Maurizio Ferrera | Elisabetta Gualmini Rescued by Europe? Social and Labour Market Reforms in changing welfare changing welfare states Italy from Maastricht to Berlusconi Amsterdam University Press Rescued by Europe 19-12-2003 20:55 Pagina 1 Rescued by Europe? Rescued by Europe 19-12-2003 20:55 Pagina 2 Rescued by Europe 19-12-2003 20:55 Pagina 3 Rescued by Europe? Social and Labour Market Reforms in Italy from Maastricht to Berlusconi Maurizio Ferrera & Elisabetta Gualmini amsterdam university press Rescued by Europe 19-12-2003 20:55 Pagina 4 To Giulia and Sofia Cover illustration: Civica Raccolta delle Stampe ‘Achille Bertarelli’, Milano. All rights reserved. Cover design: Jaak Crasborn bno, Valkenburg a/d Geul Lay-out: Adriaan de Jonge, Amsterdam isbn 90 5356 651 1 nur 754 / 759 © Amsterdam University Press, Amsterdam, 2004 All rights reserved. Without limiting the rights under copyright reserved above, no part of this book may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the written permission of both the copyright owner and the author of the book. Rescued by Europe 19-12-2003 20:55 Pagina 5 Contents List of Tables and Figures / 7 Introduction / 9 I Adjusting to Europe:a Learning Perspective / 13 1 Deviant Italy chooses to adjust: the puzzle / 13 2 Learning how to adjust: the analytical framework / 21 3 Rescued by Europe? The argument in brief / 28 II The Scene in the 1970s:Light,Shadow and Thunder / 31 1 The light: the rise of keynesian welfare / 31 2 A ‘guaranteed’ labour market / 35 3 The shadow: an internally flawed constellation / 40 4 Five ‘original sins’ of welfare capitalism Italian-style / 41 5 Polarized pluralism: the political roots of poor policy performance / 46 6 Enter the external challenges: from miracles to thunderstorms / 50 III The Winding Road to Adjustment / 57 1 The new European constraints / 57 2 The contradictory 1980s: testing adjustment while accumulating a huge public debt / 59 3 1992-2000: a Copernican revolution? / 66 4 Italy’s international economic profile: the recovery of the 1990s / 73 5 Internationalisation and national employment: a multi-faceted Italy / 75 6 Internationalisation and social policy / 82 5 Rescued by Europe 19-12-2003 20:55 Pagina 6 IV The Cycle of Reform / 87 1 A difficult path / 87 2 The 1980s: the uncertain deregulation of the labour market / 88 3 The chaotic restructuring of the welfare state / 93 4 The 1990s: the ‘new deal’ of the labour market / 97 5 The impact of the European Employment Strategy on domestic poli- cy making / 104 6 A sequence of reforms in the welfare state / 109 VReforms as Outcomes of Institutional Learning / 121 1 The vicious circle: spoils-sharing governments, inefficient bureau- cracy and distributive policies / 122 2 Towards the Second Republic: from vices to virtues? / 124 3 Financial adjustment in the name of Europe: what should be done? / 129 4 The political dilemmas of the ‘Olive Tree’ coalition / 135 5 The return of concerted action in the 1990s / 139 VI Rescued,but Still Free to Harm Itself / 149 1 A new virtuous circle: but how stable? / 149 2 Enter Berlusconi / 151 3 Labour market reform: from concerted action to ‘social dialogue’ and flex-security? / 156 4 Still a pension state? An unfinished recalibration / 161 5 ‘eu-friendly’ internal federalism: is it feasible? / 165 6 Conclusion / 168 Notes / 171 References / 179 List of Abbreviations / 192 Index of Names / 193 Index of Subjects / 197 6 contents Rescued by Europe 19-12-2003 20:55 Pagina 7 List of Tables and Figures Table 1.1 Major social reforms during the 1990s / 14 Table 1.2 Macro-economic and employment indicators, Italy and main eu partners / 14 Table 1.3 Italian executives, 1978-2001 / 16 Table 1.4 ‘First Republic’ elections: parties and votes / 19 Table 2.1 Social policy reforms, 1952-1978 / 34 Table 2.2 Labour policies, 1945-1978: a summary / 39 Table 2.3 Italian elections: parties and share of vote, 1958-1976 / 49 Table 3.1 Policy reforms of the budgetary process, 1970-1989 / 64 Table 3.2 The unfolding of the budgetary process after the reforms of the 1980s / 65 Table 3.3 The main steps of Italian financial adjustment in the 1990s / 70 Table 3.4 Policy reforms of the budgetary process, 1990-2000 / 72 Table 3.5 Employment and imports: sectoral trends / 79 Table 4.1 Incidence of part-time employment in selected countries, 1985-2000 / 92 Table 4.2 Major employment policies, 1981-2001 / 103 Table 4.3 Main reforms of social protection, 1983-2000 / 118 Table 5.1 Concerted action in the 1990s / 142 box 1 Article 18 of the Workers’ Statute: how it actually works / 158 box 2 The Biagi Law on labour market reform: main provisions / 160 box 3 The delegation law on pensions: main provisions / 163 Figure 1.1 Italy’s reform sequence in the 1990s: the explanatory model / 29 Figure 3.1 Growth rates of real gdp, 1970-2000 / 59 Figure 3.2 Gross public debt as a share of gdp, 1970-2000 / 62 Figure 3.3 Public deficits as a share of gdp, 1970-2000 / 63 7 Rescued by Europe 19-12-2003 20:55 Pagina 8 Figure 3.4 Tot al , centre -northern and southern unemployment rates, 1980-2000 / 81 Figure 3.5 Youth unemployment rates in Italy compared to oecd average, 1980-2000 / 81 Figure 3.6 Tot al tax revenue and total expenditure in Italy and total tax revenue in oecd, 1970-2000 / 83 Figure 3.7 Old-age & survivors expenditure and other social protection expenditure as share of gdp in 1999 / 83 Figure 4.1 Pension expenditure projections, 1995-2045 / 92 8 list of tables and figures Rescued by Europe 19-12-2003 20:55 Pagina 9 Introduction For much of the post-war period, Italy was regarded as the sick man of Eu- rope. The Italian disease had both political and economic components: harsh ideological divisions, chronic executive instability, an inefficient bu- reaucracy, uneven socio-economic development, organised crime and un- balanced public finances, just to mention the most emblematic symptoms. In the course of the 1990s, some encouraging signs of a healing process have, however, appeared on the scene. The most visible and relevant indica- tor of this is certainly Italy’s entry into the Economic and Monetary Union (emu) by the established deadline of 1998, at the same time as the other ‘core’ European countries. At the beginning of the decade, this event seemed almost unimaginable to any observer gifted with some realism. Meeting the Maastricht criteria would in fact have required a massive effort of macro- economic adjustment, which in turn would have needed both a stable poli- tics and coherent policies: two items which had always been in very scarce supply south of the Alps. But the entry into the emu was only the tip of the iceberg. In addition to macro-economic adjustment, the 1990s witnessed a multitude of other re- forms – some quite big, some small, but nevertheless significant – which have slowly redesigned the country’s institutional fabric, enhancing its po- litical and policy capabilities. The budgetary process has been incisively changed, allowing a more effective management of public finances. A new framework has been put in place for industrial relations and ‘social concer- tation’ between the government and the social partners. The national exec- utive has been re-organised and strengthened. Innovation has been particu- larly important in the sphere of the welfare state (broadly conceived): im- portant changes have been introduced in the pension and health care sys- tems, while the highly rigid regulatory framework of the labour market has finally started a much-needed process of defrosting. Change has affected not only benefit formulas and service standards, but also organisational designs and decision-making procedures. Internationalisation – but especially the dynamics of European integra- 9 Rescued by Europe 19-12-2003 20:55 Pagina 10 tion – has played a major role in fostering these positive developments. In the specialised literature, internationalisation is often portrayed as a threat to domestic welfare state and employment regimes. Equally often, what is suggested is that these regimes can be preserved (or successfully adjusted) by mobilising existing state capabilities in order to neutralise or attenuate ex- ogenous challenges and shocks. With respect to this line of debate, the Italian experience seems to go ex- actly in the opposite direction. First, the Italian disease (including structural unemployment and an unbalanced welfare system) was there long before the winds of globalisation started to blow. Second, the new dynamics of eco- nomic internationalisation, which started to unfold themselves in the 1980s, did not produce in Italy those harmful effects on employment and in- come distribution that made their sinister appearance elsewhere in the oecd. Quite to the contrary, what seems to emerge from the available em- pirical literature on the issue is that neither the foreign penetration of do- mestic markets nor the internationalisation of Italian firms have demonstra- bly resulted in significant job losses: as a matter of fact, the latter process has probably generated an additional domestic demand for labour. Third, the pressures and constraints connected with internationalisation and suprana- tional integration have stimulated a real ‘quantum leap’ in terms of institu- tional capabilities: in other words, they triggered a sequence of changes which are correcting many traditional weaknesses of the Italian state, grad- ually enabling it to act on a par with its political allies and economic com- petitors in the inter-state arenas (including, obviously, the eu). The transformation initiated in the 1990s is not complete.