattschneider points out, “new policies create a new politics” (Schattschneider 1935, 288).

An institution is likely to fall into the dynamic processes of transition particularly when the positive effects of feedback no longer play a role of constraining actors to behave in a certain way. In democratic societies, an institution is institutionalized when the actors affected have not only reached a consensus but also shared the meanings inherent in that consensus. But policy and politics are intertwined paradoxically. A public policy is cast into a mold while actors take the steps of consensus formation. When a crisis like economic recession occurs, for example, they are likely to seek ‘political exchange’ (Katzenstein 1985) and, if successful, each of them gives up its short-term interests with the view of accomplishing long-term interests.

Once the goal of a public policy is achieved, however, actors will no longer be constrained by the conditions that had underpinned consensual politics, withdrawing their previous concession of short- term interests. This is because the implementation of the public policy has already got rid of public disexternalities. In this situation, the positive effects of feedback no longer constrain actors. Rather, the institution itself produces a negative feedback effect because it still imposes the sacrifice of short- term interests on actors. Consequently, feedback provokes backlashes, setting a reactive sequence in 7 motion (Pierson 2000; Mahoney 2000). Negative feedback effect is likely to be inflicted more on some actors than on others, provoking backlashes by the former (Weir 2006). Thus begins intra- organizational and/or inter-organizational conflicts.

From these theoretical perspectives, we trace the dynamics of income policy and politics of tripartite relations. Being afraid of massive unemployment in the period of economic recession, labor unions may voluntarily cooperate with employer associations and/or the state for the construction of an institution of wage restraint. If economy is recovered, however, the same labor unions would no longer support the institution of wage restraint as most of the West European labor unions did after around the end of the 1960s (Flanagan et al. 1983). As soon as the expectation of high unemployment no longer holds true, wage earners would not sacrifice their wages for the institutionalization of full employment (Scharpf 1991, 170-1). That is, the feedback effects of wage restraint come to be at odds with the previous condition, i.e., the expectation of high unemployment. That is, the institution of income policy is no longer in a position to constrain labor unions. Rather, it provokes backlashes by those labor unions which would otherwise have room to raise wages.

When does political economy regimes of welfare capitalism resume tripartite concertation and thus income policy, again? When suffering from high unemployment again, the union movement is likely to have interest in resuming tripartite concertation (Franzosi 1995, 31; Korpi 2002). In the section on comparative case studies, we argue that two factors mattered. The first one is the historical timing for the union movement to resume corporatism. Globalization tipped the balance of power between labor and capital toward the latter whereas labor had held sway over capital before globalization. In case that the union movement sought to resume tripartite concertation before globalization, it would be likely for the concertation to continue even after globalization. To the contrary, in case that the conflict between labor and capital continued to occur until after globalization, tripartite concertation would not be easily resumed even under economic recession. Being relatively mobile, capital would not be institutionally entangled with labor through corporatism any more even if the latter sought to revive corporatism and income policy. After globalization, capital became equipped with three alternatives: 1) exit to foreign investment, 2) to resume concertative corporatism, and 3) to leave wage

8 negotiation to the market as is in LMEs. Capital is less likely to take the second option as long as it is obsessed with the trauma of industrial conflicts.

The second factor is political governance. As discussed, if the cabinet holds sway over the legislative processes, it is likely for the union movement and employer associations to participate in corporatism. In fact, corporatism revived after globalization, but in different forms running the gamut from traditional corporatism to social concertation. In the section of comparative studies, we argue that differences in political governance regimes brought about the different forms of political economy regimes of welfare capitalism. After globalization, the executive no longer controlled the legislative processes to the same extent as did in the golden age of capitalism. The west European states sought to reinforce the executive-parliament relations in diverse ways while reforming the welfare state. Coalition agreements have exerted increasingly powerful influence on the party politics of legislation, stabilizing the executive-parliament relations (Müller and Strøm 2008). Political parties in government and in opposition coordinated conflicts increasingly well because the ideological distance between left and right parties was substantially reduced (Andeweg and Timmermans 2008;

Blyth and Katz 2005). Furthermore, political parties have been involved in the dealing processes of social pacts (Haman and Kelly 2007). In addition to income policy, social pacts cover the wide-ranges of social policies which are to pass the legislative processes. That is, political parties, a key agent of political representation, are enmeshed with the tripartite relations of functional representation. This study will argue that a new politics of coalition, the changing roles of political parties and social concertation stand for the constitution of a new political economy regime of welfare capitalism in the era of globalization.

Empirical Tests

Institutional Affinity

shows the relationship between corporatism and consociationalism. The variable

9 consociationalism composes of 'effective number of parliamentary parties' and 'percentage of minimal winning one-party-cabinets.' Lijphart tests its correlation with pluralism, respectively (Lijphart 1999,

182-83; Armingeon 2002). Consociationalism is positively correlated with corporatism although significance level is slightly over the accepted level (see

. This finding supports the argument that there is an institutional affinity between consensus model democracy and corporatism.

But if we take just those countries in group II into account, the correlation turns out to be negative

(Pearson's correlation = 0.671**; significance level = 0.034). Except Japan, the political regimes of the countries in group II belongs to consensus model democracy. These finding imply that among the countries of consensus model democracy, corporatism does not have an institutional affinity with consociationalism. Considering that corporatism has been institutionalized in those countries of consensus model democracy, consociationalism alone may not be a valid concept explaining the institutional affinity.

In

, the group II countries adopt PR or mixed electoral systems whereas except Ireland, group I countries employ majority electoral systems. If we take into account those countries adopting

PR or mixed electoral systems, the correlation between corporatism and consociationalism is not positive. Ireland belongs to majoritarian model democracy although adopting PR. If we exclude the

Irish case, the rest of the countries are the same as the countries in group II. That is, if we control the variable of electoral systems, it turns out that consociationalism does not have an institutional affinity with corporatism.

10

Consociationalism (1971-1966 and Corporatism (the 1970s-the 1990s)

OECD Countries

PR or Mixed Electoral Systems

2 2

1.5 AUT SWE 1.5 AUT SWE NOR FIN DEN SWZ NOR 1 NED DEN FIN GER ( II ) 1 SWZ GER NED 0.5 JPN BEL 0.5 BEL 0 AUL ( I )

0 Corporatism Corporatism -0.5 POR ITA NZ IRE -0.5 ITA -1 UK USA ESP FRA IRE CAN -1.5 -1 -2 -1 0 1 2 -1 -0.5 0 0.5 1 1.5 2 Consociationalism Consociationalism

Source: For consociationalism, see Armingeon 2002, 90; for corporatism, see Siaroff 1999, 185. Note1) Armingeon uses Lijphart's data. Consociationalism scores are "arithmetic mean of z-scores of effective number of parliamentary parties and (inverted) percentage of minimal winning one-partycabinets." Armingeon 2002, 90. Note 2) Corporatism scores are z-scores of Siaroff's corporatism scores. Note 3) In

, Pearson's correlations = 0.420* (significance level = .065). In group II countries, Pearson's correlation = - 0.671** (significance level = 0.034). In

, Pierson's correlations = -0.366 (significance level = 0.268).

The correlation between consociationalism and the coordination of markets is almost the same as the relationship between consociationalism and corporatism. Hall and Gingerich operationalize the concept of market coordination in terms of the coordination of labor relations and the coordination of corporate governance. They argue that two variables are significantly and highly correlated with each other and contributed to economic growth (Hall and Gingerich 1999a). The variable market coordination in

is arithmetic means of the two indexes of labor relations and corporate governance. The shapes of scatter plots in

and

are very similar to those in

and

, respectively. That is, consociationalism and market coordination are positively correlated across the industrialized countries, but are negatively correlated among those countries belonging to consensus model democracy.

11

Consociationalism(1971-1996) and Coordination of Markets (1971-1997)

OECD Countries

PR or Mixed Electoral Systems

2 2 AUT 1.5 GER ITA AUT 1.5 NOR JAP 1 GER ITA ESP FRA FIN 0.5 SWE NED 1 NOR

POR BEL Market SWZ 0 DEN SWE FIN AUL 0.5 -0.5 IRE NED BEL -1 0 DEN NZ CAN SWZ -1.5 USA -0.5

CoordinationofMarket UK -2 Coordination of IRE -2.5 -1 -2 -1 0 1 2 -1 -0.5 0 0.5 1 1.5 2 Consociationalism Consociationalism

Source: For the scores of consociationalism, see Armingeon 2002, 90. For the scores of market coordination, see Hall and Gingerich 2009b. Note 1) Market coordination scores are z-scores. Market coordination scores = (Index of coordination in labor relations + Index of coordination in corporate governance)/2 Note 2) In

Pearson's correlation = .526** (Significance level = 0.018). In

Pearson's correlation = -0.234 (Significance level = 0.488). In case Ireland is not counted, Pearson's correlation = -.683** (significance level = 0.029).

The degree of corporatism and CME is negatively correlated with consociationalism among the countries of consensus model although these two institutions have been firmly entrenched in these countries. Why is it so? It may well be that electoral regime or consocationalism alone is not a valid concept reflecting the core characteristics of consensus model democracy. In the section on comparative case studies, we discuss how consociationalism has interacted with political governance, i.e., the executive-parliament relations, thus bringing about changes in political economy regimes.

Necessary Conditions of Economic Growth and Social Welfare

It is when social policies are linked with wage restraining income policy that a virtuous circle between economic growth and social welfare comes true. That is, wage restraining income policy is a necessary condition for the formation of the virtuous circle. Social policy alone, regardless of whether it is ALMP(active labor market policy)-centered or PLMP(passive labor market policy)-centered, does

12 not produce enhancement in economic performances. PLMP refers to such policies as unemployment insurance, disability insurance and pension, which assists unemployed to remain outside the labor market. To the contrary, ALMP indicates those policies promoting job training and job searching, and assisting firms to absorb unemployed in the labor market. During the golden age of capitalism, West

European countries have adopted either ALMP or PLMP to achieve full employment (Esping-

Andersen 1990, ch. 6; Esping-Andersen 1996).

In fact, Sweden, Denmark, the Netherlands and Austria adopted various combinations of policies.

In

, X-axis indicates the variable of wage dispersion among low and middle wages－P50P10. Y-axis measures the extent to which social policies are concentrated on ALMP relative to PLMP. The arrows indicate the changes between the pre-globalization period and the globalization period. It is noteworthy that Denmark was deviated from other social democratic welfare states, and Austria from other Christian democratic welfare states. By and large, after globalization, wage dispersion became larger, and the ratio of ALMP relative to PLMP was shifted up.

As the combination of policies differed across the countries, so did the rates of unemployment. Before the first oil-shock of 1973, the four countries enjoyed very low levels of unemployment close to full employment. After the year 1973, however, five countries experienced sharply different rates of unemployment (

).

Expenditures in Social Polices and Dispersion of Wages (1980 and 2000)

3.5

SWE 3 (1980)

2.5

2 I II

1.5 NOR FIN FRG SWE (2000) NZ SWZ IRE(2000) 1 DEN

ALMP ALMP / PLMP UK(2000) (2000) NED(2000) JPN AUT UK(1980) AUT(1980) 0.5 NED IRE(1994) DEN (2004) III (1980) ITA USA CAN IV 0 (1980) AUL FRA 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 P50 / P10

13

Source: OECD, OECD Social Expenditure Database. http://www.oecd.org/document/9/0,3746,en_2649_33933_38141385_1_1_1_1,00.html

Fluctuations of Unemployment Rates

20

15

10

Unemployment 5

0

1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Austria Denmark Ireland Netherlands Sweden

Source: OECD, Directorate for Employment, Labour and Social Affairs (OECD:Paris). http://www.oecd.org/document/34/0,3343,en_2649_33927_40917154_1_1_1_1,00.html Note 1) Danish employment (1968-1981) and Austrian employment (1968-1981, 1984) are not standardized ones. See, OECD (1983), Historical Statistics 1960-1981 (Paris: OECD, 1983)

Our study takes unemployment as a dependent variable to measure economic growth and social welfare. This is because jobless growth does not contribute to enhancing social welfare. We focus on the interaction effects between social policy and income policy in explaining unemployment. In labor economics, the effects of PLMP, ALMP, and wage negotiation are already reported (Calmfors and

Driffil 1988; Nickell 1997; Blanchard and Wolfers 2000; Layard, Nickell and Jackman 2005). In relation with unemployment, PLMP has a positive effect whereas ALMP has a negative effect. Union density is positively related, but the coordination of wages offsets “the adverse effects of unionism on employment” (Layard, Nickell and Jackman 2005, xvii). According to Calmfors and his colleagues' research on Swedish unemployment in the 1990s, however, the expenditures of ALMP on the aggregate level did not necessarily have negative effects on unemployment (Calmfors et al. 2001).

But these studies do not analyze the interaction effects between the success or failure of wage

14 coordinating income policy, on the one hand, and the implementation of the diverse combinations of

PLMP and ALMP, on the other hand.

We employ a qualitative comparative method. According to Ragin, interaction effects are hard to correctly grasp with quantitative methods. When variables are interacted, the same combination of variables may exert different effects, but, conversely, different combinations of variables may produce the same effect. This is because the interactions among variables work differently depending upon the socio-political contexts. Rather than analyzing the degree of influence as quantitative approaches do, this study seeks to identify the “order-in-complexity”―a necessary condition―penetrating the diverse combinations of variables that bring forth the same phenomenon (Ragin 1987; Braumoeller and

Goertz 2000; George and Bennett 2005). Ragin argues that the causal complexities produced by interaction effects can be disentangled if employing Boolean algebra (Ragin 1987, 29).

Truth Table on Causes of Unemployment

A P I U

Sweden 1st Period, Sweden 2nd Period, 1 0 1 1 The Netherlands 3rd Period

Denmark 1st Period, The Netherlands 1st Period, Austria 1st Period, Austria 2nd Period, 0 1 1 1 Austria 3rd Period

Denmark 3rd Period 1 1 1 1

Sweden 3rd Period 1 1 0 0

Sweden 2nd Period, The Netherlands 2nd Period 0 1 0 0

Sources: Kenworthy 2001; Layard et al. 2005; Flanagan et al. 1983, chapters. See also case studies in the next sections. Note 1) 1st period is the period between World War II and the first oil-shock of 1973; 2nd period is the period between the first-oil shock and the beginning of globalization; 3rd period is the period after the beginning of globalization.

displays the combinations of nominal variables affecting low unemployment U(1) or high unemployment u(0). We divide the whole period since World War II into three sub-periods on the 15 basis of two historical events, i.e., the first oil-shock of 1973 and globalization starting the mid-1980s.

The combinations of variables that bring about low unemployment U(1) are as follows:

U = ApI + aPI + API

= I(Ap + aP) + API

If being combined with I, both Ap and aP are related to low unemployment. Thus, I(Ap + aP) is minimized into I. Therefore,

U = I + IAP

That is, income policy I is a necessary condition for low unemployment U(1). A cause is defined as necessary “if it must be present for a certain outcome to occur” (Ragin 1987, 99).

High unemployment occurs when variables are combined either way as in the below, thus producing the following interaction effects.

u = aPi + APi

= Pi(a + A)

If employing the method of minimization, then

u = Pi

That is, the interaction effect between the failure of income policy and the implementation of PLMP- centered social policies is a necessary condition for high unemployment u(0) (Ragin 1987, 99-100).

16

A Comparative Case Study

Before Globalization

Based on the variables of decommodification and social stratification, Esping-Andersen classifies welfare capitalism into the social democratic welfare state, the conservative —'Christian democratic' is a more widely used term—welfare state, and the liberal welfare state (Esping-Anderson 1990;

Huber, Ragin and Stephens 1993). The two classifying variables, i.e., decommodification and social stratification, are close to the dependent variable characterizing welfare capitalism. If we focus on the variables of political economy regime having affected the formation and development of welfare capitalism, differences rather than similarities stand out between the countries classified as belonging to the same welfare capitalism.

Sweden and Denmark had in common that although political party systems were moderate multi- party systems before the 1970s, the cabinets, mostly social democratic ones, succeeded in mobilizing majorities in the legislative processes. This was made possible because multi-party systems were separated into two block politics, forming an "alternational party system" like a two party system, and because the social democratic party managed to make coalition with political parties located close to its ideological position, particularly with the famers' party— the Social Liberal Party in Denmark, and the Center Party in Sweden. The executive-parliamentary relations in Sweden and Denmark seems to be the Westminster model of democracy, but most legislations were passed by 'consensual parliamentary politics' (Strøm and Berman 2011; Damgaard 2011, 97; Arter 2006, 29; Lewin 1998,

204).

Despite these similarities, the political economy regimes of welfare capitalism in Sweden and

Denmark were different with each other. First, in Sweden, the Swedish social democratic party occupied the position of the median legislator party except the period 1956-1958 whereas in Denmark, the Social Liberal Party rather than the Danish Social Democratic Party was the median legislator party except the period 1966-1968 (Bergman and Bolin 2011, 264-65; Damgaard 2011, 76-7). It

17 means that the Danish Social Democratic Party had to rely on supports from the Social Liberal Party when passing legislations. Therefore, in the executive-parliament relations, the Swedish government was stronger than the Danish government was.

Second, state involvement in the industrial relations were different between Sweden and

Denmark(

). In Sweden, the state was kept from intervening in the processes of wage bargaining. LO and SAF had abided by the norm of “centralized self-regulation” since the

Saltsjöbaden Agreement in 1938. During the period of 1957-1983, LO and SAF carried out centralized wage negotiation without provoking state interventation (Westerståhl 1945, 1999;

Elvander 1988, 31; Johansson 1989, 12). In contrast, the Parliament in Denmark was allowed to intervene in the processes of the centralized wage bargaining. In 1934, based on support by the Social

Liberal Party, the Danish Social Democracy party succeeded in amending the Act on the Public

Conciliator, thus institutionalizing a system of “centralized, multi-industrial bargaining.” The upshot of the amended Act was that if the wage bargaining between LO and DA failed, the Parliament could enforce an extension of the existing agreement, or acceptance of the proposal the Public Conciliator suggested (Due et al. 1994, 95-118).

Political Economy Regimes of Welfare Capitalism

Executive Control over Legislation Tripartite Relations and Collective Agreements Strong Weak

Centralized, Self-

regulated Industrial Sweden, Austria Relations,

Denmark after Globalization, Decentralized, Regulated Denmark before Globalization, The The Netherlands after Industrialization Netherlands before Globalization Globalization

As were in Sweden and Denmark, differences rather than similarities stood out in the political economy regimes of the Netherlands and Austria. The executive-parliamentary relations in these two countries ared characterized in terms of consociationalism. Historically, Dutch and Austrian societies 18 had been deeply segmented by 'pillars' (zuilen) in the Netherlands and by 'camps' (lager) in Austria.

Despite the fragmentation of political culture, since 1945, political elites had achieved political integration by forming oversized coalitions in the Netherlands and grand coalitions in Austria. Thus, the opposition parties in both countries remained minorities in parliament.(Andeweg et al. 2008;

Liphart 1989). However, the cabinets in Austria held a more dominant position relative to the parliament than the cabinets in the Netherlands did. During the period 1959-1967, the Catholic

People's Party (KVP), the median legislator party, made coalition either with the Labor Party(PvdA) or with the Liberal Party(VVD) when forming the cabinets. It means that either PvdA or VVD remained an opposition party. In contrast, in Austria, the Austrian People's Party(Ö VP) and Austrian

Socialist Party(SPÖ ) made a grand coalition during the period 1947-1966 (Müller 1993). Furthermore, coalition discipline in Austria was much stronger than was in the Netherlands (Strøm et al. 2003, 662).

Tripartite relations also developed differently after the Second World War. In the Netherlands, the norm of self-regulation went with state intervention. In October 1945, the revised Extraordinary

Decree on Labor Relations stipulated that the Board of Government Mediator could “approve or reject the terms of a collective agreement or to ‘extend’ it (Windmuller 1969, 286-87). In reaction, the three labor movements (socialist labor movement, NVV, Catholic labor movement, NKV, and Calvin labor movement, CNV) and employers’ associations founded “the Foundation of Labor” (STAR), demanding that industrial relations be regulated by themselves centering on STAR. Consequently, tripartite actors made a compromise and established a system of centralized wage bargaining in which the norms of both state intervention and self-regulation were permitted (Windmuller 1969, 270-75;

Visser and Hemerijck 1997, 92-3). In constrast, the law of collective bargaining in Austria conceded the right of collective bargaining only to occupational associations. Labor and capital in Austria had kept the norm of ‘organized decentralization’ in wage bargaining. Although there was no centralized wage bargaining, in fact, wages on the levels of industries and firms were coordinated by the guidance of two institutions: 1) Ö GB (Austrian Conferation of Labor Unions) and 2) the Parity Commission for

Wages and Prices (Tálos and Kittel. 1996, 35; Pollan 1997, 50-1).

Based on income policies, four countries achieved enormous economic growths during the 1950s

19 and the 1960s. As low rates of employment turned out to last long(see

), union movements in Sweden, Denmark, and the Netherlands began to defy the centralized wage bargaining around after the end of the 1960s. That is, wage earners would not sacrifice their wages for the institutionalization of full employment. The feedback effects of wage restraint came to be at odds with the previous condition, i.e., the expectation of high unemployment. In Sweden, mining worker's unions waged wildcat strikes in 1969. It inflamed other wildcat strikes over the country until the mid-1970s. Those who participated in the strikes opposed to centralized wage bargaining and criticized the centralization of LO (Swenson 1989, 84-95; Kjellberg 1998, 31; Korpi 1981, 71 and 79). In Sweden, the endogenously provoked reactions by local labor unions were particularly severe. This is because the income policy of solidaristic wages was linked with ALMP, which implied that many wage earners in the low wage industries had to incur unemployment, temporarily though.

The central wage bargaining of corporatism was broken down first in Denmark and the Netherlands where having been sustained by state intervention. After the first oil-shock of 1973, the states in

Denmark and in the Netherlands attempted to reinforce wage restraints through the centralized wage bargaining of corporatism. However, in Denmark, both occupational and industrial union federations strongly opposed to the initiative by the state of restraining wages. In fact, under the support of the

Social Democratic Government and LO, the Public Conciliator and the Parliament intervened in centralized wage bargaining. Contrary to what the Social Democratic Government and LO expected, occupational and industrial union federations both protested against the politicization of wage bargaining issues. The efforts of LO to strike centralized wage bargaining with DA failed four times—

1973, 1975, 1977, and 1979—in the 1970s. In 1973, more than 250 thousands workers participated in labor strikes for four weeks in defiance of centralized wage bargaining (Due et al. 1994, 131;

Flanagan et al. 1983, 469-78; Stokke and Thörqvist 2001, 253-54).

In the Netherlands, the peak organizations of labor and capital both opposed to state intervention in wage bargaining. In the early 1960s, even the socialist union block, NVV, changed its position and supported the decentralization of wage bargaining, proclaiming that it would no longer return to the system of the past to realize full employment. In 1968, the state sought to directly enforce wage

20 restraint through the legislation of the new Wage Act. According to the amended Act, STAR was authorized to regulate wage bargaining. Not only the labor movements but also employers protested against the statutory control. In fact, STAR did not intervene in wage bargaining. NVV and the

Catholic union block NKV withdrew from STAR. By the end of the 1960s, the institution of centralized bargaining stopped working, which Visser and Hemerijck characterized in terms of

‘corporatist immobility’ (Windmuller 1969, 301-02; Flanagan et al. 1983, 136-7; Wolinetz 1989, 83-4;

Visser and Hemerijck 1997).

Austrian income policy was unique even among the West European countries. Austrian corporatism was well institutionalized even compared to other West European countries, and the organizational structures of the labor movements were highly concentrated and centralized. Wage dispersion in

Austria, however, was wider than that of any other CMEs, being close to the LMEs (see

).

What is noteworthy is the fact that wage inequalities were propelled by income policy. In the 1950s, wage inequalities in Austria were lowest among the West European countries. During the 1960s and the 1970s, however, wage dispersion in Austria was so enlarged as to record the widest among the

West European countries (Pollan 1997, 57-8). Ö GB took the system of wage bargaining not as an instrument of distribution but as a policy tool to secure wage earners from unemployment. That is,

Ö GB did not aim directly at raising low wages in the processes of wage bargaining. Rather, it sought to promote economic growth first and entrusted the political sphere, the Parliament in particular, with the task of distribution. Although being highly "organized," the wage bargaining system did not provide a space for collective reactions by labor unions because it was "decentralized." As far as the wage bargaining of corporatism was concerned, Austria continued to enjoy stability (Flanagan et al.

1983, 52-6; Scharpf 1991, 33-6; Traxler 1998).

Between the 1970s and the 1980s, corporatism in Denmark and the Netherlands was much weakened relative to Sweden and Austria (

). Denmark and the Netherlands had in common that centralized collective wage bargaining was sustained by state intervention, and the cabinets lost control over the legislative processes. After the 1970s, the executive did not gain firm control of the legislative processes as did in the golden age of capitalism. After the election of 1973, the traditional

21 four-party system in Denmark was fragmented into an extremely multiparty system consisting of ten parties. Despite the fragmentation of party system, the Social Democratic Party managed to mobilize majority votes in legislation because the center-right parties were not united. After the formation of the center-right minority government in 1982, however, the executive-parliament relation changed markedly. During 1982-1992, the executive failed in mobilizing majority votes many times due to opposition by the Social Democratic Party and the Social Liberal Party. The Social Liberal Party was

"pivotal in most cases of conflict" (Damgaard 1994, 93; Damgard 2011, 84; Green-Pedersen 2001a).

In the Netherlands, as Lijphart points out, the politics of accommodation came to an end after around

1967. In the 1970s, PvdA adopted a majority strategy of making coalition only with left parties, thus seeking to contain the Christian Democrats. As a result, the cabinet becomes "an arena of interparty conflicts," which precluded it from controlling the legislative processes (Lijphart 1989; Andeweg

1999, 131; Timmermans and Andeweg 2000, 395).

The Executive-Parliamentary Relations and Tripartite Relations

Number of Tripartite Relations Coalition Parliamentary Corporatism Changes in and Collective Disciplline1 Parties (the 1960s)3 Corporatism(Year) Bargaining 1950-74 (the 1960- 70s)2 Centralization- 0 (the 1970s Austria Concentration, 1.0 2.18 4.625 -the 1980s) Self-regulation State(Parliamentary) -0.5 (the 1970s Denmark Intervention, 1.0 4.61 4.375 -the 1980s) Decentralization The State Interventioin, -0.375 (the 1960s 3.0 5.35 4.250 Netherlands Decentralization -the 1970s) Centralization- -0.125 (the 1970s Sweden Concentration, 1.3 3.26 4.750 -the 1980s) Self-regulation Note. 1. Strøm et al. 2003, 662, Table 22.4. The scale stands for the degree of policy cohesion. 1 indicates the most comprehensive and committal cohesion, and 4 does the most informal and partial cohesion. See, Strøm et al. 2003, 662. 2. Gallagher and Mitchell (2013) 3. Siaroff(1999, 198).

In contrast, Sweden and Austria continued to coordinate wage bargaining and thus keep strong corporatism almost intact. In Sweden, the cabinet kept its control over the legislative processes

22 although the degree of control was much weakened relative to the period before the political reform of

1969. The political reform of 1969 made the electoral system "extremely proportional." As a result. social democrats' average vote share declined about 5 percent during the period 1970-1998. In 1976, the Social Democratic Party lost election for the first time since 1932. After the victory of the 1982 election, the Social Democratic Party had to form minority governments. However, the Social

Democratic Party managed to control over the legislative processes based on the support of the

Community Party and other minor parties (Damgaard 1994, 93-4; Immergut and Jochem 2006, 118-21;

Bergman and Bolin 2011, 264-5). In Austria, the grand coalition between ÖVP and SPÖ were broken.

However, except the SPÖ 's cabinet during the year 1970-1971, SPÖ 's cabinet(1971-1983) and ÖVP's cabinet(1966-1970) occupied a majority of seats in the Parliament(Müller 1993). Furthermore, these cabinets passed most of legislations based on consensus between the ruling party and the opposition parties—80% during 1966-1970, 88% during 1971-75, and 86% during 1975-1979 (Müller 1993,

481-85).

After Globalization

History often ends with irony. After globalization, those countries in which the centralized wage bargaining of corporatism broke down and economy suffered from high rates of unemployment in the

1970s succeeded in reviving social concertation and resurrecting the virtuous circle between economic growth and social welfare. Globalization in the 1980s tipped the balance of power in favor of mobile capital and changed the contexts of welfare capitalism. We hypothesized as follow: return to social concertation depended on 1) the historical timing when labor moved to concert with capital and

2) whether or not the executive regained its control over the legislative processes.

Sweden is a confusing case. In tripartite relations, LO had been aggressive against SAF till after globalization began. LO sought to concert with SAF in the middle of the 1990s when unemployment skyrocketed. With the beginning of globalization, SAF had already retaliated on LO. In the mid-1980s,

SAF internally set the deconstruction of corporatism as "a desirable goal." At last, SAF promulgated in 1991 that it would withdraw its 6,000 representatives from corporatist institutions (Johansson 2000, 23 chs. 4-5). While LO and SAF were engaged in struggle, the political sphere moved in reverse direction, resuming the politics of consensus. Despite a strong opposition by LO, the Social

Democratic Party sought to slim down wage earners’ fund and to depoliticize the issue itself. The

Social Democratic Party promoted consensual politics with right parties. In 1991, the center-right coalition government founded ‘the Working Committee for Pension Reform.’ The Committee invited representatives of political parties only, excluding LO and SAF. The Social Democratic Party did not oppose to such an initiative (Lundberg 2003, 111, chs. 2-3). However, corporatism would not be resumed soon. In addition to the fact that SAF was negative to the revival of the centralized wage bargaining, the Social Democratic Party no longer played a role as a pivot in the formation of government. What was worse, social democrats' strategy of "contract parliamentarism" to mobilize a majority of seats within the left bloc after 1995 provoked center-right parties to unite with each other, thus intensifying the conflicts between left and right block. The center-right parties formulated a common campaign pledge after the 2002 general election (Bale and Bergman 2006; Aylott and

Bergman 2007). In this situation, rather than trying to revive corporatism, LO and SAF have tended to reinforce lobbyism when friendly parties formed the cabinet (Svensson and Ö berg 2002; Anthonsen et al. 2011).

Denmark took a path of regime transition different from Sweden. After the first oil-shock of 1973,

Denmark suffered from high rates of unemployment due to the interaction effects of the breakdown of centralized wage bargaining and PLMP-centered social policies (see

). LO changed gradually its previous position against DA (the Danish Employers' Association). For example, LO no longer took issue with DA in 1979 when the Social Democratic Party failed in legislating a Swedish- style wage earners' fund. Rather, LO accepted DA's demand that wage bargaining be more decentralized. In the meanwhile, center-right coalition governments during the period of 1982-1992 failed in controlling the legislative processes. It was in this period that corporatism in terms of the numbers of corporatist committees declined substantially. Amid the decline of corporatism, however, the state, LO and DA struck a social pact in 1987, i.e., ‘joint declaration’: labor costs in Denmark should not be higher than those in competing countries. Although tripartite actors did not strike

24 another social pact, they abided by the norm of the declaration until LO withdrew from it in 1998

(Antonsen et al. 2011, 124; Due et al. 1994, 190-1; Scheuer 1998, 162). That is, tripartite actors opted for a new institution of 'social concertation' when the political condition of corporatism was not favorable. In 1993, the Social Democratic Party made a cross-class coalition with the Social Liberal

Party for the first time since 1964. 'Minority governance' became institutionalized in the executive- parliamentary relations. Governance by minority governments was made possible because political parties, regardless of whether belonging to left or right bloc, made compromise—'forlig' in Danish — with each other based on bill by bill, and because the Danish Social Democratic Party adopted the so- called 'Niexong goes to China' strategy of retrenching social welfare policies, thus easily drawing supports from the Social Liberal Party (Green-Pedersen 2001b; Christiansen and Damgaard 2008;

Damgaard 2011).

The Netherlands took a path of regime transition similar to Denmark. Dutch society suffered from high rates unemployment in the 1970s due to the same reason as was in Denmark. In 1976, the social democratic union movement (NVV) and the Catholic union movement (NKV) merged to found an integrative union movement, FNV. Representing both progressive and conservative lines, FNV did not raise such radical issues as codetermination and wage earners' funds. In 1979, FNV and employers’ associations made a draft including centralized wage bargaining, the reform of social policies, and employment conditions. But FNV withdrew it at the final stage due to oppositions by several affiliated union federations. After 1982, Lubbers’ government of the Christian Democratic Party (CDA) promoted welfare retrenchments and sought to revive centralized wage bargaining. Lubbers’ government pushed employers’ associations and union federations to accommodate the government initiative by intimidating that otherwise, the state would intervene in industrial relations as before. In

1982, the state, labor and capital stroke a social pact. Under "a shadow hierarchy" implying that otherwise, state would intervene in the industrial relations, labor and capital continued to strike social pacts in 1993 and in 2002 (Hemerijck et al. 2000, 214-16; Visser and Hemerijck 1997, 100-01). In the political sphere, PvdA accepted the situation that CDA occupied a pivotal position in the formation of government, thus promoting welfare retrenchments and the resumption of social concertation.

25

Eventually, “the heyday of consociatonalism” in the 1950s revived after 1994. PvdA and VVD no longer excluded each other as a coalition partners (Andeweg 1999, 132; Timmermans and Andeweg

2000, 367-8).

Austria, a typical case of Christian welfare capitalism, took a different path from the Netherlands.

Rather, Austria underwent regime transitions similar to Sweden. As de-pillarization proceeded and weakened the ties between social groups and political parties in the 1980s, non-pillar parties, i.e., the

Freedom Party (FPÖ ) and the Green Party, made an impressive progress in the 1986 general election.

As a response, Ö VP and SPÖ revived a grand coalition. Non-pillar parties as well as voters criticized the revival of grand coalition in terms of cartelization. Eventually, FPÖ occupied the second place in the 1999 general election. After 2000, Ö VP and FPÖ formed a coalition government, trying to dismantle the route of legislation via corporatism. That is, Austrian party systems were transformed into a 'two bloc sysem,' strengthening the role of the opposition parties in the parliament and thereby reducing the space of legislation through the route of corporatism (Müller 2000; Andeweg et al. 2008;

Luther 1999; Müller and Fallend 2004; Schulze and Schludi 2009). Although the changed executive- parliamentary relation reduced the political space of corporatist policy-making, Austrian wage bargaining system of 'organized decentralization' continued to work (Heinish 2000).

Conclusion

How to keep a balance between electoral politics for votes and the politics of interests still remains a core issue for modern democracy to tackle with. As long as interest groups are allowed to participate in, or put pressure on the processes of policy-making, the system of political representation cannot but interact with that of functional representation (Lindblom 1977). Since the Second World War, welfare capitalism in the Western European countries has contributed to the complementary interactions between the two systems of representation. As social inequalities have been deepened after globalization, however, the relationship between political representation and functional representation arose as a critical issue, again (Hacker and Pierson 2010). The existing studies pay too much attention to the political space of participation and consensus, overlooking the other side of 26 politics－governance from the above. This study sought to trace the causal mechanism of ‘the dialectic of conflict and integration’ (Rokkan and Lipset 1967) in which the political economy regimes of welfare capitalism have undergone a series of transformation since the golden age of capitalism.

Through our study of the regime transitions in welfare capitalism, we argued, first, there has not necessarily been an institutional affinity between consensus model and corporatism. It might be a spurious relationship. This is because unless sustained by political governance, neither politics of consensus nor corporatism worked. Second, political intervention in the labor market has been a

‘functional equivalent’ to the roles of organization in tripartite relations (Estévez-Abe 2008). During the golden age of capitalism, state intervention in the labor market made centralized wage bargaining possible in Denmark and the Netherlands. In the era of globalization, social cencertation became institutionalized by the indirect intervention of the state and political parties in these countries. Third, it was when the income policy of wage restraint was pursued in combination with social policies that welfare capitalism accomplished the virtuous circle between economic growth and social welfare.

Regulated political economies of capitalism, regardless of whether being sustained by state intervention or by organized self-regulation, are to provoke endogeneous reactions. Whether these endogenous reactions paved the way for a revival of concertative tripartism was affected by the historical timing when the exogenous shock of globalization had impacts on them.

Finally, politics matters, again. In the era of globalization, the locus of tripartite concertation has been shifted from the corporatist networks of interest intermediation to the public sphere of social concertation. Social concertation proceeds without passing the labyrinth of interest intermediation within and between interest groups (Hassel 2003; Compston 2001). It reveals a new phenomenon that through politics of consensus, political actors as well as organized interests are underway to find a new institutional equilibrium. Party politics has taken the lead in these changed environments. It is true that political parties have declined in terms of organization and transformed themselves into cartel parties (Dalton 2000; Blyth and Katz 2005). Ironically, to the extent to which political parties are cartelized, the political space of consensus-making has loomed large. This is particularly so in the 27 era of globalization because after the mid-1980s, even social democratic parties in the West European countries opted for financial liberalization as a way to increase in investment (Abdelal 2007). That is, the ideological distances between left and right parties have been reduced, which, except Sweden, in turn, brought about cross-class coalitions in the formation of governments. As a result, the executive regained control over the legislative processes although not that firmly relative to the golden age of capitalism. It may well be that in the Western European countries, the political economy regimes of welfare capitalism undergo a transformation in tandem with the political processes in which a party- government is entrenched.

28

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