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The Politics of a Broken Promise: Risk Shifting Reforms in Bismarckian Pension Policies

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The Politics of a Broken Promise: Risk Shifting Reforms in Bismarckian Pension Policies The Politics of a Broken Promise: Risk shifting Reforms in Bismarckian Pension Policies Furio Stamati Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Institute Florence, 21 January 2015 (defence) European University Institute Department of Political and Social Sciences The Politics of a Broken Promise: Risk shifting Reforms in Bismarckian Pension Policies Furio Stamati Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Institute Examining Board Professor Sven Steinmo, EUI (Supervisor) Professor Alexander H. Trechsel, EUI Professor David Natali, University of Bologna Professor Kent Weaver, Georgetown University © Furio Stamati, 2015 No part of this thesis may be copied, reproduced or transmitted without prior permission of the author Abstract This thesis deals with a broken promise: namely, a broken pension promise. Looking at Italy and Germany in particular, it tells a story that is fairly common to retirement systems across the OECD. Over the last forty years, pension institutions have been facing major economic and demo- graphic challenges. This ‘affordability crisis’ has slowly eroded the confidence of large segments of the population in the old pension contract, while paving the way for the anti-welfare rhetoric and in- itiatives of more than a conservative policy entrepreneur. Cost containment reforms took root and clamped down on pension spending and, what is more, on public responsibility for individual wel- fare after quiescence. As a result, pension income is lower and riskier now than was expected when today’s pensioners entered the labour market. Most notably, it will be even more meagre and uncer- tain for tomorrow’s retirees. By comparing the Italian and German reform patterns, this thesis sug- gests that answering the puzzle requires focusing on two sets of interrelated transformations: the prominence of so-called ‘systemic risks’ and the changing ways of political representation. Risks hereby defined as ‘systemic’first emerged in Western political economies in the 1970s, only to turn into a recurring malaise during the following decades (Streeck 2011). Unlike the risks central to the post-war welfare state model, they far outreach the individual level, being borne by the community or by society as a whole. Furthermore, those risks proved somehow resilient to tra- ditional means of public intervention and management. Systemic risks, in sum, have originated a distinctive combination of functional and political effects, ultimately providing a functional as well as a political rationale to risk shifting reforms. Again, since the 1970s political representation has also changed. On the one side, the traditional mass party model has been replaced by new organisa- tional forms, while new parties and party families have emerged, activating novel issues and cleav- ages. On the other side, industrial representation in the corporate arena changed as well, becoming less organised all over the industrialised world. Systemic risks, then, have further influenced trans- formations in both the electoral and the corporate arenas, further eroding the political consensus for expanding social responsibility and socialising risks. It was, in other words, the co-evolution of problems and politics (to put it in Kingdon’s terms) to lead popular and strongly institutionalised pension systems to challenge the basic tenets of their pension promises, although this common story played out very differently across different countries as a result of the action of national institutional filters (policy legacies and the functioning of the electoral and corporate arenas). i ii To my Family iii iv Contents Abstract..........................................................................................................................................i List of Figures.............................................................................................................................vii List of Tables................................................................................................................................ix Acknowledgements.......................................................................................................................xi 1. Introduction ................................................................................................................................ 1 1.1 The dependent variable .................................................................................................. 3 1.2 Argument of the thesis ................................................................................................... 6 1.3 Structure of the thesis ................................................................................................... 11 2. Pension Policies and the Issue of Retirement Risks ................................................................. 13 Introduction ............................................................................................................................. 13 2.1 Pension policies and indicators across the OECD ....................................................... 16 2.2 How do you recognize a risk shift when you see one? ................................................ 27 2.3 ‘Measures’ of public responsibility: volatility or acceptability? ................................. 39 2.4 ‘Tweaking’ the qualitative framework: the case of Bismarckian pension policies ..... 49 Concluding remarks ................................................................................................................ 54 3. Italy and Germany: the reform process and the risk shift ......................................................... 55 Introduction ............................................................................................................................. 55 3.1 Italy: the breakdown of risk pooling ............................................................................ 56 3.2 Germany: spreading losses, spreading risks ................................................................ 71 4. Understanding the Politics of the Broken Promise ................................................................. 103 Introduction ........................................................................................................................... 103 4.1 Italy: chronicle of an announced self-defeat .............................................................. 104 4.2 Germany: Middle-class politics 2.0 ........................................................................... 139 5. Conclusions ............................................................................................................................ 149 5.1 Two logics of pension reform .................................................................................... 149 5.2 The Politics of Risk Shifting Reforms ....................................................................... 153 References ........................................................................................................................................ 163 v vi List of Figures Figure 1.1 – The pattern of (risk-shifting) pension reforms .............................................................. 11 Figure 2.1 – Recent Evolution of Public Pension Spending in Selected OECD countries ................ 16 Figure 2.2 – Replacement Rates by Pension Pillar ............................................................................ 17 Figure 2.3 – Coverage of Minimum and Targeted Provisions in Selected OECD Countries (late 2000s) ..................................................................................................................................... 18 Figure 2.4 – Composition of Elderly (65+) Income........................................................................... 20 Figure 2.5 – Net Total Replacement Rates across the Earnings Distribution .................................... 21 Figure 2.6 – Poverty Rates among the Elderly, the very Elderly and Total Population .................... 21 Figure 2.7 – How Pensions Have Grown to their 2006 Value ........................................................... 22 Figure 2.8 – Decreasing Old-age Support Ratio (Inactive 65+/Working age POP) .......................... 23 Figure 2.9 – A Reward-reducing Reform: Increasing Retirement Ages ............................................ 24 Figure 2.10 – The New DB-DC Pension Mix in Selected OECD Countries in 2011 (Assets) ......... 25 Figure 2.11 – The New DB-DC Pension Mix in Selected OECD Countries in 2011 (Firms) .......... 26 Figure 3.1 – Projected Replacement Rates during the Pension Transition ........................................ 68 Figure 3.2 - Pension Spending Forecasts in Germany ....................................................................... 93 Figure 3.3 – Demographic risk shift in selected OECD countries ..................................................... 95 Figure 3.4 – Employees enrolled in occupational pensions, by scheme type .................................... 97 Figure 3.5 – Employees (Mio) enrolled in non-public pensions, by scheme type ............................. 97 Figure 3.6 – Who pays for occupational benefits, in percentage of private firms (2001-07) ............ 98 Figure 4.1 – Italy: Main Macroeconomic Trends 1970-1990 .......................................................... 117 Figure
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