Institutions, Ideas and Learning in Welfare State Change: Labour Market Reforms in Germany (New Perspectives in German Political Studies)

New Perspectives in German Political Studies General Editors: William Paterson OBE, Honorary Professor in German and European Politics at the University of Aston and Chairman of the German British Forum. Charlie Jeffery, Professor of Politics at the University of Edinburgh. Germany remains a pivotal country in Europe. It is Europe’s biggest economy, continues to play a central role in the European Union, and has a growing significance in international security politics based on its strategic location at the centre of Europe and its evolving role as a provider of security in Europe and beyond. All this is nuanced by the legacies of a turbulent recent history: the two World Wars, the Holocaust, Germany’s division after World War II and its unification in 1990. New Perspectives in German Political Studies has been designed as a platform for debate and scholarship on contemporary Germany. It welcomes contributions from political science, international relations, political economy and contemporary history. It follows on from the success of the earlier series on New Perspectives in German Studies, co-edited by William Paterson and the late Professor Michael Butler. Titles include: Timo Fleckenstein INSTITUTIONS, IDEAS AND LEARNING IN WELFARE STATE CHANGE Labour Market Reforms in Germany Alister Miskimmon, William E. Paterson and James Sloam (editors) GERMANY’S GATHERING CRISIS The 2005 Federal Election and the Grand Coalition Anne Fuchs PHANTOMS OF WAR IN CONTEMPORARY GERMAN LITERATURE, FILMS AND DISCOURSE The Politics of Memory Beverly Crawford POWER AND GERMAN FOREIGN POLICY Embedded Hegemony in Europe Dan Hough, Michael Koß and Jonathan Olsen THE LEFT PARTY IN CONTEMPORARY GERMAN POLITICS Roger Woods GERMANY’S NEW RIGHT AS CULTURE AND POLITICS Christian Schweiger BRITAIN, GERMANY AND THE FUTURE OF THE EUROPEAN UNION Matthew M. C. Allen THE VARIETIES OF CAPITALISM PARADIGM Explaining Germany’s Comparative Advantage?

Gunther Hellmann (editor) GERMANY’S EU POLICY IN ASYLUM AND DEFENCE De-Europeanization by Default? Chantal Lacroix IMMIGRANTS, LITERATURE AND NATIONAL INTEGRATION Charles Lees PARTY POLITICS IN GERMANY A Comparative Politics Approach Ronald Speirs and John Breuilly (editors) GERMANY’S TWO UNIFICATIONS Anticipations, Experiences, Responses James Sloam THE EUROPEAN POLICY OF THE GERMAN SOCIAL DEMOCRATS Interpreting a Changing World Margarete Kohlenbach WALTER BENJAMIN Self-Reference and Religiosity Henning Tewes GERMANY, CIVILIAN POWER AND THE NEW EUROPE Enlarging Nato and the European Union Wolf-Dieter Eberwein and Karl Kaiser (editors) GERMANY’S NEW FOREIGN POLICY Decision-Making in an Interdependent World Gerard Braunthal RIGHT-WING EXTREMISM IN CONTEMPORARY GERMANY A Threat to Democracy? Ruth Wittlinger GERMAN NATIONAL IDENTITY IN THE TWENTY-FIRST CENTURY A Different Republic After All?

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Institutions, Ideas and Learning in Welfare State Change Labour Market Reforms in Germany Timo Fleckenstein Lecturer in Social Policy, London School of Economics and Political Science, UK

© Timo Fleckenstein 2011 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–24327–9

hardback

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Fleckenstein, Timo, 1977– Institutions, Ideas and Learning in Welfare State Change : labour market reforms in Germany / Timo Fleckenstein. p. cm. Includes index. Summary: “Investigates the transformation of German labour market policy, showing that Germany has departed from the conservativecorporatist path of welfare, especially with the Hartz Legislation of the Red–Green government”— Provided by publisher. ISBN 978–0–230–24327–9 (hardback) 1. Manpower policy—Germany—History. 2. Labor market— Germany—History. 3. Welfare state—Germany—History. I. Title. HD5779.F58 2011 331.12'0420943—dc22 2010050731 10 9 8 7 6 5 4 3 2 1 20 19 18 17 16 15 14 13 12 11 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

To my parents, Gottfried and Monika

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Contents Tables

ix

Abbreviations

x

Preface

xi

1

1

Introduction 1.1 The research puzzle and competing theories of the welfare state 1.2 The structure of the book

2 15

2 Institutions, Ideas and Learning 2.1 New institutionalism and the problem of change 2.2 Sources of institutional change 2.3 Towards an institutional approach to learning

21 21 32 42

3 The German Welfare State and Labour Market Policy 3.1 The German welfare state and labour market policy until 1998 3.2 The Red–Green labour market reforms, 1998–2005

60

4

The Institutional Setting of German Labour Market Policy-Making 4.1 The institutional setting of German labour market policy-making 4.2 The social and labour market policy discourse

5 Red–Green Labour Market Policy-Making: An Overview 5.1 The Job-AQTIV Law: strengthening enabling activation 5.2 The Hartz Legislation: shifting towards coercive activation 5.3 The first and second Red–Green governments compared 5.4 The European Employment Strategy: learning with Europe? vii

60 76

93 93 98 113 115 121 126 128

viii

6

7

8

Contents

The First Red–Green Government and the Alliance for Jobs 6.1 The Alliance for Jobs: an overview 6.2 The benchmarking report on employment of the low-skilled 6.3 The benchmarking report on labour market policy 6.4 The ‘Benchmarking Germany’ report The Second Red–Green Government and the Hartz Commission 7.1 The Hartz Commission: an overview 7.2 The Hartz Commission at work 7.3 The Hartz Report: lessons learnt 7.4 The Hartz I and II Laws: implementing the Hartz Report 7.5 The Hartz III Law: learning beyond Hartz 7.6 The Hartz IV Law: learning without Hartz Conclusions 8.1 Learning to depart from a policy path 8.2 The politics of learning 8.3 An institutional approach to learning 8.4 New institutionalism, learning and policy change

136 137 142 144 147

150 151 154 156 165 166 170 179 181 188 193 201

Appendix: List of Interviewees

206

Bibliography

209

Index

230

Tables 3.1

Labour market reforms of the Kohl government before unification 3.2 Labour market reforms of the Kohl government after unification 3.3 The Job-AQTIV Law of the first Schröder government 3.4 The Hartz Legislation of the second Schröder government

ix

67 75 80 88

Abbreviations ABM

Job creation measures (Arbeitsbeschaffungsmaßnahmen)

ACF

Advocacy coalition framework

AFG

Labour Promotion Act of 1969 (Arbeitsförderungsgesetz)

AFRG

Labour Promotion Reform Act of 1998 (ArbeitsförderungsReformgesetz)

ALG

Unemployment benefit (Arbeitslosengeld)

BMWA

Federal Ministry of Economics and Labour (Bundesministerium für Wirtschaft und Arbeit)

BRH

Federal Audit Office (Bundesrechnungshof)

CDU

Christian Democratic Union (Christlich Demokratische Union)

CSU

Christian Social Union (Christlich-Soziale Union)

EU

European Union

EES

European Employment Strategy

GDP

Gross domestic product

MBO

Management by objectives

MP

Member of Parliament (Bundestagsabgeordneter)

NPM

New public management

OECD

Organisation for Economic Co-operation and Development

PES

Public Employment Service

PSA

Personnel Service Agency (Personalserviceagentur)

SAM

Structural adjustment measures (Strukturanpassungsmaßnahmen)

SGB

Social Code Book (Sozialgesetzbuch)

SPD

Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands)

x

Preface This book started out as part of a research programme on European welfare states at the University of Osnabrück (Germany), for which the Hans Böckler Foundation provided generous funding. In Osnabrück, I was lucky to find enthusiastic colleagues who were eager to discuss different theoretical perspectives on welfare state change. These critical and sometimes heated debates were extremely beneficial for sharpening the approach of my research. Here, my special thanks goes to Helmut Voelzkow, whose persistent challenges provided important intellectual stimuli that helped me to refine my understanding of institutions in particular. After two years in Osnabrück, I had the chance to transfer to the University of Oxford, where I completed this research. The Hans Böckler Foundation kindly continued to support my work at Oxford University, where I found a great academic environment for my research, and specifically with Martin Seeleib-Kaiser, an extremely encouraging mentor, who always had an open door. I benefited tremendously from his support throughout my time in Oxford. Also, numerous friends and colleagues provided critical feedback helping me to improve my research. I enjoyed this research immensely. Not only did I learn to work academically but also about myself in this process. Yet, it is a great pleasure to conclude this research with this book, which is dedicated to my parents. Timo Fleckenstein

xi

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1 Introduction

The German welfare state has been prominently characterised as a ‘frozen landscape’, which has shown much resistance to change (Esping-Andersen 1996: 24; Pierson 2001a: 448). While Germany’s economic performance throughout the 1970s and 1980s was considered rather sound in a comparative perspective, the German model – its ‘reform gridlock’ and capacity to reform – has been discussed somewhat critically since the mid-1990s (Lehmbruch 2003: 143; Padgett 2003). The lack of major reforms has been ascribed to the incapacity of political elites to create an innovative reform discourse in society, allowing them to implement unpopular measures (Cox 2001; V. Schmidt 2000: 266, 274–281). Another common argument is that the pattern of ‘slow innovation and adjustment’ (Streeck and Kitschelt 2003: 18) of the German political economy is associated with the rigidities and inefficiencies of the institutional fragmentation of the decision-making structure. However, despite unfavourable institutional conditions for major change, the German welfare state, ‘ignoring’ the popular moaning about its inability to reform, has undergone substantial changes since the second half of the 1990s. During the government of the Social Democratic (SPD) and Green parties from 1998 to 2005 (the so-called Red–Green government under the Chancellorship of Gerhard Schröder), German labour market policy experienced the most significant changes since its institutionalisation in 1927. These changes, especially those associated with Agenda 2010 and the Hartz Legislation, qualify as a paradigm shift. Departing from the conservative-corporatist path 1

2 Institutions, Ideas and Learning in Welfare State Change

of welfare in labour market policy, the previously predominant ideas of securing social status and the achieved living standard as well as passivity in welfare were substituted by the new policy paradigm of activating labour market policy, including some comprehensive measures of welfare retrenchment (Bleses and Seeleib-Kaiser 2004: 48–67; Clasen 2005: 67–76; Heinelt 2003). Complementing the introduced changes in labour market policy, the public employment service (PES) was also subject to a paradigmatic reform. Breaking with corporatist and rule-driven governance, the PES was comprehensively reformed following the new public management (NPM) philosophy; that is, introducing corporate-like management structures and decentralising competencies (Heller and Stosberg 2004: 100–105; Marx and Schmachtenberg 2002). The departure from the conservative-corporatist path of welfare identified in labour market policy can also be found in other policy domains, such as pensions and family, so that the German welfare state can be reasonably argued to be in transition (Bleses and Seeleib-Kaiser 2004; Clasen 2005; Lessenich 2003).

1.1 The research puzzle and competing theories of the welfare state Predominant political theories of the welfare state – the ‘parties matter’ thesis of the power-resources approach, rational choice arguments emphasising party competition, the functionalist argument of globalisation, and orthodox institutionalist approaches – have difficulties in accounting for the paradigmatic change that has taken place in German labour market policy. According to the ‘parties matter’ thesis deriving from the power resources approach, the Red–Green government should not have been expected to engage in welfare state retrenchment. The power-resources approach essentially argues that welfare state extension is associated with the strength of social democracy, pushing for the interests of wage earners. Social democratic parties as the natural ally of organised labour are supposed to challenge employers’ interests in capitalist societies; accordingly, the welfare state is depicted as a distributional struggle between labour and business (Korpi 1983; see also Hicks 1999; E. Huber and Stephens 2001: 1).

Introduction

3

The early parties matter thesis – arguing that conservative parties pursue a predominant policy approach of preventing inflation rather than reducing unemployment, while left parties prioritise the reduction of unemployment and the equalisation of income distribution (Hibbs 1977: 1470ff.) – is of particularly limited utility for the German case. It has been shown that Christian democratic parties supported the welfare state as much as social democratic ones, though they have a different understanding of welfare (van Kersbergen 1999). For this reason, it is commonly argued that Germany has two pro-welfare parties (M.G. Schmidt 1998: 168). Nonetheless, Christian Democrats engaged in significant restructuring of the welfare state and labour market policy in the mid-1990s (Gottschall and Dingeldey 2000; Rabe and G. Schmid 1999; Schmuhl 2003: 577–582), which might be interpreted as German Christian Democracy moving towards the conservatism described in the early parties matter thesis. However, despite this development, one should not have expected Social Democrats to continue on the path of restructuring and retrenchment taken by the previous bourgeois government; in fact, the Red– Green government not only continued but accelerated restructuring and rolling back labour market policy (Seeleib-Kaiser 2004: 24). If the parties matter thesis continues to have any explanatory capacity, the Red–Green government should, at least, have reduced the ‘speed’ of retrenchment. Korpi and Palme keep claiming that ‘partisan politics remains significant for retrenchment’ (2003: 425; see also Allan and Scruggs 2004: 507). With a similar impetus, Kitschelt (1999: 322) puts forward that Social Democratic parties are ‘searching’ for ways to cope with the changed economic environment that are less ‘painful’ for the most vulnerable parts of the society. Arguing that ‘social democracy remains pro-welfarist’, Hicks (1999: 220) at first seconded but later withdrew his support for the significance of partisanship (Hicks and Zorn 2005: 651). It may be critically asked how much difference between left and right parties constitutes a significance that would reasonably allow making a difference between the parties. In the light of retrenchment, E. Huber and Stephens report that ‘the effects of the political coloring of governments declined substantially’ (2001: 2). Seeleib-Kaiser (2002a) shows that traditional social democracy differs substantially from ‘modernised’ social democratic parties, engaging in welfare state restructuring. He concludes a programmatic convergence of

4 Institutions, Ideas and Learning in Welfare State Change

social and Christian democracy, thereby calling into question the explanatory capacity of the parties matter thesis. Even more categorically, Pierson (1996) denies the significance of partisan difference under conditions of permanent austerity. The ‘new politics of the welfare state’ perspective essentially argues that the politics of retrenchment are fundamentally different to the era of welfare state expansion, undermining the utility of those approaches that are associated with welfare state building. Overall, the case of labour market reforms in Germany supports recent contributions challenging the previously powerful parties matter thesis of the power resources approach. Programmatic differences between social and Christian democracy seem to have blurred to an extent that searching for alternative explanatory approaches has become inevitable. Even though programmatic differences between parties have declined, one might argue that parties remain significant categories for political analysis, as they usually form the government. They are elected on the basis of an election manifesto, which voters expect them to implement once they have entered office. Thus, the policy ‘menu’ offered to voters is crucial for the prospect of forming the government. From a rational choice point of view, parties are accordingly reduced to office- and vote-seekers, which sub-ordinate policy objectives to this rationale. It is argued that policy-makers cannot ignore the implications of desired policies for vote- and office-seeking, making a case for the importance of the strategic configuration of the party system and public support for social policies. In other words, party competition is the crucial determinant for policy development, since it structures the policy options parties can ‘afford’ in the competition for votes and eventually office. Policies undermining the party’s capacity of vote- and office-seeking need to be dropped (Green-Pedersen 2002: 31; Kitschelt 2001; Strøm 1990). For the German case, Kitschelt did not predict much retrenchment, given the presence of two catch-all pro-welfare parties competing for votes from the beneficiaries of social policies and given the lack of a major liberal party challenging the pro-welfare orientation of social and Christian democracy. The Red–Green government was expected to make ‘only limited efforts’ (ibid.: 295) of welfare state restructuring in response to the changed socio-economic environment (see also Wood 2001: 393). Yet, the Red–Green government of Chancellor

Introduction

5

Schröder engaged in major restructuring with Agenda 2010 and the Hartz Legislation. In the face of social democrats increasingly engaging in unpopular welfare state reforms, scholars emphasising party competition argue that left parties are in a much better strategic position than right parties to introduce benefit cuts. Social democrats are perceived to be generally supportive of the welfare state, while right parties lack credibility on social issues. For this reason, the electorate is expected to be more likely to believe that there is no alternative to retrenchment, if introduced by social democrats (the so-called ‘Nixon goes to China’ thesis). Moreover, conservative parties can be assumed to be utterly attacked by left parties and trade unions when pursuing retrenchment. For the right, it is therefore rather difficult to justify benefit cuts when ‘social’ alternatives are offered on the left (GreenPedersen 2002: 36ff.; Kitschelt 2001: 275; Ross 2000: 162–165). The ‘Nixon goes to China’ thesis indeed provides good reasons to expect the left to be more ‘successful’ in the exercise of retrenchment. But it tells us very little about why social democrats should engage in unpopular policies in the first place, presuming they are vote- and office-seekers. The German welfare state has continued to enjoy public support at high levels, despite some decrease in recent years. In 2000 (that was before the retrenchment of the Hartz Legislation), the institutional core of the welfare state was supported by 85 per cent of the electorate in West Germany and even 93 per cent in the eastern part of the country (Roller 2002). Health insurance and old-age security were the most popular branches of social security with almost universal support, according to surveys of public attitudes in 1996 (that was before the Red–Green alliance entered government office). However, active and passive labour market policy also received strong support. Three out of four Germans ascribed the responsibility for full employment to the state; four-fifths of the electorate saw a public responsibility for the living standard of the unemployed (Krüger 2001; see also Andreß and Heine 2001). Notwithstanding this strong support for social policies, the population perceived a necessity to reform the welfare state. During the reform process of Agenda 2010, this applied to approximately four-fifths of Germans. Moreover, more than two-thirds of the population believed that the labour market reforms introduced by the Schröder government were insufficient. Accordingly, a strong

6 Institutions, Ideas and Learning in Welfare State Change

majority of the population was prepared for further reform. We can assume a population that was not per se opposed to reforming the welfare state. However, despite an awareness of the necessity of reform, the so-called Hartz IV Law (the most comprehensive piece of the Hartz Legislation integrating unemployment and social assistance into one benefit scheme for the long-term unemployed) was predominantly linked to negative associations, such as social injustice and fraud (Forsa 2004). Almost three-quarters of the population considered Hartz IV a substantial measure of retrenchment (Institut für Demoskopie Allensbach 2004). The electorate was almost evenly divided regarding support for and opposition to Hartz IV (Emmer and Seifert 2005). Less than one-fifth of Germans had a good opinion of Agenda 2010, proposed by the Chancellor (Köcher 2003). If one accepts the office- and vote-seeking assumptions, it could be critically asked why the Red–Green government initiated major benefit cuts. Given the continuously high support for the welfare state, the government – elected on a pro-welfare platform – should not have proposed Agenda 2010 and the Hartz Legislation as a ‘rational’ actor; this reform strategy involved major electoral risks. As we now know, the electoral risk was too high. After the defeat in the important state-level election in North Rhine Westphalia, support for Gerhard Schröder within the SPD declined critically, which made him call for a snap election. The Red–Green government lost this election, involving the end of the Chancellorship of Gerhard Schröder. Apparently, neither the parties matter thesis nor arguments deriving from the party competition approach can explain the Red–Green government’s engagement in welfare state restructuring and retrenchment. Instead, it could be referred to the functionalist argument of economic globalisation, with which the viability of welfare state arrangements due to increased economic integration and competition could be challenged. In the new environment of global market integration, Mishra most prominently argues that left parties, in a ‘position of reluctant neoliberalism’ (1999: 55), can at best reduce the speed of welfare retrenchment but the direction of policy development is determined by the constraints of increasing competition between nation states. In other words, reversing Wilensky’s (1975) argument that economic prosperity caused welfare state expansion, the competitive pressure of globalisation

Introduction

7

made social policies unaffordable, leaving no other course open to policy-makers but to engage in retrenchment. Governments are increasingly put under pressure to reduce corporate taxation and the costs of social security to ensure competitiveness in the ‘global market’ (which is associated with job creation and income). This imperative of investor-friendly policies results in an environment of fiscal austerity, undermining the functional feasibility of social policies. Accordingly, nation states cannot avoid getting involved in a ‘race to the bottom’ of welfare retrenchment, inducing processes of cross-national convergence (Mishra 1999: 15 on the ‘logic of globalisation’). Though the development towards increasingly integrated markets for goods, services and capital itself is generally not questioned (Genschel 2004; Palier and Sykes 2001), the substantive significance of globalisation for national social policy is strongly disputed in the literature. The ‘hyperglobalist thesis’ of borderless and denationalised economies, inevitably resulting in an accelerating ‘race to the bottom’ and social dumping (Held et al. 1999: 3–5; Drezner 2000), is heavily contested. The constraining impact of globalisation on the welfare state is often considered rather limited, if not completely denied (Allan and Scruggs 2004: 507; Fligstein 1998; Pierson 2001b: 80–83). Paradoxically, there is strong evidence that globalisation, at least in the first instance, had a positive impact on social spending. Increased economic integration and competitive pressure did not result in rolling back the state but in expanding the welfare state. Social expenditure was used to compensate for the increased inequality and insecurity caused by economic openness, thereby ensuring public support for further internationalisation of markets (Hicks and Zorn 2005: 648; Katzenstein 1985; Rodrik 1997: 50–53). Ruggie (1982) coined this strategy the compromise of ‘embedded liberalism’. The feasibility of this strategy and the sustained high levels of social spending, however, are increasingly questioned. Rodrik (1997: 55) argues that compensating for the inequality and insecurity due to globalisation has become unfeasible at a certain level of economic integration. The primacy of improving international competitiveness causes Cerny (1997) to speak about the development from the welfare state to the ‘competition state’. Likewise, Ruggie (1997) sees an inevitable erosion of ‘embedded liberalism’ caused by economic

8 Institutions, Ideas and Learning in Welfare State Change

globalisation. By contrast, Garrett (1998; Garrett and Lange 1991) makes an argument for the continued feasibility of ‘left’ policy strategies. Instead of engaging in a discussion on the functional feasibility of different policy strategies in a ‘global economy’ (which might be the domain of economics rather than political science), it is here acknowledged that increased competition between business locations has implications for the steering capacity of nation states. Many scholars argue that the competitive pressure deriving from globalisation is indeed undermining the nation state’s steering capacity, which is assumed to have potentially significant implications for social policies, as labour costs and taxes associated with financing social security become scrutinised with respect to their negative impact on economic and employment performances (M. Rhodes 2001: 168–172; Scharpf 1997a; Streeck 2004). However, rather than assuming a deterministic and uniform ‘race to the bottom’, the considerable cross-national variance of responses to the ‘external challenge’ of globalisation feeds the argument of the mediating function of the socio-economic and political context of nation states. In other words, the national institutional setting shapes the impact and response to the competitive pressure associated with the integration of markets. In this institutional context, social policy reforms take place (Beyeler 2003: 155; Bonoli and Palier 2000; Daly 2001: 80; Scharpf 2000; Swank 2002). Confronted with continuous high unemployment and associated pressure on public budgets, the German political economy is widely argued to be ‘under stress’ (Padgett 2003), which might be related to increased economic globalisation. And, indeed, the German economy can be considered as being particularly vulnerable to increased international competitiveness, as it heavily relies on export-oriented industry sectors, where much of the GDP is generated and much employment can be found. However, despite considerable pressure to reform, the welfare state has proved relatively resistant to structural change, allowing only relatively little retrenchment and decline in generosity until the mid-1990s in a comparative perspective. At the same time, notwithstanding the perceived imperatives of economic globalisation, a selective expansion of welfare took place along with modest benefit cuts (Mishra 1999: 81–83; Swank 2002: 178, 187ff.). Specifically looking at social security for the unemployed, Korpi and Palme (2003: 445) as well as Allan and Scruggs (2004: 500) find only

Introduction

9

a modest reduction of replacement rates in comparison to other OECD countries. This is not to argue that retrenchment and restructuring did not take place prior to the (second) Red–Green government but that reforms lacked the comprehensive character and scope of the Hartz Legislation. It is, however, acknowledged that the departure from the conservative-corporatist path of welfare had already started with the preceding Kohl government. Bleses and Seeleib-Kaiser (2004) describe this simultaneous development of retrenchment (in particular, in the domains of old-age security and unemployment insurance) and social policy expansion (particularly, in family policy) the ‘dual transformation’ of the German welfare state. The significant expansion of family policies is interesting insofar as it raises the question as to how this policy could ‘resist’ the pressure for retrenchment associated with the global integration of markets. Apparently, pressure that is commonly ascribed to economic globalisation is not absolute; it does not eradicate choice. In fact, Scharpf (2000: 114) argues, the German economy coped well with the pressures of economic internationalisation, since the approach of combining outsourcing and improving productivity allowed ensuring competitiveness in international product markets. From this perspective, the problem of the German political economy is less the lack of competitiveness in exposed sectors than the inability to generate employment in the private service sector, to compensate for the job losses related to maintaining the competitiveness of German industries. Accordingly, Scharpf considers the incapacity to create the conditions to allow employment growth in the service sector as a failure of German political economy. In any case, despite the perceived pressure to introduce major changes in labour market policy, a comprehensive reform of labour market policy – of similar scope to that of the Hartz Legislation – did not take place prior to the Red–Green government, which was also, at first, rather cautious in its labour market policy. The reform of the labour market complied with the overall picture of the German welfare state, which is said to have changed in a fairly incremental manner (Seeleib-Kaiser 2003). As presented at the beginning, the supposed ‘reform gridlock’ is typically ascribed to the institutional rigidities of the German political economy (Streeck and Kitschelt 2003: 18). In compliance with this argument, the German polity is, as a matter of

10 Institutions, Ideas and Learning in Welfare State Change

fact, rather rich in institutional barriers in policy-making by international standards, making it difficult to introduce major policy reforms. In particular, the Federal Council (Bundesrat), is considered a high barrier in policy-making. In addition, the common incidence of coalition governments is prominently discussed in the literature (M.G. Schmidt 2003: 44–46; Merkel 2003). Scharpf et al. (1976) called this unfavourable situation of highly fragmented decision-making authority the ‘joint decision trap’. These rigidities, which undermine the capacity to introduce comprehensive reforms, favour sticking with a given policy path instead of pursuing a costly departure from established structures. Not only the financial burden of reforms but also the electoral costs of unpopular measures can be immense, given an electorate with strong support for public welfare (Andreß and Heien 2001; Krüger 2001; Roller 2002). This might also explain why policy-makers were unable – if not unwilling – to establish a reform discourse, which would have allowed introducing comprehensive, and often unpopular, reforms (Cox 2001; V. Schmidt 2000: 266, 274–281). In particular, a conservative government (such as the Kohl government from 1982 to 1998) might perceive the introduction of unpopular reforms as being rather costly in the face of a Social Democratic alternative for the electorate (Green-Pedersen 2002; Kitschelt 2001 on party competition). It might be concluded that institutional arguments are strong in accounting for the stability of the German welfare state and its labour market policy. And indeed, institutionalist approaches have proved powerful in explaining political and policy development, in particular the stability and inertia of welfare states and political economies (Amenta 2003; Hall and Soskice 2001; Immergut 1992; Pierson 1994; Thelen 2004; Wood 2001). According to the path dependence theorem of historical institutionalism, policies develop on historically embedded paths, confined by rules nested within the particular institutional structure. These rules limit the discretion of policy-makers. The resistance to change intensifies over time and, because of that, the costs of change increase as well. These ‘lock-in’ effects implicate path dependence to antecedent decisions, which then narrow the scope of possible options for change. In particular, highly developed structures with pronounced social interdependences (such as advanced welfare states) are characterised by extraordinary lock-in effects. Even with respect to sub-optimal structures, initial choices

Introduction

11

can become self-reinforcing over time, if ‘sunk costs’ associated with previous decisions make sticking with an inferior institutional setting more attractive than bearing the costs of change. Furthermore, actors are often inclined to opt for policy solutions they are already familiar within complex decision-making situations. Institutional structures are, as a consequence of this, reproduced or even transferred to new policy domains. Also related to the phenomenon of complexity, cognitive limits of decision-makers might involve ‘unintended consequences’, which can have substantial implications for path-dependent development due to the sunk costs of previous decisions (Mahoney 2000; Pierson 2004; Thelen 1999, 2003; Thelen and Steinmo 1992). Lock-in effects of path-dependent development can be expected to be particularly strong – if not insurmountable – in the presence of veto players threatening to obstruct path-deviating policy proposals (Tsebelis 1995; see also Immergut 1992 on veto points). However, although the idea of institutional stickiness is of high explanatory capacity, the focus on the inertia of institutions has contributed to conceptual deficits in grasping and explaining institutional change, such as the path-departing reforms of the labour market introduced by the Red–Green government. Welfare state scholars raised the issue of inadequately conceptualising policy change when observing comprehensive restructuring in the 1990s – in contrast to the 1980s, to which much of the data in new institutionalist welfare state analyses refer. The puzzle of this development could be channelled into the question as to whether we are actually observing a ‘declining resistance of welfare states to change’ (van Kersbergen 2000: 19). In the new institutionalist literature, the bias to stability of the path dependence theorem has been discussed increasingly critically (Clemens and Cook 1999: 442; Crouch 2005: 2; Hall and Taylor 1996: 21; Hay 2001: 194ff.; Levi 1997: 29; Mayntz and Scharpf 1995: 45; Peters et al. 2005: 1278; Rothstein 1996: 153ff.; Thelen and Steinmo 1992: 14ff.). Overcoming the stability bias of new institutionalism, Crouch argues that the approach ‘needs to find its own means of accounting for such changes which make use of rather than ignore the assumptions of path dependence and embeddedness’ (2005: 72). Approaching the issue of change, Thelen claims that the ‘key to understanding institutional evolution and change lies in specifying more precisely

12 Institutions, Ideas and Learning in Welfare State Change

the reproduction and feedback mechanisms on which particular institutions rest’ (1999: 400). Addressing the stability bias in new institutionalism (in particular, in the path dependence theorem of historical institutionalism), paying more attention to ideas in new institutionalist analysis is increasingly called for, though ideas as an informal dimension of the institutional setting have been on the agenda from the very beginning of the historical institutionalist project (Hall 1986, 1989; Hall and Taylor 1996: 6; King 1992; Thelen and Steinmo 1992: 2; Weir 1992). However, scholars apparently feel that ideas guiding political behaviour and accordingly their ‘causal weight’ in institutional change have not been taken seriously enough in much of the new institutionalist work (Berman 1998: 21, 2001: 238; Blyth 2001: 3, 2002: 40ff.; Hay 2001: 193; Peters et al. 2005: 1296). Nevertheless, even if one agrees with the proposition that the stability bias in historical institutionalism is associated with insufficiently paying attention to ideas, it needs to be acknowledged that ideas do not exist in a ‘vacuum’. It is important to emphasise the ‘embeddedness’ of ideas, underlining the significance of the formal institutional setting and the policy legacy for the persuasiveness of ideas (Hall 1989: 369ff.; Sikkink 1991: 25ff., 247; Weir 1992: 189). In fact, Lieberman (2002: 698) contends that ideas have a similar bias towards stability as do formal institutions. In the light of the path-shaping properties of ideas, it appears reasonable to postulate an ideational dimension of path dependence (see also Hay 2006). Accepting this claim but also the argument that the key to understanding institutional change is understanding the destabilisation of institutional settings – as at least implicitly argued by Crouch (2005: 72) and Thelen (1999: 400) – changing ideas can be ascribed the capacity to destabilise institutional settings and thereby trigger institutional change. Ideas are sources of change. When looking at the German welfare state and its labour market policy, emphasising the importance of ideas seems imperative. For a long time, the lack of innovative ideas and accordingly the lack of an innovative (public) reform discourse were held accountable for rather cautious welfare reforms in Germany in comparison to many of its neighbours (Cox 2001; V. Schmidt 2000: 266, 274–281). In the second Schröder government, however, a critically path-departing reform of the labour market took place with the introduction of the

Introduction

13

Hartz Legislation, in the absence of a supportive public discourse. The source of this legislation is widely ascribed to the final predominance of the activation idea and the imperatives of improving international competitiveness and budget consolidation, while the ideas of the social insurance state were successively undermined (Clasen 2005: 67–76; Dingeldey 2004: 25–32; Bleses and Seeleib-Kaiser 2004: 48–67). This raises the question of the mechanisms changing the predominant ideas that informed policy-makers. Scrutiny of this issue is particularly relevant, since Social Democratic policy-makers previously categorically rejected the idea of coercive activation and corresponding measures, such as benefit cuts and tightening the sanction regime as well as the criteria for reasonable work. Against this background, the conceptual utility of policy learning as a mechanism of institutional change is scrutinised in this research to address the problem of the stability bias in new institutionalism. Based upon the preceding brief review of competing welfare state theories, new institutionalism is considered as the approach that holds most capacity to deal with recent welfare state changes, such as the case of labour market reforms in Germany. This is not to argue that alternative approaches do not possess explanatory utility but that the understanding of institutions and path-dependent development is the key to understanding recent social policy changes, despite the undisputable stability bias of the new institutionalist approach. Here, learning is depicted as a mechanism with the potency to destabilise the ideational foundations of institutions and thereby to trigger paradigmatic change. For this reason, it is claimed that integrating policy learning into new institutionalism enhances the analytical scope of the approach. In addition to treating learning as an independent variable, those conditions of learning which can be expected to trigger institutional change in complex environments are investigated. It is assumed that the potential as well as the limits of policy learning are associated with the particular institutional setting in which learning takes place, arguing that institutions possess the capacity to both facilitate and constrain processes of learning. While institutionalised learning mechanisms and mediating institutions might foster the exchange and utilisation of knowledge in the political process (which could eventually result in policy change), sunk costs associated with existing institutions, on the other hand, can undermine

14 Institutions, Ideas and Learning in Welfare State Change

the viability of learning outcomes as well as the serious consideration of certain policy options in the first place. Such lock-in effects reinforce path-dependent development. That is why learning-based change is depicted as being structured and bounded. In other words, the attempt to integrate policy learning conceptually into the new institutionalist approach as a potential mechanism of change is complemented with the objective of scrutinising processes of policy learning from an institutional perspective. This two-fold research strategy is considered necessary for developing a full understanding of knowledge-based institutional change. The research agenda is empirically investigated with reference to the case of labour market reforms in Germany. The choice of this case is particularly sensible for four reasons: firstly, national labour market regimes in advanced political economies are deeply embedded in the political, social and economic system of the particular nation state (M. Rhodes 1995: 91). Accordingly, comparatively high institutional barriers to change in labour market policy can be assumed because of the interdependence of different policy domains (see also Hall and Soskice 2001: 17 for the argument about institutional complementarities). For this reason, labour market policy can be considered a highly appropriate policy domain for scrutinising path dependence. If the significance of policy learning as a potent mechanism of change can be demonstrated in labour market policy, it is highly plausible that this applies for other social policy areas as well. Secondly, the German polity is characterised by high barriers in policy-making in comparison to most other advanced democracies (for example, two legislative chambers, coalition governments, social partners). These barriers are associated with the ability of veto players to obstruct policy change to a remarkable extent (M.G. Schmidt 2003: 44–46; Merkel 2003). Given these constraints in policy-making and the dispersal of power in the German polity, Katzenstein (1987) coined the popular notion of the ‘semisovereign state’. Thirdly, the German welfare state and its labour market policy are under enormous pressure to change because of substantial policy failure and public awareness of failure. And indeed the German welfare state can be considered to be ‘in transition’ (Czada 2004: 7) despite high institutional barriers to change. Red–Green labour market reforms involving a paradigmatic shift towards activation are crucial in this process. In such situations of comprehensive welfare state

Introduction

15

restructuring, one can expect the utilisation of knowledge in policy formulation, as policy areas such as labour market policy are characterised by high complexity and interdependence. In other words, decision-making in labour market policy can be assumed to involve some considerable degree of uncertainty, increasing the chance of policy learning as a mechanism reducing uncertainty. Finally, labour market policy has experienced numerous changes since its institutionalisation. In the period of empirical focus (that is, the Red–Green government), five major pieces of legislation were enacted, associated with comprehensive changes to the benefit system for the unemployed and employment promotion. For this reason, the case of German labour market reforms offers many observations for the scrutiny of institutional change. Though aware of the difficulties with generalisations based upon single case studies (see on case study research Eckstein 1975; George and Bennett 2005; Gerring 2004; Lijphart 1971), this study of labour market reforms is considered a ‘strong’ case for the investigation of the significance of learning in path-deviating change given the high barriers to change in labour market policy-making in Germany. Thus, evidence for the importance of policy learning derived from the German case can be ascribed considerable value for theory development.

1.2 The structure of the book In the following, the structure and the key findings of this book are briefly outlined. In Chapter 2, new institutionalism and its stability bias are first critically discussed, before turning towards identifying sources for institutional change. The stability bias in the new institutionalist literature is addressed by emphasising the incoherence of institutional settings, the discretion of agency and the structuring impact of ideas as endogenous sources for policy change. Importantly, ideas instructing relevant policy-makers are considered institutions, since they structure behaviour as formal institutions do. Ideas contribute to defining the boundaries of a policy path. The change of ideas, which might initiate policy change, can be related to learning. Accordingly, policy learning is introduced as a mechanism for knowledge-based institutional change. However, the policy learning literature is criticised for its rather descriptive and instrumental

16 Institutions, Ideas and Learning in Welfare State Change

character. Learning is, at least implicitly, depicted as a deliberate exercise, of which agency is in control. The literature remains ahistorical and must be described as under-theorised, resulting in eclectic explanations on the factors facilitating and restricting policy learning. It lacks a comprehensive understanding of ‘embedded’ agency, the subject of learning. The chapter concludes with outlining an institutional approach of learning, in which policy learning is enriched with insights from new institutionalism in order to improve the understanding of contextual factors and agency. It is argued that an institutional approach to learning can sensibly be integrated into new institutionalism. The research agenda is empirically addressed with the case of the labour market reforms of the Red–Green government. Chapter 3 sketches the development of labour market policy until 2005 to provide the basis for the empirical analysis. The German welfare state is traditionally depicted as conservative-corporatist. It is demonstrated that labour market policy until the Red–Green government was characterised by both remarkable stability and change. Basic institutions of labour market policy remained stable at first glance, but the ideas governing these institutions changed. Intensified reform efforts after the mid-1990s resulted in increasingly redirecting labour market policy. With the Job-AQTIV Law and the Hartz Legislation, the Schröder government not only continued with the reform agenda of the centre-right government but accelerated the speed of reform for the labour market. It is argued that the policies introduced by the Red–Green government mark a critical break with the corporatist-conservative path of welfare in labour market policy. Chapter 4 shows that labour market reforms were constrained by the high institutional barriers in policy-making set by the German polity. Nonetheless, comprehensive labour market reforms took place. These changes were preceded by a shifting policy discourse, in which overcoming the passivity of German welfare and reorganising the highly bureaucratic employment service became the focal points of reform debates. However, activation efforts were shaped by the imperatives of improving Germany’s international competitiveness and consolidating the federal budget. An overview of Red–Green labour market policy-making and the significance of policy learning in the formulation of reform proposals

Introduction

17

and its actual significance for legislative change is provided in Chapter 5. Starting the analysis with the Job-AQTIV Law of the first Red–Green government, the basic working structures of Red–Green labour market policy-making are discussed, complemented by presenting an initial account of the significance of learning and foreign practices in the paradigmatic change towards activating labour market policy. Scrutinising the Hartz Legislation of the second Schröder government, it is demonstrated that the focus re-shifted to negative activation, as it had been pursued by the centre-right government. The two Schröder governments are compared, explicating and analysing the shift from positive towards negative activation. The chapter concludes with the analysis of the impact of the European Employment Strategy on German labour market policy; this external/non-domestic factor did not prove to be of much significance. In Chapter 6, the Alliance for Jobs of the first Red–Green government (1998–2002) is scrutinised. This means of corporatist concertation was initiated by the Schröder government as a major device for reforming the German political economy in consensus with social partners. After providing an overview of the Alliance for Jobs and its benchmarking group, the main policy reports on labour market policy are analysed with respect to the importance of learning in policy formulation and their significance for the labour market policy legislation of the first Red–Green government. Despite the importance ascribed to the Alliance for Jobs by the Schröder government, this means of policy-making did not generate much of importance for the labour market reform of the first Red–Green government. The policy recommendations of its benchmarking group hardly influenced policy-makers. Overall, the corporatist policy-making of the first Schröder government must be considered unsuccessful. It failed to deliver a comprehensive labour market reform, which was widely viewed as being imperative given the persistence of mass unemployment. The significance of policy learning in the Hartz Legislation is investigated in Chapter 7. This legislation reflected the policy recommendations of the corresponding Hartz Commission, whose report dominated the public debate on labour market policy of the second Red–Green alliance (2002–2005). This commission was established after the disclosure of manipulated placement statistics in February 2002 plunged the Federal Employment Service into a

18 Institutions, Ideas and Learning in Welfare State Change

severe crisis. While the first two pieces of Hartz Legislation were closely associated with the Hartz recommendations, the third and fourth pieces of this legislation cannot be ascribed programmatically to the Hartz Commission but to the ministry of labour. It is shown that the contribution of policy learning was decisive in policy formulation in both the Hartz Commission and the ministry of labour. The shift in labour market policy, however, cannot solely be explained by learning. Among the factors affecting the feasibility of this legislation, the leadership of Chancellor Schröder, using the window of opportunity of the placement scandal, was of high importance. Backed by Schröder’s leadership, the so-called ‘modernisers’ in government and the SPD, who were already strongly dissatisfied with the predominant programmatic stance of their party and had switched to the paradigm of negative and positive activation, achieved a position of extraordinary authority in policymaking. The paradigm shift in Red–Green labour market policy was preceded by a shift of authority, i.e. modernisers became predominant within the government and its coalition. However, against the background of social learning by modernisers, the comprehensive Hartz Legislation cannot be reduced to the agenda-setting of and leadership by the Chancellor, making a case for the simultaneity of ‘powering’ and ‘puzzling’ (Heclo 1974: 305). Thus, the window of opportunity associated with the placement scandal and Schröder’s leadership were important in affecting the ‘speed’ of policy-making, but not the general ‘direction’ of the labour market legislation of the Red–Green government. In the concluding Chapter 8, the empirical findings are discussed in the light of the reviewed literatures on new institutionalism and policy learning. It is argued that learning has been decisive in Germany’s departures from its conservative-corporatist path of welfare, by successively substituting the idea of status preservation and the corresponding passivity in welfare with the philosophy of activation, as well as substituting the conception of corporatist and ruledriven governance of the public employment service with the idea of new public management. Despite highly politicised policy-making, domestic and foreign reference models were genuinely utilised in the policy formulation of the Red–Green government. Policy learning, however, did not take place in a ‘political vacuum’. The politics dimension of learning is particularly associated with the leadership

Introduction

19

exercised by the Chancellor and the shift of authority towards the modernisers in government, lowering the requirements for collective learning within the Red–Green alliance but also, with the veto powers of the Federal Council, undermining the political feasibility of some important Red–Green policy proposals. Based upon the understanding that policy learning is institutionally embedded (see also Hemerijck and van Kersbergen 1999: 182), the significance of the formal and informal institutional setting is discussed. While the Federal Council as a veto player possessed the capacity to undermine the scope of effective learning (that is, learning that results in institutional change), Red–Green labour market policy learning was facilitated by different institutionalised ‘learning mechanisms’, generating policy-relevant knowledge (Popper and Lipshitz 1998: 170), and ‘mediating institutions’ (Knoepfel and Kissling-Näf 1998: 347), fostering the building up of consensual knowledge. Learning on labour market policy was moreover embedded in a policy discourse emphasising the imperatives of improving Germany’s international competitiveness and consolidating the budget. Because of that, the scope of policy options for activating labour market policy that were perceived as functionally feasible was considerably restricted, particularly since enabling activation (such as measures for further training) would have involved considerable costs. However, despite constraints associated with the overall paradigm of the political economy, activation served as an effective institutional blueprint influencing policy-makers. Examples of non-learning highlight the significance of institutional and political barriers to knowledge-based policy change. The limited scope of the labour market legislation of the first Schröder government, in comparison to that of the second Red–Green alliance, underlines that the political feasibility of policy proposals is decisive for effective policy learning. In many instances, this was not given in the first four years of the centre-left government due to the capacity of the so-called ‘traditionalists’ within the coalition government and the Social Democrats to veto certain policies. Likewise, the limited scope of ‘making work pay’ measures throughout the Red–Green administration illustrates that well-established beliefs and institutional interests can exhibit considerable resistance to change. In a concrete example, the ministry of finance was most strongly opposed to such measures, fearing substantially increased costs for

20 Institutions, Ideas and Learning in Welfare State Change

the federal budget. However, the ministry of labour was also rather sceptical because of long-standing doubts about the effectiveness and efficiency of wide-scale ‘making work pay’ schemes. Finally, the Federal Council was an effective barrier to institutional change induced by policy learning, since the conservative opposition was prepared to block Red–Green legislation. Even in cases of considerable programmatic consensus, the second chamber vetoed legislation, given fierce party competition. This concluding chapter also includes a brief evaluation and discussion of the labour market policies of the Grand Coalition of Christian and Social Democrats from 2005 to 2009, which complements the earlier findings on the politics of social policy reforms. Though being aware of the difficulties of drawing conclusions from single-case studies, it is argued that the heuristic case of labour market reforms in Germany sheds important light on the utility of policy learning as a mechanism of change in new institutionalism. It is demonstrated that an institutional account of learning can sensibly be integrated into new institutionalism, since it refers to all three endogenous sources of change. Ascribing a key importance to ideas in policy-making, the issue of which mechanism is transforming the knowledge that is instructing policy-makers is raised. Here, policy learning is introduced as a mechanism that has the capacity to change ideas. Since actors are the very subjects of learning, calls for ascribing more prominence to agency in new institutionalist analyses can be addressed as well. Acknowledging institutional incongruities and incoherence as well as the diversity of institutional legacies is an important route towards understanding the discretion of agency, complementing the availability of ‘foreign’ knowledge. Depicting policy learning as a mechanism of institutional change is based upon the understanding that path dependence includes an ideational dimension.

2 Institutions, Ideas and Learning

By paraphrasing Richard Nixon, ‘we are institutionalists now’, Pierson (2003: 1) indicates, with some polemic, the popularity the new institutionalist approach has experienced since its (re-)appearance on the agenda of social sciences in the second half of the 1980s. In this chapter, new institutionalism – and especially historical institutionalism with its path dependence theorem – is reviewed (Section 1). The prevalent stability bias of this literature is addressed by emphasising institutional incoherence and diversity, the discretion of agency and the structuring impact of ideas in policymaking as endogenous sources for transformative institutional change, which can be linked with policy learning as a mechanism for knowledge-based institutional change (Section 2). This will be followed by introducing the concept of policy learning, before briefly outlining an institutional approach towards learning, which is ascribed the capacity for integration into new institutionalism (Section 3).

2.1 New institutionalism and the problem of change Questioning the mainstream of contemporary theories in political science at that time, March and Olsen (1984, 1989) redirected attention to the significance of institutions in politics. Their new institutionalist agenda has received much attention in the literature. It fuelled the critique of the ‘behavioural revolution’ of the 1960s and 1970s, which had marginalised the rather descriptive ‘old institutionalism’ with its focus on the formal–legal structure of 21

22 Institutions, Ideas and Learning in Welfare State Change

political systems (Eckstein 1963; Finer 1949). By contrast to its predecessor, new institutionalism seeks to explain institutions ‘as a “dependent variable” and, more importantly to explain other phenomena with institutions as the “independent variables” shaping policy and administrative behaviour’ (Peters 1996: 206). Typically, institutions are seen as having a constraining impact on actors but enable agency to act at the same time. For March and Olsen, from a sociological perspective, ‘a central anomaly of institutions is that they increase capability by reducing comprehensiveness’ (1989: 17). With a similar impetus, rational choice scholars argue that the ‘main function of institutions is to help boundedly rational actors to act in a complex and potentially turbulent environment’ (Genschel 1997: 47). In other words, for both approaches institutions are essentially a means that reduces the complexity commonly characterising modern societies, by ‘eliminating alternatives’ in decision-making situations (Clemens and Cook 1999: 458). Actors are enabled to deal with their environment, which would otherwise exceed their abilities (for example, with respect to processing information). This reduction of complexity makes, in the end, actors capable of acting. Further to this, there is a predominant consensus that institutions are ‘enduring entities: that cannot be changed at once at the will of the agents’ (Rothstein 1996: 152). Thus, institutions are characterised by some stickiness and inertia which restricts the capability of agency to redesign institutions to serve their purpose. Overcoming the old institutionalist restriction to formal–legal structures, most new institutionalists, despite differences in detail, commonly include both formal institutions (such as the government, parliament and courts as well as legal rules) and informal institutions (such as ideas, values and norms) in their definition of institutions. Thelen and Steinmo, summarising the historical institutionalist literature, provide a relatively comprehensive approach towards institutions, which encompasses ‘both formal organizations and informal rules and procedures that structure conduct’ (1992: 2). In a similar way but less comprehensively, Hall and Taylor define institutions as ‘formal and informal procedures, routines, norms and conventions embedded in the organizational structure of the polity or political economy’ (Hall and Taylor 1996: 6; see also Hall 1986: 19; Pierson 1993: 596).

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From a rational choice perspective, Levi restricts institutions to ‘sets of rules (and sanctions) that structure social interactions’ which, by definition, need to ‘have a legalistic aspect, and all possess enforcement mechanisms’ (1997: 25). This conception of institutions does not include an informal dimension. However, not all proponents of the rational choice perspective exclude informal institutions (North 1990: 3ff.; Scharpf 1997b: 38). Whilst rational choice scholars tend to emphasise the formal dimension of institutions, sociological institutionalists are conversely predominantly interested in the informal aspects constituting political institutions and organisations, which are depicted as ‘collections of interrelated rules and routines’ (March and Olsen 1989: 160; see also Crouch 2005: 10; Jepperson 1991: 145). Thus, despite the relatively broad consensus that institutions include both formal and informal arrangements, the inclusiveness of institutions is controversially discussed. Comprehensive definitions including broad categories (such as the state, class and culture) as well as organisations are often considered ‘over-socialised’ and ‘over-complex’, which thereby are said to become too diluted and deterministic for attempts to assess the importance of institutions in politics (Rothstein 1996: 145ff.; Peters et al. 2005: 1285ff.; Thelen and Steinmo 1992: 12). Although the concern that the inclusiveness of institutions needs to be restricted is shared in order to maintain the explanatory utility of new institutionalism, it is here held that formal as well as informal institutions need to be considered in new institutionalist analysis. Both are essential for the overall institutional setting, providing the framework for political behaviour. However, to avoid conflating institution and agency, institutions should indeed be limited to the ‘rules of the game’. If political behaviour is understood as being structured by the institutional environment, actors cannot be considered an institution. In contrast to rational choice institutionalists, however, it is argued that ideas such as the informal dimension of the ‘rules of the game’ have to be taken seriously. Ideas possess the capacity to constrain as well as to facilitate political action as much as formal rules do. Therefore, ideas, under certain conditions, can also be considered an institution. The conception of ideas as informal institutions will be elaborated later on. Controversy also arises around the issue of the relationship between institutions and political behaviour. Ideal-typically, it can

24 Institutions, Ideas and Learning in Welfare State Change

broadly be distinguished between the so-called ‘calculus approach’ and the ‘cultural approach’ (Hall and Taylor 1996: 7ff.). The former is generally associated with the rational choice variant of new institutionalism. The calculus approach emphasises ‘those aspects of human behavior that are instrumental and based on strategic calculations’ (ibid.: 7). Accordingly, actors behave instrumentally and strategically in their pursuit of benefit maximisation, for which institutions provide the ‘rules of the game’ allowing cooperation that serves all actors involved (see also Levi 1997; Mayntz and Scharpf 1995; Shepsle 1989). By contrast, the cultural approach argues that ‘behaviour is not fully strategic but bounded by an individual’s worldview’ (Hall and Taylor 1996: 7). The argument of normatively embedded human behaviour in which ‘institutions provide the moral or cognitive templates for interpretation and action’ (ibid.: 8) is typically associated with sociological institutionalism and its ‘logic of appropriateness’ (see also DiMaggio 1988; March and Olsen 1984, 1989). The third variant of new institutionalism, historical institutionalism, is rather ‘eclectic’ (Hall and Taylor 1996: 8) insofar as both the calculus and cultural approach to political behaviour can be found in it. This observation is central to Hall and Taylor’s argument that historical institutionalism can be ascribed an ‘especially pivotal position’ (ibid.: 24) in efforts to overcome the isolation between the various approaches of new institutionalism and to facilitate cross-fertilisation. Building upon this assessment by Hall and Taylor, historical institutionalism and its path dependence theorem will be reviewed below, before assessing possible sources of institutional change and policy learning as a knowledge-based mechanism of change. Although historical institutionalism is not dogmatic as to the relationship between institutions and political behaviour, one might see closer affinities with the cultural approach (Hall and Taylor 1996: 8). Immergut (1997, see also Thelen and Steinmo 1992: 7–9) argues that historical institutionalism draws upon the same tradition of thinking as sociological institutionalism, but has a stronger emphasis on power and interests. For historical institutionalism, the formation of interests is not seen as being exogenous to the institutional setting, as proposed by narrow rational choice models. The approach considers beliefs and understandings of actors influenced by political opportunities structured by the institutional setting. Likewise,

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the political organisation of interests, in the first place, may be decisively influenced by the institutional context, whereby institutions affect power relations. Actors are, moreover, assumed to follow predominantly societally defined rules; these are not necessarily in their self-interest – or are just unreflectedly considered to be in their self-interest. In other words, preferences are essentially depicted as politically and socially constructed, ascribing a much more influential role to institutions in a similar fashion to sociological institutionalism. However, Thelen (1999: 375–377) considers this dividing line between historical and rational choice institutionalism (that is, the endogenous or exogenous preference formation) as less problematic than previously assumed, since rational choice scholars increasingly acknowledge the significance of norms and culture in the constitution of interests. The differentiated approach towards the formation of preferences – as well as the distribution of power – illustrates the highly contextual character of historical institutionalist analyses; and context is perceived as ‘historically-generated’ in this approach (Immergut 1997: 344). In historical institutionalism, the concept of path dependence is the key to understanding political development. In very broad terms, Sewell defines path dependence as ‘what has happened at an earlier point in time will affect the possible outcomes of a sequence of events occurring at a later point in time’ (1996: 262ff.). Pierson (2000: 252) challenges this conception of path dependence and its utility. The argument of the significance of past policies for future development is basically restricted to the statement that ‘history matters’, which has become a commonplace in the social sciences. By contrast, scholars such as Levi and Mahoney provide a stricter definition of path dependence. Levi argues: Path dependence has to mean, if it is to mean anything, that once a country or region has started down a track, the costs of reversal are very high. There will be other choice points, but entrenchments of certain institutional arrangements obstruct an easy reversal of the initial choice. (1997: 28) Obviously, by underlining the costs of policy-making, Levi rejects the loose notion that past policies continue to have some – unspecified – impact on actual policy-making and development.

26 Institutions, Ideas and Learning in Welfare State Change

In an even more pronounced way than Levi, Mahoney puts it forward that path dependence characterizes specifically those historical sequences in which contingent events set into motion institutional patterns or event chains that have deterministic properties. (2000: 507) Two basic mechanisms are thought to drive path-dependent development: self-reinforcing processes and reactive sequences. Self-reinforcing sequences are ‘characterized by the formation and long-term reproduction of a given institutional pattern’ (ibid.: 508). Arguments of self-reinforcing processes commonly refer to the concept of ‘increasing returns’, upon which the understanding of path dependence by, among others, Levi (1997: 28) and Pierson (2000: 252) is ultimately based. Initially introduced for the study of technologies by Arthur (1994), Pierson transferred the concept of increasing returns to the study of politics and institutions to explain their durability and resistance to change: In an increasing returns process, the probability of further steps along the same path increases with each move down that path. This is because the relative benefits of the current activity compared with other possible options increase over time. (2000: 252) The concept of increasing returns basically provides a mechanism for explaining self-reinforcing or positive feedback processes, which facilitate and lock in development along a certain path. For the study of politics, Pierson (2000: 257) presents four arguments for the significance of such processes of increasing returns: first, decisionmaking in politics usually requires some collective action and, associated with this, some coordination and consensus-building among relevant actors, whereby high barriers to change are set; in particular in the presence of veto players, which are defined as ‘individual or collective actor(s) whose agreement is required for a policy decision’ (Tsebelis 1995: 293). Thus, such an actor has the capability to block any policy change due to its position in decision-making. The distinction is made between ‘institutional veto players’, which derive their capacity to block decision-making from constitutional provisions (for example, presidents, parliaments and courts), and ‘partisan veto players’ (in essence, the parties forming coalition governments

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in parliamentary systems), whose existence depends on the party and electoral system (ibid.: 302). The capacity and scope to obstruct policy change depends on the specific formal institutional setting in which the particular veto player is embedded; institutions are crucial for the constitution of veto players. According to this framework, ‘the policy stability of a political system increases with the number of veto players, decreases with their congruence […], and increases with the cohesion of each of them’ (ibid.: 313). The veto player theorem, like the similar veto points concept (Immergut 1992), underlines the importance of the formal institutional setting in policy-making. According to the theorem, single actors can possess the capacity to utilise the ‘rules of the game’ for obstructing policy change supported by a majority. Second, related to the previous argument, constraints and rules set by formal institutions facilitate inertia; accordingly, the structure of the polity can limit choices legally or make certain options extremely costly in other ways. Third, processes of positive feedback can result in asymmetries of power over time and thereby reinforce the power balance in favour of current policies. Finally, the complexity and opacity of both policy goals and causality confronts policy-makers with ambiguity and uncertainty in regard to their preferences and the potential impact of their decisions. For this reason, decisionmakers might be inclined to stick with a given policy in order to avoid unintended and adverse consequences. The positive feedback argument based upon increasing returns is generally restricted to the material resources and incentives facilitating path-dependent development. In addition to this dimension, Pierson (1993: 611–624) initially discussed the impact of ‘interpretative effects’ on path dependence; that is, what one might call the ideational dimension of path-dependent development. In particular, the impact of policy feedback on mass publics, rather than on governmental elites and interest groups, was considered relevant for locking in developments (ibid.: 619–624). This dimension of path dependence, however, has since been discarded (Pierson 2000, 2004). Reactive sequences are, in general, defined as ‘chains of temporally ordered and causally connected events’ (Mahoney 2000: 509). In contrast to self-reinforcing processes, reactive sequences are ‘marked by backlash processes that transform and perhaps reverse early events’ (ibid.: 526). These sequences also appear to match the broad

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definition of path dependence provided by Sewell. To avoid falling into the loose assertion that ‘history matters’, Mahoney requires reactive sequences qualifying as path-dependent development to show ‘a chain of tightly linked reactions and counterreactions’ (ibid.: 527). Whether reactive sequences actually meet the requirements for pathdependent development is disputed. Pierson (2004: 68ff.) expects that tightly coupled reactive sequences would be likely to be revealed as positive feedback processes in the end, causing him to restrict path dependence to self-reinforcing processes of increasing returns. Though being aware of the problem of ‘concept stretching’, which certainly applies to the concept of path dependence in many instances (Pierson 2000: 252), it is argued here that it is not only reasonable to consider reactive sequences in path-dependent analyses but it is also imperative, in order to be able to account for gradual transformations of institutional settings. Approaches to path dependence based upon self-reinforcing processes, with their argument of quasi-automatic institutional evolution, obscure the fact that further choice points exist in politics. For this reason, these approaches are also confronted by serious problems with incorporating the categories of power and political conflict into their frameworks. For institutional change, therefore, some exogenous shock, rather abruptly breaking with the logic of the prevalent path, is typically required (Thelen 1999: 385–387). That is why such ‘orthodox’ conceptions of path dependence necessarily rely on the model of ‘punctuated equilibrium’ and ‘critical junctures’ to account for institutional genesis and change. The model of punctuated equilibrium developed by Krasner (1988) basically represents an evolutionary approach towards institutional change, ‘in which long periods of stasis are broken by short, in geologic terms, episodes of rapid speciation’ (ibid.: 77). In other words, institutions develop along their path-dependent logic until this logic collapses and a new trajectory emerges. For the rise of a new path, the concept of ‘critical junctures’ developed by Collier and Collier (1991) has been highly instructive. At critical junctures, comprehensive change takes place ‘that shapes politics for years to come’ (ibid.: 27), as a distinct new trajectory emerges that prescribes path-dependent development by revealing certain novel policy options. Thus, the institutionalisation of some pattern at a critical juncture is said to initiate self-reinforcing sequences, until the reproduction

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is interrupted and eventually a new punctuated equilibrium arises. Though this understanding of institutionalisation at critical junctures and following institutional development is undoubtedly valuable for historical institutionalist analyses, it has been heavily criticised because of the difficulties it has of giving a full account of institutional change (Clemens and Cook 1999: 442; Hall and Taylor 1996: 21; Hay 2001: 194ff.; Hemerijck and Kersbergen 1999: 173ff.; Peters et al. 2005: 1278; Rothstein 1996: 153ff.). Thelen and Steinmo self-critically argue that the ‘problem with this model [of punctuated equilibrium] is that institutions explain everything until they explain nothing’ (1992: 15); path-dependent development that complies with the image of sticky institutions can be explained, but change that goes beyond this pattern cannot be. These problems in conceptualising change led to historical institutionalist comparative research projects that ‘tend toward the study of comparative statics’ (ibid.: 14), which then ‘invites a kind of institutional determinism’ (ibid.). Mayntz and Scharpf likewise criticise the ‘crypto-deterministic’ (1995: 45) character of many new institutionalist analyses. The depiction of political development in terms of long periods of stability that are interrupted by short moments of substantial change also results in an inability to adequately acknowledge other change that has actually taken place. In this understanding, change that occurs in ‘normal’ periods of path-dependent development is downplayed in significance, neglected or even ignored. The lack of interest is based upon the assumption that such ‘minor’ change complies with the logic of the established path and, eventually, even contributes to path stability, and draws on the notion of self-reinforcing processes (Streeck and Thelen 2005: 1). Expressing his scepticism concerning the significance and innovative character of observed policy changes, Pierson (2004: 133) prefers to speak about ‘institutional development’, to emphasise linguistically the strong impact of policy legacies. This understanding expresses a predominant conceptualisation of change as ‘path stabilization: marginal adaptation to environmental changes without changing core principles’ (Ebbinghaus 2005: 17). At the other extreme, we can find ‘path cessation or switching: intervention that ends the self-reinforcement of an established institution and may give way to a new institution’ (ibid.). However, that a long-standing institution breaks down because of some exogenous

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shock and is then ‘displaced’ by a new institution – as depicted by the punctuated equilibrium model – is a rather rare empirical phenomenon (Thelen 2003: 209). Thus, the image of minor but only reproductive and adaptive change, on the one hand, and major and therefore transformative change, on the other hand, is highly misleading – if not damaging. This orthodox but widespread approach to path dependence tends to obscure and downplay a common pattern of incrementalist policy change in advanced political economies and welfare states (Streeck and Thelen 2005: 6). Picking up the notion of incrementalism (Lindblom 1959, 1979), Streeck and Thelen (2005; see also Thelen 2003) argue that minor institutional change does not necessarily reinforce the logic of an established path and therefore result in institutional reproduction. Instead, such processes of change can also deviate from this logic and facilitate, on the contrary, path destabilisation. Accordingly, they call for paying more attention to incremental change, which does not involve the dramatic disruption ‘required’ by the model of punctuated equilibrium. Many subtle, incremental changes can eventually add up to major discontinuity and result in a ‘gradual transformation’ of an institution and path: ‘institutional discontinuity caused by incremental, “creeping” change’ (Streeck and Thelen 2005: 9). For this reason, the persistence of some formal institution should not mistakenly be interpreted as institutional continuity, since modes of policy change, such as functional conversion and institutional layering, can be associated with ostensibly sticky formal institutions (Thelen 2003: 225ff.). In layering, ‘institutional innovators accommodated and in many ways adapted to the logic of the pre-existing system, working around those elements they could not change’ (ibid.: 226). In processes of conversion, by contrast, ‘institutions designed with one set of goals in mind are redirected to other ends’ (ibid.: 228), instead of adding a new institution to circumvent the inertia of the previous institutional setting. Therefore, like abrupt major transformations, incremental changes, though more difficult to detect, can also mark a ‘paradigm shift’ which, following Hall (1993: 278–289), involves comprehensive restructuring of policy; that is the transformation of policy goals, instruments and settings. This ‘third-order change’ needs to be distinguished from changes where the setting of policy is only adjusted (for example, gradual changes in the budget; ‘first-order change’)

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or where policy instruments are also subject to change (‘secondorder change’). This mode of incremental but paradigmatic change between ‘path stabilisation’ and ‘path switching’ qualifies as a ‘path departure: gradual adaptation through partial renewal of institutional arrangements and limited redirection of core principles’ (Ebbinghaus 2005: 17). The core of the argument appears to be that incremental changes that are impelled by new policy goals – or, termed differently, new ideas – can have a transformative effect without major disruption. From this perspective, a path appears to be best defined in terms of those ideas that influence policies and are eventually ‘crystallised’ in the formal institutional setting. To summarise, historical institutionalism, with its central claim of path dependence, is particularly well-equipped to provide sound explanations for institutional persistence and high barriers to institutional change. But, not unrelated to its strength, this approach has serious difficulties with recognising and explaining change. With their strong reliance on the concepts of punctuated equilibrium and critical junctures, historical institutionalist scholars are ill-equipped to deal with the phenomenon of incremental but nonetheless transformative change. These weaknesses are well recognised in the literature. However, instead of dismissing its approach, historical institutionalism ‘needs to find its own means of accounting for such changes which make use of rather than ignore the assumptions of path dependence and embeddedness’ (Crouch 2005: 72) for overcoming its stability bias. Thelen argues that the ‘key to understanding institutional evolution and change lies in specifying more precisely the reproduction and feedback mechanisms on which particular institutions rest’ (Thelen 1999: 400). Put differently, as the mechanisms reproducing the material and ideational foundations of institutions are held responsible for path dependence, the destabilisation of these mechanisms is then conversely necessary for change – but what are, in addition to exogenous shocks such as comprehensive changes of the socio-economic and political environment (Thelen and Steinmo 1992: 16), the sources of institutional dynamism that destabilise patterns of reproduction? In the following section, the incoherence of institutional settings and the diversity of policy legacies, the discretion of agency and the causal significance of ideas in policy-making are discussed as potential sources of institutional change.

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2.2 Sources of institutional change The prevalent assumption of coherence and homogeneity of institutional settings in many new institutionalist analyses, derived from the perception of stable reproduction, can be highly misleading. Orren and Skowronek (1994) argue that incongruities between different ordering principles and rules are omnipresent in the routine behaviour of institutional practice within and between different domains of societies. These tensions and contradictions in routine behaviours can, over time, have a transformative effect on the institutional setting by reshaping each other (see also Thelen 1999: 383). Thus, ‘relaxing the common focus on order’ (Lieberman 2002: 698) makes room for endogenous change, which is difficult to perceive with an assumption of coherent patterns of regularity. Moreover, reversing the argument of institutional complementarities of the varieties of capitalism approach (which is commonly used to substantiate the claim of institutional stability; Hall and Soskice 2001: 17), the argument of incongruities suggests that changes in one policy might result in increasing incoherence and, though not necessarily, in spill-over effects. Put differently, changes in one policy can set into motion a chain of changes in other policies. Obviously, Orren and Skowronek’s argument challenges the predominant image of sociological institutionalism (March and Olsen 1989: 165) that ambiguities between different rules of institutional practice are typically resolved by specifying rules within the prevalent logic of appropriateness but without calling into question this logic. Rather, historical institutionalists argue that the notions of ‘taken-for-granted’ rules and shared understandings deflect attention from the importance of political conflict and power relations in politics (Thelen 1999: 387). The concept of the logic of appropriateness essentially assumes that a particular logic is basically shared within society, and seriously downplays the discretionary behaviour of actors. Behaviour is, by definition in this concept, bound to the logic of appropriateness and the corresponding path. With a similar impetus to Orren and Skowronek, Crouch and Keune (2005, see also Crouch 2005: 72) question the proposition of homogeneity with the concept of the ‘empirical diversity of institutional legacies’ (Crouch and Keune 2005: 85), which is based upon the assumption that actors can refer to a variety of legacies in their society. In situations

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of crisis in one domain, actors are expected to prefer policy solutions from other domestic domains – even if this involves the adoption of a subordinated policy path in contradiction to the previous dominant practice. Such a policy transfer requires the devotion of fewer resources to acquire the knowledge that is necessary for running the particular institution. Since previously dominant practices are associated with interested actors, the change towards a subordinated path commonly requires a shift in power relations. Second, the appreciation of the incoherence and diversity of institutional settings raises the issue of agency in dealing with this phenomenon. Within the new institutionalist literature, the rational choice approach pays most attention to agency (Scharpf 1997; Tsebelis 1995). Tsebelis’ veto player theorem is the most straightforward, by outlining the capacity of certain actors to obstruct policy change; this can be normally expected to facilitate path dependence. In addition to this contribution, rational choice institutionalism highlights the importance of strategic interaction in politics and the structuring impact of institutions in this process, combined with a strong analytical focus on actors. Other scholars who are not associated with the rational choice approach likewise call for a more prominent role for agency, in order to overcome the stability bias and to avoid the deterministic character of much new institutionalist literature. From the very beginning of the historical institutionalist approach, Thelen and Steinmo argued that actors must be viewed ‘as objects and as agents of history’ (1992: 10); accordingly, as in rational choice institutionalism but without the unqualified assumption of rationality, historical institutionalists are required to examine ‘political agency and political choice within institutional constraints’ (ibid.: 12; see also Crouch 2005: 62; Thelen 2003: 213). Particularly in ‘unsettled times’, Katznelson (2003) puts forward, analyses need to scrutinise actors while still preserving an awareness of the constraints posed by the policy legacy. To underline the limits to the discretion of actors, he introduces the notion of ‘restricted agency’, which specifies, but is not intended to call into question, the significance of agency. In a similar vein, Clemens and Cook (1999: 459), as well as Crouch and Keune (2005: 99), argue that acknowledging heterogeneity and multiple choices in institutional settings constitutes an opportunity for agency; particularly ‘political leadership’, as a driving force for change (Sikkink 1991: 27). Specifying the predominant

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character of actors in institution-building, Offe coined the notion of institutional ‘opportunists’ to emphasise the ability of these actors to make use of windows of opportunity and to capture options for winning agreements on new rules as they emerge, often on the basis of ad hoc proposals that are mixed, impure and second-best in terms of clear principles and priorities. (2001: 368) Agency with ‘entrepreneurial creativity’ (ibid.) is ascribed a key role in institution-building. The significance of institutional ‘entrepreneurs’ is most discussed in the agenda-setting literature, in which identifying a problem and pushing innovative ideas is attributed to this type of actor (Kingdon 1984). With reference to Schumpeter’s notion of ‘creative destruction’ and an emphasis on strategic and interest-driven behaviour, Beckert depicts entrepreneurs as actors that ‘destroy established taken-for-granted rules, if they perceive such action to be profitable’ (1999: 786). Fligstein, by contrast, underlines their capacity to establish ‘common meanings and identities in which actions can be undertaken und justified’ (1997: 398). Discretion for actors, however, is associated with political conflict in decision-making about concrete choices. Refining the claim that ‘agency matters’, Peters et al. (2005: 1277ff.) argue that the importance of agency and political conflict is not restricted to certain choice points but that conflict is prevalent in phases of pathdependent development as well. In the face of a dominant coalition supporting a certain practice, conflict, though ‘beneath the surface’, might be still present. This argument moreover challenges the relative uniformity and harmony implied by the logic of appropriateness; rather, despite the dominance of one practice, competing political convictions and associated conflicts between coalitions continue, in which the significance of actors in institutional development is maintained. Obviously, therefore, the discretion of agency must be seriously considered in the analysis of institutional change. Finally, the argument that more discretion should be attributed to agency raises the question of what guides political action. Earlier, it was shown that historical institutionalists view rather critically the reductionist assumption of interest-driven behaviour of the rational choice approach, which views preference formation as essentially

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exogenous and typically devotes very little attention, if any, to norms and cultural aspects. The cultural approach to political behaviour inherent to the logic of appropriateness, however, also invites controversy, despite sharing the same tradition as its sociological counterpart (that is, acknowledging the social construction of institutions and the importance of cultural understandings and frames). It is argued that sociological institutionalism has difficulties with incorporating conceptually the categories of power and political conflict (Thelen 1999: 386ff.). Alternatively, many scholars associated with historical institutionalism have adopted the concept of ideas in order to include a ‘cultural’ component in their analyses (Béland 2005, 2009; Blyth 2001; Hall 1986; King 1992; Thelen and Steinmo 1992). Cynically, one could argue that ideas in this approach are the ‘functional equivalent of the logic of appropriateness’ (Peters 1999: 66) in sociological institutionalism. In light of the difficulties in accounting for paradigmatic change, Peters et al. (2005: 1284) criticise the focus on the significance of formal institutions and the regarding of ideas as being of subordinate importance. Without questioning the importance of the formal institutional setting for policy change and its impact on ideas in policymaking, they argue that the crucial effects of formal institutions should not distract from the independent causal impact of ideas, as ‘it is difficult to conceive of political and institutional change that is not propelled by some set of ideas about political outcomes and the arrangements to reach those goals’ (ibid.: 1296). Accordingly, ‘ideas as sources of change’ (ibid.) need to be incorporated more prominently into any historical institutionalist account of public policymaking, in order to overcome the bias to stability of this approach; this would contribute to a better understanding of the dynamics of (path-dependent) change (see also Blyth 2002). With a different impetus, though, Hay (2006; 2001) likewise underlines the causal importance of ideas in policy-making. Synthesising historical institutionalism and elements of discursive approaches, his ‘constructivist institutionalism’ claims to be particularly ‘sensitive to the role of ideas in the mediation of complex institutional change’ (2001: 193). He argues that ‘alterations in the trajectory of institutional evolution do occur and are invariably associated with paradigm shifts arising in moments of (perceived) crisis’ (ibid.). Irrespective of making a case for ‘ideational’ path dependence, ideas are nevertheless ascribed

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a ‘path-shaping’ capacity, triggering institutional change and path departure (Hay 2006: 65). Even rational choice scholars have increasingly recognised the ‘causal weight’ of ideas. This approach has traditionally reduced ideas to ‘hooks’; that is, utilising a popular idea for ex-post legitimation of interest-based policies, where the ideational dimension does not have an independent relevance in preference formation (Shepsle 1985: 233). Some scholars, however, acknowledge a causal significance of ideas in three ways. First, in compliance with the general new institutionalist literature, ideas embedded in institutions, making it difficult to introduce change, restrict the scope of choices available to actors. Ideas as ‘road maps’, by contrast, can exercise direct influence on preference formation and causal understanding. In particular under conditions of uncertainty about interests and/or means of maximising goal attainment, road maps gain significance by providing guidance to actors. In addition, ideas as ‘focal points’ – or ‘coalitional glue’ – can serve as a coordination device in situations of multiple equilibriums, enabling actors to cooperate on the grounds of common beliefs (Goldstein and Keohane 1993: 12ff.; Braun 1999: 16ff.; Busch 1999: 36). Obviously, the importance of ideas in policy-making is well recognised in the literature. Scrutinising ideas analytically, two basic dimensions can be distinguished. First, at the cognitive level, ideas can be defined as ‘taken-for-granted descriptions and theoretical analyses that specify cause and effect relationships’ (Campbell 2002: 22); second, at the normative level, ideas can be described as ‘taken-forgranted assumptions about values, attitudes, identities, and “collectively shared expectations”’ (ibid.: 23). Put differently, the concept of ideas as ‘knowledge includes both cognitive ideas about “what is the case”, and prescriptive, normative ideas about “what should be the case” and “what should be done”’ (Rueschemeyer and Skocpol 1996: 300). A large body of literature underlines the necessity for the new institutionalist approach to integrate ideas in order to provide direction to its analyses of the political behaviour of actors who engage in changing policies. However, ideas can reinforce path-dependent development as much as they can facilitate policy change. Ideational approaches, with their emphasis on ordered patterns and regularity, Lieberman (2002: 699) argues, have a bias towards stability similar to that of institutionalist approaches, though to a lesser extent.

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In other words, ideas can both constrain and facilitate institutional change. Reducing the prospect of policy change or even ruling out any change, ideas can work as ‘cognitive locks’ in the sense that they prevent actors from considering certain alternative policies (Blyth 2001: 4) and, indeed, contribute to further pursuing an existing path. Particularly when some veto player categorically rejects a certain policy, ideas as cognitive locks can reinforce this development. Less drastically, ideas might informally institutionalise in discourses and collective identities, whereby they exercise influence indirectly (Berman 2001: 238). Beyond significance in discourses, ideas may frustrate change if they have been embedded in the formal institutional setting, reflecting ‘a set of dominant ideas translated through legal mechanisms into formal government organizations’ (Goldstein 1988: 181; see also Goldstein and Keohane 1993: 20ff.; Sikkink 1991: 2). Thus, complying with the ‘stickiness of institutions’ argument of the path dependence theorem, ideas ‘crystallised’ in formal institutions as well as institutionalised informally in discourses and identities create a policy legacy that might be difficult to change – even in situations in which a majority of policy-makers has broken with those particular ideas. Institutionalised ideas can reinforce path-dependent development, since they ‘take on a life of their own, changing the motivation and perception of political actors, affecting their decision making over the long term’ (Berman 1998: 26ff.). The concepts of ‘frames’ and ‘paradigms’ are highly instructive here, explaining how ideas provide normative and cognitive guidance. In situations of uncertainty, frames provide ‘a perspective from which an amorphous, ill-defined, problematic situation can be made sense of and acted on’ (Rein and Schön 1993: 146). A frame accordingly represents a device for ‘selecting, organizing, interpreting, and making sense of a complex reality to provide guideposts for knowing, analyzing, persuading, and acting’ (ibid.). Thereby, frames as ‘cognitive filters’ (Jachtenfuchs 1996: 24) reduce complexity. They virtually rule out certain policy options, in line with the notion of cognitive locks, on the grounds of these options’ perceived viability, or policies become less likely due to their associated perceived political ‘costs’ for the actors in the pursuit of such options (see also

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Berman 1998: 30). Along similar lines, Hall’s concept of policy paradigms underlines the importance of ideas in the policy process: [P]olicymakers customarily work within a framework of ideas and standards that specifies not only the goals of policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing. (1993: 279) So far, the structuring and path-reinforcing capacity of ideas has been underlined. However, ideas also have the capacity to redirect policies in the event of perceived policy failure and crisis, by providing direction in policy change; without ideas informing policies, political action is hardly imaginable (Peters et al. 2005: 1296). Providing guidance in situations of both complexity and absent preferences, ideas as ‘institutional blueprints […] reduce uncertainty, give content to interests, and make institutional construction possible’ (Blyth 2001: 3; see also King 1992). They constitute an interpretative framework that establishes ‘guidelines for practical activity and for the formulation of solutions to everyday problems’ (Berman 1998: 21). Both at the normative and cognitive levels, ideas therefore influence agency along the lines of what is ‘desirable’ and ‘feasible’ in the processes of policy change. An independent significance can be ascribed to ideas. However, although ideas as blueprints possess the capacity to facilitate path-deviating institutional change, policy legacies remain powerful. Although the crisis and failure of previous policies is crucial to the emergence of new ideas, the latter’s success cannot be explained by the inappropriateness of previous ideas. New ideas do not enter an institutional and political ‘vacuum’ (Sikkink 1991: 25ff.). Following Hall (1989: 369ff.), the success – or, in other words, the persuasiveness or viability – of new ideas is dependent upon their relation to the problem they deal with (the material and political circumstances), their specific interpretation (which is historically contingent) and the authority of the proponents of those ideas (see also Sikkink 1991: 247). To underline the narrowing effect of the prevailing institutional context for the emergence of a new idea, Weir coined the notion of ‘bounded innovation’ (1992: 189). Pre-existing institutions structure the emergence of new ideas, prolonging the significance of the policy legacy in episodes of institutional change that deviate from the path.

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Accordingly, the institutional context is crucial for understanding new ideas and their role in paradigmatic change. In addition, the success of new ideas is related to their ‘carriers’, whose authority and skills in policy-making are crucial for ideas to become accepted (Berman 1998: 22; Sikkink 1991: 26ff.). Hall (1993: 288) and Peters et al. (2005: 1283), for instance, put the focus on politicians as key actors in policy-making, while others highlight bureaucrats and their expertise in the particular policy area (Heclo 1974: 301–304; Marier 2005; Marmor 1987; Page 2003). As paying attention to such actors is crucial in the analysis of ideas in institutional change, ideational approaches can reasonably draw upon insights from the literature on agency. Here, the already discussed concept of institutional entrepreneurs – with their capacity to discredit taken-for-granted rules and their ability to establish a new frame – is highly instructive in understanding key actors in institutional change. Finally, it is important to recall that ideas (including cognitive knowledge) are not politically neutral (Rueschemeyer and Skocpol 1996: 307). Besides their use as a ‘political weapon’ (Blyth 2001: 4; Robertson 1991), where their political character becomes most obvious, ideas in policy-making also reflect ‘broad cultural predispositions, status connections, and the interests of some politically relevant groups rather than others’ (Rueschemeyer and Skocpol 1996: 310). This dimension needs to be taken into account in the analysis of policy change. So far, it has been argued that ideas have a constraining as well as a guiding impact on actors. Accordingly, ideas, like formal institutions, can both inhibit and facilitate processes of institutional change. For this reason, while being aware of the dangers of ‘overstretching’ the concept of institutions, ideas should be perceived as the informal dimension of the institutional setting. Ideas provide the overall framework for structured – in other words, path-dependent – change. Without considering ideational institutions, an institutionalist analysis is ill-equipped to fully understand and explain institutional stability as well as change. However, not every idea in the political arena qualifies as an institution; it needs to have a guiding impact on the understanding, strategies and preferences of relevant actors, whereby ideas become part of the ‘rules of the game’. For this reason, it is sensible to distinguish ‘predominant’ and ‘challenging’ ideas (see Pfau-Effinger 2005: 6 on a similar point). When they are formally

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institutionalised, their predominant character becomes most obvious. However, new ideas that are not yet institutionalised can also qualify as ideational institutions. Ideas as ‘institutional blueprints’ structure policy change, by guiding agency effectively and shaping behaviour that is perceived as functionally and/or politically feasible. If successful, those ideas eventually institutionalise formally. By contrast, challenging ideas held by parts of the policy community may not generate the capacity for effectively influencing relevant agency and thereby structuring policy change. In short, the core of ideational institutions is their capacity to both narrow the scope of political choices for actors of significance and, at the same time, enable agency. In conjunction with formal institutions, ideas define the boundaries of the policy path in periods of stability; in episodes of paradigmatic change, they provide direction and structure the deviation from the policy path. The emphasis on ideas involves recognising the importance of transforming ideas in institutional change; here the issue of learning as a mechanism of change arises (Braun 1999: 20; Peters 1999: 70). Moreover, learning can be linked with ascribing more importance to agency, since policy learning is associated with actors as subjects of learning. However, learning is critically discussed in the new institutionalist literature. In the sociological approach, learning is commonly regarded as a potent mechanism that can be held responsible for institutional change (Clemens and Cook 1999: 451; March and Olsen 1984: 745); this literature, however, is of limited utility for public policy analysis. By contrast, Scharpf (1997: 42ff.) ascribes little benefit to policy learning, though it is conceded that learning can change perceptions and preferences and thereby be indeed causally responsible for policy change. But he argues that the high methodological demands set for demonstrating the impact of policy learning make it ‘advisable’ to start with less demanding explanatory approaches; this he considers as being generally sufficient. With an even more critical stance, Pierson (1993: 611–616; 2004: 38, 41) views the capacity of policy learning to initiate institutional change rather sceptically due to the inertia associated with processes reinforcing path-dependent development. He implicitly argues that the mechanism of policy learning should be expected as being too weak to cause institutional change. Other scholars, however, are less sceptical about the analytical utility of learning. Clasen (2000: 91) views the incorporation of

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learning into historical institutionalism as a promising strategy for understanding and explaining institutional change. Crouch emphasises that actors as ‘institutional entrepreneurs’ can make use of the knowledge from ‘different action spaces’ and ‘other agents through networks (2005: 99ff.). In similar vein, Hemerijck and van Kersbergen (1999), with an emphasis on the interaction between institutions and ideas, argue that policy learning holds the capacity to address the identified stability bias in the new institutionalist literature. In the literature on frames and paradigms, learning is also considered a mechanism for frame and paradigm change, respectively (Hall 1993; Jachtenfuchs 1996: 30ff.; Rein and Schön 1993: 155). Here, the argument that policy learning constitutes a potentially potent mechanism of institutional change that can contribute to overcoming the stability bias of the path dependence theorem associated with new institutionalism is shared. This is based upon the understanding that path dependence conceptually comprises a dimension of material resources and incentives, feeding self-reinforcing and reactive sequences, as well as an interpretative dimension, which comprises ideational factors fuelling pathdependent processes. Learning is perceived as a mechanism with the capacity to destabilise the ideational foundation of institutional settings and their reproduction, thereby potentially inducing institutional change. To conclude, historical institutionalism, with its path dependence theorem, has been presented as being most promising with respect to benefiting from cross-fertilisation between the different variants of new institutionalism. It has been argued that the approach is confronted with the challenge to grasp and explain institutional change. Addressing its bias to stability requires an image of path dependence that ‘involves elements of both continuity and (structured) change’ (Thelen 1999: 104). Such an understanding includes self-reinforcing and reactive processes, and allows conceptually grasping both disruptive change at critical junctures and gradual transformation without disruption. In addition to exogenous shocks (such as comprehensive changes in the socio-economic and political environment), institutional incoherence and diversity, the discretion of agency and the centrality of ideas in policy-making have been discussed as key sources of institutional change. To deal with the interpretative dimension of path dependence, policy learning has been presented as a mechanism of knowledge-based institutional

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change. Accordingly, the subsequent section first introduces the concept of policy learning, and then pursues the agenda of outlining an institutional approach to learning. This is considered inevitable for conceptually integrating policy learning as a mechanism of change into new institutionalism.

2.3 Towards an institutional approach to learning Knowledge-based and learning approaches enjoy considerable popularity in public policy analysis, as documented in the great variety of approaches and their application in different domains. For knowledge, it refers to the definition of cognitive ideas by Rueschemeyer and Skocpol (1996: 300) and Campbell (2002: 22ff.) discussed in the previous section. In very general terms, learning can be defined as an exercise of processing information and potentially changing behaviour by transforming the knowledge instructing policy-makers (G. P. Huber 1991: 89). Here, an analytical empirical understanding of policy learning is applied, in which learning is considered an independent variable for the explanation of changing policies. In addition, learning is conceptualised as a dependent variable, since it is intended to scrutinise the conditions under which policy learning can be expected to be a potent mechanism for initiating institutional change. Explicitly, a normative approach towards learning, which requires ‘better policies’ for the incidence of policy learning, is rejected. Despite their acknowledgement of the utility of knowledgebased approaches, it is argued that the predominant models of policy learning are rather descriptive and instrumentalist. The explanatory capacity is particularly limited with respect to paradigmatic changes. This serious weakness is associated with the prevalent instrumentalist approach and the – at least implicit – assumption of rationality in the policy learning literature. It is not denied that actors use knowledge and the means of learning instrumentally to increase their problemsolving capacity, but it is argued that the full significance of learning cannot be captured by this reductionist understanding. Learning involves subconscious processes, which are not subject to the steering capacity of agency, dealing with environmental influences. To address the instrumentalist bias, the concept of policy learning is substantiated with insights from new institutionalism to improve the understanding of contextual factors and agency. It is concluded with

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the outline of an institutional approach towards learning designed to deal with the instrumentalist bias in the policy learning literature. In introducing policy learning, it is reasonable to apply a broad understanding of the concept that includes ‘learning about organizations, learning about programs, and learning about policies’ (Bennett and Howlett 1992: 289). May differentiates between social and instrumental learning: Instrumental policy learning entails lessons about the viability of policy instruments or implementation design. Social policy learning entails lessons about the social construction of policy problems, the scope of the policy, or policy goals. The two forms of policy learning are not mutually exclusive in that a policy change can entail either or both. (1992: 332) Crucially, both learning types require the processing of policyrelevant information, potentially changing behaviour (G. P. Huber 1991: 89). This is not to say that knowledge utilisation and learning does necessarily involve better understanding and result in superior outcomes. In fact, learning might even make a situation worse; that is, ‘pathological learning’ (Deutsch 1969: 169). Whereas effective instrumental learning might lead to an increased understanding of policy failure and/or better goal-achievement due to policy redesign, social learning can result in a redefinition of goals and ideas related to the particular policy. Social learning can be assumed to trigger instrumental learning, since the existing institutional patterns cannot be expected to realise new policy ideas and goals (May 1992: 336). Importantly, policy learning needs to be contrasted to political learning that ‘entails lessons about policy processes and prospects’ (ibid.: 322). Focusing on the political feasibility of proposals, actors learn to improve their strategies for advancing their agendas (ibid.: 336). Actors do not permanently ‘invest’ resources in policy learning. It is commonly argued that learning requires some policy failure, although failure is not a sufficient requirement for learning: ‘failure serves as a trigger for considering policy redesign and as a potential occasion for policy learning’ (May 1992: 341). Thus, a performance gap can be seen as a condition that holds the capacity to evoke learning. It shows that existing instruments do not meet set policy

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objectives, after which both the instruments and the policy goals can be called into question. Without policy failure interrupting established routines, there is usually no incentive for policy-makers to devote resources to policy learning. In order to develop significance, policy failure needs to be perceived as a problem, which Anderson defines as ‘a political condition that does not meet some standard’ (1978: 19). Following the agenda-setting literature, a policy failure perceived as a problem opens a ‘window of opportunity’ (Kingdon 1984), which can become a ‘window of innovation’ under conditions of uncertainty. In such a situation, policy-makers are in search of policy solutions and willing to invest resources in learning. Here, policy learning can serve as a mechanism decreasing the uncertainty associated with decision-making in complex environments. It is important to note that underlining the significance of learning in policy-making is not thought to implicitly dismiss interest- and conflict-based explanations of policy change. Rather than being an alternative, the policy learning perspective is regarded as complementary to ‘traditional’ approaches to public policy analysis, for which Bennett and Howlett have introduced the notion of the ‘marriage of interest-based and knowledge-based public policy theory’ (1992: 279ff.). Policy learning is not viewed as a politically neutral exercise for improving policy-making. Robertson (1991) emphasises that, in partisan use, lessons can easily become ‘political weapons’ to realise interest-based objectives. Hence, the ‘politics’ dimension of policy learning must be omnipresent when analysing policy change and the significance of policy learning within that change. Notwithstanding these qualifications, the central argument that policy-making cannot be reduced to power struggles is still maintained; these need to be complemented with some knowledge-based dimension in order to provide comprehensive explanations for political behaviour and policy change. In the following section, different models of policy learning are reviewed with the focus on their capacity for explaining transformative change: the state-centric approach to learning by Heclo, the concept of policy-oriented learning in the advocacy coalition framework of Sabatier, the approach to collective learning by Knoepfel and Kissling-Näf and the model of social learning by Hall. An early but central contribution to the literature is Heclo’s statist model of learning, from which, at least implicitly, virtually all contemporary learning approaches depart (Heclo 1974). Challenging the traditional view on politics (with its focus on power and conflict),

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Heclo draws attention to the significance of learning in the policymaking process: Politics finds its source not only in power but also in uncertainty – men collectively wondering what to do. Finding feasible courses of action includes, but is more than, locating which way the vectors of political pressure are pushing. Governments not only ‘power’ (or whatever the verb form of that approach might be); they also puzzle. Policy-making is a form of collective puzzlement on society’s behalf; it entails both deciding and knowing. (ibid.: 305) Heclo (ibid.: 301–304, 306) highlights the importance of civil servants in policy-making, indeed as the single most important factor in policy development. Bureaucracies, unlike political parties and interest groups, are most consistently involved in policy formulation and implementation, exercising their influence most continuously on the substance of policies. Associated with the complexity of policies, political decision-makers rely on expert support, which includes the generation and provision of policy-relevant information for learning. Public bureaucracies are depicted as working proactively; they pick up perceived problems and look for sensible policy solutions. The importance of the ministerial bureaucracy in public policymaking is well recognised in the literature. Peters and Pierre note that ‘bureaucracies make policy, and in essence make law’ (2003: 1). This argument rests upon the advisory function of ministerial bureaucrats, whose highly specialised policy knowledge is indispensable for politicians in decision-making. Put differently, politicians, whose concerns are the realisation of broad political guidelines and related problems of political feasibility rather than the ‘technical’ subtleties of policy-making, require substantial advice from their expert staff in policy formulation, whereby appointed officials gain significant influence in policy-making. In their work of proposing legislation to their ‘political masters’, civil servants not only enjoy considerable autonomy because of their expert knowledge, they also often possess the capacity for agenda-setting in the government as well as in the political parties that form the government (ibid.; see also on ‘civil servants as legislator’, Page 2003 and Rouban 2003: 311–313). With respect to the scope of learning, Heclo (1974: 313–315) emphasises three main factors. Firstly, the impact of past policies on learning is discussed as the most influential factor in the scope

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of learning; a claim the new institutionalism would share. Secondly, learning processes heavily depend upon so-called ‘policy middlemen’, who infuse new ideas into the policy debate and mediate between different groups. Finally, attention is drawn to the interaction between political institutions. In most cases, the interaction between political institutions can only be expected to result in ‘collective learning by indirection’ (ibid.: 313), as most learning processes are not carefully structured. Institutions, in the absence of severe political pressure, normally react within patterns of established routines to external challenges, causing relative underperformance. However, some settings, such as expert commissions deliberately set up to enhance the scope of learning, can serve as an effective mechanism for increasing problem-solving capacity. As a source for policy-relevant knowledge, expert commissions are ‘ideal-typically’ established for the provision of ‘factual’ information and advice. The results of those bodies are usually presented in the form of reports including concrete policy recommendations. In practice, most expert boards are composed of members from different areas, since advisory bodies are commonly thought to provide professional recommendations as well as organising societal consensus on disputed issues (Murswieck 1994: 112; Wagner 2004: 28). Obviously, expert commissions for professional policy advice cannot be reduced to their informational function of improving the knowledge base for decision-making. The motivation for establishing such bodies normally involves ‘politics’, and can even be dominated by political considerations (for example, in the ex-post legitimation of policies already planned). Therefore, expert committees represent a means of both policy and political learning. This needs to be taken into account when assessing the significance of expert knowledge derived from such commissions. Complementing expert commissions, a means of knowledge generation that has increasingly received attention are think tanks; these are knowledge-based organisations ‘which aim to influence the policy agenda through the publication of research and policy advocacy’ (Parsons 1995: 161). Since think tanks lack decisionmaking power, they rely on the persuasiveness of their arguments for gaining influence. Thus, with respect to the dissemination of their ideas and recommendations, ‘research brokerage’ and networking are central characteristics of think tanks; ‘conveying social scientific

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knowledge from universities and research organisations to the world of politics and decision making’ (Stone 1996: 122) and building up institutional and personal ties not only with research organisations but also with various actors in the political arena. Consultancies have also recently gained prominence in public policy-making, with governments increasingly using them in policy formulation and implementation. Consultancies are characterised by their purpose of making a profit from their advisory services (Dolowitz and Marsh 2000: 10; Wewer 2003: 380). Among this group of consultants, management consultancies and law firms are particularly relevant. The restructuring of public services and administration, including employment services, requires to a considerable extent management expertise, which is not the prime domain of public bureaucracies, so that decision-makers seek technical advice from commercial consultants. Building upon the Heclo’s approach to learning and the policy network literature, the ‘advocacy coalition framework’ (ACF) developed by Sabatier (in collaboration with Jenkins-Smith) (Sabatier 1988, 1993; Sabatier and Jenkins-Smith 1999; Jenkins-Smith and Sabatier 1993) essentially argues that actors in policy subsystems can be aggregated into coalitions based on shared norms and beliefs; that is, the ‘principal “glue” of politics’ (Sabatier 1988: 141). For the understanding of policy change, the belief systems of advocacy coalitions are central to this model of the political process, as coalitions attempt to translate their beliefs into public policies. Accordingly, changes in the structure of belief systems require scrutiny for the explanation of policy change. Changes in the distribution of beliefs in advocacy coalitions are expected to start typically with individual learning or personnel turnover and are then supposed to experience restriction by group dynamics; finally, new beliefs are said to diffuse in the coalition and subsystem. Assuming that belief systems can change gradually over time due to technical information, the approach of policy-oriented learning developed within the ACF attempts to conceptualise the importance of scientific analysis in the policy process. For the analysis of policy change, a time perspective of a decade and more is applied, as the importance of technical information on actors’ perceptions cannot be taken into account appropriately with shorter time horizons. Policy-oriented learning is explicitly understood as a cognitive activity that is used instrumentally to

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improve knowledge and goal attainment. It can serve as a mechanism of change which, however, is supposed to be restricted to secondary aspects of the belief system (in other words, policy instruments). Learning is not ascribed the capacity to cause a transformation of the policy core as well as core normative beliefs. This resistance to change of the policy core is essentially explained with reference to its rather normative nature, which is less susceptible to empirical evidence than the secondary aspects of a coalition’s belief system. In the exercise of policy-oriented learning and translating beliefs into public policies, technical information, though used in an advocacy fashion, is crucial. Most policy-oriented learning is expected to be restricted to learning processes within coalitions, although learning between coalitions is not in principle precluded. It is assumed to be facilitated by the existence of ‘policy brokers’ with a mediating function as well as analytical forums, in which experts from competing coalitions can enhance their mutual understanding of policyrelevant issues through discussion. Moreover, it is argued that technical issues are more likely to be subject to policy learning. Accordingly, it is hypothesised that quantitative data are more likely to facilitate learning than qualitative research. Finally, an intermediate level of conflict is considered to be particularly fruitful for learning across coalitions; a high level of conflict, by contrast, is assumed to result in a ‘dialogue of the deaf’ (Sabatier 1988: 155), highlighting the political character of knowledge utilisation in policy-making. Kissling-Näf and Knoepfel (1994; see also Knoepfel and KisslingNäf 1998) present a model of learning that refers to cognitive and interpretative approaches in the social sciences. They stress the importance of ideas and knowledge stores, as well as policy dialogue, in the learning process. Learning is essentially presented as cognitive activity instrumentally used with the objective of improving problem-solving capacity. The focus is put on learning between organisations in policy networks, in which public policies are formulated and negotiated. Such networks serve as a ‘mediating institution’ (Kissling-Näf and Knoepfel 1994: 347) for learning activities on public policies. These networks of loosely coupled actors in a specific policy area are depicted as informal institutions, lacking monolithic power structures. The identification of policy networks as mediating institutions facilitating learning is particularly noteworthy as these networks have typically been said to be rather inclined

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towards inertia than change (Döhler 1994: 49; Rhodes and Marsh 1992: 198). Nonetheless, interaction processes in policy networks, it is argued, can result in new consensual knowledge and thereby in cognitive changes in individuals representing organisations; that is, collective learning (Knoepfel and Kissling-Näf 1998: 346). For successful collective learning in policy networks, however, some degree of consensus and shared understanding is assumed. Furthermore, with reference to organisational theory, ‘structural factors of knowledge production and dissemination’ (ibid.: 360ff.) are considered crucial for effective learning as well as key individuals, described as the ‘lifeblood of collective learning’ (ibid.: 360). Finally, we turn to Hall’s (1993) approach to learning, whose basic definition of learning complies with the mainstream in the literature: Learning is conventionally said to occur when individuals assimilate new information, including that based on past experiences, and apply it to their subsequent actions. Therefore, we can define social learning as a deliberate attempt to adjust goals or techniques of policy in response to past experience and new information. Learning is indicated when policy changes as the result of such a process. (1993: 278) However, Hall’s account of learning is different insofar as it aims at overcoming the state-centric bias in much of the literature, which is most pronounced in Heclo’s work with its quasi-assumption of state autonomy from societal pressure (among other things, expressed in the importance ascribed to bureaucrats and experts but also state legacies). Whilst ‘normal’ policy-making (first- and second-order changes) might be well understood as predominantly driven by bureaucrats and past policies, paradigm shifts (third-order changes restructuring the policy, including the transformation of policy goals, instruments and settings) require a better understanding of ideas and societal dynamics. Policy-makers are said to work within an ideational framework shaping both their policy goals and the selection of instruments to attain these goals as well as the perception of problems in the particular policy. This ideational structure of a particular policy is termed ‘policy paradigm’. An understanding of social learning that results in paradigm shifts, it is argued, requires

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the scrutiny of state–society relations, providing the key to understanding state behaviour. Importantly, paradigm shifts are depicted as highly politicised processes, which is associated with politicians and the media as key actors rather than civil servants and policy experts. These different approaches to policy learning improve our understanding of knowledge-based policy change. Heclo’s argument that policy-makers not only ‘power’ but also ‘puzzle’ is decisive for a comprehensive understanding of policy-making with a prominent role for learning which is not restricted to describing the utilisation of knowledge in the policy process. Accordingly, virtually all learning approaches refer to his seminal work. The reviewed learning models assign an important role to agency with a strong focus on individual actors. Such policy entrepreneurs can be considered crucial in policy learning. These key actors are thought to foster the use of knowledge in policy-making and, eventually, to facilitate collective learning, which has been discussed as being necessary for institutional change in complex environments. Heclo (1974: 308ff.) draws attention to ‘policy middlemen’ as prominent individuals in policy learning. Sabatier (1988: 133) emphasises the importance of ‘policy brokers’. The significance of agency in policy learning is also raised by Knoepfel and Kissling-Näf (1998: 355ff.) as well as by Hall (1993: 287–289). In essence, all approaches discuss the importance of policy entrepreneurs as decisive drivers in learning, which can be sensibly linked with the new institutionalist debate on agency in institutional change. Kingdon defines policy entrepreneurs as advocates who are willing to invest their resources – time, energy, reputation, money – to promote a position in return for anticipated future gain in the form of material, purposive, or solidarity benefits. (1984: 188) Based on their formal position, their policy-making skills and/ or their professional expertise, policy entrepreneurs, as ‘central figures in the drama’ (Kingdon 1984: 189), facilitate cooperation and common understanding. They particularly contribute to social learning, which then enhances the potential scope of instrumental learning. As already argued, dissatisfaction and calling into question the status quo are central preconditions for policy learning.

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An actor addressing these issues and, furthermore, being equipped with the skills and expertise for learning can be expected to hold considerable capacity for initiating change. In other words, ‘[p]olicy entrepreneurs can be thought of as being to the policymaking process what economic entrepreneurs are to the marketplace’ (Mintrom 1997: 740; see also Fligstein 1997; Kingdon 1984; Stone 2001). However, Sabatier (1988: 155) highlights the selective and advocacy use of knowledge. Actors tend to resist – or even ignore – information that questions the validity of basic beliefs, so that knowledge cannot change their understanding. Accordingly, effective learning cannot be expected when the actors involved have contrary core ideas and assumptions. This results in a ‘dialogue of the deaf’, instead of an analytical debate in which knowledge can make a difference. Thus, pre-existing understandings appear to have an important impact on policy-making and the way knowledge is utilised, which is also underlined by Knoepfel and Kissling-Näf as well as by Hall. Here, we can establish a linkage with the earlier discussion of the interpretative dimension of path dependence; pre-existing ideas can be ascribed the capacity to limit the scope of policy learning. Though we find the recognition of path dependence in the policy learning literature, this appears to be under-theorised, not going much beyond an understanding that ‘ideas matter’. It is not said much about how ideas are reinforced, and how learning allows the escape from the ‘determinism’ of pre-existing ideas. Further to this, even powerful actors cannot usually impose new policies, given the institutional dispersion of decision-making authority; a claim that is also widely discussed in the new institutionalist literature. Consequently, learning by single actors may be regarded as necessary but nonetheless insufficient for causing learning-based policy change. Against this background, Knoepfel and Kissling-Näf (1998: 347) introduce the concept of ‘mediating institutions’, in which communication between relevant actors facilitates collective learning. Despite improved understanding of knowledge-based policy change, the policy learning literature discussed here remains instrumentalist. Heclo, with a strong normative connotation, describes learning as a means used by civil servants to improve policies. King and Hansen (1999: 80) criticise this depiction of civil servants as

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genuine problem-solvers making the world ‘better’. Though Heclo has a predominantly analytical approach to learning, he comes close to Etheredge’s (1981) normative model of government learning. The other learning models follow the empirical analytical approach more strictly. Notwithstanding strong ideational affinities, the advocacy coalition framework also depicts learning as a means instrumentally used by actors. Difficulties with non-quantitative data and non-technical issues in learning are hypothesised due to, as is implicitly argued, the lesser objectivity of the corresponding knowledge. Learning is explicitly restricted to secondary aspects of policy, while core beliefs and the policy core are assumed to be practically ‘unshakable’ by learning. Accordingly, the significance of learning in paradigmatic change (that is, social learning) is virtually ruled out; policy-oriented learning of the ACF is incapable of explaining transformative changes. Being restricted to instrumental learning, the discussion of factors influencing policy-oriented learning focuses on conditions for the technical utilisation of knowledge. Beyond instrumental learning, the collective learning approach of Knoepfel and Kissling-Näf, but also Hall’s conception of social learning, address the issues of redefining problems and policy objectives, thereby initiating transformative changes. In particular, Hall is very sensitive about these changes exceeding ‘normal’ policymaking (in his terms, paradigm shifts). However, both approaches nonetheless stick with the instrumentalist understanding of policy learning. Hall depicts learning as a ‘deliberate’ exercise by policymakers fixing a problem in the event of policy failure. Likewise, Knoepfel and Kissling-Näf explicitly present learning as a means used instrumentally by policy-makers, despite referring to social constructivism. In addition, the approach is confronted with the problem that it argues that a certain degree of consensus is required for effective learning to take place, but does not address the issue of how this consensus emerges in the first place. For this reason, it appears logically difficult to ascribe transformative changes to learning. This instrumentalism is even more pronounced in the lesson-drawing and policy transfer literature, where policy-makers are typically depicted as ‘problem-solvers’ and eclectic explanations for the success and failure of policy transfer are offered without much theoretical underpinning (Rose 1991, 1992; Dolowitz and Marsh 1996, 2000).

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Insights from the knowledge utilisation literature (see for an overview, for example, Weiss 1979; Rich and Oh 1994; Wittrock 1991), however, provide strong arguments that learning – in particular social learning – is not necessarily a conscious and deliberate exercise. Even in cases in which policy-makers explicitly recognise the impact of research on their point of view, they are often not able to name the specific knowledge that informed their opinion. Making stringent links between certain research and a policy decision is fairly difficult. For this reason, research is understood as ideas providing orientation to policy-makers rather than hard data and findings that direct decisions. Instead of having a straightforward guidance function in the policy process, [r]esearch sensitizes decision makers to new issues and helps turn what were non-problems into policy problems. […] It helps to change the parameters within which policy solutions are sought. In the long run, along with other influences, it often redefines the policy agenda. (Weiss 1979: 430) In essence, this literature argues that (scientific) knowledge, if it has any, is most likely to have an impact on the policy process by framing the policy discourse. Thereby, knowledge indirectly influences policy outcomes, while direct consequences of research are assumed to be the exception. In other words, instead of an ‘immediate and directly observable’ (Rich and Oh 1994: 79) instrumental utilisation, knowledge has a rather conceptual influence on policy-making – ‘potentially having delayed and diffuse impact, and therefore less readily observable’ (ibid.). Concluding this review of policy learning, it has been shown that this literature can be reasonably criticised for its instrumentalist character, resulting in an eclectic discussion of factors that promote and inhibit knowledge utilisation. Moreover, actors are basically presented – at least implicitly – as being keen on learning, since learning can contribute to an increased problem-solving capacity among policy-makers. Addressing this simplistic depiction, new institutionalism and the path dependence theorem offer valuable insights into understanding policy learning and bounded change. The concrete institutional context is crucial for the constitution of agency and, accordingly, to the understanding of the emergence of

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new ideas and their role in paradigmatic change. This more sophisticated approach to actors and their capabilities (that is, ‘embedded agency’) provides the key means of substantiating the concept of policy learning. An institutional approach towards learning is sensitive to the structuring impact of institutions and policy legacies in processes of learning and corresponding change, improving our understanding of agency in policy learning and institutional change. Such an approach towards learning draws attention to the institutions inhibiting and facilitating learning. Here, policy learning is depicted as being ‘institutionally nested’ (Hemerijck and Kersbergen 1999: 182), since policy learning is contingent upon the concrete institutional setting in which it takes place. Before the discussion of the structuring impact of institutions in policy learning, the issue of knowledge generation and learning mechanisms will be reviewed. For a knowledge-based perspective on policy-making, an understanding of information generation and acquisition as well as the means for the integration of acquired knowledge into the policy process is decisive. These issues are not systematically addressed in the policy learning literature. The starting point for the subsequent review is the concept of ‘learning mechanisms’; that is, the idea of institutionalised means of knowledge generation. Building upon organisational research, learning mechanisms are ideal-typically defined as ‘institutionalized structural and procedural arrangements that allow organizations to systematically collect, analyze, store, disseminate, and use information relevant to the performance of the organization and its members’ (Popper and Lipshitz 1998: 170). Transferred to the study of policy change and learning, structures in the policy field are sought that facilitate knowledge generation and utilisation in policy formulation. In such structures, one would expect the use of learning tools that facilitate the generation of policy-relevant knowledge. Accordingly, different means of knowledge generation – namely, monitoring and evaluating, benchmarking and pilot projects – are discussed. Since policy learning is eventually failure-induced, as argued earlier, knowledge of the status of the particular policy and its failure to meet stated goals is essential for learning to begin. Therefore, feedback mechanisms that alter policy-makers’ perceptions of a problem are critical. Firstly, monitoring and evaluation studies can provide information about the state of policies, going beyond common but rather weak mechanisms,

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such as single complaints and individual administrative experiences (Kingdon 1984: 106–108). Monitoring is defined as a ‘tool to document performance and failures in reaching preset goals’ (Auer and Kruppe 1996: 901), while the explanation of monitored performance and failure is considered as evaluation. Monitoring basically provides data on the particular policy that is then, in the evaluation procedure, subject to interpretation in order to explain and possibly improve outcomes (feedback loop). Policy evaluation commonly involves a judgement on efficiency (see also on evaluation Howlett and Ramesh 1995: 168–173; Sanderson 2002). However, the utility of monitoring is not restricted to the detection of underperformances. Comparative monitoring can be a means for the identification of successful governments, whose practices can be utilised as models for addressing domestic problems. This type of knowledge acquisition, the use of second-hand experience, has been termed ‘vicarious learning’ (G. P. Huber 1991: 96ff.). The sources of information for lesson-drawing are multifarious. Detailed information about reference models can be acquired with commission reports as well as (commissioned) studies. Furthermore, ‘physical’ meetings with experts and practitioners at, for instance, conferences, in workshops and on ‘field trips’ offer important opportunities for the acquisition of detailed information (Dolowitz 2000: 29–32). Secondly, another tool facilitating ‘learning by comparing’ in public policy-making is benchmarking, which originated in business administration, where it was introduced to uncover room for improvement in business organisations (von Bandemer 1998; Lundvall and Tomlinson 2001, 2002). The superior performance of some practice is thought to indicate potential for improvement in other organisations. It is assumed that superior models can be utilised as blueprints for the management of change despite a principal awareness of contextual differences. Thus, the fundamental idea of benchmarking is that performances can be improved through comparison: Benchmarking always involves some sort of systematic comparison of one institution’s outcomes or processes with either some other institution(s) or some standard. It is usually a comparison with an institution which is regarded as superior in performance or with a ‘best practice’ standard. (Lundvall and Tomlinson 2001: 122)

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Finally, instead of referring to the second-hand experience of lesson-drawing, policy-makers can also initiate pilot projects for a limited time – and often geographically limited as well – to collect information on the impact of a particular practice that is being considered for implementation, that is, ‘learning in the laboratory’ (Knoepfel and Kissling-Näf 1998: 353). For drawing lessons about the utility of the examined instrument, the consequences of pilot programmes are monitored and evaluated. Piloting new policies can thus be viewed as an intentional and systematic form of ‘experimental learning’, which provides ‘knowledge through direct experience’ (G. P. Huber 1991: 91; see also Sanderson 2002). Although learning tools as means for systematically generating new policy-relevant knowledge can offer valuable insights into improving policy-making, it must be acknowledged critically that their problem-solving capacity can be seriously undermined by difficulties associated with unclear or ambiguous policy objectives, the restricted availability of data, policy complexity and time lags in the exercise of monitoring and evaluating (Auer and Kruppe 1999: 914–918; Sanderson 2002: 15). Similar problems apply for the utility of pilot projects. Furthermore, the representative character of data deriving from such pilots might be compromised by political considerations and personal commitments to pilot projects (Sanderson 2002: 11–13). Likewise, the instrumental utility of benchmarking cannot be taken for granted. Rather than assuming that one single best practice can be identified, it is more reasonable to expect several models that can serve as beneficial exemplars to improve the status quo. Furthermore, the claim that one single best practice can be identified to deal with some problem is challenged by the argument that the appropriateness of a solution depends on the specific institutional structure in which a problem is sought to be addressed. Economic, technical, geographic, historical and cultural factors that differ between entities influence to an enormous extent the problemsolving capacity of some policy solutions. For this reason, it is decisive to emphasise the context-specific character of ‘best practices’; this needs to be taken into account seriously in the use of benchmarking as a tool of policy formulation (Lundvall and Tomlinson 1999: 123–129). However, benchmarking, like other learning tools, is not only associated with technical and methodological problems which limit

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its instrumental utility. By using certain data and indicators, it can also easily be misused for ‘advancing hidden ideological objectives’ (ibid.: 120). For the inappropriate application of policy learning tools, labour market policy is considered the ‘single area where we find most examples of ideologically biased and naïve benchmarking’ (ibid.: 128; see also Robertson 1991: 58). To conclude, the discussion of technical problems and potential ideological biases in benchmarking underlines the fact that policy learning does not necessarily involve increasing the problem-solving capacity of politics; it can also result in ‘pathological learning’ (Deutsch 1969: 169). It illustrates the political dimension of policy learning, sharpening awareness of the need to sufficiently pay attention to the politics of learning (see also Béland 2006). Approaching the issues of consensus-building and the locus of policy learning, the notion of a ‘mediating institution’ developed by Knoepfel and Kissling-Näf (1998: 347) is highly valuable. It is debatable whether the policy network is the place where learning should be expected; for instance, Sabatier’s advocacy coalitions or smaller units such as project groups and expert forums could be alternative loci for policy learning. But the very idea of learning taking place in some institutionalised environment, where relevant actors interact, helps to conceptualise learning. The new institutionalist literature argues that actors do not behave in some vacuum; their interactions are structured by the ‘rules of the game’, which include codes of conduct for the exchange of knowledge and deliberation. Such structures are highly important for collective learning, because single actors normally do not have the authority to enact change unilaterally. Mediating institutions, facilitating communication and knowledge exchange, support generation of the consensual knowledge required for effective policy change and corresponding institutional change. The capacity of mediating institutions can be strengthened by institutionalised learning mechanisms, providing policy-relevant knowledge for deliberation. However, despite the depiction of policy learning as genuine knowledge utilisation, it is not a ‘politically neutral’ exercise, as highlighted earlier. Ideas and interests involved support the advocacy use of knowledge; ‘puzzling’ and ‘powering’ are intertwined processes. The structuring impact of institutions in processes of policy learning, however, goes beyond defining the locus of learning

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and facilitating the generation of knowledge; institutions also define the very policy in question. Following the path dependence theorem, the institutional setting is historically generated, either by increasing returns or by reactive sequences (Mahoney 2000; Pierson 2001). Thus, there is no ‘unfilled’ policy space or institutional vacuum, which allows institution-building from scratch without taking into account pre-existing policy practices. For this reason, policy change involves political and monetary costs that define the feasibility of some proposal. Fierce resistance from those who fear being worse off due to some proposed change could be evoked. In particular, the existence of institutional and/or partisan veto players (Tsebelis 1995) can seriously undermine the effectiveness of policy learning. In the discussion of policy learning as a mechanism for change, considering the policy legacy – and in particular scrutinising reactive sequences – is crucial for a comprehensive understanding of knowledge-based institutional change. Pre-existing policy instruments are commonly associated with ‘sunk costs’, which erode the feasibility of policy alternatives. Serious barriers to effective policy learning might be set. In addition to the formal institutional setting, the ideational dimension of the particular policy structures deliberations and policy learning, with profound implications for the perceived functional and political feasibility of policy proposals (Berman 1998; Jachtenfuchs 1996; Rein and Schön 1993). Certain policies might not be considered in the first place due to ‘cognitive locks’ (Blyth 2001: 4); other challenging ideas might not develop the capacity for becoming predominant due to perceived incompatibility with given preconceptions. Against this background, agency is viewed as being constrained by the institutional setting, potentially undermining effective policy learning. This is not to argue that policy development is determined by the policy legacy, but it is structured by it. Put differently, the institutional setting and the policy path function as a ‘cognitive filter’, which facilitates selectivity and thereby narrows the ‘corridor’ within which change can take place. For this reason, policy change is typically assumed to be bounded and, if transformative, to occur as an incremental path destabilisation and departure, rather than as abrupt path cessation or switching. However, learning, depicted as a mechanism for destabilising the ideational basis of institutions,

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is considered to possess the capacity to re-configure the boundaries of the policy path; it is a potential trigger for paradigmatic change. Ideas as ‘institutional blueprints’ (Blyth 2001: 3) instruct agency under conditions of uncertainty, associated with perceived policy failure and crisis. Here, ideas have the capacity to enable agency. The emergence of new ideas as blueprints is ascribed to policy learning. In accordance with the path dependence theorem, challenging ideas do not enter some vacuum. This argument underlines the continuing significance of the institutional setting for the emergence of new ideas and for challenging ideas becoming predominant. However, actors, even in situations of deliberate learning, cannot be assumed to be fully aware of the structuring impact of the policy legacy. The knowledge utilisation literature (Weiss 1979; Rich and Oh 1994; Wittrock 1991) provides important insight into the often subconscious character of policy learning, whereby the steering capacity of agency in processes of learning is put into perspective. Despite learning being bounded due to the policy legacy, the incoherence of the institutional setting (Orren and Skowronek 1994) and the empirical diversity of institutional legacies (Crouch and Keune 2005) provide knowledge sources for policy change and thereby opportunity for agency at the same time. To conclude, it is argued that an institutional approach to policy learning, as outlined, can sensibly be integrated into new institutionalism as a mechanism for knowledge-based institutional change, since the basic premises of the new institutionalist literature are integrated, making the two concepts compatible. Moreover, policy learning can be linked with all three identified sources of endogenous change (namely, acknowledging the incoherence of institutional settings and the diversity of policy legacies, ascribing more discretion to agency and taking the causal significance of ideas in policy-making seriously). In the following chapters, the theoretical argument is investigated empirically with reference to the case of labour market reforms in Germany. First, the institutional and discursive setting in which labour market policy-making took place is discussed, before an analysis of the significance of learning in the labour market reforms of the Red–Green government, substantiating the claim that learning is a potent mechanism of knowledge-based institutional change as well as supporting the argument that learning can be reasonably integrated into new institutionalism.

3 The German Welfare State and Labour Market Policy

Following the new institutionalist approach, understanding of the development of labour market policy requires an understanding of the institutional framework in which labour market reforms are developed. First, the basic ideas and institutions of the German welfare state are briefly reviewed, before mapping the historical development of German labour market policy from its institutionalisation in 1927 to the last Kohl government, which left office in 1998. It will be shown that policy development had been characterised by remarkable continuity and change at the same time. The basic institutions remained intact, while the ideas governing labour market policy underwent some substantial transformation (Section 1). With the Job-AQTIV Law and the Hartz Legislation, the Schröder government (1998–2005) not only continued but accelerated the departure from the conservative–corporatist path of welfare in labour market policy, started by the centre-right government in the mid-1990s. The ideas of activation and new public management gained a virtually unchallenged predominance in labour market policy (Section 2).

3.1 The German welfare state and labour market policy until 1998 The German welfare state is generally considered to be the prime example of the conservative–corporatist welfare regime that has been predominant in continental Europe (Esping-Andersen 1990: 27, 1996: 66–68; Goodin et al. 1999: 51–55, 71–79). It is typically defined 60

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by the pursuit of maintaining achieved living standards and statusequivalent integration into the labour market, through the preservation of traditional family-hood and by the involvement of the social partners in the governance of the welfare state and the political economy. A key characteristic of the conservative welfare state and its German exemplar is that the main social risks are covered by social insurance schemes, coining the notion of the ‘social insurance state’ (Sozialversicherungsstaat, Olk and Riedmüller 1994: 11). The first social insurance schemes were introduced with the Bismarckian social security legislation at the end of the 19th century. The publicly regulated social insurance schemes, to which employees and their employers contribute on equal terms, generate social entitlements, which predominantly derive from employment. Since benefit generosity is essentially determined by the level of previous income, the Bismarckian welfare state is described as highly wage-centred (Lohnarbeitszentriertheit, Vobruba 1990; see also Goodin et al. 1999: 75; Olk and Riedmüller 1994: 14). People in need without (sufficient) entitlements deriving from insurance contributions rely on tax-funded social assistance benefits, which are subject to means-testing. Associated with its wage-centred character, the social insurance state strives to maintain social status and living standards. This objective is reflected in the principles of equivalence and performance governing the pension and unemployment insurance, the two branches of the social security system that have a wage replacement function. Second, the German welfare state has traditionally been seen to have a strong emphasis on preserving and promoting the ‘male breadwinner’ family, which has been institutionally facilitated by both the welfare state and the taxation system. This norm of the male breadwinner and female homemaker family is closely coupled with the standard work arrangement (Normalarbeitsverhältnis) as a means of realisation (Gottschall and Dingeldey 2000: 313–315; Hinrichs 1996: 104; Ostner 1993). The standard work arrangement is basically defined as a full-time and dependent occupation, in which the employee is subject to directives. With increasing age and seniority, income and welfare benefits rise as well. Stability and continuity – in other words, relatively high job security – is characteristic of this type of employment, though employees are still confronted with the risk of unemployment (Mückenberger 1985: 422–429).

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Finally, corporatism is a feature of the governance of German welfare. The institutionally fragmented social insurance state is characterised by the historically established involvement of social partners in the governance of social security, which restricts the influence of the government (Manow 1997). But the delegation of authority to social partners goes beyond involvement in the administration of social insurance funds. The constitutionally guaranteed right of free collective bargaining in the absence of any state intervention (Tarifautonomie) assigns trade unions and employers’ associations a key role in governing the labour market (Bispinck and Schulten 1999: 185ff.; Jacobi et al. 1997: 198), whereby governmental steering capacity in labour market policy is constrained (Trampusch 2003: 21; Wood 2001: 390ff.). Sharing the public sphere in economic and social policy, the state and social partners, in mutual dependence, engage in ‘corporatist concertation’ in order to enhance their problem-solving capacity by collective interest mediation (Weßels 2000). In the following, the historical development of labour market policy in Germany is traced to show the development of this policy and to identify its institutional structure, which, it is argued, reflects the conservative–corporatist welfare regime. Reviewing the development of labour market policy is necessary for a comprehensive understanding of this policy; this is imperative for the assessment and explanation of policy change associated with the labour market reforms of the Red–Green government. The institutionalisation and consolidation of unemployment insurance In the Weimar Republic, the Bismarckian social insurance system was complemented by the unemployment insurance scheme of 1927. The ‘Job Placement and Unemployment Insurance Law’ (Gesetz über Arbeitsvermittlung und Arbeitslosenversicherung) established an earnings-related unemployment benefit funded by contributions by employers and employees and administered by the ‘Imperial Office for Job Placement and Unemployment Insurance’ (Reichsanstalt für Arbeitsvermittlung und Arbeitslosenversicherung). Following the unemployment benefit, recipients could qualify for means-tested and tax-funded unemployment assistance (Krisenunterstützung), before ‘arriving’ in the municipal system of means-tested social assistance (kommunale Armenfürsorge). In addition to social security

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for the unemployed, the Imperial Office was also responsible for rudimentary active labour market policy. Although social partners were involved in the administration of the employment office, their influence, due to state influence, was considered to be less significant compared to other social insurance branches (Bender 1991: 140–142, 148–153; Hentschel 1983: 103–113; Schmuhl 2003: 143–156). After World War Two, labour market policy tied in substantially with the legislation of the Weimar Republic. The new employment office (Bundesanstalt für Arbeitsvermittlung und Arbeitslosenversicherung) was established in 1952 as a tripartite autonomous body. The previous system of unemployment benefit and assistance (Arbeitslosengeld and Arbeitslosenhilfe), though reformed in 1957, persisted as well. Both schemes continued to be the responsibility of the employment service, as unemployment assistance remained tax-funded (Schmuhl 2003: 418–421; 445–447; Frerich and Frey 1993: 84–86). As previously, this two-tiered system of social security for the unemployed was de facto complemented by the social assistance scheme, introduced with the ‘Federal Social Assistance Law’ (Bundessozialhilfegesetz) in 1962. Though the scheme was not intended to support employable people, the municipal social assistance became effectively the second public assistance scheme for the long-term unemployed (Adema et al. 2003). After numerous changes, the legal basis for labour market policy was comprehensively ‘modernised’ with the ‘Labour Promotion Law’ of 1969 (Arbeitsförderungsgesetz, AFG), which was decided unanimously in parliament. The perception that labour market legislation required modernisation was particularly fostered by the economic crisis of 1966–67, when Germany first experienced recession and increasing unemployment after its post-war ‘economic miracle’. Underlining the economic and structural policy aspects of labour market policy, it was intended to facilitate proactively a high level of employment, productivity and economic growth using the instruments of labour market policy. Importantly, the legislation prescribed the avoidance of ‘substandard employment’, reinforcing the normative importance of standard employment and, thereby, the male breadwinner model in German social policy. The innovative character of the AFG was seen in the development towards an anticipatory and preventive approach of labour market policy, which focused on improving the qualifications of the workforce and which was systematically linked

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with other policies. To assist structural change in the economy and technological progress, improving the qualificational profile of the workforce was considered crucial to the preventive approach of the AFG, for which strong financial incentives were provided with the introduction of a generous training allowance (Unterhaltsgeld). Job creation measures (Arbeitsbeschaffungsmaßnahmen, ABM) were intended to be used more extensively and systematically for integrating job-seekers into work corresponding to their qualifications as well as for assisting structural policy by supporting projects of public interest (Frerich and Frey 1993: 87-90; Kühl 1982; Schmuhl 2003: 450–489; Stingl 1977: 352–355). Labour market policy under siege The preventive approach of labour market policy reflected in the AFG was developed when policy-makers and experts expected continuous economic growth, only interrupted by temporary turbulences and workforce bottlenecks in certain vocations. However, severe economic crises in 1973–75 and 1979–80 occurred (particularly associated with the two oil price shocks in the corresponding years), whereby policy-makers were confronted with new challenges they had not anticipated. As with the federal budget, the PES budget was put under serious pressure, caused by increasing unemployment. For obvious reasons, the German work-related unemployment insurance was extremely sensitive to this economic development. At the end of 1975, the government of Social Democrats and the Liberal party reacted to the new environment with the ‘Budget Structure Law’ of 1976 (Haushaltsstrukturgesetz) to consolidate fragile public finances. Here, the lion’s share was brought by the PES, as the government reduced the incentives for further vocational training by making the training allowance less generous. Further to this, the Budget Structure Law tightened control mechanisms and the criteria of reasonable work (Zumutbarkeitskriterien), whereby the unemployed lost the absolute claim of reintegration into the labour market according to their vocational status (Berufsschutz). However, they were not required to accept offers of payment below the standard rates of the particular collective wage agreement, complying with the policy objective to avoid substandard employment. In 1977, legislation introduced further expenditure cuts, followed by a governmental turnaround in 1979. This time, the scope of labour market policy was

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expanded by improving the conditions of further vocational training for bottleneck occupations and mitigating the criteria for reasonable work, as well as using job creation measures more extensively. The economic crisis of 1979–80 abruptly stopped this short-lived extension of labour market policy (Webber 1982: 263–267; Schmuhl 2003: 510–516; Steffen 2002: 7ff.). With the ‘Employment Promotion Consolidation Law’ of 1982 (Arbeitsförderungskonsolidierungsgesetz), the social-liberal coalition again cut the deficit in the budget of the PES with massive cuts in active labour market policy, in which further vocational training and job creation measures were particularly affected. The previously relaxed criteria for reasonable work were re-tightened and the sanction regime was toughened. In addition to these legislative changes in employment promotion, the reduction of labour supply (by minimising the inflow of migrant workers, using early retirement schemes and extending education periods) was used to fight unemployment figures (Frerich and Frey 1993: 178ff.; Schmuhl 2003: 516–519; Steffen 2002: 8ff.; Webber 1982: 267–269). Obviously, the paradigm of labour market policy reflected in the AFG of 1969 did not survive the economic turbulences of the 1970s. The Budget Structure Law of 1976 must be considered a decisive turning point in the development of post-war Germany. It broke with the anti-cyclical approach of Keynesian economic policy; budget consolidation became the prime political priority, to which social and labour market policy were subordinated (Webber 1987: 78). Financing labour market policy with work-related insurance contributions facilitated the orientation of labour market policy to expenditure cuts in economic crises. The pro-cyclical spending pattern promoted by the institutional logic of unemployment insurance became dominant in the 1970s (Scharpf 1983: 26ff.; Schmid et al. 1987: 308; Webber 1982: 289). However, the institutional structure of financing labour market policy did not determine the described spending pattern; in the end, it was a political choice whether to reduce or to extend expenditure for labour market policy, as for instance the Swedish counter-example illustrated (Scharpf 1983: 28ff.). In its consolidation efforts, the social-liberal government largely concentrated on active labour market policy, since the Social Democrats considered this strategy politically less costly than reducing the generosity of unemployment benefit and assistance (Webber 1982: 274).

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In 1982, the parliament replaced the social-liberal government by a ‘constructive vote of no confidence’. Though the new conservative-liberal government of Helmut Kohl claimed to initiate comprehensive changes in economic, fiscal and social policies (geistig-moralische Wende), it basically continued the labour market policy of its predecessor. The costs associated with high unemployment rates were considered the main risk for the federal budget, so that the consolidation of the employment service budget became a political priority. In 1983, the formula for calculating the duration of unemployment benefits was tightened to reduce benefit generosity. The subsequent Budget Law of 1984 involved severe changes in both active and passive labour market policy, reducing the training allowance and temporary wage subsidies for the long-term unemployed as well as unemployment benefit and assistance for childless recipients. To reduce the supply of labour, the government established an early retirement scheme subsidised by the PES for those employees at least 58 years old (Frerich and Frey 1993: 178; Schmuhl 2003: 527ff.; Steffen 2002: 9). When an economic upturn improved the revenue of the PES, these financial resources were partially used to extend benefits. In 1985, complementing a relaxation of qualifying criteria, the training allowance was made more generous, despite a reduction in the previous year. In addition to this so-called ‘qualification offensive’ (Qualifizierungsoffensive), the duration of unemployment benefits was extended to a maximum duration of 24 months for the unemployed of at least 54 years of age; and unemployed persons of at least 59 years of age were no longer required to be available for job placement, if they agreed to apply for early retirement (the so-called ‘59er rule’, 59erRegelung). However, for the unemployed who did not comply with their obligations, the period of disqualification was lengthened from eight to 12 weeks. With the introduction of the bridging allowance (Überbrückungsgeld), a new instrument was established to promote self-employment of welfare recipients (Frerich and Frey 1993: 180ff.; Schmuhl 2003: 528ff.; Steffen 2002: 9). Two years later, the generosity of unemployment benefits was further improved by lengthening the maximum duration to 32 months and by relaxing the formula for calculating the duration. This effectively broadened the ‘clientele’ for early retirement. Several changes strengthened the reintegration efforts of the employment

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Table 3.1 Labour market reforms of the Kohl government before unification 1984 Reduction of the generosity of unemployment benefit and assistance Reduction of the generosity of the training allowance Extension of early retirement 1985 ‘Qualification offensive’, including improving the generosity of the training allowance Extension of the maximum duration of unemployment benefits to 24 months Extension of early retirement with the ‘59er-rule’ Introduction of the bridging allowance 1987 Extension of the maximum duration of unemployment benefits to 32 months Extension of early retirement with the ‘57er-rule’ 1988 Restriction on the use of further vocational training and job creation measures Reform of early retirement with part-time scheme

service by, for instance, extending the bridging allowance and improving the wage allowance for older long-term unemployed persons. These changes resulted in increased expenditure for active labour market policy, as a result of which the budget slid again into troubled waters in 1988. This made the government tighten access to further vocational training and job creation measures. Additionally, the early retirement scheme was replaced with a new scheme that linked subsidised part-time employment of older employees with the obligatory employment of a formerly unemployed substitute worker (Frerich and Frey 1993: 180–183; Schmuhl 2003: 531; Steffen 2002: 10). The conservative-liberal coalition basically stuck with the stop-go spending pattern in labour market policy established by the previous government (Schmid 1998: 157–159), and the subordination of labour and social market policy to the primacy of ‘smooth’ budget consolidation (Offe 1991; Schmidt 1998: 64ff.). While increasing the revenue of unemployment insurance contributions was partially used to extend benefits and measures (for example, the extension of further vocational training and the maximum duration of

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unemployment benefits), deficits in the budget were reduced by severely cutting expenditure. However, in contrast to the socialliberal coalition, the Kohl government did not restrict expenditure reductions to active labour market policy, but cut unemployment benefits and assistance as well. Furthermore, this government extensively used early retirement schemes, subsidised by the PES, to reduce the supply of labour. With this extension of the ‘welfare without work’ approach, the government pursued the two-fold strategy of improving unemployment figures and offering firms an attractive instrument to make older employees redundant in economic crises (Manow and Seils 2000: 280ff.). Notwithstanding some changes and differences in labour market policy, the similarities between the social-liberal and conservative-liberal governments outbalanced differences, so that one can argue for basic continuity in this policy (Schmid 1990: 251; Webber 1987: 82). The erosion of the German model The challenges with which labour market policy was confronted changed fundamentally with the economic and social problems associated with unification in 1990. The economic transformation of East Germany created a situation that the AFG had not faced so far. To deal with this employment crisis, the government made extensive use of the short-time working allowance, early retirement schemes, job creation measures and vocational training. Exploding expenditure for labour market policy caused the legislator, after the first cuts of job creation measures in 1992, to further limit the use of AFG instruments in 1993 by restricting vocational training and introducing an obligatory waiting time between measures. Notwithstanding the principle of self-governance in the employment service, the ministry of labour was authorised to unilaterally enact the budget of the PES; this immediately happened to the subsequent budget. For East Germany, an additional lump-sum job creation measure with a subsidy at the level of an average unemployment allowance was introduced (the so-called ‘productive work promotion’, Produktive Arbeitsförderung Ost), as the generosity of ABM in East Germany was reduced to below the standards of collective agreements (Bach et al. 1998: 12–15; Schmuhl 2003: 552–575). For obvious reasons, the problems of economic transformation resulted in a strong ‘social policy’ focus in labour market policy,

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which was extensively used to absorb redundant employees in East Germany (Schmuhl 2003: 553). Costly early retirement schemes were intensely employed as a ‘routine response’ to the problem of rising unemployment in German labour market policy; that is, the welfare without work approach (Manow and Seils 2000: 293). Yet, the massive extension of labour market policy by the Kohl government, associated with substantially increasing the public deficit, did not indicate a changed approach towards labour market policy. Not seeing an immediate alternative, the policy of deficit-spending was pursued rather reluctantly (‘Vereinigungskeynesianismus wider Willen’; von Beyme 1994: 265). Rather, considering the possibility of direct state intervention in the corporatist self-government of the PES marked a significant break in labour market policy and its governance (Heinelt 1994: 194ff.). Returning to the primacy of budget consolidation with the ‘First Law for the Implementation of the Programme for Expenditure Reduction, Consolidation and Growth’ of 1994 (Erstes Gesetz zur Umsetzung des Spar-, Konsolidierungs- und Wachstumsprogramm), the conservative-liberal government continued its previous approach of expenditure control in labour market policy. Benefit generosity for the unemployed was diminished for a second time, and the training allowance experienced further cuts and access restrictions. In the same year, the job placement monopoly of the PES was abolished by the ‘Employment Promotion Law’ (Beschäftigungsförderungsgesetz). The restrictions on ABM wage subsidies and productive work promotion, both initially introduced in East Germany, were extended to the West. Recipients of unemployment assistance could be obliged to do ‘community work’ (Gemeinschaftsarbeit) (Schmuhl 2003: 578ff.; Steffen 2002: 12–14). Additional changes for unemployment assistance recipients were enacted with the ‘Unemployment Assistance Reform Law’ of 1996 (Arbeitslosenhilfe-Reformgesetz). This legislation introduced so-called ‘training measures’ (Trainingsmaßnahmen) as an instrument for testing the assistance recipient’s willingness and capacity to take up a job. The low-wage sector was thought to be strengthened by expecting unemployment assistance claimants to accept seasonal work (such as harvesting), for which the rather modest ‘employee allowance’ was established (Arbeitnehmerhilfe). Unemployment assistance was index-linked by introducing a yearly three per cent benefit reduction to incorporate an assumed loss in

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qualification (Schmuhl 2003: 578; Steffen 2002: 14ff.). With respect to early retirement, the ‘Law on Promoting the Gradual Transition to Retirement’ of 1996 (Gesetz zur Förderung eines gleitenden Übergangs in den Ruhestand) as well as the ‘Law on Partial Retirement’ of 1996 (Altersteilzeitgesetz) reduced the attractiveness of early retirement (Heinelt and Weck 1998: 63ff.; Steffen 2002: 15). The developments between 1994 and 1996 involved some significant changes in labour market policy. Going beyond expenditure reduction in the passive labour market policy of the 1980s, the legislation by the Kohl government ‘communalised’ social security to a considerable extent. With the reduction of the generosity of unemployment benefit and assistance, an increasing number of unemployed persons ‘dropped’ into social assistance, which also intensified the cost-shifting between federal and municipal levels (the so-called marshalling yards). Almost parallel to this development, social assistance legislation was amended in 1996, through which the employment promotion by local benefit offices, begun in the 1980s, was significantly extended (the so-called ‘Help to Work’ schemes, Hilfe zur Arbeit). These agencies effectively became ‘employment offices’ for a significant number of welfare recipients (Aust et al. 2002: 36, 43ff.; Schmuhl 2003: 579–581). Under the old social assistance scheme, about two-fifths of all recipients were considered ‘fit-for-work’; and more than every second employable recipient was ‘activated’ with some measure (almost every second measure was ‘work-for-benefits’). These claimants were generally expected to accept all work offered and were obliged to take part in activation measures. In the case of non-compliance, recipients lost at least 25 per cent of their social assistance entitlements. Repeated noncompliance could result in further severe sanctions and ultimately in the loss of all entitlements (Adema et al. 2003: 32–34). Labour market policy (in particular, for claimants of unemployment assistance) was increasingly used for testing the willingness to work (for instance, with training measures) and for providing only temporary and substandard employment (such as community and seasonal work) instead of promoting a status-equivalent and stable reintegration in the labour market. Transferring the conditions of job creation measures from East to West Germany, the principle of collective agreement standards in labour market policy was finally discarded in order to reduce expenditure (Heinelt 1994).

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The objective of status preservation, traditionally a characteristic feature of German welfare, was restricted to the short-term unemployed, while, in particular, the recipients of unemployment and social assistance became subject to tight recommodification and workfare (Heinelt and Weck 1998: 48–56; Gottschall and Dingeldey 2000: 320ff.). To tackle the ‘welfare without work’ approach, the legislation on early retirement involved the reduction of benefit generosity in order to limit the financial burden on the pension system (Heinelt and Weck 1998: 63). Thereby, the attractiveness of this form of labour shedding for older unemployed persons was reduced, which indicated a first slight renunciation of the common practice of costly early retirement. After the intervention in its self-government, the employment service was subject to another significant legislative change with the deregulation of job placement in 1994. The monopoly of job placement, existing for more than six decades, was transformed into a regime of publicly regulated co-existence, in which the non-profit PES had to compete with private agencies (Konle-Seidl and Walwei 2001: 6ff.). In 1997–98, with the ‘Labour Promotion Reform Law’ (Arbeitsförderungs-Reformgesetz, AFRG), the legislation on employment promotion was transferred in two stages to the Social Code Book III (Sozialgesetzbuch III, SGB III), with which the new coercive workfare approach of labour market policy had been reinforced. With the first ‘package’ of changes in 1997, the training measures introduced in 1996 for unemployment assistance recipients were extended to all unemployed persons, for which three specific types of measures – to test the willingness to take up a job, to test aptitude and to qualify for work – were established. A refusal to accept a training measure constituted a condition for temporary disqualification from benefits. To reduce the costs and incentives of job creation measures, the reference wage for ABM experienced further reductions. For the reintegration of the long-term unemployed, the instrument of the ‘integration contract’ (Eingliederungsvertrag) was introduced, with which employers were supported financially without being bound to collective wage agreements. The AFRG also tightened the criteria for reasonable work. While previously qualifications were taken into account (the so-called ‘five-stage model’ of a PES decree in 1982), the legislation prescribed an exclusive wage consideration (Einkommensstufenmodel), terminating any vocational protection. Analogous

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regulations for recipients of unemployment assistance were introduced as well. Finally, the qualifying criteria for receiving unemployment benefits for longer than 12 months were also tightened (Schmuhl 2003: 583–591; Steffen 2002: 16–18). With the second package of AFRG changes in 1998, the previous key objectives of facilitating full employment and contributing to a sound employment structure were replaced by the less ambitious targets of job placement and the reintegration of the unemployed into the labour market. The overall philosophy of labour market policy shifted towards emphasising the personal responsibility of the unemployed, who were expected to contribute more proactively to overcoming unemployment. Employment offices obtained additional competencies to control personal efforts by the unemployed and to severely sanction in cases of non-compliance with set demands. This philosophy of emphasising personal responsibility and threatening with sanctions underlined the more coercive and workfare character of the SGB III. In this context, the repeal of the prohibition on engaging in placement in jobs that did not comply with the minimum standards set in collective agreements is significant, as the unemployed could be obliged to accept substandard job offers. The take-up of job offers, however, was supported by application and mobility subsidies (Mobilitätshilfen). For the integration of problem groups, new wage cost subsidies, the ‘integration subsidies’ (Eingliederungszuschüsse), were introduced for employers, as well as a new and less generous means of job creation, the ‘structural adjustment measure’ (Strukturanpassungsmaßnahme, SAM). In addition to changes in benefits and instruments, the PES was also subject to change, strengthening ‘management by objectives’ (MBO) in the employment service. All benefits and measures that could not be claimed legally (Ermessensleistungen) were aggregated in a budget item for reintegration measures (Eingliederungstitel), whereby local employment offices received greater flexibility in the allocation of resources. Their discretion was further strengthened with the establishment of another new budget item of so-called ‘independent measures’ (Freie Förderung), with which local branches were allowed to use up to 10 per cent of the reintegration budget for experimenting with measures not included in the employment promotion legislation. This increased budgetary discretion and decentralisation of competencies was accompanied by the obligation of the employment service to report

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the results of their active labour market policy, for which integration balances (Eingliederungsbilanzen) were introduced as a monitoring tool (Schmuhl 2003: 583–591; Steffen 2002: 18–20). The last reform of labour market policy by the Kohl government could be viewed as, at that time, the final step in a long process of undermining the AFG of 1969 since the mid-1970s because of the pursuit of a ‘minimalist approach’ to labour market policy in accordance with neo-liberal thinking – for example, by downgrading the overall objectives codified in the SGB III compared to the AFG and by strengthening market forces (Bieback 1997). But this perspective appears insufficient insofar as some significant legal modifications of a new character cannot be captured adequately. Besides considerable changes in instruments and some organisational innovations in the PES (the cautious introduction of elements of ‘management by objectives’; Adamy 2002: 146ff.; Reissert 2001), the new emphasis on self-responsibility in the SGB III is generally viewed as a key change. The unemployed were required to demonstrate initiative in order to avoid severe sanctions for non-compliance (Rabe and Schmid 1999: 37). Schmid (1996) considered this development towards self-responsibility as an appropriate paradigm shift towards a ‘co-operative welfare state’ (kooperativer Sozialstaat). Nonetheless, he criticised the concrete approach by the centre-right government, which largely relied on sanctions and lacked adequate instruments and resources for enabling the unemployed to meet set expectations (Rabe and Schmid 1999: 374). In summary, the development of German labour market policy until 1998 was characterised by both remarkable continuity and considerable change at the same time. With the legislation of 1927 institutionalising labour market policy, the Bismarckian social insurance system had been transformed into a system of social security for the unemployed, whereby the social insurance state, including its key principles of equivalence and performance, was extended to this area of social security. Thereby, in accordance with the overall objectives of German welfare, a system for the unemployed maintaining status differentials was established, since the level of both the unemployment benefits and assistance was based on previous income. Notwithstanding substantial pressure due to increasing unemployment, and notwithstanding the ‘homemade’ problem of a stop-go policy pattern due to the contribution-based financing system, the

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basic structure of unemployment insurance survived growing pressure for reform. Furthermore, the centrally organised employment service had shown notable continuity since its establishment in the Weimar Republic. Reflecting the corporatist tradition, social partners were involved in the self-administration of the employment service. However, the introduction of governmental authority to enact the budget of the PES unilaterally (severely restricting social partner influence) marked a considerable change in the governance of labour market policy. With respect to its overall significance, the Federal Employment Service nonetheless maintained its importance as chief ‘provider’ of labour market policy, despite the deregulation of the job placement regime in the mid-1990s. Though the basic institutional structure of labour market policy had demonstrated remarkable continuity, the policy was subject to considerable change in substance, following a pattern of incremental transformation (see Streeck and Thelen 2005 on incremental institutional change). With the AFG of 1969, a ‘modern’ approach to labour market policy was established. However, the economic turbulences of the 1970s successively undermined the preventive and proactive approach of the AFG. Labour market policy, subordinated to the objective of budget consolidation (as pursued since the Budget Structure Law of 1976), developed into a predominantly reactive instrument, which was reinforced by the financial architecture of unemployment insurance. Bleses and Vobruba (2000) argue that the social inclusion strategy of the social insurance approach was dismissed and replaced by an approach of social exclusion and increasing recommodification, which was particularly applied to the unemployed. Further training as a means for the statusequivalent integration into the labour market lost prominence. Complementary to this development, substandard employment not only became accepted but was also facilitated by the redirection of labour market policy. The key ideas of securing achieved living standards and social status were continuously undermined from the mid-1970s (Seeleib-Kaiser 2002b: 31). Instead of using labour market policy proactively to reduce unemployment, a strategy of social exclusion and labour shedding (the ‘welfare without work’ approach of early retirement but also the secondary labour market) was pursued to cope with the consequences of mass unemployment. After the mid-1990s, however, costly labour

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Table 3.2 Labour market reforms of the Kohl government after unification 1993 Restriction on the self-government of the PES Ban on the consecutive use of labour market policy measures Introduction of the ‘productive employment promotion’ for East Germany 1994 Reduction of the generosity of unemployment benefit and assistance Reduction of the generosity of the training allowance Termination of the job placement monopoly of the PES 1996 Introduction of ‘training measures’ for unemployment assistance recipients Introduction of the employee allowance for seasonal work Reduction of the generosity of unemployment assistance by index-linking Reduction of the generosity of early retirement 1997 Extension of ‘training measures’ to recipients of unemployment benefit Reduction of the generosity of job creation measures Introduction of the ‘integration contract’ Tightening the criteria of reasonable work 1998 Tightening the criteria for reasonable work Introduction of application and mobility subsidies Introduction of integration subsidies Flexibilisation of job creation measures Introduction of structural adjustment measures Increase of the budgetary discretion of local employment offices Introduction of integration balances

shedding was increasingly questioned. The relative generosity of unemployment benefits – and thereby the privilege of status maintenance – was successively restricted to the short-term unemployed. The long-term unemployed were more and more governed by a strict workfare regime (largely relying on sanctions), while the incentivising and enabling dimension of ‘welfare to work’ remained more or less neglected. All in all, a policy shift from status preservation and labour shedding towards activation in labour market policy took place. In 1998, the Kohl government was replaced by the Red–Green alliance of Chancellor Schröder, which stayed in power until 2005.

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3.2 The Red–Green labour market reforms, 1998–2005 Reviewing labour market policy of the first Red–Green government from 1998 to 2002, three phases can be identified according to Blancke and J. Schmid (2003: 220): From the beginning until the middle of 1999, the new coalition concentrated its efforts on implementing election pledges, such as revitalising the ‘Alliance for Jobs’ (Bündnis für Arbeit; see Chapter 6 this volume) and setting-up the ‘Immediate Action Programme for Training, Qualification and Employment of Young People’ (the so-called ‘JUMP’ programme). With this special programme running from 1999 to 2003, young job-seekers between 15 and 25 years of age were activated by being offered wagecost subsidies and job-creation measures, as well as schooling and training measures; this programme was continued with the ‘JUMP plus’ programme until December 2004 (Bundesregierung 2003c). This first phase of initial activism was followed by a period of stagnation – despite establishing some model projects on low-wage employment (the so-called ‘Saar’ and ‘Mainz models’) and the cooperation between the employment service and social assistance authorities (the so-called ‘Mozart’ scheme). Eventually, the Mainz model was introduced nationwide in the run-up to the general election in 2002, notwithstanding poor evaluations (Blancke and J. Schmid 2003: 227). In 2000, the Red–Green government abolished, almost silently, the so-called primary unemployment assistance for recipients without prior unemployment benefit entitlements as part of a comprehensive austerity programme; this is noteworthy insofar as the SPD vehemently blocked similar proposals by the centreright government in the mid-1990s (Aust et al. 2002: 61; Steffen 2002: 23). The period of stagnation ended in the end of 2001 with the proposal of the Job-AQTIV Law for the ‘modernisation’ of instruments of employment promotion. With the advent of the placement scandal of the Federal Employment Service at the beginning of 2002 (see Chapter 7, Section 1), the government installed the ‘Hartz Commission’ for developing policy recommendations. These were made the basis for the comprehensive Hartz Legislation of the second Schröder government. One might want to argue that labour market policy was ‘not strongly addressed’ (Leibfried and Obinger 2003: 213) by the first Red– Green coalition. Merkel (2003: 181) notes that more comprehensive

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efforts were avoided, since the government hoped that the upturn of the global economy would reduce the unemployment figures sufficiently without pursuing unpopular reforms. When the unemployment figures, however, did not decline to a politically acceptable level, the pressure on the government to show that the unemployment issue was being taken seriously rose; this eventually resulted in the Job-AQTIV Law (Blancke and J. Schmid 2003: 225). However, the scope of change associated with this reform was restricted due to resistance by the traditionalist wing of the SPD as well as the trade unions. Because of these actors (of which the traditionalists in the SPD qualify as a partisan veto player), the impact of the Third Way philosophy from Anglo-Saxon discourse was limited (ibid.: 227). With the scandal of erroneous job placement figures from the employment service and with the approaching general election of 2002, the pressure to demonstrate competency in labour market policy increased. In this situation, the Hartz Commission was established by the government as a consensus-generating measure. Particularly with respect to organised labour, the timing of the commission was crucial, since the unions – as well as critics within the governmental parties – were not interested in a defeat of the Red–Green coalition in the then upcoming general election. Proposals that were not previously politically feasible could become consensual. Only a few weeks before the election did the commission present its policy recommendations, which Chancellor Schröder, using the ‘window of opportunity’, announced would be fully implemented (‘Eins-zu-Eins’) in the event of re-election (Aust 2003: 10ff., Blancke and J. Schmid 2003: 228; Heinelt 2003: 142). Immediately after re-election in September 2002, the government prepared the legislative implementation of the Hartz proposals, which, however, were by no means fully transferred. Some recommendations were adopted as basically proposed, others were transferred with substantial adjustment, a number of ideas were dropped completely, and other legislative changes were made that cannot be ascribed to the Hartz proposals though explicit reference was made to them. Overall, four major pieces of legislation on ‘Modern Services on the Labour Market’ and additional minor laws were enacted, by which substantial changes in active as well as passive labour market policy were introduced (Aust 2003: 12). Importantly, the Schröder government, using the political impetus of the placement scandal

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and strengthened by the unexpected electoral victory, was able to prolong the window of opportunity. In his highly controversial socalled ‘Agenda 2010’ speech in March 2003, Gerhard Schröder (2003) announced far-reaching changes in labour market policy, which went significantly beyond the consensual Hartz Report. Despite considerable public discontent and strong resistance in the coalition parties and trade unions, the government proceeded with its reforms. Agenda 2010 and the Hartz Legislation dominated the domestic policies and the politics of the second Schröder government (see Chapter 7 in this volume). The Job-AQTIV Law With the Job-AQTIV Law of 2002 (Gesetz zur Reform der arbeitsmarktpolitischen Instrumente), the Red–Green government sought to reject the minimalist labour market policy approach of the conservativeliberal Kohl government, though the legislation did not return to the philosophy of the old AFG. Importantly, this reform contained no measure that was subject to approval by the Federal Council, in order to prevent any veto by the opposition in the run-up to the general election. According to the new overall objectives, the revised SGB III was thought to contribute to a high level of employment and to improve the employment structure. In particular, the prevention of unemployment and the reduction of duration in unemployment were codified as guiding principles in labour market policy (Deutscher Bundestag 2001a: 6). The Job-AQTIV Law (Kruse and Zamponi 2002) put an emphasis on improving job placement. At the very beginning of unemployment (formerly after six months of unemployment), the job placement process opens with an obligatory ‘profiling’, with which the prospect of reintegration into the labour market as well as vocational weaknesses are individually assessed in order to prevent long-term unemployment. The results of this profiling are used for the development of an ‘integration agreement’ (Eingliederungsvereinbarung), in which binding reintegration efforts by the employment office as well as the unemployed’s job search obligations are specified in writing. For these agreements, all instruments of labour market policy are available for reintegration efforts without any waiting time. Employment offices are particularly urged to intensify placement efforts for problem groups, reflected in the guideline

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for enhanced third party involvement (such as private agencies). After six months, the unemployed person is legally entitled to claim third party involvement, for which the employment office hands out placement vouchers to cover agency fees. To prevent the occurrence of long-term unemployment, training measures (in particular, for aptitude assessment) and mobility measures were directed to be used more systematically. Complementing intensified placement efforts by the employment service, the unemployed are expected to co-operate fully in order to support their reintegration. However, the criteria for reasonable work were not tightened by the Job-AQTIV Law. In light of on-going structural change in the economy (by which the demand for low-skilled workers reduces, while employment for high-skilled workers increases), the Job-AQTIV Law emphasised vocational training to support this change. The instrument of job rotation was introduced in order to support further vocational training of employees and to improve the prospect of reintegration of job-seekers. With the objective of improving the employability of low-skilled workers, the legislation provided incentives to complete vocational training. Employers that release their low-skilled workers for qualification can be fully compensated by the employment office. To create transparency in the placement success of training, the employment offices and providers are required to produce measurespecific integration balances. For job-seekers receiving unemployment assistance, the incentive to undertake qualificational efforts is strengthened as well, through suspending the yearly three per cent reduction in benefits. On job creation, the Job-AQTIV Law harmonised the variety of wage-cost subsidies for labour market reintegration, the so-called integration subsidies (Eingliederungszuschüsse). Attempting to improve the linkages between labour market and structural policy, the regulation on the use of job creation measures (ABM) and structural adjustment measures (SAM) was flexibilised and, moreover, a new instrument, the ‘job creating infrastructure promotion’ (Beschäftigung schaffende Infrastrukturförderung) was established, to make additional financial resources accessible for infrastructure projects. In job creation measures, a stronger focus was put on qualification and practical training in measures designed to improve the prospect of reintegration (ibid.: 69–75).

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Table 3.3 The Job-AQTIV Law of the first Schröder government Reform of job placement Introduction of obligatory profiling and integration agreements Introduction of placement vouchers Making available all integration measures without waiting time Strengthening vocational training Introduction of job rotation Improvement of training subsidies for low-skilled and older workers Strengthening the qualificational component in job creation measures Strengthening linkages between labour market and structural policies Introduction of job-creating infrastructure promotion Flexibilisation of the use of job creation measures Others Harmonisation of wage cost subsidies Introduction of measure-specific integration balances

In sum, the Red–Green government pursued an approach of enabling activation with the Job-AQTIV Law, while abstaining from coercive measures (such as benefit cuts and tightening the sanction regime). The latter dominated the policy approach of the preceding centre-right government. The introduction of measurespecific integration balances follows the new public management (NPM) philosophy but comprehensive changes breaking with the bureaucratic character of the PES have not been introduced. For this reason, it is argued that NPM could not gain predominance in the public policy discourse. The scene, however, changed with Agenda 2010 and the Hartz Legislation of the second Schröder government. The previously challenging ideas of coercive activation and NPM became predominant, guiding Red–Green policy-makers in policy formulation. Agenda 2010 and the Hartz Legislation Reacting to the immense public pressure built up following the placement scandal in the Federal Employment Service, the government presented a two-step action plan for the reform of the employment service about three weeks after the Federal Audit Office published its findings. In the first step of immediate measures, the top-level administrative structure of the PES was ‘modernised’ to initiate

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the transformation of the PES from a traditional bureaucracy to a public bureaucracy with management structures comparable to those of limited companies. The tripartite management board and presidency were replaced with a corporate-like board of three managers, nominated by the government. The reformed governing board (Verwaltungsrat) was granted the right to propose candidates, though without affecting the final decision-making authority of the government. Remodelling the top-level administrative structure of the PES along the lines of a private sector company was thought to enhance efficiency. Furthermore, the immediate measures included changes of the job placement regime, with which new elements of competition were introduced. The compulsory licensing procedure for private job placement agencies at the Federal Employment Service was terminated. For their services, private job placement agencies were now allowed to demand fees, though limited, from job-seekers. Unemployed persons seeking a job for three months were given the entitlement to job placement vouchers for making use of private services. In a second step, the government established the Hartz Commission for the development of comprehensive reform proposals. The subsequent labour market legislation by the re-elected Red–Green government explicitly referred to the report of the Hartz Commission (Bundesregierung 2002). Less than half a year after the general election, the reform impetus of the Hartz Commission was complemented with the ‘Agenda 2010’ speech by Chancellor Schröder, in which he proposed his reform agenda for the second Red–Green government. In an environment of weak economic growth (which was linked with high non-wage labour costs), the government considered comprehensive structural reforms necessary for generating prosperity, in particular benefit cuts and increased emphasis on individual self-responsibility. For labour market policy, Schröder announced the anticipated integration of unemployment and social assistance schemes. However in contrast to the consensual Hartz recommendations, Schröder proposed a new flat-rate assistance scheme, the level of which roughly corresponded to the benefit level of social assistance. In addition, tightening the criteria of reasonable work for the long-term unemployed and consequent sanctioning in cases of non-compliance were put on the governmental agenda; on the other hand, in accordance with the ‘making work pay’ philosophy, earning some minor income in

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addition to social transfers was announced to be made easier for the long-term unemployed. The reduction of the regular maximum unemployment benefit duration to 12 months, a politically highly controversial measure, was announced in the Agenda 2010 speech; for job-seekers over 55, the maximum duration was restricted to 18 months (Schröder 2003). Despite substantial resistance to this reform agenda in the coalition parties, and despite fierce opposition by trade unions, both the SPD and the Green party eventually approved the proposals by the Chancellor at special party conventions, in order to avoid jeopardising the Chancellorship of Gerhard Schröder; his resignation would have almost inevitably resulted in the end of the Red–Green government (Aust 2003: 15ff.). Hence, with the policy proposals of the Hartz Commission and Gerhard Schröder’s Agenda 2010, the cornerstones for labour market legislation of the second Red–Green government were established. Apart from some minor changes that did not require legislative action, the ‘First Law for Modern Services on the Labour Market’ of 2003 (Erstes Gesetz für moderne Dienstleistungen am Arbeitsmarkt, so-called Hartz I) initiated the implementation of the Hartz proposals; this legislation contained various changes that did not require approval by the Federal Council. Among the significant changes was the introduction of personnel service agencies (Personalserviceagenturen, PSA), with the objective of fostering temporary agency work with the explicit objective of reintegration into employment (the socalled ‘Temp-to-Perm’, vermittlungsorientierte Zeitarbeit). Subsidising of unemployed persons in PSAs was generally restricted to 12 months, with efforts towards gaining qualifications required in periods of non-employment. To tighten the demands on the unemployed, the criteria of reasonable work were weakened by lowering the barriers for requests to relocate. Weakening the inhibitions about exerciseing sanctions, the length of periods of disqualification from benefits was differentiated. Based upon the kind of misconduct, three, six and 12 weeks of disqualification could now be imposed on benefit claimants. The burden of proof to prevent sanctions now lies with the unemployed, who are required to provide evidence of sufficient integration efforts. With the abolition of the time-consuming yearly indexation of benefits, the generosity of benefits for the long-term unemployed declined. In the area of further training, vouchers were

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introduced (Bildungsgutscheine); instead of prescribing a particular measure, the unemployed in need of training receives this voucher to freely choose any certified measure. The administrative burden of employment offices was reduced with the tendering of outputoriented integration measures instead of them determining the content of measures. To promote the employment of older employees, the instrument of ‘remuneration security’ for workers of at least 50 years (Entgeltsicherung) was created, with which 50 per cent of net income difference from the previous employment could be covered by unemployment insurance for the remaining period of unemployment benefit entitlement. When hiring unemployed persons of at least 55 years of age, employers were exempted from contributing to unemployment insurance (Heller and Stosberg 2003: 7ff.; Neumann 2003: 113–117, 119). In contrast to Hartz I, the ‘Second Law for Modern Services on the Labour Market’ of 2003 (Hartz II) was subject to approval by the Federal Council; for this reason, this piece of legislation was proposed separately. With Hartz II, ‘marginal employment’ (geringfügige Beschäftigung), renamed ‘Mini-Jobs’, was restructured with the objective of generating employment in the low-wage service sector and combating moonlighting. The threshold for marginal employment was extended from a325 to a400 per month, for which a flat-rate levy of 25 per cent by the employer is applicable; up to the threshold of a400, the employee is not charged. As illegal work in private households is particularly widespread, the flat-rate contributions for Mini-Jobs in private households were reduced to 12 per cent, adding to tax incentives for the employer. For a low-wage income above a400 and up to a800, a transitional zone (Gleitzone) was established, in which the social insurance contributions by the employee increase linearly. These ‘Midi-Jobs’ are intended to increase the attractiveness of minor low-wage service sector employment (especially for the low-skilled). Complementing the bridging allowance, a new start-up grant (Existenzgründungszuschuss), the so-called ‘Me, Inc.’ (Ich-AG), was introduced to promote self-employment by the unemployed (Heller and Stosberg 2003: 2–7; Neumann 2003: 117–119). Because of the veto powers of the Federal Council, in which the opposition parties possessed a majority, the initial Hartz II draft by the Red–Green coalition was subject to substantial changes after highly controversial negotiations in the mediation committee of the

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upper and lower houses. The government did not intend to increase the threshold of marginal employment in the private sector but to raise the threshold for services in private households to a500 per month. Furthermore, conservative opposition pushed through the introduction of the transitional zone between a400 and a800. The scheme for facilitating cost-neutral early retirement (Brückengeld) was dropped in the negotiation between government and opposition (Heller and Stosberg 2003: 2ff.; see also Deutscher Bundestag 2002a). Due to the Federal Council’s lack of veto rights, the main conflict in Hartz I was not between Red–Green coalition and opposition but between the government and trade unions. This piece of legislation involved considerable cost containment, which was particularly associated with the tightening of the eligibility criteria for unemployment assistance. Since the approval of the Hartz Report by the trade unions was contingent upon the rejection of benefit cuts, they were strongly opposed to such cost containment. In addition, conflict arose in relation to temporary employment, which was viewed negatively by organised labour. This dispute was resolved with the requirement for equal treatment of permanent and temporary staff in order to prevent undermining social standards, which can, however, be bypassed with collective agreements. Overall, Hartz I was basically adopted as proposed by the government (Aust 2003: 12ff.). With the ‘Third Law for Modern Services on the Labour Market’ of 2004 (Hartz III), the reorganisation of the employment service to a ‘modern provider’ of labour market services was further pursued, for which no approval by the Federal Council was required. Essentially, Hartz III continued the reorientation of the employment service to the ‘agency model’, in which the organisation is governed by output-oriented contract management instead of control by decrees and budgetary allocations (input-oriented management). Linguistically, renaming the employment service the ‘Federal Employment Agency’ (Bundesagentur für Arbeit) expressed the change of administrative philosophy. Along with the changes of Hartz III, the executive boards of local agencies were given the responsibility of deciding upon the concrete resource allocation of the budget items for reintegration measures (Eingliederungstitel) as well as independent measures (Freie Förderung). The budget allocation to local branches was assigned to the central executive board. As the headquarters, executive boards (nominated by the central executive board) head local agencies as

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well as regional directorates. In local agencies, the bodies of selfadministration control the executive boards, while in the regional branches (to which the role of coordinating labour market policy with the policies of state governments is ascribed) self-administration has been abolished. Importantly, the details of the new governance model are not stipulated in this legislation. It is the responsibility of the employment agency to develop and implement appropriate management structures (BMWA 2003a; Heller and Stosberg 2004: 100ff.). Furthermore, various regulations were simplified with this legislation, in order to reduce the administrative burden for shifting personnel resources to job placement units. Tightening the sanction regime, the possibility of benefit suspension for insufficient job search activities by welfare recipients and non-appearance at appointments with the employment office was introduced. In employment promotion, regulations were also simplified. The different reintegration subsidies were integrated into two measures; this was partly accompanied by reductions in the levels and duration of benefits. The two measures for job creation, ABM and SAM, were unified into one revised instrument of job creation, as well as simplified through the introduction of different lump-sum wage cost grants. The qualificational component of ABM introduced with the Job-AQTIV Law was no longer compulsory. To reduce the ‘appeal’ of ABM for the long-term unemployed, social insurance coverage was withdrawn from job creation measures (BMWA 2003a; Heller and Stosberg 2004: 101–105). Complementing the Hartz Legislation, a highly significant change in passive labour market policy was introduced with the reduction in the maximum duration of unemployment benefits as a key element of the Agenda 2010 strategy. The ‘Law for Reforms on the Labour Market’ of 2004 (Gesetz zu Reformen am Arbeitsmarkt), which was not subject to veto rights by the Federal Council, reduced the regular maximum duration to 12 months; for unemployed persons 55 years of age and older, drawing this benefit was made possible for a maximum duration of 18 months. Formerly, receiving unemployment benefits for a maximum of 32 months for the older unemployed was possible; this was depicted as facilitating early retirement (that is, a negative work incentive), according to the reasoning of the legislation. In addition to the removal of this disincentive, this benefit cut was justified with the objective of reducing social

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insurance contributions in order to boost employment; thus, as in other legislation, the linkage between unemployment and the burdens of social security was made (Deutscher Bundestag 2003a; Heller and Stosberg 2004: 101ff.). The ‘Fourth Law for Modern Services on the Labour Market’ (Hartz IV), the most significant piece of Hartz Legislation, integrated the unemployment and social assistance schemes into one benefit scheme for the long-term unemployed in order to terminate the dual responsibility of the employment service and municipalities for this group of job-seekers. Crucially, Hartz IV was subject to veto by the Federal Council. For this reason, the conservative opposition was able to enforce some significant changes to the initial draft by the Red–Green coalition. Employable benefits claimants in need without unemployment benefit entitlements are eligible for the new means-tested and tax-funded ‘basic security for job-seekers’ (Grundsicherung für Arbeitsuchende). This so-called ‘unemployment benefit II’ (Arbeitslosengeld II, ALG II), for which the Social Code Book II (Sozialgesetzbuch II, SGB II) was established, basically corresponds to the generosity and eligibility criteria of the former social assistance rather than to the unemployment assistance scheme. However, allowances for property and assets (particularly, for old-age provision) as well as income (‘making work pay’) were improved in comparison with the former social assistance (BMWA 2004). For the provision of all services to the long-term unemployed, ‘Job Centres’ were introduced as ‘one-stop agencies’. In these centres, ‘case managers’, co-ordinating integration efforts, are in charge of providing overall guidance and job placement. In order to ensure intensive support, a maximum workload of 75 clients per case manager was proposed. The concrete efforts of reintegration are stipulated in integration agreements, which include both activities by the employment service and by benefit recipients. These efforts comprise SGB III measures of active labour market policy as well as, if necessary, special social services (such as the provision of child care and special counselling for debtors or addicts). To facilitate the take-up of jobs, a start-up grant (Einstiegsgeld) can be made available temporarily with a maximum duration of 24 months. Likewise, following the ‘making work pay’ philosophy, the opportunities for earning some income for ALG II recipients were improved in comparison with the previous social assistance scheme. To juvenile claimants, the

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immediate offering of some activation measures, such as training and public employment, is compulsory. For job-seekers with no prospect of reintegration into the labour market in the foreseeable future, the instrument of ‘work opportunities’ (Arbeitsgelegenheiten, so-called ‘One-Euro-Jobs’) was created, for which some minor income in addition to ALG II is granted (Mehraufwandsentschädigung). Since the basic security for job-seekers, in contrast to the unemployment benefit, is an assistance scheme, every legal job is considered reasonable. The ‘safeguard’ of employment in compliance with collective agreements or the conditions of ‘local custom’ (ortsübliche Bedingungen) was dropped in the negotiations of the mediation committee of the two houses of parliament due to the pressure exercised by the opposition. For claimants refusing to take up a job or integration measure, as well as for those showing insufficient personal endeavour, the benefit can be cut by 30 per cent in a first step for three months and a further 30 per cent for continued non-compliance. The second reduction can be compensated by payment in kind. Misconduct by juvenile benefit recipients is sanctioned with an immediate loss of ALG II for three months; here, the option of payment in kind exists as well (BMWA 2004). Generally, the employment service and municipalities jointly run this new benefit scheme for the long-term unemployed. In this cooperation, local employment agencies are in particular responsible for unemployment benefit II, the social insurance contributions of the ALG II recipient and the benefits for dependent family members as well as labour market integration measures (such as job placement and training). The municipalities are ascribed the responsibility of covering the costs of accommodation and heating, providing special social services (such as psycho-social counselling and child care services) as well as meeting the costs of so-called ‘single needs’ (einmalige Bedarfe), which are not included in the monthly payments by the employment service. For the provision of services for the ALG II recipients, the law requires employment offices and municipalities to establish ‘joint ventures’ (Arbeitsgemeinschaften) for running the Job Centres as one-stop agencies for the long-term unemployed, in which all services are provided. However, as a result of the bargaining in the mediation committee, for 69 municipalities on an experimental basis the option of running this benefit scheme was pushed through by the conservative majority in the Federal Council, which

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Table 3.4 The Hartz Legislation of the second Schröder government ‘Immediate Measures’ Reform of the top-level administrative structures of the PES Deregulation of job placement (in particular, placement vouchers) Hartz I Law Introduction of personnel service agencies Deregulation of temporary agency work Tightening the criteria of reasonable work and the sanction regime Introduction of vouchers for further training Introduction of remuneration security Reduction of unemployment insurance contributions when hiring an older job-seeker Hartz II Law Introduction of the Mini-/Midi-Job scheme Introduction of Me/Family, Inc Hartz III Law Renaming PES as ‘Federal Employment Agency’ Reduction of the regulatory density of the Social Code III Reform of the executive boards in local agencies Tightening the sanction regime Law for Reforms in the Labour Market Reduction of the maximum duration of unemployment benefits Hartz IV Law Introduction of ‘Basic Security for Job-seekers’ Tightening criteria of reasonable work and sanction regime Establishment of Job Centres Introduction of work opportunities Introduction of start-up grants

threatened to block the entire legislation. The subsequent ‘Municipal Option Law’ (Kommunales Optionsgesetz) regulates this experimental arrangement (BMWA 2004). The political conflict, however, was not restricted to controversies with the opposition. Agenda 2010, in particular integrating the unemployment and social assistance schemes and cutting the duration of unemployment benefits, was by no means undisputed within the Social Democratic Party, since the proposed Agenda 2010 measures were associated with severe benefit cuts for a considerable number of long-term unemployed persons receiving unemployment benefit and

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assistance. Ensuring allegiance with the Chancellor, this controversy resulted – in addition to some temporary arrangements – in a special programme for the ‘Re-Entry of the Long-Term Unemployed over 25 into the Labour Market – Work for the Long-Term Unemployed’ (Wiedereinstieg von Langzeitarbeitslosen ab 25 Jahren in Beschäftigung – Arbeit für Langzeitarbeitslose), to provide some positive prospects for this group of the unemployed. This programme, covering about 100,000 long-term unemployed persons, begun in September 2003 and ran until December 2004. Furthermore, additional case managers were hired to intensify reintegration efforts (BMWA 2003b). Conclusions The Red–Green labour market reforms, involving both continuity and change, were of significant scope. The change of government in 1998 did not result in the revival of traditionalist social democratic labour market policy (such as labour shedding with the costly expansion of the secondary labour market and training measures for status-equivalent integration into the labour market), as advocated by the SPD prior to 1998 (Blancke and J. Schmid 2003; Gohr 2003; Heinelt 2003; see Deutscher Bundestag 1995 for legislation proposed by the SPD in opposition). Rather, labour market policy was subject to substantial expenditure cuts, which were used for budget consolidation (Aust et al. 2002: 61; Deutscher Bundestag 2002a: 4ff.; 2002b: 4ff.; 2003: 3; Bundesregierung 2003a: 2, 2003b: 5). The objective of cost containment for the sake of budget consolidation constituted an important rationale of Red–Green labour market policy. An approach to increasing the expenditure for labour market policy was ruled out in the light of the perceived pressure to reduce non-wage labour costs for the improvement of competitiveness and to consolidate public budgets. Instead of returning to ‘traditionalist’ social democracy, the government modified the activation paradigm introduced by the Kohl government with its modernisation of labour market instruments through the Job-AQTIV Law. Fitting in with the image of incrementalism, it complemented workfare measures with positive activation to improve job guidance and placement as well as the employability of the unemployed. Benefit cuts and increasing coercion were not on the agenda (Blancke and J. Schmid 2003: 226; Heinelt 2003: 135).

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However, a comprehensive reform towards enabling activation with significant human capital investments did not take place (Heinelt 2003: 133ff.; Merkel 2003: 180ff.; Seeleib-Kaiser 2004: 22). It is worth noting that the Red–Green coalition did not challenge the workfare measures of its predecessor. Since the activation paradigm, though restricted to workfare, had already been introduced by the previous government (Rabe and G. Schmid 1999), the activation of the Job-AQTIV Law does not alone constitute a paradigm shift in labour market policy. Thus, rather than ‘inventing’ activation, the Job-AQTIV Law complemented the policy strategy already pursued, by adding some measures of positive activation. The argument for a certain continuity in this policy area becomes even more apparent when scrutinising Agenda 2010 and the Hartz Legislation, in which a more liberal labour market policy stance was adopted after the general election of 2002. The focus re-shifted to workfare, while enabling activation lost ground. Benefit cuts and tightened criteria for reasonable work as well as ‘making work pay’ measures resulted increased recommodification of the unemployed, especially the long-term unemployed (Dingeldey 2004: 32; SeeleibKaiser 2004: 24). The predominantly coercive and recommodifying character of this legislation was particularly evident in the introduction of the ALG II scheme for the long-term unemployed. With this new benefit scheme, Germany moved ‘a significant distance towards an Anglo-American model of largely means-tested, flat rate jobless benefits’ (Hassel and Williamson 2004: 13). The ideas of securing the achieved living standard and status-equivalent reintegration into the labour market, guiding principles of conservative welfare states (see Chapter 3, Section 1), became eventually restricted to the core of the short-term unemployed. Sub-standard employment became not only accepted but was also intended to be boosted by the redirection of labour market policy, while undermining the policy objective of promoting standard work arrangements (also associated with conservative welfare) was further pursued by the Red–Green government. Overall, the changes in German labour market policy from the mid-1990s qualify as a paradigm shift, since the traditional approach of ensuring status preservation and protecting the standard work arrangement (which facilitated labour shedding, such as ‘welfare without work’ measures) was substituted with the philosophy of

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activating labour market policy (Bleses and Seeleib-Kaiser 2004: 48–67; Clasen 2005: 67–76). This paradigmatic development towards activation had started under the Kohl government – so it was accelerated rather than introduced by the Red–Green government (SeeleibKaiser 2004: 24). With respect to the organisational reform of the employment service, the initial emergence of NPM also dates back to the centreright government, which introduced, though incoherently, some elements of ‘management by objectives’ in the administration of the PES (Reissert 2001). For this reason, the shift from highly ruledriven to output-oriented governance with the Hartz Legislation (see also Heinelt 2003: 135) is not unique to labour market policy in Germany, though certainly it brought about the most comprehensive reorganisation of the PES so far. Along with strengthening NPM, the previously predominant principle of corporatist self-administration (see Chapter 3, Section 1) was substantially weakened. However, notwithstanding the preceding successive deregulation of job placement and immense pressure, the placement crisis did not result in privatisation of the PES; it kept its status as the main provider of labour market services. Put briefly, with the Red–Green labour market reforms, key ideas of the conservative–corporatist welfare state (such as preserving the achieved living standard/status-equivalent integration into the labour market and protecting the standard work arrangement as well as corporatist and bureaucratic governance of the PES) were successively undermined; established patterns of labour market policy were increasingly substituted with activation and NPM paradigms. This is not to argue that activation and NPM were unknown. In particular, social assistance recipients had been governed by an increasingly harsh workfare scheme since the mid-1980s. But recipients of unemployment benefits were also confronted with an increasingly tight regime of reasonable work and of sanctions in cases of noncompliance. Nonetheless, activation was of subordinate importance in labour market policy. After the 1990s, however, activation gained predominance, guiding the transformation of labour market policy. The various measures of activation eventually added up to the described paradigmatic change, while basic institutions of labour market policy stayed intact, with the exception of the unemployment assistance scheme which was transformed into basic security for job-seekers.

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Due to the continuity between the conservative-liberal and Schröder governments, and not the Red–Green labour market policy alone, as is occasionally argued (see, for example, Heinelt 2003: 126), the overall development since the mid-1990s does qualify as a paradigm shift from active to activating labour market policy. However, the Hartz Legislation, accelerating path departure and consolidating both the activation paradigm (including workfare measures) and the NPM philosophy, marks the decisive break with the conservativecorporatist path of welfare in labour market policy. Although there is an apparently increasing degree of programmatic convergence in labour market policy as in other social polices (Seeleib-Kaiser 2004: 36), the degree of consensus in concrete decision-making is, at first glance, paradoxically decreasing (M. G. Schmidt 1998: 71ff.). Despite the path-departing character of Agenda 2010 and the Hartz Legislation, recent developments – like the reforms of the preceding Kohl government – remained incremental, fitting with the image of ‘transformation without disruption’ (Streeck and Thelen 2005). This can, to a considerable extent, be ascribed to the rigidities of the German polity, narrowing the potential scope of comprehensive policy reforms.

4 The Institutional Setting of German Labour Market Policy-Making

The decision-making structure of the polity is decisive for the political viability of reform proposals. Generally, high institutional barriers in policy-making characterise the German political system, making major policy reforms difficult. The reforms not only by the Red–Green alliance but also by the preceding Kohl government were constrained by the rigidities of the German polity (Section 1). However, high institutional barriers in policy-making do not prevent paradigmatic policy changes. Recent labour market reforms took place in a specific social and labour market policy discourse, providing the ideational basis for policy formulation and development. The core argument is that the social and labour market policy paradigms informing policy-makers had changed, whereby comprehensive changes in the policy were triggered and blockages associated with veto points were resolved (Section 2).

4.1 The institutional setting of German labour market policy-making The decision-making structure of the polity is decisive for the political viability of reform proposals. Thus, besides the basic institutional framework of the welfare state and the specific characteristics of labour market policy, the concrete political system is crucial in the analysis of labour market reforms. By international standards, Germany is extremely ‘rich’ in institutional barriers in policymaking, which severely constrain governing Germany unilaterally and block the opening of ‘windows of opportunity’ for major reforms 93

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(M. G. Schmidt 2003: 44–46). As a result, supposedly functionally viable reform proposals developed due to policy learning might eventually fail because of institutional barriers or, using Tsebelis’ terminology (1995), veto players (see Chapter 2, Section 1). In other words, constraints related to institutions of the polity limit discretionary behaviour in decision-making and thereby heavily influence the reform process and the actual legislative output. And indeed, the reforms not only by the Red–Green alliance but also by the preceding Kohl government were constrained by the rigidities of the German polity, though these could not prevent paradigmatic policy changes. Here, the core features of the German policy relevant for the analysis of labour market policy are reviewed, while the actual influence of the political system in the labour market policy-making of the Schröder government is scrutinised in detail in the subsequent chapters. Specifically, the Federal Council is looked at here as a key veto player, as is also the significance of coalition governments, corporatism and the European Union. The federal structure of the German polity has a profound impact on decision-making, as state governments are represented in the Federal Council (the Bundesrat, the upper house) at the central state level. As institutional veto player, the Bundesrat can block federal legislation that is directly affecting state competencies. In such cases, consent between the Bundestag (the lower house) and Bundesrat is inevitably required for bills to pass (the so-called ‘concurrent legislation’, konkurrierende Gesetzgebung). For more than half of federal legislation, the absolute veto right of the Federal Council applies. Hence, the states (Länder) collectively possess the authority to block a substantial share of legislation, whereby the Federal Government is often forced to make substantial concessions in the bargaining process with the upper house. This is particularly significant in cases where there are different political majorities in the two chambers, the so-called ‘divided government’ (Katzenstein 1987: 15–17; M. G. Schmidt 2003: 557–560). Although most legislation on labour market policy does not require consent from the Bundesrat (Merkel 2003: 180), more comprehensive reforms of labour market policy usually involve changes in other policies and administrative processes at the sub-national level, whereby Länder interests become affected, resulting in the veto rights of the Bundesrat. Thus, though bypassing the second

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chamber is possible, major labour market reforms usually require the approval of the Bundesrat. Since the Red–Green coalition lost its majority in the second chamber shortly after the 1998 general election (ibid.: 169ff.), the Schröder government was forced to rule in co-determination with the opposition on many issues, by which the ‘window of opportunity’ for comprehensive Red–Green reform proposals became smaller. Through the Bundesrat, the conservative opposition was in a position to enforce considerable changes in the labour market reforms proposed by the second Red–Green government. Likewise in the mid-1990s, the then Social Democratic opposition in the Bundesrat blocked many policy proposals by the Kohl government, such as abolishing primary unemployment assistance (Wood 2001: 391). Secondly, the system of proportional representation in the Bundestag commonly forces political parties into coalition governments, in which one of the major parties, the Social Democrats or the Christian Democrats, forms an alliance with some junior partner, the Greens and the Liberals, respectively. Since the junior partner is crucial to the governmental majority, its influence in the coalition can be disproportionably high. It can restrict the capacity of the major coalition partner to implement its policies and, thereby, require bargaining between the partners, which is assumed to facilitate incrementalism. This means that coalition governments must be considered a potential constraint on policy-making in comparison with single-party governments because of different partisan strategies (Katzenstein 1987: 40–43; M. G. Schmidt 2003: 45). Accordingly, coalition governments are typically associated with partisan veto players. In the Red–Green government, however, labour market policy was dominated by the SPD, while the Green coalition partner was only of minor significance (Merkel 2003: 181). Thirdly, the corporatist structure of the German welfare state is relevant for public policy-making in certain domains through the informally privileged role of trade unions and employers’ associations in the legislative process, as well as the delegation of authority to the social partners (M. G. Schmidt 2003: 66; Trampusch 2003: 22). However, the influence of the self-administration of the Federal Employment Service, involving both the public authorities and the social partners, is, paradoxically at first glance, negligible. Even before the restriction of self-administration in

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the 1990s, the employment service was argued to be de facto integrated into the ministry of labour with the AFG of 1969, since this legislation already severely restricted the capacity for corporatist self-governance (Weller 1970: 40). For the on-going shift towards activation, Clasen and Clegg (2004: 17ff.) demonstrate that the employment service cannot be viewed as a serious barrier to the redirection of labour market policy. Governmental discretion did not appear to be constrained significantly by the self-administration of the PES. Hence, the social partners’ influence in labour market policy does not derive from formal veto powers in the policy-making process but from their informal involvement through means such as the Alliance for Jobs (see Chapter 5 in this volume) and their influence on the cohesion of their ‘affiliated’ parties, through which they can exert influence indirectly. With respect to the Social Democratic Party, strong traditional linkages to trade unions need to be taken into account (Merkel 2003: 177, 181; Wood 2001: 392ff.). Against this background, organised labour might be said to have the capacity to evoke a partisan veto from within the SPD. However, it has been argued that the importance of social partners for legislation has declined since the 1990s; this particularly applies to organised labour (Trampusch 2003: 22). Further to this, the constitutionally guaranteed right of free collective bargaining (Tarifautonomie) attaches crucial competencies in the governance of the labour market (such as wage setting and dismissal regulation) to the social partners (Bispinck and Schulten 1999: 185ff.; Jacobi et al. 1997: 198). By this means, the government’s room for manoeuvre is effectively narrowed down (Trampusch 2003: 21). Finally, the transfer of authority to the European Union (EU) constitutes a possible barrier in policy-making (Dyson 2003; M. G. Schmidt 2003: 66ff.), of which, in this context, the introduction of the euro is most significant. In addition to the loss of sovereignty in monetary policy to the European Central Bank restricting nation-state steering capacity, the EU and, more specifically, the Maastricht convergence criteria for qualifying for the single currency and the subsequent ‘Stability and Growth Pact’ for securing a ‘hard’ currency (in particular, the criterion of restricting the public deficit to 3 per cent of GDP) constrain the budgetary sovereignty at the nation-state level. Member states in the EU that do not comply with the Stability

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Pact are under political pressure and eventually risk contractual penalties for repeated non-compliance (Dyson 2003: 178–180; Teague 1998: 122–126). Put differently, member states have committed themselves to the consolidation of their public budgets, thereby restricting their discretion. In this political environment of tight fiscal rules, considerable pressure to reduce social expenditure might arise whereby, among other things, limits are put on the financial resources available for labour market policy. In contrast to monetary and budgetary policy, however, the transfer of competencies in labour market policy to EU level cannot be regarded as a significant restriction of nation-state sovereignty. The soft law approach of the European Employment Strategy and its ‘Luxembourg Process’ does not grant the authority to the EU for intervening in national policies (see Chapter 5, Section 4). To conclude, because of the considerable dispersal of power and significant constraints on policy-making, for which Katzenstein (1987) coined the notion of the ‘semisovereign state’, there is widespread agreement that the German polity is strongly biased towards incremental policy change; it sets up considerable barriers to major reforms. This is particularly relevant in welfare state reforms (ibid.: 15, 192; Leibfried and Obinger 2003: 203ff.). Traditionally, the stability and incremental adaptability of the German model were considered an institutional advantage. They allowed necessary innovation in reaction to changing environments, resulting in sound economic performance by international standards throughout the 1970s and until the mid-1980s; this, however, changed when performance declined and controversial discussions on the German model and its ‘reform gridlock’ (Reformstau) emerged in the 1990s (Lehmbruch 2003: 143). Esping-Andersen described Germany as a ‘frozen welfare state landscape’ (1996b: 24; see also Pierson 2001a: 448). Along similar lines, Streeck and Kitschelt (2003) considered the institutional inertia in Germany a substantial barrier to responding appropriately to new challenges, since veto players can easily block policy initiatives. For this reason, they diagnosed a ‘severe crisis’ (ibid.: 3), which was not primarily associated with Germany’s poor economic performance in international comparisons but the pattern of ‘slow innovation and adjustment’ (ibid.: 18) of the German political economy. This pattern is linked with the rigidities and inefficiencies of the institutional fragmentation of the decision-making

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structure, the so-called ‘joint decision trap’ (Politikverflechtungsfalle; Scharpf et al. 1976; see Chapter 1, Section 1). However, these views do not pay sufficient attention to the ‘dynamics of inertia’ (Lessenich 2003) that can be observed in the German welfare state despite considerable continuity.

4.2 The social and labour market policy discourse In addition to the formal institutional setting, reforms take place in a policy discourse informing policy-makers. This discourse structured labour market policy learning and was subject to policy learning. It directed policy-makers to certain policy options rather than others; it was decisive to the perception of the feasibility of policy alternatives. A new social and labour policy paradigm instructing policy-makers can be identified, which is argued to have structured concrete governmental policy formulation and eventually institutional change. Benchmarking Germany In comparison to labour market performances of other OECD countries, the situation in Germany appeared rather unfavourable, making policy-makers believe that Germany was ‘falling behind’. The following refers to data from 1995–96 to 2003, which is relevant to the overall reform process (Eichhorst et al. 2001: 61–81; 2004: 85–105). With respect to the supply of labour, the labour force participation rate is a suitable indicator; here, Germany’s performance was about 71 per cent, slightly below the OECD average which was swinging between 73 and 74 per cent. This observation of underperformance applied to the relevant sub-categories – men, women, old employees and low-skilled workers. The average performance gap was particularly significant for the social groups of older workers and the low-skilled. The Scandinavian countries and Switzerland headed the overall league table; compared to these countries, the gap was, at roughly 10 per cent, quite substantial. A similar performance gap can be reported for the employment rate. Viewing the then recent development of the employment rate, a fairly poor picture emerges. From 1996 to 2000, an average annual growth rate of 1.5 per cent in the OECD can be reported, while employment in Germany increased by only 0.62 per cent a year, the second-worst figure among all

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OECD countries. However, from 2000 to 2002, the German situation improved from a comparative perspective insofar as employment growth remained constant at 0.6 per cent, while the OECD average decreased to 0.65 per cent. The overall poor performance is also apparent when unemployment figures are examined. While the 1990s were characterised by decreasing unemployment throughout the OECD, the converse development took place in Germany, where the unemployment rate reached its highest level, 9.9 per cent, in 1997. A substantial reduction of unemployment occurred in the Netherlands, Denmark, the UK and the US at the same time. The subsequent favourable development under the Red–Green government, especially facilitated by growth of the global economy, was rather short-lived. In 2003, the average unemployment rate increased to 9.7 per cent, which was topped only by Spain with 11.3 per cent. The OECD average, 6.5 per cent, was substantially below the German figure. This poor performance affected older workers and the low-skilled in particular, with both groups suffering the highest unemployment figures in the OECD: 13.5 per cent for the low-skilled (OECD average of 7.4 per cent in 2001) and 10.6 per cent for workers between 55 and 64 years (OECD average of 4.7 per cent). This overall unfavourable picture of unemployment rates was complemented by an extraordinarily high degree of long-term unemployment. In 2001, 47.9 per cent of all unemployed persons in Germany were jobless longer than 12 months (51.5 per cent in 2000). This figure was only topped by Italy (59.2 per cent) and Belgium (49.6 per cent); the OECD average was 26 per cent (33.3 per cent in 2000). Given these employment figures, it is clear that Germany was underperforming in a comparative perspective. While most OECD countries improved their employment situation significantly or stabilised their overall performance, the picture for Germany worsened at first and then remained fairly unfavourable by international standards. Addressing this underperformance was made a central objective of the governmental agenda of the Red–Green coalition, especially the reduction of unemployment (particularly, long-term unemployment) and the increase of employment rates (particularly, for problem groups of the labour market such as low-skilled and older workers). These objectives were declared in different pieces of legislation and other governmental statements (Buchheit

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2002: 5ff.; Deutscher Bundestag 2001a: 24, 2002a: 22–25, 2002b: 17–20, 2003: 1; Schröder 2003). Globalisation In explaining the crisis of the welfare state and, here more specifically, the underperformance of the German labour market, the impact of economic globalisation on the nation-state, along with European economic integration, are commonly referred to. Labour costs and taxes associated with financing social security are viewed as a burden on international competitiveness, hampering economic development and putting the welfare state under siege (Fligstein and Merand 2002: 7; Rhodes 2001: 168–172; Scharpf 1997; Streeck 2004). Since labour market policy, compared to pension and health policy, is more difficult to justify politically because of its relatively low degree of vested interests, this policy area is assumed to be particularly vulnerable to globalisation. For this reason, the impact of globalisation can be expected to be particularly visible in labour market policy (Neyer and Seeleib-Kaiser 1995: 38). There might be good reasons to discuss whether increased economic integration has or has not had a substantial impact on the welfare state (see Chapter 1, Section 1), but its significance in the political discourse on social policy, implying the necessity of welfare state retrenchment with the objective of improving competitiveness, is hardly ever challenged. Since the mid-1990s, German political discourse on economic and social policy has been dominated by the debate on Germany as an industrial/business location (the so-called Standortdebatte), which needs to be seen in the context of intensified competition in the ‘global economy’. Though discussions of globalisation were by no means new, the recession of 1993–94, which ended the euphoria of the short-lived unification boom, re-focused the debate on the international competitiveness of the German economy and, thereby, on the cost burden for firms due to high (non-wage) labour costs and corporate taxation. In this discussion, the ‘cost crisis’ was seen to be directly linked to the size of the welfare state and the pressures of globalisation and European integration, which required adjustments at the national level. The then conservative-liberal government strongly backed the Standortdebatte, pushing for the reduction of non-wage labour costs and for corporate tax cuts in order to improve international competitiveness. The opposition at that time, the

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Social Democrats and the Green party, initially rejected these moves by the government in public debates, while admitting the existence of cost pressure in principle. The cost crisis argument, with the associated policy strategy of reducing non-wage labour costs and taxes, was fundamantally accepted in less ‘visible’ programmatic debates within the opposition parties. Accordingly, the Standortdebatte became the predominant discourse in economic and social policy at the end of the 1990s. It increasingly put immense political pressure on the welfare state for its restructuring and retrenchment in order to improve international competitiveness in the light of global economic integration (Seeleib-Kaiser 2001: 107–123; V. Schmidt 2000: 278–281; Swank 2002: 182–186). Welfare state and labour market policy needs to be seen in this overall discursive framework of globalisation and competitiveness. Policy-makers perceived that their discretion for action was severely limited so that, for instance, an extensive strategy of costly job creation and training programmes was ruled out because of the costs associated with such an approach. The Standortdebatte, though its basic premises became hegemonic in the 1990s, ‘created a polarized political climate’ (Cox 2002: 185). This discourse eroded the previous welfare state consensus and eventually resulted in reform blockages, as competition between political parties increased the degree of conflict over social policy (M. G. Schmidt 1998: 71ff.). The challenges of economic globalisation and the argument that the international competitiveness of Germany as a business location needed to be improved can be found throughout the reasoning by the Red–Green government for labour market reforms. However, the Job-AQTIV Law only rather vaguely referred to the implications of globalisation and European integration (Deutscher Bundestag 2001a: 24). For the reform process, the importance of the Alliance for Jobs (see Chapter 5 in this volume) was underlined; the issue of competitiveness was asserted to be central, but without much elaboration of the argument. In Agenda 2010 and the Hartz Legislation of the second Schröder government (see Chapter 6), the argument for competitiveness was pushed proactively. There were calls for the reduction of non-wage labour costs as a central step towards improving the competitiveness of Germany. The high level of non-wage labour costs was depicted as constraining economic and job growth. The costs associated with the long duration of unemployment benefits were

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explicitly identified as a considerable financial burden (Deutscher Bundestag 2002a: 1; 2002b: 1; 2003a: 1, 10; Bundesregierung 2003a: 217; Schröder 2003). Thus, the premises of the Standortdebatte were basically adopted in the reasoning of Red–Green labour market policy, being particularly evident in Agenda 2010 and Hartz Legislation. For the Schröder government, the options of increasing overall public expenditure through increasing unemployment insurance contributions or additional public grants for measures reducing unemployment were explicitly off the table. Rather, corresponding to the established stop-go pattern, labour market policy was expected to contribute to budget consolidation, like other branches of social security (Deutscher Bundestag 2002a: 26). Accordingly, the labour market legislation of the second term involved major efforts to reduce public spending on the unemployed (Deutscher Bundestag 2002a: 4ff.; 2002b: 4ff.; 2003: 3; Bundesregierung 2000a: ii; 2003b: 5). The overall significance of the imperative of consolidating the public budget was underlined most prominently in the Chancellor’s Agenda 2010 speech (Schröder 2003). The service sector gap While the debates on globalisation and European integration are primarily concerned with external pressure to reduce welfare state expenditure and with employment in sectors exposed to international competition, the discussion on the ‘service sector gap’ deals with the ‘employment dilemma’ in sheltered sectors of the economy (such as jobs in retail trade and catering as well as in social and personal services). Though the lack of international competitiveness and the size of the welfare state are not considered appropriate for explaining high unemployment in Germany (and other Continental welfare states), this perspective also identifies high (non-wage) labour costs as a restriction on job generation. But the main focus is on low-wage employment in the service sector for, in particular, the low-skilled. This employment is seen to be constrained through the financing of social policy with insurance contributions. These ‘payroll taxes’ are argued to create relatively high wage floors, the so-called ‘reservation wage’, which undermines the generation of service employment at the lower end of the pay scale. As an alternative to jobs that are subject to social insurance contributions, services are often provided

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by illegal employment in order to circumvent the burden of payroll taxes. Hence, the lack of service sector employment in Germany is seen as being caused by the very structure of the Bismarckian welfare state, in which high payroll taxes undermine the creation of private sector service jobs. This inability to generate low-wage service sector jobs is, it is argued, reflected in the low employment rates and high unemployment figures for the low-skilled by international standards (Esping-Andersen 1996a: 78–81; Manow and Seils 2000: 296–298; Scharpf 2001: 272–279). However, as the creation of such jobs, requiring some sort of public subsidy to prevent the problem of the working poor, is associated with facilitating a state-sponsored low-wage sector, this strategy generates controversy for two main reasons. While some critics focus on the high costs and inefficiency of this approach due to significant substitution effects and windfall gains, others (here, trade unionists are at the forefront) also fear the erosion of collectively agreed wages (Bäcker 2002). However, the Red–Green government explicitly referred to this service sector gap argument in its Hartz Legislation proposals. Low-skilled workers were seen as being reluctant to take up regular low-paid employment in, for instance, private households due to the lack of financial incentives. Rather, such services were provided illegally. The reduction in such moonlighting was considered as central to efforts to increase regular employment in the service sector (Deutscher Bundestag 2002a: 24; 2000b: 19; Schröder 2003). The activation paradigm In the welfare state discourse since the mid-1990s, the political as well as academic argument on overcoming the passivity of welfare states and, more specifically, labour market policy has increasingly gained importance. ‘Passivity’ refers to the observation that the welfare state was primarily ascribed the responsibility of providing benefits, but activities and incentives to encourage participation in employment and to facilitate the reintegration of the unemployed into the labour market were by and large underdeveloped (Cox 1998: 397). The criticism of passivity and reactive welfare is considered especially applicable to the German welfare state with its pronounced ‘welfare without work’ approach (Manow and Seils 2000: 265). Thus, the reported extremely low employment and high unemployment rates

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of older workers are associated with the strong pattern of early retirement and the long duration of unemployment benefits in Germany. The activation debate is furthermore accompanied by controversies about the effectiveness and efficiency of labour market policy, since common strategies (such as job creation in the secondary labour market and training measures) were increasingly perceived as rather ineffective for the reintegration into the labour market (Aust et al. 2002: 51; Trampusch 2003: 19). To deal with the problem of passivity, the ‘activating state’ intends to reverse the prioritisation by redirecting resources from cash transfers to ‘active types of social protection’ (Clasen 2000: 89). This approach is considered to be a more effective as well as efficient allocation of resources. However, the philosophy of activation is not restricted to the reallocation and more efficient use of resources in social policy. A new balance of the ‘rights and obligations’ of benefit recipients is central in this approach to welfare policy. The revised understanding of reciprocity involves the obligation of the unemployed to be more actively engaged in getting reintegrated into the labour market and to accept activation measures in order to qualify for cash benefits. In addition to the objective of reintegrating single unemployed persons, the activation strategy, going beyond conventional active labour market policy, attempts to maximise labour market participation (especially for ‘problem groups’ of the labour market) by making the systems of social security more ‘employment-friendly’. Put differently, increased recommodification at the individual as well as the societal level characterises this approach to welfare policy. Accordingly, employment participation is viewed as beneficial for both the individual and society, for which ‘the safety net is being replaced with a trampoline’ (Cox 1998: 397; see also Drøpping et al. 1999: 134–136; Hvinden et al. 2001: 169ff.). Two ideal-typical variants of activation are commonly distinguished, based upon two different problem analyses and objectives: ‘activation policies may be regarded as “compassionate” (tackling social exclusion) or as “condemning” (tackling anti-social behaviour); as empowering or as forms of social control’ (Clasen 2000: 91, see also Cox 1998: 411). With the former strategy, the emancipatory scenario of activation can be described as an attempt at social investment. It is intended to improve the employability of unemployed persons through measures of active labour market policy (such as

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training measures) as well as the provision of social services (such as child care). In this variant of recommodification, the state can be viewed as ‘enabling’ (see also Dingeldey 2004: 5–7; Drøpping et al. 1999: 135). On the other hand, the idea of coercive activation and workfare is associated with the objective of tackling anti-social behaviour by negative work incentives; that is, increased pressure and obligations on the unemployed by means of reduced generosity and duration of benefits as well as tightened criteria for benefit eligibility, job search and reasonable work. Non-compliance is sanctioned with the reduction, suspension or loss of benefit entitlements. Activation through workfare is characterised by enforced labour market integration through increased compulsion, including ‘making work pay’ measures (such as subsidising low incomes with models combining labour income and public transfer to establish a more ‘employment-friendly’ welfare state). In brief, the ‘umbrella term’ of activation is ideal-typically differentiated in a positive (empowering) and negative (coercive) variant (Clasen et al. 2001: 199ff.; Dingeldey 2004: 4ff.; Drøpping et al. 1999: 136). Calling for increased incentives to take up employment as well as sanctions, the governmental parties adopted the activation paradigm in labour market policy. The new emphasis on intensified personal responsibility and sanctions, if necessary, was significant for left parties (Gohr 2003). German Social Democrats had been heavily influenced by Anglo-American debates on the ‘Third Way’ of ‘modern’ social democracy, most prominently represented by Tony Blair and Anthony Giddens (Schröder and Blair 1999; Giddens 1994, 1998). Though this new approach was not uncontested, the philosophy of ‘demanding and fostering’ (that is, recommodification by empowering but also involving compulsion) became predominant in programmatic debates and practice of the Social Democratic Party. In this context, Agenda 2010 proposed by Chancellor Schröder can be considered an important stabilisation of the new policy approach on the welfare state by the modernisers, dominating the actual policy reforms pursued by the SPD, while the traditionalists and affiliated trade unions were put on the defensive (Gohr 2003: 48ff.; Heinelt 2003: 127–130). The conservative-liberal opposition supported the development towards activation, though their focus was almost exclusively on workfare measures, whereas the enabling dimension was by and large neglected. It has been shown that the shift

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to activation of the Kohl government was basically restricted to coercive measures (see Chapter 3, Section 1; Heinelt and Weck 1998: 48–56; Gottschall and Dingeldey 2000: 320ff.; Rabe and G. Schmid 1999: 373ff.). For this reason, the strategy of activating labour market policy by the Red–Green government must be viewed as an ‘acceleration of the reform approach already pursued by the previous conservative government’ (Seeleib-Kaiser 2004: 28). The problem of the efficiency and effectiveness of labour market policy was prominent in the reasoning behind the Job-AQTIV Law, with which the instruments of employment promotion were reformed by the first Schröder government. Due to their fairly limited ability to prevent unemployment and the requirement of often long qualifying periods before measures became available, the SGB III inherited from the Kohl government was considered predominantly reactive and incapable of reducing and preventing unemployment. Therefore, a reform of labour market policy, especially with respect to the problem of long-term unemployment, was considered imperative, for which the crucial task was improving employability. Making reference to the idea of positive activation, the Red–Green coalition proposed that labour market policy be driven by a fair balance of demanding and fostering. In addition to the long-term unemployed and the low-skilled, the need to focus on the activation and qualification of older workers was recognised in the context of expected demographic changes and future labour shortages. Furthermore, for a coordinated strategy facilitating growth and employment, there were calls to strengthen the linkages between different policies, such as labour market and structural policy. This strategy was argued as being highly relevant for East Germany and some poorly developed regions in West Germany, where the resources for labour market policy (for instance, through job creation measures) could contribute to building up and improving the local infrastructure in support of regional development. In this context, despite emphasis on the efficiency and effectiveness of job creation measures, the use of this instrument of the secondary labour market was presented as being still inevitable because of the difficult labour market situation in East Germany (Deutscher Bundestag 2001a: 1ff., 24–26, see also Buchheit 2002). In Agenda 2010 and the Hartz Legislation of the second Schröder government, the argument’s focus shifted, though the overall

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reference to the activation paradigm remained. In spite of their continuous underlining of the demanding and fostering philosophy that guided their agenda, the Red–Green government increased the emphasis on the demanding dimension of the activation paradigm, which had been formerly less pronounced. Increased personal responsibility and proactivity in the reintegration process were expected from the unemployed. This new philosophy was reflected in corresponding legislative changes, such as a tightening of the criteria of reasonable work and eligibility, as well as a tightening of the sanction regime, with which improved compliance was expected. These measures of negative activation, to which the new scheme for the long-term unemployed may also be counted, were complemented by the legal provision for increased reintegration efforts, including intensified job guidance and extending SGB III measures to former recipients of social assistance. Claimants of social assistance had been previously left to the rudimentary labour market policy provided by municipalities. With respect to the poor employment rate of older employees, early retirement schemes and the long duration of unemployment benefits were no longer presented as social innovations but as negative work incentives. Removing these means of discouraging workforce participation was proposed, complementing positive incentives. Apparently, in contrast to the Job-AQTIV Law, the activation philosophy was more directly applied to this group of employees. The need to increase the employment rate of older workers was again in particular justified by future demographic changes, with which imbalances in labour demand and supply were associated (Bundesregierung 2003b: 93–104; Deutscher Bundestag 2002a: 1–3, 25; 2002b: 1–3, 20; 2003a: 10; Schröder 2003). The new public management paradigm Along with the instruments of labour market policy, the implementation regime of the employment service became increasingly subject to criticism. The regulatory system for the delivery of labour market policy was viewed as highly inflexible due to tight instructions as to the use of instruments and a rigid budget allocation. As one consequence, linking labour market policy with other policies (such as regional and structural policy) was seriously undermined. This, however, was considered as decisive for improving the contribution of labour market policy to growth and employment. Furthermore, the

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rigidity of the implementation regime involved insufficient discretionary behaviour at the local level, so that employment offices did not possess the capacity for addressing specific local labour market problems (Reissert 2001: 119ff.). In the 1990s, the philosophy of new public management (NPM) exercised considerable influence on discussions about the reform of the employment service, as it did in other public bureaucracies. Picking up on the problems associated with regulative density in the provision of public services, this approach is characterised by the idea of ‘management by objectives’, involving the decentralising of competencies. Here, the reduction of regulative density is inevitable. The increased discretion of behaviour is complemented by monitoring and controlling systems for measuring goal attainment. Eventually, establishing mechanisms of competition is thought to improve the performance and serviceorientation of public bureaucracies (Konle-Seidl 2002: 15; Reissert 2001: 124ff.). The discursive shift to NPM was reflected in the reform of labour market policy in 1998 by the last Kohl government, by which some elements of NPM were introduced in the SGB III (Adamy 2002: 146ff.). However, the 1998 reform was perceived as an insufficient restraint on the highly rule-driven administration of the employment service. The service was still dominated by the old governance mode; the coexistence of input- and output-oriented governance and inconsistencies associated with this were considered to be undermining effective and efficient service delivery. Moreover, missing competitive elements and problems in measuring performances led to a negative assessment of the revised governance of the Federal Employment Service. Rather than introducing coherent governance, the reform of 1998 established a hybrid governance, which was perceived as dealing insufficiently with the problems of the ‘old’ employment service (Reissert 2001: 125–128). With the placement scandal and the Hartz Commission, criticism of the Federal Employment Service gained momentum. In its legislative reasoning, the Red–Green government depicted the PES as insufficiently service-oriented and ill-equipped with the organisational structures necessary for implementing ‘activating’ labour market policy. The densely regulated administrative system was presented as undermining an effective and efficient delivery of services in the labour market. The bureaucratic structure unnecessarily absorbed

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many resources in order to cope with rather detailed and complicated regulations. For this reason, reintegration efforts (namely job guidance and placement) lacked resources and staff. The very detailed regulations were associated with the objective of taking into account the very specific circumstances of individual unemployed persons. This resulted in detailed regulations requiring too many personnel resources (for collecting necessary information, calculating highly individualised benefits and so on). In order to mobilise the personnel resources for strengthening reintegration efforts, the Red–Green government considered imperative the simplification of the overall legal framework and administrative procedures in the employment service. According to the governmental coalition, the PES could then develop towards becoming a client-oriented ‘modern’ provider of services in the labour market. This objective of replacing the ruledriven and input-oriented governance with NPM was linguistically reflected in renaming this administration the ‘Federal Employment Agency’ (Deutscher Bundestag 2002b: 18; Bundesregierung 2003a: 215–225). Obviously, the governmental agenda on restructuring the PES was heavily influenced by NPM discourse, which strives to overcome the bureaucratic character of public administrations by utilising private-sector techniques for the modernisation of ‘oldfashioned’ bureaucracies. Since the 1990s, related to both the emergence of the activation and NPM paradigms, the institutional separation of unemployment assistance (tax-funded by the Federal Government and provided by the Federal Employment Service) and social assistance (funded and provided by municipalities) had been increasingly perceived as highly inefficient and thereby unjustifiable. This view was based foremost on the cost- and burden-shifting between municipalities and employment offices; that is, the problem of the so-called ‘marshalling yards’ (Verschiebebahnhöfe). Under the old scheme, social assistance recipients employed in some local work programme for 12 months re-qualified for unemployment benefits. By this means, the administrative responsibility, including the financial burden, was shifted to local employment offices. In the other direction, the Federal Government successively restricted access to unemployment assistance in order to reduce pressure on the federal budget at the expense of the municipalities. Associated with the tightening of unemployment assistance, a considerable number of

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benefit claimants received ‘top-up’ social assistance, since the unemployment assistance alone did not cover their minimum living costs. Thereby, these recipients became administered by both the employment service and social assistance authorities. Finally, these schemes, though both means-tested public assistance schemes dealing with similar groups of unemployed persons, differed in benefit generosity and were governed by different rules for means-testing and access to activation measures. In brief, the social assistance scheme was less generous and much tighter than unemployment assistance. Addressing the problem of institutional separation, the Mozart scheme (see Chapter 4, Section 2) allowed experimental cooperation between municipalities and local employment offices, in order to prevent case-shifting that was not to the benefit of the unemployed (Adema et al. 2003: 20ff., 33; Aust 2003: 18ff.; Aust et al. 2002: 44ff.; Trampusch 2003: 17). These arguments, expounding the problems of the institutional separation of the unemployment and social assistance schemes, matched the description of the problem in different pieces of the Hartz Legislation, by which the integration of the two assistance schemes was justified. In Hartz IV, the governmental argument was most fully elaborated. Overall, the separation was depicted as both inefficient and unjust. The dual administrative structure was associated with avoidable high costs for administering the same group of benefit claimants. In addition, it was argued that this structure undermined effective and sustainable reintegration efforts due to different financial responsibilities. An explicit reference was made to the reported problem of ‘marshalling yards’. For claimants receiving both unemployment assistance and top-up social assistance, the institutional separation was considered especially problematic and inconvenient. They were assigned to two different authorities, which were often inclined to neglect this group of claimants due to insufficient financial incentives. The argument for injustice referred to the fact that different rights and duties were applied to groups of people in similar circumstances (Deutscher Bundestag 2002a: 25; 2002b: 20; Bundesregierung 2003b: 93–97). Conclusions: a new social and labour market policy paradigm A new overall paradigm had emerged in the German welfare state discourse, first informing the Kohl government and then – though

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with some delay – Red–Green policy-makers. On the one hand, due to increased competitive pressure caused by economic globalisation and Europeanisation, the reduction of (non-wage) labour costs and welfare state intervention was widely considered imperative for improving the competitiveness of Germany as a business location; on the other hand, the ‘roll back’ of the state in the provision of social security was thought to be compensated for by intensified initiative and self-help by the individual, as prescribed by the activating state. This development towards activation, however, had already started during the centre-right government. For this reason, this approach by the Red–Green coalition was characterised by a remarkable continuity with the policies of the Kohl government, which might be interpreted as some degree of programmatic convergence (SeeleibKaiser 2004: 34–36). Overall, in the 1990s this development included the erosion of the previous welfare state consensus among political parties as well as with social partners. Employers most vehemently pushed for a neo-liberal turn, calling for comprehensive welfare state retrenchment in the face of globalisation (V. Schmidt 2000: 278ff.). Yet, despite some programmatic convergence of the political parties, the degree of conflict in social policy increased (M. G. Schmidt 1998: 71ff.); this was ascribed to intensified party competition in the 1990s (Jochem 2000: 219; V. Schmidt 2000: 279). This new paradigm in the welfare state discourse was reflected in labour market policy. Due to perceived constraints associated with intensified international competition and the pressure of budget consolidation, the understanding had developed that an increase in resources through rising taxes and/or unemployment insurance contributions was not a viable option for dealing with the problem of unemployment. Rather, spending on unemployment needed to be reduced. Instead of continuing with the established approach of costly labour shedding, the concept of activating labour market policy, from an instrumental point of view, seemed to be a sensible strategy for using resources more efficiently. The policy objective of making the welfare state more employment-friendly (in particular, at the lower end of the pay scale) appeared to be informed by the employment gap identified in the service sector. Under conditions of increased overall programmatic convergence, the crucial issue is on which dimension of activation, if any, concrete policy strategies of competing actors focus: the relatively costly approach of positive

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incentives and encouraging employability or the cheaper strategy of coercive recommodification, which can be complemented with some making-work-pay measures. A comprehensive approach of activation, Clasen (2000: 90) emphasises, can be misperceived as a means for immediate cost saving, which needs to be taken into account in the assessment of activating labour market policy in Germany. Policy-makers worked within the frame of the taken-forgranted imperatives of budget consolidation and reducing non-wage labour costs. These premises could be expected to have profound implications for the balance of Red–Green labour market reforms. As shown, the previous centre-right government opted for a tight workfare strategy (see Chapter 3, Section 1). Complementing the shift towards activating labour market policy, the discourse on the Public Employment Service successively called into question the corporatist and rule-driven structure of the PES. Eventually, the new public management philosophy, striving to make public bureaucracies more ‘corporate-like’, became predominant. It called for ‘management by objectives’ and incentive structures to meet set targets. In sum, with respect to the concrete labour market reforms of the Red–Green government, the new paradigm in social and labour market policy can be found in the reasoning of individual pieces of labour market legislation. Thus, the overall policy approach of the Red–Green coalition appears to comply with predominant discourses, and the change in the labour market policy discourse can be argued to be the result of policy learning. In the next chapter, the importance of learning in the formulation of the labour market reforms by the Schröder government is investigated.

5 Red–Green Labour Market Policy-Making: An Overview

It has been shown that the labour market reforms of the Red–Green government involved paradigmatic policy changes, with which labour market policy departed from the conservative–corporatist path of welfare. For elaborating the significance of policy learning in this process, the structures of labour market policy-making, in which actual learning would have been embedded, need to be scrutinised. Here, the analysis begins with presenting the basic policy-making structures of Red–Green labour market policy-making, focusing on policy formulation of the ministerial bureaucracy and Red–Green parliamentary experts. Predominantly referring to the Job-AQTIV Law of the first Schröder government, this investigation is complemented with the first concise account of the reasons and reference models for the paradigm shift towards activation. The Job-AQTIV Law was restricted to measures of positive activation (Section 1). With the second Red–Green government, not only did the ‘style’ of policy-making change with the setting up of the Hartz Commission but also the programmatic focus shifted towards negative activation (Section 2); this leads to a comparison of the labour market policy legislation of the first and second Schröder governments (Section 3). The chapter concludes with an examination of the impact of the European Employment Strategy, which could not gain much traction in German labour market policy-making (Section 4). In Chapter 6, the significance of the Alliance for Jobs and its benchmarking group on the Job-AQTIV Law is investigated where it is demonstrated why a more ambitious labour market reform failed in the first Red–Green government. In Chapter 7, the Hartz Legislation, accelerating the 113

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departure from the conservative–corporatist path of welfare and the actual importance of the Hartz Commission, is analysed in detail. Analysing Red–Green labour market policy-making, the ‘processtracing method’ (George and Bennett 2005) is applied to address the two-fold research agenda of examining the significance of policy learning as a mechanism of institutional change and establishing the conditions under which learning can be expected to be significant. Especially for the investigation of processes of policy learning, this method is highly useful, as it allows the identification of knowledge utilisation in the policy process; firm evidence, which goes beyond working out a correlation between some policy and knowledge, can be established. In addition to this, the process-tracing method, with its extremely contextual as well as temporal character, can be regarded as a particularly promising means for historical-institutionalist research, since the understanding of path dependence requires a careful scrutiny of causal linkages between events of sequences. In the analysis of institutional change, therefore, understanding the destabilisation of the material and ideational foundations of institutions is decisive, for which process-tracing is the most appropriate approach. The data on the impact of learning in policy formulation was primarily gathered by interviews with policy-makers who had been involved in the formulation of Red–Green labour market reforms, namely parliamentary experts, ministerial bureaucrats and policy experts who served in governmental commissions. Such interviews are invaluable, since document-based comparisons of legislative proposals and actual legislation with recommendations and expertise, which might have served as exemplars, lead only to ‘correlations’. These, however, do not reveal a causal nexus between policies and utilised knowledge (Bennett 1991: 32; Bennett and Howlett 1992: 290). Moreover, official policy documents (such as the draft legislation and ministerial papers for the public) do not usually contain information on exemplars used as blueprints in policy formulation (see, for example, the proposed legislation, Bundesregierung 2003a, 2003b; Deutscher Bundestag 2001a, 2002a, 2002b, 2003a). The analysis of parliamentary debates on Red–Green labour market reforms supports this view of the limited utility of public policy statements in the analysis of policy learning, insofar as the

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statements did not substantially refer to the ‘best practices’ brought up in the debates (see Deutscher Bundestag 2001b, 2001c, 2002c, 2002d, 2002e, 2003b, 2003c). For this reason, in-depth interviews with policy-makers are the key source for data on policy learning. Qualitative methods such as interviews are especially ‘good at capturing meaning, process and context’ (Devine 2002: 199). Overall, 32 interviews with 30 policy-makers were conducted to establish a solid basis for the analysis of Red–Green labour market policymaking (see the complete list of interviewees in the Appendix). The collected interview data is complemented by secondary literature and information derived from the analysis of legislative proposals. These sources are appropriate for investigating the problem analysis influencing policy-makers.

5.1 The Job-AQTIV Law: strengthening enabling activation It has been argued that the ministerial bureaucracy is crucial in policy-making, as its knowledge is indispensable for politicians in decision-making (see Chapter 2, Section 3). Germany represents a case, in a comparative perspective, in which the impact of government departments on the substance of policies is particularly significant. The bureaucracy has not only in-house expertise but also substantially influences the utilisation of external advice in policy-making. Expert advice to the minister from outside (such as from advisory bodies) is ‘normally passed through departmental filters which screen and condense the material to draw conclusions for policy decisions’ (Mayntz 1987: 7). Accordingly, the ministerial bureaucracy is considered the primary adviser to the government (Murswieck 1994: Mayntz 1987; Schnapp 2001). Moreover, by international standards, the German ministerial bureaucracy is said to be characterised by both highly qualified career civil servants and high politicisation through party involvement and affinities of ministerial bureaucrats. Importantly for partisan control over the administration, top-level bureaucrats (these are permanent state secretaries and heads of divisions) are classified as so-called ‘political civil servants’, who can be retired with immediate effect without reason. Ministers possess full discretion in recruiting these politically loyal top-level

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policy advisers (Rouban 2003: 313–315). Thus, such ‘ministerial officials are anything but “classical bureaucrats”’ (Schröter 2001: 69; see also Derlien 2003). In the case of labour market policy-making, the ministry of labour is in charge of preparing legislation. Within ministries, the actual drafting of policy proposals and legislation is the responsibility of specialised operative units (Fachreferate), which prepare proposals according to their portfolio. Another practice often used is to establish temporary project groups (Projektgruppen) for the purpose of preparing legislation. As a large number of units are typically involved in policy-making, one unit is assigned the overall coordinating role in the preparation of legislation (Federführung). Draft legislation is circulated to other ministries for consensusbuilding in the government (Ressortabstimmung), before a final draft (Referentenentwurf) is brought into the cabinet, where draft legislation is discussed and eventually agreed upon, becoming the governmental position. As an alternative to proposing legislation by the government, the legislative process can be initiated by the parliamentary groups, which propose legislation prepared in close cooperation with the responsible ministry (Formulierungshilfe). Parallel to preparing and drafting legislation, ministries cooperate closely with the experts of the parliamentary groups that make up the government. In labour market policy, the Social Democratic and Green parliamentary groups established a working group for the preparation of labour market reforms (Arbeitsgruppe SGB III-Reform). In addition to expert MPs and their staff, this group included the Parliamentary State Secretary for labour market policy, experts from the ministry of labour (most prominently, the head of the labour market division and his deputy) as well as Permanent State Secretaries from SPD-led Länder governments. With this working group and by means of white papers, MPs were intensively integrated into policy formulation at a rather early point, compared with the previous conservative-liberal government. To restrain the influence of the ministries of finance and economics, other ministries were generally not involved, at the Parliamentary State Secretary’s behest, who chaired this working group. Likewise, trade unions were not invited, though this had previously been the case in the Social Democratic working group during opposition. But organised labour was indirectly represented

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through Social Democratic MPs with strong trade union affiliations (Interview nos. 2, 5, 6, 8, 15, 17, 23). The Parliamentary State Secretary can be said to have dominated the deliberations as well as negotiations in this group in the case of the Job-AQTIV Law. His dominance was backed with resources from the ministry, which provided most programmatic inputs. Notably, the Federal Minister of Labour was not significantly involved in the labour market reform of the first Red–Green government. Rather, concentrating on pension reform as well as on the reform of co-determination, the Minister and Permanent State Secretary were opposed to any labour market reform but instead favoured postponing legislation. However, pushed by MPs and with support from the Chancellery, the Parliamentary State Secretary successfully advocated the labour market reform and became the driving force in the reform process (Interview nos. 3, 6, 8, 15, 23). For the preparation of the actual legislative process of the Job-AQTIV Law, policy experts met in conclave to decide on the fundamental principles of the planned legislation. Here, the ministry basically tried to establish whether MPs had the ambition to attempt a comprehensive labour market reform. In the end, MPs – particularly Social Democrats – preferred a rather cautious approach of only modest changes; namely, strengthening active labour market policy and abstaining from benefit cuts. More ambitious changes in active labour market policy were dropped, as fierce resistance by MPs on the budgetary committee was expected. After this first retreat, experts started elaborating the legislative agenda and the parliamentary working group finally concluded the basic principles and core measures of the planned legislation in a white paper (Eckpunktepapier, SPD-Bundestagsfraktion and Bundestagsfraktion Bündnis 90/Die Grünen 2001). Based upon this policy paper, which not only substantially referred to ministerial inputs but was also drafted by the ministry, the ministerial bureaucracy prepared the final draft of legislation. This preparation, however, had already started before the white paper was concluded. Thus, the development of the white paper and the proposed legislation were actually parallel and intertwined processes. These were moderated by the Parliamentary State Secretary and were programmatically framed by the inputs from the ministry of labour (Interview nos. 5, 6, 17, 23).

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Compared with the Hartz Legislation, the Job-AQTIV Law appears almost undisputed, though this law was, of course, not free from conflicts. But these hardly entered the public arena. The overall agenda of reforming labour market instruments was viewed rather sceptically by the ministry of finance (as it was by the ministry of economics), because it feared that the labour ministry, in alliance with parliamentary experts, might increase spending for labour market policy (in particular, through a costly expansion of the secondary labour market). Backing their rigorous position on the ineffectiveness and inefficiency of German labour market policy, the finance ministry, without the involvement of the ministry of labour, commissioned three evaluation studies; these studies essentially confirmed the critical position already held by the ministry of finance. With this ‘evidence’, it tried to put their colleagues under pressure politically. The labour ministry responded fiercely to this strategy by calling into question the authority of the ministry of finance to commission such studies and, moreover, by attacking the studies, which were considered of poor quality methodologically. Eventually, the relationship between these two ministries was seriously disturbed and after that was characterised by ingrained mistrust. As a political compromise, a cost-neutral reform was agreed upon, given the overall governmental goal to consolidate the budget (see Chapter 4, Section 2). Costly benefit increases, which were demanded by the SPD in opposition, were virtually ruled out. Apart from challenging the rule-driven federal grant to the employment service, the ministry of finance, like the ministry of economics, had no direct substantial influence on the Job-AQTIV Law. By contrast, trade unions, which were hoping for a more activist approach to labour market policy by the Red–Green government, feared a reduction of spending, such as when the coalition was considering the reform of job creation measures; this proposal was heavily attacked by organised labour. With respect to the opposition, the Bundesrat can be neglected, since the legislation deliberately did not include any proposal that would have required approval by the upper house. This strategy was pursued because the Red–Green government considered the chances of consensus with the opposition rather unlikely in the run-up to the 2002 general election (Interview nos. 5, 6, 23, 28, 29). Within the parliamentary working group, the Job-AQTIV Law, however, was hardly contested. Controversies arose about the details

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of the legislation (such as the legal status of the integration agreement) rather than about the principles of the Job-AQTIV Law itself and its measures. However, potentially contentious issues, such as the introduction of UK-style workfare measures – as proposed by Social Democratic modernisers (most prominently by the Parliamentary State Secretary) – and the restriction of job creation measures, were essentially put aside. Referring to forecasts of labour market developments (including the prediction of bottlenecks in certain sectors), the majority of Red–Green labour market experts considered negative activation unnecessary for reducing unemployment and raising employment rates. Eventually, these controversial issues, which were on the agenda of the modernisers and the ministry, were not pursued further, given the distribution of power in the parliamentary groups at that time. Therefore, this legislation was restricted to consensual measures of positive activation (Interview nos. 2, 6, 17, 23). The shift towards activation must be seen against the background of the overall disappointing labour market performance by international standards and the traditional German approach to labour market policy, which relied largely on passivity or reactivity rather than active efforts to reintegrate job-seekers into the labour market (see Chapter 4, Section 2). In this context, the effectiveness and efficiency of labour market policy was widely criticised, with calls for a redirection towards an ‘activating’ labour market policy. However, it has been argued that the paradigm shift towards activation cannot only be ascribed to the Red–Green government. The Kohl government had already introduced activation measures in the mid-1990s, although these came relatively late in comparison to many European countries (Clasen 2005: 68). These were negative measures that focused on workfare, while enabling activation measures were virtually neglected. When the Red–Green government came into office, labour market policy was under enormous pressure. First, the poor labour market performance led to calls for a comprehensive labour market reform; second, the SPD in opposition criticised the Kohl government heavily on its labour market policy (such as the introduction of workfare measures), so that reforming this policy was imperative from the perspective of Social Democratic labour market experts. In its manifesto for the 1998 election, the SPD stated its objective of redirecting labour market policy towards enabling activation measures (SPD 1998: 24ff.).

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It appears that the shift towards activation was largely driven by the perception of German economic underperformance. To address the perceived weaknesses of labour market policy, policy-makers looked abroad in their search for best practices that might contribute to problem-solving (Interview nos. 6, 23). This strategy was plausible insofar as comparison with other countries revealed serious underperformance by Germany. Among the various countries, the UK, the Netherlands, Denmark and Austria received the most attention due to their overall sound labour market performance. Accordingly, these countries were also used for drawing lessons on how to improve labour market policy in Germany. However, overall, no single such exemplar country can be identified as a sole influence on the Job-AQTIV Law. Instead, certain aspects of the approaches in these countries that were considered appropriate were incorporated into the legislation. In the Job-AQTIV Law, despite the undisputed principal objective of adding an enabling activation dimension to labour market policy, a rather ad hoc approach of optimising existing instruments and introducing some new measures was pursued in favour of a systematic redesign. In other words, this legislation conforms to the image of incrementalism in policy development (Interview nos. 5, 6, 17, 23). The Job-AQTIV Law of the first Red–Green government, intended as it was to overcome the predominantly reactive and passive character of unemployment protection, was guided by the idea of positive activation. Strengthening qualificational efforts and improving the job placement process gained most prominence in this legislation, as a means of improving the reintegration of job-seekers. The preventive approach of the Job-AQTIV Law particularly focused on the modernisation of the job placement process. The introduction of obligatory profiling and integration agreements, including the emphasis on ‘demanding and fostering’, emulated corresponding changes in Denmark, the Netherlands and the UK. Negative activation (such as benefit cuts and tightening the criteria of reasonable work) was not included in the Job-AQTIV Law. Given the scepticism with respect to the UK workfare approach among traditionalists, it did not, however, refer generally to the UK as an exemplar. Reflecting the policy objective of prevention, waiting times for any measures of active labour market policy were abolished. Some efforts to improve training measures were influenced by examples of policies in Denmark

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and Sweden. But while job rotation was a straightforward emulation of Danish policy, other measures (such as strengthening the qualificational components of job creation measures and subsidising vocational training of the low-skilled and older workers) were guided by the general idea of enabling activation rather than specific institutional exemplars. In the same way, the flexibilisation of job creation measures and the introduction of the new ‘job creating infrastructure promotion’ were changes based upon the long-standing objective of the labour ministry to improve the linkages between labour market and structural policies. Labour market policy was thought to better contribute to economic growth and genuine job creation (Interview nos. 2, 3, 5, 23, 26). To summarise, with the Job-AQTIV Law, the centre-left government added the enabling dimension of activation to the SGB III inherited from the Kohl government. The idea of positive activation served as an ‘institutional blueprint’ (Blyth 2001), informing Red– Green policy-makers. Here, policy learning from abroad was crucial. Measures of negative activation were not introduced into the labour market policy legislation due to the resistance of traditionalists in the Social Democratic parliamentary group. Coercive activation was only supported by modernisers in the Red–Green government, who, however, could not overcome the resistance of traditionalists. In this light, the left wing of Social Democracy qualifies as a ‘partisan veto player’ (Tsebelis 1995), underlining the importance of politics and agency in knowledge-based institutional change. Negative activation therefore remained a ‘challenging idea’ in the first Schröder government. The same applied to the NPM paradigm. Senior policy-makers were already aware of structural problems in the employment service, but the lack of a policy alternative and anticipated resistance by traditionalists resulted in pulling back from the reform of the PES.

5.2 The Hartz Legislation: shifting towards coercive activation The policy-making of the Hartz Legislation in the second Schröder government differed in many respects from the Job-AQTIV Law. With the establishment of the Hartz Commission, Chancellor Schröder deliberately handed agenda-setting over to this expert body. The influence of the ministry of labour was rather limited,

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with only some exceptions. Ironically, given the Chancellor’s dictum of fully implementing the Hartz proposals, the labour ministry, despite many reservations, had to prepare the corresponding white paper, upon which the government formally decided immediately after the Hartz Report had been released. Against this background, the Hartz I and II Laws must be considered to a considerable extent as the ‘slavish implementation’ of the Hartz Report by the ministry of labour, though some technical adjustments were inevitable in the preparation of the legislation due to the fairly general character of many Hartz proposals and insufficiencies from a law-making perspective (for example, the Mini-Job scheme, the PSA, Me, Inc.). The transfer of other instruments was not recommendable at all, so that such proposals were dropped (such as the scheme promoting vocational training) or substantially downscaled (such as the Job Floater) (Interview nos. 6, 8, 23, 26, 31). Importantly, the dictum to fully implement the Hartz Report was not only given because of campaign reasons in the run-up to the general election, but also because Chancellor Schröder wanted to prevent the watering down of the Hartz proposals by the ministry of labour and, in particular, by the parliamentary groups after the election. Accordingly, under the relatively tight supervision of the Chancellery compared with other legislation, the room for manoeuvre of the ministry of labour and the parliamentary experts was effectively limited. This resulted in legislative changes and the introduction of new labour market policy instruments that were, at the least, viewed rather sceptically if not as unsuitable by ministerial experts (for example, the PSA, Me, Inc., ‘Quick’ job placement, the ‘Bridge System’). Other instruments were politically unfeasible – either within the governmental coalition (such as the pay scale of the PSA) or between the government and the opposition in the upper house (such as the Mini-Job scheme) – so that further adjustments became necessary in the political process. Put briefly, in the Hartz I and II Laws, the influence of the ministry as well as of the parliamentary labour market policy experts was substantially undermined, as the agenda was set by the Hartz Commission and politically backed by the Chancellery. Trying to use as much of their limited discretion as possible, the ministerial bureaucracy then reluctantly transformed the Hartz proposals into legislation (Interview nos. 1, 5, 6, 8, 15, 26, 31).

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In contrast to Hartz I and II, the preparation of the Hartz III and IV Laws had more similarity with the Job-AQTIV Law. Instead of deciding the basic lines in the government, the second white paper on the Hartz Reforms was developed and decided upon in the parliamentary working group (SPD-Bundestagsfraktion and Bundestagsfraktion Bündnis 90/Die Grünen 2003), where ministerial inputs were highly significant. Though the cornerstones of Hartz III and IV were covered in the commission’s report (such as the introduction of NPM measures in the PES and the integration of unemployment and social assistance schemes), this legislation was not much informed by the Hartz proposals. The report was rather general on these issues, so that the labour ministry had some considerable discretion in the preparation of this legislation. For Hartz III, the operative unit with the primary responsibility for drafting the law set up a project group, in which, besides ministerial experts from several units, various experts from the PES were involved in order to use their practical knowledge in policy formulation. The essentially consensual results of the project group were basically transferred to the draft legislation. Outside the project group, the proposed law was hardly discussed and contested. Other parts of the ministry and government were not practically involved. In the parliamentary working group of the governmental coalition, the draft of Hartz III was approved without any noteworthy controversy in spite of the far-reaching – but technically very complex – character of this legislation, through which some benefit recipients and groups experienced benefit cuts. Approval by the Bundesrat was not required, so that Hartz III was enacted more or less as proposed by the ministerial experts. The ‘smooth’ decisionmaking of Hartz III was also ascribed to the enormous controversies surrounding Hartz IV, which was prepared and publicly discussed at the same time. Put differently, this legislation was pushed through politically in the ‘slipstream’ of Hartz IV (Interview nos. 1, 6, 8, 15, 26). Even less than Hartz III, the controversial Hartz IV Law can be ascribed programmatically to the Hartz Commission. In the labour ministry, the preparation of the reform of the unemployment and social assistance schemes had already started in the first Schröder government. With the setting up of the Mozart scheme, legislation was intended to be postponed to the next legislative period. A comprehensive reform of the benefit system was considered

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politically unfeasible before the general election in 2002. The Mozart pilot project, however, not only offered a convenient way of delaying legislation, it also provided an opportunity for gathering knowledge about the chances and limits of cooperation between the PES and the municipalities for the up-coming reform. Even before setting up the Mozart project, the Bertelsmann Foundation (which is a leading advocacy think tank) initiated a forum at the request of the ministry, in which experts of relevant organisations, including policy experts of the ministry of labour, were involved. Notably, MPs were deliberately not included in this expert body, in order to avoid any party politicisation. The forum operated from autumn 1999 until April 2003. In June 2002, the Bertelsmann Foundation presented a policy paper, summarising the main results of the deliberations of the forum (Bertelsmann Stiftung 2002). In a nutshell, the experts recommended the establishment of a new benefit system for the long-term unemployed, which basically refers to the generosity of the social assistance scheme. In contrast to social assistance, however, the forum called for including the recipients in the social insurance system and improving integration efforts along the lines of the activation philosophy. Taking into account the omnipresent pressure for consolidation, a cost-neutral reform was proposed. On the crucial issue of the responsibility for the new benefit system and the problem of cost distribution, no final recommendations were made in the policy paper because of increasing party politicisation of these issues (Interview nos. 1, 3, 6, 9, 14, 27). At the end of 2001, before the placement scandal in the Federal Employment Service and before the establishment of the Hartz Commission, an internal project group, including ministerial experts on unemployment and social assistance as well as experts from the employment service, was set up in the ministry of labour in order to conceptually prepare legislation reforming unemployment and social assistance. Then, parallel to the Bertelsmann Forum, the ministerial policy experts worked on this issue in secrecy – even within departments – in the awareness of the controversial nature of such a comprehensive reform project. The project group presented its results to the minister in conclave in May 2002, before the Hartz Commission (established in the meantime) delivered its report. The ministerial experts, rejecting the cooperation approach that had inspired the Mozart scheme, called for the introduction of a

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new benefit system for the long-term unemployed. On the issue of responsibility for this new benefit, the project group did not explicitly recommend a particular solution, but presented different possible solutions to the minister. However, the civil servants were strongly in favour of the responsibility being allocated to the PES. When the Hartz Commission was installed, its tasks included scrutiny of the policy option of integrating the unemployment and social assistance schemes. Though its chairman dominated the commission, the ministry was successful in placing its idea of creating a new benefit system run by the PES in the commission’s report, as Peter Hartz did not pay much attention to this issue (Interview nos. 1, 6, 9, 14, 23). Thus the proposal for integrating the two benefit systems for the long-term unemployed was put on the political agenda via the Hartz Commission. However, the problem of cost distribution was not addressed in the Hartz Report, but left to the ‘Commission for the Reform of Municipal Finances’ (Kommission zur Reform der Gemeindefinanzen). In this commission, a working group was set up to deal with the new benefit for the long-term unemployed, one of the two major issues for the commission. In this working group, all relevant actors were represented, including the conservative opposition of the upper house. Importantly, there was broad agreement on system reform and the introduction of a benefit that related to social rather than to unemployment assistance. However, on the two most disputed issues, responsibility for the benefit and cost-sharing, no consensus between the Red–Green government and opposition was reached, as the Länder led by the Christian Democrats insisted on placing the responsibility for unemployment benefit II with the municipalities. For the Red–Green government, a point of no return was set politically when Chancellor Schröder announced the new unemployment benefit for the long-term unemployed in his Agenda 2010 speech in March 2003 (Schröder 2003). Despite the controversy between government and opposition, the two operative units of the labour ministry in charge of the initial project group, more or less detached from the rest of the ministry, prepared a draft for legislation. They basically followed the governmental approach developed in the labour ministry and advocated in the Commission for the Reform of Municipal Finances, though taking into account some amendments after controversies in the Social Democratic and Green parliamentary groups. Unsurprisingly, this draft, which required approval in the upper house, was vetoed by

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the opposition and its recommendations were then negotiated in the mediation committee of the Bundestag and Bundesrat, with the already presented result (Interview nos. 1, 9, 14).

5.3 The first and second Red–Green governments compared The Hartz Legislation, as has been argued, differed in two main respects from the Job-AQTIV Law. First, agenda-setting was handed over to the Hartz Commission, as a result of which the influence of the labour ministry and parliamentary experts was seriously limited. Second, while the Job-AQTIV Law focused on positive activation and abstained from workfare measures, the labour market legislation of the second Schröder government involved benefit cuts for the unemployed as well as tightening of the criteria for reasonable work and of the sanction regime. Thus, with the Hartz Legislation, the focus re-shifted from enabling to workfare activation, despite some new measures of positive activation. In other words, the previously challenging idea of negative activation became predominant in policy-making. Measures that were politically unfeasible in the first Red–Green government therefore became core components of Agenda 2010 and the Hartz Legislation. This significant change in Red–Green labour market policy can be explained by three main developments. First, disappointed by the poor Red–Green labour market record and disappointed by the sedate reform process in the employment service, many Social Democratic MPs who were opposed to any workfare measures in the Job-AQTIV Law were then willed to support a more comprehensive labour market reform that, among other things, included negative activation – though its concrete extent was still disputed. Second, after the failure of the Alliance for Jobs and the placement scandal in the PES, the traditionalists among SPD MPs were substantially weakened; this was used by modernisers as an opportunity for alternative agenda-setting (Interview nos. 2, 3, 5, 6; see also Clasen 2005: 27; Gohr 2003: 48ff.; Heinelt 2003: 127–130). Third, related to the previous argument, using the window of opportunity presented by the PES crisis and prolonging this window with Agenda 2010, Gerhard Schröder directly intervened in labour market policy-making; this was in contrast to the first

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Red–Green government. In particular, the skilful utilisation of the Hartz Commission for overcoming veto players in the SPD can be ascribed major importance in the political process (Czada 2004; Dyson 2005; Heinze 2002 on ‘government by commission’). Moreover, with the nomination of a new Federal Minister of Economics and Labour, a strongly assertive moderniser was put in charge of the political passage of controversial reforms; this did not fully satisfy the expectations of many Social Democrats in the parliamentary group and the party. Consequently, the minister became the main governmental negotiator with the parliamentary groups as well as with the conservative opposition in the upper house, while the Parliamentary State Secretary, who was managing the Job-AQTIV Law, was put on the defensive. Put briefly, the traditionalists in the SPD lost their capacity to veto workfare measures in the second Red–Green government (Interview nos. 1, 6, 8, 26). Labour market policy in the second Schröder government was clearly characterised by intensified influence from the political leadership at the expense of influence of parliamentary and ministerial experts. This leadership, underlining the importance of agency and entrepreneurship in policy change, was pivotal to the idea of negative activation becoming predominant. However, though ‘politics’ appears as the driving force in labour market policy-making, this should not be interpreted as evidence of the insignificance of policy learning. Rather, SPD modernisers had already broken – and more comprehensively – with traditional social democratic labour market policy before Agenda 2010 and the Hartz Legislation. But they did not possess the capacity to push through their approach of activating labour market policy, including substantial negative activation, a position which SPD traditionalists had formerly harshly criticised when it was pursued by the preceding Kohl government. This paradigmatic change was heavily influenced by the workfare approach of the New Labour government in the UK, and prominently expressed in the Schröder/Blair Paper (Schröder and Blair 1999), but it also reflected some controversies raised by the Job-AQTIV Law. In the Hartz Legislation, however, the modernisers were in the position to refer openly to the UK activation approach. Thus the reforms of the second Schröder government were preceded by processes of social learning leading towards a more coercive activation approach, which was, within the SPD and organised labour, largely restricted

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to modernisers. Put differently, collective learning within Social Democracy took place to only a very limited extent. With regard to instrumental learning, considerable evidence can be reported in relation to the Hartz Legislation as well. In contrast to ‘normal’ labour market policy-making (Hall 1993: 279), this legislation became distinct due to the Hartz Commission, and was particularly relevant for the Hartz I and II Laws. Interestingly, much of the policy learning was not shared by the ministerial experts, so that the incidence of collective learning was also rather weak, but the political intervention by the Chancellery made most of the ministerial concerns irrelevant. The comprehensive Hartz III and IV Laws largely followed previous patterns of labour market policy-making. Ministerial inputs regained most of their former importance in the legislative process, though political leadership remained highly significant in this legislation. However, in contrast to Hartz I and II, political leadership, though setting the overall policy goals, did not prescribe the implementation of external advice but deferred to ministerial advice.

5.4 The European Employment Strategy: learning with Europe? The impact of the EU on labour market policy was mostly rather indirect due to increased competitive pressure and budgetary restrictions associated with the creation of the single market and the introduction of the euro, respectively (see Chapter 4, Section 1). However, in addition to the implications of European economic and monetary integration, the European Employment Strategy (EES), established with the Amsterdam Treaty of 1998, is often discussed as an example of supranational influence. Though the EES cannot directly interfere in national labour market policy, this new mode of European governance might nevertheless have had significance for domestic change. It could have contributed to the changing beliefs and understandings of domestic actors, thereby preparing the ground for change (Knill and Lehmkuhl 1999: 2; Radaelli 2003: 43). For this reason, the EES and its impact on labour market policy need to be scrutinised. As the Red–Green government generally supported the EES, in contrast to the previous Kohl government (Büchs 2004: 12), there is reason to believe that it took the Luxembourg Process more

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seriously. Moreover, civil servants in the ministry of labour were at first rather ‘excited’ about the EES as a tool for improving labour market policy-making (Interview nos. 7, 13). Hence, one could expect the Luxembourg Process to have made a difference to Red–Green labour market reforms. However, the EES did not, ultimately, develop much significance in policy-making, raising the question as to why it was hardly utilised despite the initial ‘enthusiasm’. With the EES, member states were obliged to implement employment policies improving employability, developing entrepreneurship, encouraging adaptability and promoting equal opportunities (Foden 1998: 222ff.; Larsson 1998: 401ff.). The policy solutions brought forward (such as the activation philosophy, the reduction of non-wage labour costs, facilitating self-employment with the reduction of tax and social security burdens, combining flexible employment with social security, lifelong learning) are generally associated with the Third Way agenda of modernised social democracy (Kenner 1999). Because of the non-binding character of the Employment Guidelines and in the absence of sanctions to ensure compliance, the Luxembourg Process is not a device for ‘obligated policy transfers’ (see Dolowitz 2000). Thus, in order to develop significance for domestic change, the EES relies on its capacity to generate peer pressure (Biagi 1998: 327; Jacobsson 2001: 11) and/or to contribute to policy learning (de la Porte and Pochet 2004: 73; Fleckenstein 2006: 287–290; Radaelli 2004). In relation to the former, the picture of insignificant peer pressure drawn in the literature (Chalmers and Lodge 2003: 14; de la Porte and Pochet 2004: 72ff.; Offe 2003: 466) applied to Germany as well. Scrutinising public attention paid to the EES, Meyer analysed the media coverage of the Luxembourg Process in Germany: ‘European employment policy co-ordination is being covered at best sporadically’ (2003: 10, see also Ardy and Umbach 2004: 10–12). Peer pressure related to public awareness therefore cannot be assumed. Likewise, the EES was barely picked up in parliamentary debates in the Bundestag and Bundesrat (Meyer 2003: 12; Büchs 2004: 16). Thus, reputational costs among the general public did not arise for the government when it ignored the Luxembourg Process in policy formation at the national level. Regarding possible peer pressure among policy experts at the European level or pressure for compliance with the guidelines from the commission, the interviews did

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not give any indication that national policy-makers perceived any significant pressure that could have made them conform to the objectives set by the EES (Interview nos. 7, 8, 19, 23, 33). With respect to political exploitation of the Luxembourg Process in German national discourse, no example can be reported where the EES ‘has helped bring particularly unpopular measures over the hurdle’ (Thiel 2003: 23). In the Agenda 2010 process, for example, the EES was not used to underpin the legitimacy of the initiated reforms (Meyer 2003: 10), though the Hartz proposals complied with the Employment Guidelines to a considerable extent (Watt 2003). Thus, any significance of the EES needs to rest on its capacity to foster policy learning. The Luxembourg Process, with its various tools providing policy-relevant knowledge and potentially fostering deliberation in member states (such as reporting systems, peer-review, benchmarking and monitoring), can be considered as an institutionalised learning mechanism (Fleckenstein 2006; Goetschy 2001). For the 2002 review of the EES, the ministry of labour commissioned an assessment of the impact of the Luxembourg Process on German employment policy (RWI and ISG 2002). In most policy domains, some – though varied – impact was identified. However, in spite of its enormous scope, the study failed to address the issue of whether the correlation between national policies and Employment Guidelines was caused by the Luxembourg Process; this was also the case with other studies on the impact of the EES on German labour market policy (Behning 2005; Héritier 2005; Eichhorst and Rhein 2004). Considering the vague character of the guidelines (Keller 2001: 9), one could cynically argue that a correlation to at least some degree was almost inevitable. Moreover, the new German approach to employment policy is generally seen to coincide with the EES to a considerable extent (Héritier 2005: 25), so that correlation is by no means surprising. Working out the concrete impact of the Luxembourg Process on Red–Green labour market policy is further complicated by the fact that the 1998 manifesto of the Social Democrats substantially overlaps with the EES. These similarities, however, cannot be assumed to be influenced directly by the Luxembourg Process (Ostheim and Zohlnhöfer 2002: 20). In brief, from the observation of correlations between labour market reforms and the EES, any conclusion that there is a causal nexus would be highly problematic. Instead, for any evaluation of the impact of the

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EES on domestic labour market policy, in-depth qualitative research through the use of expert interviews with policy-makers involved in the development of labour market reforms for data collection would be indispensable in revealing the actual significance of the Luxembourg Process in national labour market policy-making. Representing an example of ‘technocratic deliberation’ (Radaelli 2004: 28), the Luxembourg Process has a ‘predominantly elitist character, with government officials playing a central role’ (Goetschy 2003: 71). Accordingly, policy learning ‘that takes place in the context of the EES within the administrative structures is not linked to the public debate’ (de la Porte and Nanz 2003: 13). The primary responsibility for the EES was assigned to the ministry of labour, coordinating the Luxembourg Process within the Federal Government and representing the government at supranational level. However, the responsibility for individual parts of the EES was spread across the government, following departmental portfolios, with each ministry being independently responsible for the involvement of other actors in the formulation of their contributions to the Luxembourg Process. The parts dealing with labour market policy were the responsibility of the ministry of labour, where duties were allocated according to intra-departmental expertise. The steering capacity of the coordinating unit in the ministry of labour was fairly limited, as a result of which the formulation of a coherent national employment strategy became hardly possible with the Luxembourg Process. In the procedure of implementing the EES, the overall autonomy of specialised units remained untouched (Interview nos. 7, 13, 19, 33). It can be summarised that administrative structures and procedures nationally implementing the Luxembourg Process corresponded with established bureaucratic patterns, so that the impact of the EES on national administrative structures was negligible (see also Ardy and Umbach 2004: 8). The task of meeting the European reporting obligations had been allocated across the government in accordance with intra- and interdepartmental portfolios. Taking into consideration inputs by the EU, policy formulation was decentralised and decided upon by individual units. Participation and deliberation in the Luxembourg Process was largely restricted to a small number of governmental experts (see also Ardy and Umbach 2004: 10). The pressure of deadlines, to some extent, reduced the EES to an exercise of coping only with the legal obligation of reporting

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rather than utilising the procedures to reflect on employment performance and to prepare action for the coming year. Against this background, it is not surprising that the Luxembourg Process was not used for strategic planning by the Federal Government. Instead, it was mainly restricted to reporting measures that had already been decided upon and it failed to present comprehensive strategies for meeting the objectives set out in the Employment Guidelines (Interview nos. 7, 13, 19). Looking at the concrete relevance of the EES for labour market policy-making in Germany, the philosophy of activating labour market policy and the objectives of active ageing, both promoted by the EU, can be ascribed as having some impact on the thinking of German policy-makers, as they were eventually reflected in the legislation by the Red–Green government (Interview nos. 1, 6, 7, 19, 23, 26, 33; see, for a critique, Interview no. 8). In the Job-AQTIV Law, the instruments of active labour market policy were modernised following the activation paradigm, as broadly depicted in the employability pillar of the EES (obligatory profiling, integration agreements, abolition of any working time restrictions, further training for older workers and the low-skilled, job rotation; see the corresponding guideline at European Communities 2001: 21). With the Hartz Legislation, the development towards activation in labour market policy was continued, though the focus shifted from improving employability to activation by predominantly providing negative work incentives and ‘making work pay’ (such as basic security for job-seekers, Mini-/Midi-Jobs, ‘Me, Inc.’, reduction of unemployment benefit duration, remuneration security; see the corresponding guidelines in European Communities 2002: 64; European Union 2003: 19ff.). The shift towards activation and corresponding measures would also have occurred without the Luxembourg Process, but it can be argued that the EES accelerated the change of understanding in labour market policy. The comparison between the first and second Red–Green governments suggests that the Job-AQTIV Law was more comprehensively affected by the EES discourse than the Hartz Legislation, which was more heavily shaped by domestic politics (Interview nos. 23, 33). However, the impact of the EES on concrete Red–Green labour market reforms was largely indirect, since the Luxembourg Process contributed to framing the national discourse on activation in labour market policy and the objective of increasing

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employment rates. Put differently, while the Luxembourg Process facilitated social learning, its instrumental utility for the development of specific measures was negligible. Concrete best practice learning, as intended by benchmarking and the peer review programme, cannot be reported here, except in the case of job rotation, which was introduced with the Job-AQTIV Law (Interview no. 7). The policy papers derived from the Luxembourg Process were rarely used and can hardly be ascribed significance. These documents were not systematically evaluated, so that their utilisation can be expected to be sporadic at best. Unsurprisingly, no example of a policy innovation that was discovered through ‘reading’ one of these policy papers or participating in the peer review can be reported. Likewise, the policy recommendations made by the Council were of limited instrumental utility, as the shortcomings ‘discovered’ by the EU were normally by no means new information. It is noteworthy that Germany did not, at first glance paradoxically, participate in the peer review on Job Centres organised by the UK, despite the fact that German policy-makers explicitly used the UK Job Centre as best practice for the reform of the job placement regime. However, although the formalised learning tools of the Luxembourg Process did not directly result in far-reaching policy learning, it was reported that the EES sensitised ministerial experts to practices abroad and contributed to building up contacts with civil servants in other member states. Thereby, cross-national policy learning was indirectly promoted. It appears that the knowledge of foreign policies complemented by personal contacts with ministerial experts in the corresponding country supported informal bilateral communication more than did the use of formalised learning tools provided by the EU. Thereby, communication in particular with colleagues in the UK was fostered, which eventually resulted in seminars on Job Centres and the employment of older workers (Interview nos. 7, 19, 33). To sum up, the Luxembourg Process contributed to some ‘vague’ social learning with respect to the paradigms of activation and active ageing (see also Ostheim and Zohlnhöfer 2002: 27–29 for the Job-AQTIV Law), while instrumental learning was limited to job rotation. The significance of the Luxembourg Process was restricted to selectively facilitating policy change; but the EES did not possess the capacity to redirect labour market policy (see also Büchs 2004: 24; Héritier 2005: 18; Ostheim and Zohlnhöfer 2002: 31ff.).

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In other words, to develop relevance in national labour market policy, policy-relevant knowledge derived from the supranational level requires receptivity from domestic policy-makers. The inputs from the EES importantly needed an on-going national discourse and reform process on the particular issue (such as activating labour market policy) with which they can tie in. Conversely, policies that are not seriously discussed by relevant policy-makers (such as a comprehensive reform of the tax and benefit system for boosting low-wage-sector employment) are simply not ‘heard’, because such proposals and recommendations are not ‘valuable’ for an on-going reform process. Against this background, the scope of policy learning in the formulation of Red–Green labour market reforms must be described as rather limited despite considerable similarities between the EES and the German approach to labour market policy and despite the principal utility that can be ascribed to the EES (see also Ardy and Umbach 2004: 35; Héritier 2005: 35). Critically, the question can be raised whether the Luxembourg Process could have been expected to have an independent impact on labour market policy, if consensus among member states is to a certain degree a precondition for the emergence and content of the EES in the first place. Put differently, if some consensus, for other reasons, has developed already, why should policy-makers refer to the EES? Although German policymakers, according to the conducted interviews, generally appreciated the learning tools of the Luxembourg Process and frequently attended peer reviews organised by other member states, policyrelevant knowledge acquired through the EES appears to have been under-utilised in labour market policy-making. Explaining the limited scope of policy learning, Héritier describes the Luxembourg Process as an ‘interrupted learning process’ (2005: 24) for two reasons. First, the transfer of policies is restricted by institutional barriers, such as differences in social security and industrial relations systems between the country of origin and the transferring member state (ibid.: 22–25). These barriers cannot usually be removed in the short term. Second, policy learning associated with the Luxembourg Process is confronted with problems of inter- and intra-departmental diffusion of policy-relevant knowledge derived from the EES (ibid.: 24). Often actors are not aware of the Luxembourg Process and its potential contribution to

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policy-making; in other cases, they are aware of the EES, but they do not seriously consider its inputs in policy formulation, highlighting the importance of the specific learning culture with respect to the EES. Moreover, the learning of single actors, for instance through socialising effects in European committees, is normally insufficient for policy change, as other actors responsible for the particular issue are required to learn as well. All relevant actors need to share a common knowledge base for collective learning, which is generally required for institutional change. Thus, the barriers to policy learning derived from the supranational level appear fairly high. Besides the requirements for learning in policy formulation (such as the ‘window of innovation’ and the functional viability of policy proposals), the Luxembourg Process is, in competition with established ‘domestic’ learning mechanisms (with which actors are typically already familiar), confronted by administrative problems of effective inter- and intra-departmental diffusion. To conclude, the implementation of the EES in Germany, relying upon a decentralised system of policy formulation with a relatively weak co-ordinating centre and a low priority, seems to have been insufficient for triggering policy learning.

6 The First Red–Green Government and the Alliance for Jobs

Unimpressed by the failure of social concertation by its predecessor, the Red–Green government openly promoted the idea of revitalising the Alliance for Jobs as the key policy-making device for the reduction of unemployment and the reform of the welfare state in consensus with social partners. Chancellor Schröder intended to pursue a corporatist strategy in order to overcome the reform gridlock, which had particularly characterised the last term of the Kohl government. The renewed Alliance for Jobs was equipped with an elaborate institutional structure, which included a ‘benchmarking group’. This group of academic experts provided comprehensive problem analyses of the German political economy and policy recommendations on various issues. This policy-relevant knowledge is especially interesting for an analysis of policy learning in the formulation of Red–Green labour market reforms. Thus, the significance of the Alliance for Jobs, including its benchmarking group, needs to be investigated carefully in order to develop an understanding of Red–Green labour market policy from 1998 to 2002. With the setting up of the Hartz Commission in early 2002, the Alliance was marginalised as a policy-making device. The chapter begins with an introduction to the Alliance for Jobs as the central policy-making device of the first Schröder government in its reform of the German political economy. Specifically, it looks at the benchmarking group as a tool for providing policyrelevant knowledge for policy formulation (Section 1). The three policy reports of the benchmarking group that were most relevant to labour market policy are scrutinised with regard to the significance 136

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of learning in policy formulation: the benchmarking reports on the employment of the low-skilled (Section 2) and activating labour market policy (Section 3) as well as the ‘Benchmarking Germany’ report (Section 4). It is concluded that the effectiveness of learning in the benchmarking group was undermined by lack of leadership by the Chancellery and the de facto veto position of organised labour (Section 5).

6.1 The Alliance for Jobs: an overview In November 1995, the revival of tripartite concertation in Germany, almost 20 years after the end of the ‘concerted action’ (Konzertierte Aktion) from 1967 to 1977, was initiated by the then leader of the metalworkers’ union. The union leader offered moderate wage claims to employers in exchange for job creation for the long-term unemployed. From the conservative-liberal government, the union demanded the abandonment of unemployment benefit cuts. The strategy of joint efforts to reduce unemployment received considerable public attention. In January 1996, the Kohl government and social partners agreed to launch the ‘Alliance for Jobs and the Preservation of Production Sites’ (Bündnis für Arbeit und Standortsicherung). When the government, pushed by the liberal junior coalition partner and employers, presented its proposals for benefit cuts in April 1996, trade unions, for whom avoiding welfare state retrenchment was crucial, were provoked to declare that the Alliance for Jobs had failed politically (Bispinck and Schulten 2000: 190ff.). Regardless of the failure of the first Alliance for Jobs, initiating a new attempt at social concertation was one of the top priorities of the Red–Green government when it came to power. Apparently, the Social Democrat Gerhard Schröder felt confident that the revitalisation of the Alliance for Jobs would be a promising means of gaining the support of organised labour for modernising the economy and the welfare state (Streeck and Hassel 2003: 114). Immediately after election, the Red–Green government invited business representatives and trade unions for talks on tripartite concertation at the national level. In December 1998, the new ‘Alliance for Jobs, Training and Competitiveness’ (Bündnis für Arbeit, Ausbildung und Wettbewerbsfähigkeit) was established with a joint declaration by all three parties involved. To facilitate communication and coordination,

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a permanent working structure was institutionalised. Within the government, the overall responsibility for the Alliance for Jobs was located at the Chancellery, underlining the importance ascribed to the Alliance. The central decision-making arena were the ‘top-level talks’ (Spitzengespräche), chaired by the Chancellor and attended by leading representatives of the government and social partners. The preparation of these talks and the overall coordination of the Alliance was the responsibility of a ‘steering group’ (Steuerungsgruppe), of which the Chief of the Chancellery was in charge. The concrete formulation and expert discussions of policy proposals were the responsibility of eight policy-specific ‘working groups’ (Arbeitsgruppen), of which one was set up for labour market policy. Of central concern with respect to the prospect of policy learning within the Alliance, the benchmarking group was formed to provide a comprehensive problem analysis of the German political economy and, based upon this analysis and international lesson-drawing, to develop concrete policy recommendations (Bispinck and Schulten 2000: 190–193; Heinze 2003: 143ff.). The benchmarking group comprised a trade union expert (the Head of the Institute of Economic and Social Research [Wirtschafts- und Sozialwissenschaftliches Institut, WSI]), an expert representing employers’ associations (Institut der Deutschen Wirtschaft, IW), and three ‘independent’ experts with a widely recognised record on corporatism and labour market policy (ibid.: 193). Promoting the Alliance for Jobs for its potential role in economic and social reform, the Red–Green government referred to positive experiences with social pacts in various European countries in which concertation had formed the basis for modernising the welfare state. And indeed, the revival of tripartite social pacts in the 1990s and their significance for welfare state reforms in many EU member states is striking. The re-emergence of social concertation is especially explained by the increased competitive pressure associated with European economic integration and additional pressure on nation states during the preparations for entry to the single currency. The euro required substantial efforts to reduce public deficits in many member states in order to meet the convergence criteria of the Maastricht Treaty. Consequently, the improvement of international competitiveness and the consolidation of public budgets were central objectives of this generation of social pacts. To meet these objectives,

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social concertation was commonly characterised by pay discipline in collective agreements, increasing the flexibility of labour markets and reducing the costs of social security (Fajertag and Pochet 2000). For the Red–Green government, the case of the Netherlands was in particular presented as a promising blueprint for social concertation, since Dutch decision-makers had been successful in overcoming reform blockages in the 1980s and 1990s (Reutter 2003: 294; Tegtmeier 2000: 447ff.). Corporatist concertation in the Netherlands, with its focus on pay discipline and welfare state restructuring, was based upon developing a considerable degree of shared problem analysis among the parties involved (that is, policy learning), and political exchange for overcoming reform blockages, as well as reinforcing the capacity of the state to act unilaterally if necessary (Visser and Hemerijck 2000). Inspired by the success of social pacts across Europe, the Schröder government attempted to overcome the reform gridlock with the Alliance for Jobs, by developing shared problem analysis and by using this forum for political exchange between the government, organised labour and business. Crucially, the basic idea of this approach is that political exchange serves as a means for overcoming reform blockages of key players. Political exchange across policy domains was specifically thought to allow an ‘integrated’ solution to the employment crisis, by circumventing deadlocks in certain policies (Heinze 2002: 90). Against this background, the Alliance can be viewed as being the result of political learning (see Chapter 2, Section 3). However, the institutional decision-making structure of the political system of Germany (see Chapter 4, Section 1) presents high barriers to such a strategy (Hassel 2001). Lehmbruch (1999) predicted, farsightedly, the inappropriateness of the Alliance for a comprehensive reform of the German welfare state due to its high policy segmentation. The Alliance eventually failed to deliver any inter-sectoral package deal (Reutter 2003: 297; Streeck and Hassel 2003: 117). This failure is commonly ascribed to the government’s lack of leadership and agenda-setting. The Chancellor was, however, in a difficult situation, as social partners regularly threatened to leave the Alliance. This resulted in making certain issues taboo, including wage policy, which trade unions refused to discuss. In other words, the government did not show sufficient steering capacity needed for bargaining in the ‘shadow of hierarchy’ (Eichhorst 2002; W. Schroeder

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2003: 136; Siegel 2003: 178–183). Streeck (2003) emphasises the role of inadequate governmental capacity to discipline trade unions for the latter’s refusal to cooperate seriously. This would have been necessary, since sections of organised labour, not mistakenly, believed in their capacity to attain better settlements outside the Alliance. However, the failure of a comprehensive cross-sectoral reform of the German political economy does not exclude per se significant innovations at the policy level due to processes of policy learning, which were thought to be fostered by inputs provided by the benchmarking group. When the Alliance began, there was no doubt that the parties involved did not share a common analysis of the problems that the German political economy faced. Confronted with this situation, the benchmarking group was set up as a device for developing such a shared understanding, which can be considered a decisive precondition for consensual decision-making in successful social concertation. For this reason, the benchmarking group provided a comprehensive analysis of the strengths and weaknesses of the German political economy with its ‘Benchmarking Germany’ report and other policy-specific papers, of which the reports on employment of the low-skilled and activating labour market policy were the most important. In addition to analyses, the experts proposed specific policy recommendations to the Alliance parties. Overall, the benchmarking group met 31 times between January 1999 and April 2001. Besides regular sessions, workshops with external experts were organised in order to utilise additional information from outside the group, though in practice these workshops were ultimately not particularly important in policy formulation. Policy papers were prepared by the members with the appropriate expertise. Draft papers were intensively discussed in the group, then revised and eventually concluded before the final benchmarking report was submitted to the Chief of Chancellery. The members of the benchmarking group had no influence on the subsequent utilisation of their inputs by the Chancellery. In their programmatic work, they depended heavily upon their individual expertise rather than on large-scale institutional support. At their home institutions, assistance was organised on an individual basis and varied depending upon available resources; however, overall resources remained rather limited for all members, taking into account the comprehensive agenda. With

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financial support from the Bertelsmann Foundation, an office staffed with two research officers was established to assist the benchmarking group. This office was responsible in particular for processing data and drafting the ‘Benchmarking Germany’ report. The group did not receive any support from the ministry of labour. On the contrary, senior civil servants tried to obstruct the group, which was, like the Alliance for Jobs in general, viewed critically in the light of the limited steering capacity of the ministry. Representatives of the Chancellery also attended meetings of the benchmarking group but, though politically supportive, they could not provide substantive support due to limited resources (Interview nos. 4, 20, 22, 25, 32). In the discussions in the benchmarking group, it can be reported that the academic experts did not face serious problems in reaching consensus. The working atmosphere and deliberations were described as very harmonious and collegial, despite members having very different political and institutional backgrounds (see also Heinze 2002: 91ff.). In particular, not only were the data and the overall analysis of the German political economy largely undisputed in the group, but the policy strategies to tackle identified problems also reflected consensus to a considerable extent. Though the degree of shared knowledge was surprisingly high (given the insurmountable conflicts between the government, trade unions and employers’ associations in the Alliance), differences over some principal issues (such as the approach to regulatory policy, Ordnungspolitik) did not allow for more far-reaching reform proposals in which policy reforms in different domains were systematically linked. Rather, proposals remained restricted to reforming single policies (such as a benchmarking report on labour market policy instead of employment policy). In the event of irreconcilable differences, the problem in question was left aside in order to allow consensus-building on less disputed issues. Alternatively, on issues of lower priority, minority positions were included in the benchmarking reports in order to reflect the scope of discussion within the group. For consensus-building on disputed policy proposals, the moderation skills of the chairman were often essential for working out common objectives and shared understandings, which were then used for reaching a level of consensus with which every member of the benchmarking group could identify. Importantly, no political exchange for consensus-building took place between members of the benchmarking group; the debates are best

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characterised as deliberation rather than bargaining (Interview nos. 4, 20, 22, 25, 32).

6.2 The benchmarking report on employment of the low-skilled The first report of the benchmarking group dealt with the employment of the low-skilled and means to increase employment participation of this group (Fels et al. 1999). The report was based upon the assumption that enhancing the employment rate of the low-skilled required job creation in the service sector (in particular, simple services with low productivity), for which the improvement of the environment for business in the service sector economy was considered decisive. Overall, a service sector employment gap of four million jobs was identified. A strategy of focusing on employment in manufacturing industry and on qualificational efforts was presented as being ill-suited to dealing with the problem of unemployment among the low-skilled. Since the price of low-productivity services was considered largely determined by labour costs, the reduction of these costs was viewed as the primary means for facilitating growth in the service sector. Among the various approaches, the benchmarking group particularly discussed the non-linear reduction of nonwage labour costs to boost low-wage service sector employment. This strategy of boosting the employment rates of the low-skilled with the reduction of social security contributions for low-wage employment had been pursued by a number of neighbouring European states (such as France, Italy, Austria, the Netherlands and Belgium). It represented an approach of financing social security increasingly with taxes instead of social security contributions to make the welfare state more employment-friendly, for which Denmark was generally considered the prime example. With such a strategy, labour costs for low-wage employment could be reduced without reducing gross pay; in this way, it was thought, the working poor problem could be circumvented. Proposing a concrete policy recommendation, the benchmarking group suggested using the revenue from the then up-coming stage of the ecological tax for a non-linear decrease in social security contributions. This approach was generally regarded as being likely to have a more positive effect on employment (in particular, low-wage employment) than a linear reduction of non-wage labour costs.

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This benchmarking report, though supported by the trade unions’ expert on the benchmarking group, evoked intensive opposition from important parts of organised labour (as well as parts of the SPD parliamentary group). It was feared that the promotion of the low-wage sector would put standards of collective agreements under pressure and would eventually result in an erosion of the substance of collective agreements. In their general scepticism towards the idea of subsidising low-wage service sector employment, trade unions felt supported by rather disappointing ex-ante evaluations conducted by four research institutes for the benchmarking group. Employers, on the contrary, backed the idea of facilitating a low-wage service sector. However, the de facto veto power of trade unions due to their involvement in the Alliance for Jobs – as well as affiliations with Social Democratic MPs – obstructed a comprehensive attempt to boost service sector employment by reducing the burden of social security contributions on low-wage labour, as proposed by the benchmarking group (Blancke and Schmid 2003: 223–225; Reutter 2003: 301; G. Schmid 2003: 74ff.). In addition to political resistance, ministerial experts in the ministries of labour and finance were strongly opposed to the idea of using considerable financial resources for low-wage employment because of the costs associated with such a strategy. As significant substitution effects and windfall gains were expected, this approach was considered a highly inefficient means of job creation. The ministry of finance most vehemently rejected such comprehensive reforms because of the associated risks for the federal budget. In general, reforms for which costs arise immediately, while gains might occur in the medium or long term only, generally receive little support. Incremental policy reforms with manageable effects on the budget were preferred (Interview nos. 3, 6, 28). Instead of a comprehensive strategy, two pilot projects in four regions following the so-called Mainz model were initiated during the summer of 2000 as a political compromise by the Alliance (see Chapter 3, Section 2). Overall, the inputs by the benchmarking group did not develop much significance in actual policy-making (see also Eichhorst 2002: 275), primarily due to fierce resistance by organised labour. Collective learning necessary for comprehensive action did not take place. As well, the ministries of finance and labour, though for different reasons, also viewed publicly subsidising low-wage employment rather negatively. However, other actors, such as

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the Chancellery, ‘modernised’ Social Democrats and parts of the Green party, increasingly perceived the necessity to boost lowwage employment in the service sector as a means of tackling mass unemployment. Admittedly, this view existed prior to the policy input of the benchmarking group, but the group’s report reinforced this understanding. The observed strength of the trade unions and traditionalists in the SPD in the first Schröder government, however, made actively promoting this approach politically unfeasible. No serious attempt at pushing this strategy in the Alliance against trade union resistance was undertaken. Thus, the challenging idea of ‘making work pay’ could not become predominant because of the ‘cognitive locks’ of traditionalists in the SPD and organised labour. Finally, the Chancellor did not try to circumvent their veto by exercising political leadership.

6.3 The benchmarking report on labour market policy The benchmarking report on labour market policy proposes a paradigmatic change towards activation in labour market policy with explicit reference to the positive experiences of other countries (such as Denmark, the Netherlands, the UK and the US) and the policy approach promoted by the European Employment Strategy (Fels et al. 2000). Based upon labour market policy research and lesson-drawing, five guidelines for the improvement of the efficiency and effectiveness of German labour market policy were proposed. First, balancing social rights and individual duties, focusing on disadvantaged groups in the labour market and individually tailored reintegration efforts, were called for. Second, intensifying and modernising job placement were considered as crucial, for which obligatory profiling and assessing of the unemployed resulting in binding reintegration agreements were suggested, in order to prevent longterm unemployment. Furthermore, the benchmarking group recommended using the competencies of providers of training measures and of temporary work agencies for job placement. Complementing intensified reintegration efforts, it suggested compulsion to accept activation measures offered by the employment service and sanctions in the case of the refusal of reasonable work. Third, a recent increase in qualificational mismatch was said to show the need to improve the qualifications of unemployed persons and employees.

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The ineffectiveness of further vocational training in Germany revealed the necessity for reorganising the implementation of such measures (such as by differentiating measures according to target groups, taking into consideration business requirements and linking training measures with job counselling and placement efforts). As a concrete policy recommendation, it was proposed that job rotation as developed in Denmark could be introduced into the employment promotion legislation. Fourth, job creation measures were explicitly regarded as a ‘last resort’. The efficiency of job creation measures, it was thought, would be improved by qualificational and continuing job placement efforts. As they predominantly dealt with the societal problem of long-term unemployment, it was suggested that these measures be funded with taxes instead of unemployment insurance contributions. Finally, the promotion of self-employment for unemployed persons was viewed as an effective and not yet exhausted means of reducing unemployment. In addition to recommendations for reforming measures of active labour market policy, the benchmarking group presented guidelines for the reorganisation of the PES to equip it with organisational structures appropriate to meeting the requirements of implementing activating labour market policy. Overall, the organisational reform recommended by the benchmarking group followed key principles of the NPM philosophy. It proposed further decentralisation of labour market policy and then proactive learning from knowledge generated at the local level. With respect to the coexistence of labour market policy provided by the PES and the municipalities, an intensified cooperation between these two bodies was strongly recommended. Scrutiny of the option of integrating the unemployment and social assistance schemes was recommended. To sum up, the benchmarking group provided policy guidelines for the development of a comprehensive approach towards activating labour market policy, shaped by labour market research and the experiences of countries that were generally considered successful in labour market policy. At first, the proposals prepared by the labour market expert in the benchmarking group were strongly contested within the group. The draft report put forward a rather ambitious strategy of employment policy, which included proposals for linking labour market policy with other policies (such as fiscal, wage, regional and pension policy). The majority of members would have preferred a paper

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with the scope restricted to labour market policy only, which was considered more manageable. Importantly, in the discussion of employment policy, substantial differences in core understandings within the group became apparent, so that a consensus on comprehensive recommendations for employment policy could not have been taken for granted. Accordingly, a revised report was prepared that was restricted to the domain of labour market policy. This draft, however, was also contested, since its approach of incrementally reforming labour market policy was considered insufficient by some members, who demanded a more fundamental reform, including the abolition of the Federal Employment Service. The PES, whose capacity for reform was basically denied, was regarded by these members as the institution mainly responsible for the ineffectiveness and inefficiency of German labour market policy. Nonetheless, despite this fundamental critique, the actual benchmarking report remained relatively modest in scope. Given the diversity of positions, the final report eventually resulted in a compromise. In spite of the very general differences, other issues that were still being disputed in the political arena at that time (such as the ‘demanding and fostering’ principle, the reform of job creation measures and the decentralisation of the PES) caused little controversy in the group, apart from minor differences in emphasis. Thus, the principal ideas of activating labour market policy and of NPM were not questioned (Interview nos. 4, 20, 22, 25, 32). Notwithstanding the differences within the benchmarking group, the proposals on activating labour market policy can, in contrast to the benchmarking report on the employment of the low-skilled, be seen as having some significance in policy-making; namely, the formulation of the Job-AQTIV Law (Interview nos. 2, 3, 6, 15, 23; see also Eichhorst 2002: 275; see, for a critique, Interview nos. 5, 8). The benchmarking report on activation was intensively discussed and negotiated in the working group on labour market policy of the Alliance. On the policy recommendations of the benchmarking group, the working group, chaired by the Parliamentary State Secretary for labour market policy, spent five sessions in which the labour market expert of the benchmarking group was intensively involved. For the significance of the discussions in the Alliance, it was crucial that these negotiations were linked with the parliamentary process by the Parliamentary State Secretary (Heinze 2002: 105,

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108; G. Schmid 2003: 75). Though the Job-AQTIV Law involved some innovations, the overall scope of this legislation was rather limited (Heinze 2003: 154; Streeck and Hassel 2003: 117). More comprehensive changes in active as well as passive labour market policy, like those, for instance, outlined in the Schröder/Blair Paper (Schröder and Blair 1999), were politically not feasible because of the partisan veto by SPD traditionalists and the resistance of affiliated trade unions. Chancellor Schröder relied on their support in the runup to the general election in autumn 2002 (Merkel 2003: 180–182). Moreover, given the imperatives of party competition prior to general elections, approval by the Federal Council, which was dominated by the conservative opposition, could not realistically be expected. For this reason, the scope of legislation was restricted to proposals that did not require approval by the upper house.

6.4 The ‘Benchmarking Germany’ report Besides benchmarking reports on single issues, a comprehensive report covering virtually all relevant policy domains was prepared in close cooperation with the Bertelsmann Foundation, to contribute to developing a shared problem analysis of the German political economy for the Alliance for Jobs and to facilitate international lessondrawing (Heinze 2003: 146). In this ‘Benchmarking Germany’ report (Eichhorst et al. 2001), poor German employment performance (see Chapter 4, Section 2) was said to be caused mostly by the low flexibility of the labour market and high labour costs in certain sectors. As in the benchmarking report on low-wage employment, high non-wage labour costs were considered to undermine employment growth in the low-wage service sector, which was regarded as imperative for a substantial reduction of unemployment and an increase in employment rates. Therefore, to improve the prospect of employment for outsiders, flexibilising and deregulating the labour market (such as relaxing dismissal and employment regulations), as well as reducing non-wage labour costs, were suggested. Complementary to this strategy, it was urged that the system of social security be made more employment-friendly. The report largely referred to the policy proposals for activating labour market policy. In particular, the insufficient application of ‘demanding and fostering’ was criticised. However, in addition to the improvement of the employability of

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job-seekers, workfare and ‘making work pay’ measures were more vehemently called for than in the benchmarking report on activating labour market policy. The generosity of social and unemployment assistance and their inflexibility with respect to the combination of benefits and work income was depicted as undermining the attractiveness of employment. As recommendable practices of activating labour market policy, innovations from Denmark, the UK, the Netherlands and Ireland were reported. As with the benchmarking report on employment for the lowskilled, the attempt with the ‘Benchmarking Germany’ report to provide expert academic backing for the development of a comprehensive reform agenda failed. Despite broad consensus in the benchmarking group, this report was again heavily criticised by the trade unions in the Alliance, which argued that the report largely adopted the problem analyses and policy recommendations of the employers’ associations. Because of the fierce resistance of organised labour, the report was not even officially accepted by the steering group of the Alliance. When confronted with the downturn of the global economy and rising unemployment figures, the Chancellor announced a change of political strategy to the so-called ‘politics of the calm hand’ (Politik der ruhighen Hand). As a result, the benchmarking report lost any potential significance for governmental policy-making (G. Schmid 2003: 75; see also Interview no. 4). This expertise was not used for agenda-setting by the Chancellery, even though it basically shared the assessment of the ‘Benchmarking Germany’ report. On the contrary, a rather cautious strategy was pursued for political reasons. The inputs by the benchmarking group did not contribute to changing the minds or analyses of the various actors involved in the Alliance for Jobs (Eichhorst 2002: 276; W. Schroeder 2003: 136). Almost inevitably, many policy recommendations made by the benchmarking group were condemned to fail because of the resistance by important parts of the trade union movement, which refused to consider certain policy options. In explaining this phenomenon, reference to the concept of the ‘cognitive lock’ appears highly reasonable. Even the Job-AQTIV Law, which was influenced to some small extent by policy inputs provided by the benchmarking group, fits this description, because the scope of reform was restricted by the refusal of trade unions and the traditionalist wing of the SPD to accept changes towards activation in passive labour market policy. In

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other words, elements of negative activation, such as cutting benefits and loosening the criteria for reasonable work, were politically not feasible; narrow boundaries were set for effective collective learning. To conclude this chapter, judged against the significance intended for it by the Schröder government and compared to experiences of labour market reform in many other European countries, the Alliance for Jobs did not meet expectations (Siegel 2003: 173). Like the Alliance of the Kohl government, the attempt at corporatist concertation by the Red–Green government eventually failed (Streeck 2003). Rising conflict between the parties involved (particularly on wage policy) eventually ended Schröder’s Alliance for Jobs, which ‘was kept alive only for public consumption’ (Streeck and Hassel 2003: 118), after less than three years of existence. Politically, this failure can be ascribed to the inability to organise inter-sectoral political exchange for overcoming the reform gridlock. The Chancellery showed hardly any political leadership in the Alliance. The government was not able to mitigate the fierce opposition from organised labour. In terms of policy learning, the effectiveness of the Alliance, or more specifically the benchmarking group, was also rather limited. Although the benchmarking group provided consensual policy inputs, its analysis of the strengths and weaknesses of the German political economy and the corresponding policy recommendations were largely ‘denied’ by organised labour. Consequently, potentially substantial processes of collective learning failed to be fostered by the Alliance; policy learning remained restricted to basically consensual aspects of the Job-AQTIV Law. In that regard, the benchmarking group might be considered an ineffective learning mechanism faltering in the face of the cognitive locks of the trade unions and SPD traditionalists. In this environment, the Alliance for Jobs was not able to develop a significant mediating capacity.

7 The Second Red–Green Government and the Hartz Commission

The labour market policy of the second Schröder government was dominated by the Hartz Legislation, based on the policy recommendations by the expert commission that was set up in the beginning of 2002 to deal with the ‘placement scandal’ of the Federal Employment Service. When the Hartz Commission presented its report in August 2002, Gerhard Schröder announced in the run-up to the general election that he would fully implement the recommendations in the event of re-election. With this statement, the political importance of the Hartz Commission for subsequent policy-making cannot be seriously disputed. Nonetheless, the actual importance of the policy recommendations for the formulation of the Hartz Legislation needs to be examined carefully. Here, it is particularly reasonable to pay attention to the significance of policy learning. Expert commissions are ideal-typically expected to provide recommendations that are based upon policy-relevant knowledge and deliberation (see Chapter 2, Section 3). The Hartz Legislation is an instructive example of policy formulation outside established structures and the ‘translating’ of policy proposals into legislation. The Hartz Commission is first introduced as a policy-making device of the Chancellery, focusing on the ‘politics’ dimension of the commission (Section 1). Here it is argued that the full significance of the Hartz Commission cannot be captured with reference only to this dimension as the commission also demonstrated remarkable capacity as an institutionalised learning mechanism. Its working structures are analysed, showing that these structures facilitated knowledge utilisation in policy formulation (Section 2). Then, the 150

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significance of policy learning in the formulation of the Hartz Report is traced (Section 3). Translating the Hartz Report into legislation, the ministry of labour – closely supervised by the Chancellery – drafted the first two pieces of Hartz Legislation. Here, the inputs by the Hartz Commission were crucial, and a case is made for the effectiveness of its learning, despite considerable reservations by ministerial experts (Section 4). The ministry returned to the ‘driving seat’ of policy formulation with the Hartz III Law. Unlike the Hartz Commission, this piece of legislation can programmatically be ascribed to a ministerial project group, which is described as the locus of policy learning in Hartz III (Section 5). Likewise, the substance of the Hartz IV Law cannot be related to the inputs by the Hartz Commission. Rather, an expert forum that was set up prior to the Hartz Commission is identified as the key arena for policy learning, complemented by policy deliberations in a ministerial project group. Both the expert forum and the ministerial project group were established prior to the Hartz Commission (Section 6). It is concluded that learning was decisive in the policy formulation of the Hartz Legislation and the associated departure from the conservative–corporatist path of welfare in labour market policy. This is not to say that ‘politics’ was irrelevant to the Hartz Legislation. The argument, however, is that an analysis that does not acknowledge the significance of learning in policy formulation is ill-equipped for fully understanding both the ‘speed’ and ‘direction’ of the Hartz Legislation.

7.1 The Hartz Commission: an overview When the Federal Audit Office (Bundesrechnungshof, BRH) presented its report on the job placement activities of the PES in February 2002, the employment service slipped into a severe crisis. The BRH scrutinised 4,487 job placements of October 2001 in five districts, of which 3,008 cases (71.2 per cent) were wrongly classified in the PES statistics. Another 640 placements could not be traced, because data was unlawfully deleted from the IT system. Confronted with this devastating evaluation of its placement activities, the executive board of the PES initiated an internal investigation in 15 employment offices, which produced essentially the same results as the BRH (Trampusch 2002: 5). Both the internal auditors of the PES and the BRH concluded that poor governance of the PES, technical problems

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and qualificational deficits of staff were to be held responsible for the incorrect placement statistics (Bundesanstalt für Arbeit 2002). The political severity of this scandal intensified when the media discovered that the president of the employment service had been informed about the incorrect statistics after an internal investigation in 1998. In the face of massive public discontent, the Schröder government presented a two-step action plan about three weeks after the BRH published its report, to show that the problem of unemployment was being seriously dealt with by the government. In the first step, the government enacted a number of immediate measures, to initiate the modernisation of the PES along private sector principles. In the second step, the government set up the ‘Commission for Modern Services in the Labour Market’ (Kommission für Moderne Dienstleistung am Arbeitsmarkt), chaired by the Volkswagen labour director, Peter Hartz. The Hartz Commission was assigned the task of developing comprehensive proposals for the reform of the Federal Employment Service. The commission was expected to propose policy recommendations in four areas: first, concentrating PES activities on job placement and counselling as well as passive and active labour market policy; second, shifting the emphasis to job placement and counselling; third, reorganising the administrative structures of the PES; finally, scrutinising the option of integrating the unemployment and social assistance schemes. Of the 15 members of the commission, seven members were business managers or management consultants. Only one full-time business representative was appointed by the government; organised labour was represented by two members. From the PES, one member was nominated by the government. The commission was completed with two Social Democratic politicians and two academics, of whom one was a distinguished expert on labour market policy who had previously been a member of the benchmarking group in the Alliance for Jobs, and the other a specialist in public sector reform (Bundesregierung 2002; Marx and Schmachtenberg 2002). The composition and the design of the Hartz Commission differed substantially from the tripartite Alliance for Jobs. The influence of social partners was severely limited, while the steering capacity of the Chancellery was said to have increased (W. Schroeder 2003: 139). For this reason, Streeck (2003, see also Streeck and Hassel

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2003: 119) argues that the Hartz Commission signals the ultimate failure of tripartite social concertation as represented by the Alliance for Jobs, which eventually heralded the end of the corporatist century. Instead, a new trend of German social policy-making ‘by commission’ has been identified, with which traditional patterns of corporatist decision-making were substantially weakened (Czada 2004: 26ff.; Dyson 2005; Heinze 2002). The attractiveness of such commissions, in which policy experts as well as some representatives of societal groups are involved to deal temporarily with certain issues (such as the problems of the employment service), derives from the utility of consensual policy recommendations for governmental policy-making. Within the public, a high level of political legitimacy is generally ascribed to proposals from expert commissions, so that such bodies can be deliberately used to restrain opposition and in particular the capacity of veto players to actually exercise a veto. The importance of the composition of the commissions is therefore obvious. In order to prevent being confronted with unacceptable expert recommendations, governments tend to select commission members carefully, since the composition partly predetermines the content of proposals. In situations of crisis, the establishment of expert commissions is moreover a valuable device that releases the government from the pressure to immediately present policy solutions for a particular problem (see also Kropp 2003: 337–342; Murswieck 2003: 121–126). From this perspective, in order to deal with rising public pressure of the placement scandal, setting up the Hartz Commission was a highly sensible political manoeuvre by Gerhard Schröder in the run-up to the general election, making it an incidence of political learning (see Chapter 2, Section 3). The commission developed consensual policy recommendations to address the problems of the employment service, as well as the problem of unemployment more generally. For most of the election campaign, it was rather difficult for the opposition to attack the government on labour market policy, which was ‘waiting’ for the final report from the ‘independent’ experts of the Hartz Commission. When the Hartz Report was eventually presented, it was no less difficult for the opposition to criticise the Red–Green alliance over labour market policy, since it made the consensual expert recommendations part of its agenda. By deliberately reducing the influence of social partners, as reflected in the

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composition of the Hartz Commission, the blockages experienced in the Alliance for Jobs were intended to be circumvented. Moreover, with respect to timing, the placement scandal was widely viewed as ‘window of opportunity’, which Gerhard Schröder used to push reforms that were previously politically unfeasible due to resistance from trade unions and sections of the SPD. However, confronted with the alternative of a centre-right government, organised labour and the left wing of the Social Democrats reluctantly accepted proposals by the Hartz Commission that would have evoked fierce resistance in the Alliance for Jobs. In other words, the imminent general election had a disciplinary effect on the opposition to Schröder within Social Democracy (Blancke and J. Schmid 2003: 228–30, 234ff.; Eichhorst and Wintermann 2005: 12ff.). While the ‘politics dimension’ of the Hartz Commission is clear, the full significance of the commission cannot be captured with this view alone. Complementing but not replacing the politics perspective, the Hartz Commission is here also considered as an effective device for institutionalised policy learning, for which both national and international best practices were utilised. Admittedly, the commission was set up primarily for political reasons by the Schröder government, but this does not in itself exclude the significance of policy learning in the commission’s work and in the subsequent legislation.

7.2 The Hartz Commission at work The Hartz Commission held nine meetings from March to August 2002 before its report was delivered. To structure the enormous workload and to cope with the immense time pressure, five internal working groups were set up on specific issues: (i) job placement and counselling; (ii) unemployment benefits and social assistance; (iii) employment promotion and impact assessment; (iv) human resources management, governance and organisation of the PES; (v) communication within the PES. These groups worked largely independently of each other and organised workshops on specific issues, in which both academic experts and practitioners were heard. Intermediate results were regularly presented and discussed at sessions of the entire commission, before every working group delivered its final report. In its work, the commission and its working groups

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were supported by an office established by the ministry of labour. As supporting staff, every working group was equipped with two labour market policy experts (of whom one came from the ministry of labour, while the other was delegated from the PES) and one administrative officer. Dealing with the assignments from the commission, the office utilised the resources of both the ministry and the employment service. Furthermore, this office was used as a contact point for policy recommendations made by the PES, which were passed on to the ministry for examination and, where considered appropriate, submitted to the commission. In addition to the ‘official’ office, Peter Hartz set up his private team of advisers, using financial resources provided by Volkswagen. These worked largely detached from the ministerial office, eventually resulting in severe tensions between the two teams. At first, the official office was involved in the conceptual work of the working groups. Its resources were used to acquire information needed for policy formulation, though it must be questioned whether the commission was, in the end, able to systematically and effectively process the immense amount of information requested. By contrast, the personal team of Peter Hartz gained steering and coordination predominance in the final phase of the commission. The commission’s report was almost exclusively coordinated and drafted by Hartz’s advisers, who decided upon the additional expertise that was utilised. Thus only individual experts from outside the Hartz staff were included in the final drafting of the report. The labour ministry was not institutionally integrated into this crucial phase of the commission. For the acquisition of policy-relevant information from abroad, the commission intensively used the resources of the Bertelsmann Foundation, which had been previously involved in supporting the benchmarking group of the Alliance for Jobs (see Chapter 6, Section 1). This think tank, which offered expertise at its own expense, coordinated its efforts with the commission’s office but less with the private Hartz team. Among others, the foundation provided 15 policy papers on the reform of the public employment services in selected countries, which were prepared by a consultancy agency. Furthermore, excursions to five countries – the UK, the Netherlands, Switzerland, Austria and Sweden – were organised by the Bertelsmann Foundation, whereby the commission was given the opportunity to acquire information on changes in labour market

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policy and reform experiences in dialogue with academic experts and practitioners in these countries. The five countries were selected on the grounds of their anticipated value for lesson-drawing. After these field trips, two workshops with national experts, as well as experts from abroad, were held to reflect on the international experiences gained throughout the commission’s work. Finally, a crucial source of policy-relevant knowledge was the individual expertise of the commission’s members, who utilised their personal resources and networks for the acquisition of information and policy formulation. Interestingly, the international trend of increasingly involving management consultancies in policy formulation could be observed in the Hartz Commission as well. Management consultants were both nominated as members of the commission and served as external advisers. Most Hartz advisers were business consultants (Interview nos. 12, 21, 24, 10, 16, 30).

7.3 The Hartz Report: lessons learnt Before assessing the impact of the Hartz Report on the labour market policy legislation of the second Schröder government, the most important aspects of the 13 modules of the Hartz Report are summarized (Hartz et al. 2002) and, based upon the collected interview data, scrutinised with respect to the significance of policy learning in the formulation of the Hartz Report. For improving job placement and counselling, the commission proposed to establish Job Centres to deliver locally all labour market services to both job-seekers and employers (a so-called ‘one-stop agency’). The reform of job placement was heavily informed by the UK ‘Job Centre Plus’, the ‘Centres for Work’ in the Netherlands and employment offices in Austria. For the Hartz Commission, these foreign exemplars, however, had an ‘inspiring’ character only, because policy transfers directly copying a blueprint were regarded as inappropriate because of considerable institutional differences. By contrast, the intensive case management promoted by the local employment service and welfare office in Cologne was adopted rather closely (the so-called ‘Cologne model’). Likewise, the concept for processing clients in the Job Centre emulated that of Austria, but the British charter for service standards can only be described as offering vague ‘inspiration’. Among European employment services,

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the organisational reform in the Netherlands, where the Centres for Work function as a ‘gateway’ to labour market services, with actual services delivered by private providers, had been the most comprehensive attempt at deregulation and privatisation so far. The Hartz Commission, aware of these innovations, did not seriously consider the Dutch model, since sticking with the PES as the main provider of labour market services was not called into question at any time. It is noteworthy that implementation problems in these countries were largely neglected for two reasons. First, the available data and information were considered insufficient to draw definite conclusions; and second, possible problems with policy transfers were neglected to reduce potential conflict on the commission (Interview nos. 10, 12, 21, 16, 30). It was furthermore proposed to tighten the criteria for reasonable work, such as increased regional mobility (including the obligation to move for the young long-term unemployed without family commitments). In order to prevent penalties, an unemployed person refusing to take up an offered job would be responsible for the provision of evidence that the offer was unreasonable. Making sanctions for misconduct more flexible, the existing penalty of 12 weeks of disqualification for benefits was proposed to be replaced with sanctions whose severity depended upon the kind of misconduct. These modifications of existing rules did not follow some reference model. Rather, the differentiated application of penalties for misconduct can be considered a ‘creative’ attempt to take into consideration the different types of misconduct in the sanction regime. The previous 12-week rule was regarded as highly undifferentiated. According to OECD data, to which the Hartz Commission referred, sanctions were applied rarely in Germany by international standards. In this context, the differentiation of penalties was considered a means for making this ‘blunt’ instrument more applicable. Tightening the mobility requirement, however, must primarily be perceived as a ‘symbolic action’ forcefully demanded by the business faction. In the commission, this measure was heavily disputed, especially with organised labour. Overall, there was also the awareness that this regulation would not be particularly significant in job placement (Interview nos. 22, 30). In compliance with the activation paradigm, intensified integration efforts by Job Centres were thought appropriate to deal with the

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problem of rising youth unemployment. For the specific problem of lack of apprenticeships, the so-called ‘training bond’ (AusbildungsZeitWertpapier), both publicly and privately funded, was developed for financing training for young people. For this module, there was no reference model; it was based upon the internal considerations of Peter Hartz’s circle without the involvement of other members, of whom many viewed this initiative critically (Interview nos. 22, 30). To improve the employment participation of older employees, the introduction of ‘wage insurance’ (Lohnversicherung) was suggested to partly compensate for the loss of income of re-employed jobseekers above the age of 55 years who take up employment with lower salaries. This proposal was complemented by employers being exempted from paying unemployment insurance contributions for former job-seekers of the same group. In the contrary direction, the so-called ’Bridge System’ was thought to allow older employees to deregister from the Job Centre while receiving further benefits despite being unavailable for labour market integration. The idea of wage insurance was introduced by the academic labour market expert as a means of dealing with transitional labour markets and was related to more general proposals developed by the Brookings Institution. Reservations in the commission about comprehensive wage insurance resulted in the restriction of the idea to older job-seekers, especially as a way of encouraging this group of the unemployed to get into employment. The Bridge System, at the core, appears to be an unorthodox attempt to foster early retirement, which was a ‘back room deal’ between Peter Hartz and the representative of the metal workers’ union; other members of the commission and the ministry viewed this recommendation rather sceptically (Interview nos. 6, 8, 22, 30). One of the central proposals of the Hartz Commission was the integration of the unemployment and social assistance schemes to address the problem of ‘marshalling yards’ between the employment service and local authorities. In this proposal, the unemployment benefit from unemployment insurance remained untouched, but was renamed ‘unemployment benefits I’ (Arbeitslosengeld I, ALG I). The merging of unemployment assistance and social assistance for employable assistance claimants, ‘unemployment benefit II’ (Arbeitslosengeld II, ALG II), was suggested as a new means-tested and tax-funded benefit for all employable claimants without insurance-based unemployment

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benefit entitlements. The commission made no explicit statement on the generosity of the new benefit, but proposed a benefit that included social insurance coverage. The problem of burden-sharing between federal, state and local levels was left to the Commission for the Reform of the Municipal Finances (Kommission zur Gemeindefinanzreform). Recipients of unemployment benefit I were intended to become the responsibility of the Job Centre. The policy recommendation to integrate these two benefit systems for the long-term unemployed was predominantly based upon lessons drawn from the results of the Mozart model projects (see Chapter 3, Section 2). It became apparent that the institutional division of employment service and social assistance offices could not be sufficiently overcome with cooperation agreements only. In this light, remodelling the benefit systems for the long-term unemployed was suggested. The commission strongly relied on inputs from the ministry of labour, which was not keen on addressing details because of parallel deliberations in the Commission for the Reform of Municipal Finances. On the important issue of benefit generosity, no decision was taken in order to avoid intense conflict within the commission, which might have resulted in jeopardising a unanimous report because of a veto by organised labour. For the same reason, the issue of shortening the duration of unemployment benefits was taken off the agenda. The responsibility of the PES for the ALG II scheme, however, was not disputed. There was a widespread consensus for sticking with the PES as the main provider of labour market services. The option of ascribing the responsibility for the long-term unemployed to the municipalities was not seriously considered by the Hartz Commission (Interview nos. 1, 6, 8, 22, 30). Presented as the ‘heart’ of the Hartz Report, the ‘Personnel Service Agency’ (Personalserviceagentur, PSA) was considered a key instrument for the reduction of unemployment, by using temporary agency work complemented with some training for permanent reintegration into the labour market. The commission was convinced that the potential for temporary agency work had not yet been exploited. Volumes of such work in the UK and the Netherlands were set as benchmarks. Due to considerable cross-national differences in employment regimes, however, the institutional frameworks of these two countries were not considered for policy transfers. As a concrete measure, the idea of personnel service agencies was put on the agenda by

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Peter Hartz, who built upon the PSA of the so-called ‘Wolfsburg AG’. This PSA, organised as a public–private partnership between the City of Wolfsburg and Volkswagen, is basically a private temporary employment agency, where temporary workers are employed with open-ended contracts, based upon a collective agreement with the metalworkers’ union. Extending this model nationwide, parts of the Hartz Commission feared the establishment of a ‘mega job creation company’, associated with considerable windfall gains and substitution effects. Therefore, the Bertelsmann Foundation together with the PES (especially represented by the commission member Wilhelm Schickler) and McKinsey established a project group in order to develop an alternative conception. They selected exemplars of nonprofit temporary employment in Bavaria and Hesse (see Bertelsmann Stiftung et al. 2002); and in its PSA proposal, the Hartz Commission made significant reference to the best practices in these two regions, as proposed by the project group and put forward in the Hartz Commission by Schickler (2002). Trade unions, which traditionally viewed temporary agency work rather negatively (fearing it as substitution for regular employment), accepted the PSA concept reluctantly after the concession to decide upon the PSA wage in collective agreements (Interview nos. 8, 16, 21, 30). To create new regular jobs and to tackle illegal employment, the Hartz Commission presented the ‘Me, Inc.’ (Ich-AG) as well as the ‘Mini-Job’ scheme. ‘Me, Inc.’ represented a means to encourage self-employment of unemployed persons, for which an allowance initially corresponding to the received unemployment benefit but declining in stages was proposed. By contrast, jobs in private households were proposed to be subsidised with reduced social insurance contributions. The ‘Me, Inc.’ scheme did not refer to any particular exemplar. This new instrument was driven by the idea of providing a low-threshold scheme promoting self-employment for unemployed persons. It was assumed that the potential for self-employment had not yet been exhausted, as commonly argued in the labour market literature. The proposed Mini-Job scheme of the Hartz Commission was basically an extension of the existing marginal employment scheme for a particular group; namely, employees in private households. Like other policy strategies for service sector employment, it was based upon the assumptions of an incomplete exploitation of lowpaid service sector jobs and the predominantly informal provision

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of private services by low-skilled workers. Given other policy recommendations in the ‘market’ (such as the model suggested by the benchmarking group), the Mini-Job scheme must be considered a rather cautious approach towards extending and formalising lowpaid service sector employment. Instead of an ambitious reform, the commission, though sharing the analysis with more comprehensive approaches, basically stuck with the existing model, in order to contain the costs associated with strategies boosting service sector employment (Interview nos. 22, 30). With regard to the reorganisation of the Federal Employment Service, the Hartz Commission called for decisively strengthening management by objectives (MBO), and weakening the detailed input- and rule-oriented governance of the PES. The inconsistent coexistence of these two governance modes was held as most responsible for the service’s steering problems. The policy recommendation to reorganise the employment service along key principles of NPM, in particular decentralisation and MBO, referred heavily to recent organisational reforms in the UK, Austria and Switzerland, where a decisive shift towards output-oriented governance of the employment service had already begun. These declared best practices, however, got no further than being ‘inspiration’ for the Hartz Report. Strikingly, no domestic administration was considered for lesson-drawing. Given immense institutional differences between countries, a policy transfer close to some foreign model was considered functionally unfeasible. Overall, this part of the report, while quite lengthy, remained rather general in character. This might reflect the novelty of MBO for the German employment service, though some measures of NPM had already been introduced with legislation in 1998 (see Chapter 3, Section 1). It is worthwhile to note that in this debate of the Hartz Commission, the management consultancies affiliated with the commission were heavily involved, and designated substantial personnel resources (Interview nos. 12, 21, 24, 16, 30). Though the Hartz Commission was set up primarily because of strategic considerations by the Red–Green government (making it an example of political learning), scrutiny of its proposals shows that the commission must be considered a means of policy learning as well. In many of its proposals, the commission deliberately transferred policies that were perceived as being successful; in other policy

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recommendations, however, the commission did not refer to some exemplar but developed new instruments to address problems of which it was made aware by labour market data and research. For this reason, an interpretation that reduces the commission to a politically strategic tool of the Schröder government cannot capture the entire significance of this advisory body. The Hartz Commission did not just ‘copy’ proposals that had been prepared by the Chancellery or the ministry of labour into its report, in order to serve as a PR device in the election campaign of the governing Social Democracy. Rather, in-depth analysis reveals strong evidence of policy learning in the commission’s work. National as well as international practices of supposedly successful labour market policy were used in the formulation of policy recommendations. The Hartz Commission used both the expertise of members of the commission and inputs from external academic experts as well as practitioners. Policy learning in the Hartz Commission, however, was restricted to instrumental learning for increasing its problem-solving capacity. No evidence for social learning can be reported; this observation is by no means surprising, as the duration of the commission was too short to expect significant processes of social learning. The depth of instrumental learning was constrained by the immense time pressure and the extraordinary pressure to deliver. These constraints did not allow discussion of all details of the policy recommendations made. For instance, possible problems in the country of origin and implementation problems of best practices were typically largely left aside in order to minimise potential conflicts in the deliberations of the commission and, eventually, in order to deliver the report on time. However, the commission’s understanding of its task, in the light of its awareness of practical problems, was not to provide some fully elaborated master plan for the reform of labour market services. Interestingly, G. Schmid (2003: 79; see on a similar theme Interview no. 24) associates the functioning of the Hartz Commission with the ‘garbage can model’ of Cohen et al. (1979), who in essence argue that decisions in organisations are based upon anarchical processes. With respect to instances of policy learning from national exemplars and best practices from abroad, no clear pattern can be reported in the work of the Hartz Commission. However, the investigation gives reasons for the claim that national best practices were at first

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preferred in policy formulation. If some national best practice of presumably sufficient problem-solving capacity was identified, the Hartz Commission basically adopted a corresponding idea, as the examples of case management and PSA illustrate. In such cases, it seems that international best practices did not receive much attention. However, if the national sphere did not offer some policy idea that was considered sufficiently problem-solving, as in the cases of Job Centres and the organisational reform of the employment service, best practices from abroad were adopted. Regarding the scope of policy learning, it can be observed that national exemplars were transferred with relatively little deviation, while international best practices usually had only an ‘inspiring’ character or were emulated with some considerable deviation from the original model. Transfers of policy innovations close to the original model are relatively difficult, if not impossible, because of historically developed institutional differences between national systems. Thus, either considerable adaptation is necessary to make an idea work (for instance, a one-stop agency) or policy transfers are not even recommendable (for instance, the institutional framework for temporary agency work). National best practices, on the other hand, are already being tested elsewhere within the country, by which their practical utility for policy-making is substantially increased. This argument seems to be a plausible explanation for the claim that national exemplars were preferred in policy learning by the commission. Another observation is that no example of direct ‘copying’ can be reported, underlining the importance of institutional contexts and barriers in policy learning. Here, labour market policy is an exceptionally instructive example, as labour market regimes are deeply embedded in the social, political and economic system of the particular nation state (M. Rhodes 1995: 91). Although in the end a consensual report was presented, the Hartz Commission cannot be described as a body characterised by common beliefs (a so-called ‘epistemic community’; Haas 1992). The commission’s work involved substantial dissent and severe conflict over several issues between members of the commission (such as the conflict on temporary agency employment with the trade unions), underlining the importance of political factors in policy learning (Robertson 1991). These controversies restricted the potential scope of policy learning. That the commission was nonetheless able to

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deliver a consensual report became possible because of the very high expectations of the public and, accordingly, immense pressure to reach an agreement. This public pressure undermined Peter Hartz’s intention to work with majority decisions on disputed issues. In particular, organised labour threatened to withdraw its support if overruled on certain issues. A consensual report would thus have become impossible. In practice, the moderation and negotiation skills of Peter Hartz were crucial for consensus-building. Though a unanimous report was vital for the Red–Green government and their election campaign, the political resolution for consensual decisionmaking should nonetheless not be interpreted as evidence of the predominance of political learning in the commission’s work, or even as evidence for steering by the Chancellery or the ministry of labour. For the government, the claim by Peter Hartz that his recommendations would reduce unemployment by two million people in three years – a figure that was criticised within the commission – as well as the ‘delivery’ of a consensual report seemed more important for the election campaign than the actual substance of the report. Overall, it appears reasonable to emphasise the momentum of the commission and its remarkable autonomy. Turning attention towards agency in the process, the importance of outstanding figures for the commission’s work is evident; this has already been discussed under the heading of ‘institutional entrepreneurs’ (see Chapter 2, Section 2). The significance of Peter Hartz, who demonstrated decisive moderation and coordination skills and who provided some important policy inputs, has already been emphasised. But other members of the commission also qualify as policy entrepreneurs, including Wilhelm Schickler, crucial in the development of the PSA, and Günther Schmid, a distinguished labour market policy expert who had been involved in policy formulation previously in other expert bodies (such as the benchmarking group of the Alliance for Jobs). A possible argument that the commission utilised domestic and foreign practices with the objective of legitimising the proposed policy recommendations (that is, political learning) rather than policy learning is not plausible for two reasons: first, in its report the Hartz Commission did not, in most cases, name the ‘best practices’ that it had examined; second, in contrast to politicians, who have to generate political legitimacy for their proposals with the public,

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there was no need for the commission to pursue such a legitimacy strategy. Therefore, it appears highly reasonable to complement the widely accepted political dimension of the Hartz Commission with the knowledge-based perspective of policy learning. Admittedly, the politics dimension is imperative for understanding the reasons for the actual importance of the commission in the political process. Yet without the analysis of the role of policy learning in the formulation of the Hartz Report, the substance of the Hartz proposals cannot be fully understood. The substance of the Hartz Report, however, needs to be considered in order to comprehend the actual Hartz Legislation and its ‘direction’. In sum, the Hartz Commission, utilising national and foreign practices for policy formulation, qualifies as an institutionalised learning mechanism, which generated policy-relevant knowledge for subsequent legislation. There remains the question, however, of how this knowledge was eventually used in policymaking and whether the Hartz Commission had a mediating capacity outside the commission itself.

7.4 The Hartz I and II Laws: implementing the Hartz Report After its unexpected victory in the 2002 general election, the Red– Green government began the implementation of the Hartz proposals. Due to Chancellor Schröder’s commitment in the election campaign to fully implement the Hartz Report, the room for manoeuvre for the ministry of labour and the parliamentary groups was substantially restricted (see Chapter 5, Section 2). Therefore, the first two pieces of legislation, which enacted measures that did not require much preparation, were basically predetermined by the Hartz Report. The ministry of labour, as reported, had considerable reservations about the introduction of some new measures. These were viewed rather sceptically for technical reasons and, moreover, were perceived as undermining the idea of reducing the regulatory density of the SGB III, as demanded, among others, by the Hartz Commission itself. In other words, decisive components of the Hartz I and II Laws (such as the PSA, ‘Me, Inc.’, the Mini-Job scheme, remuneration security and the reduced unemployment insurance contribution for older workers) would not have been proposed by ministerial experts (Interview nos. 1, 6, 8, 26, 33). Thus, for this legislation, policy learning was

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largely restricted to the commission itself and was not shared by the ministry of labour to a considerable extent. Collective learning, which is normally required for institutional change, cannot be assumed to have taken place. Collective learning in the Red–Green labour market policy community, however, was dispensable because of the political commitment by Schröder to implement the Hartz proposals. Hence, the requirement of collective learning for knowledge-based institutional change was replaced by the political leadership of the Chancellor. Accordingly, ministerial experts lost their common steering function in the legislative process. Likewise, the parliamentary experts of the Red–Green alliance were put on the defensive, so that the parliamentary working group became negligible in terms of policy formulation. For institutional change, its mediating capacity was not required. Despite the absence of collective learning, policy learning was crucial for the formulation of the proposals in the Hartz Commission in the first place; though, for their actual implementation, the Schröder dictum of fully implementing the Hartz Report – and the associated political leadership – was decisive.

7.5 The Hartz III Law: learning beyond Hartz While Hartz I and II were heavily pre-structured by the inputs of the Hartz Commission, the ministry returned to the ‘driving seat’ of policy formulation with the Hartz III Law. The preparation of this legislation was dominated by the proposals of the project group installed by the ministerial unit in charge of coordinating the legislative process of Hartz III (see Chapter 5, Section 2). With the involvement of experts from the PES to complement ministerial expertise, experience-based knowledge of all three levels of the employment service and of local branches with different profiles – and therefore different problems – was heavily utilised for proposals reducing the density of regulations in the SGB III, in order to minimise the time-intensity of individual cases. International or national best practice learning at the instrumental level did not take place; this was related to the very specific character of SGB III regulations, whereby copying from or close emulation of other administrative systems became barely possible. Noteworthy, with the reform of job creation measures (that is, qualificational down-scaling and withdrawing from social

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insurance coverage), the emphasis of these measures in the JobAQTIV Law was reversed, thereby acknowledging that the secondary labour market did not serve as a bridge into regular employment. In the general discussion of MBO and decentralising authority (that is, social learning), substantive attention was paid to recent reforms of the employment services in Austria, Switzerland, the Netherlands and the UK. Though not remodelled because of considerable institutional differences, these reference models had an important ‘inspiring’ impact on the break with the traditional bureaucratic and highly centralised structure of the PES and the objective of reforming the PES along the principles of NPM. Despite the relatively far-reaching character of the Hartz III Law, the concrete formulation of proposals was a rather technical process of instrumental learning; the proposals themselves were barely disputed, as the overall ‘direction’ of legislation was virtually unchallenged. The policy suggestions made by the project group were basically adopted in the draft legislation. Due to the very technical character of Hartz III and – related to this – its high legal complexity, the proposed legislation was not contested in the Red–Green parliamentary groups. The ministerial presentation can be depicted as a ‘briefing session’. Accordingly, the proposed draft for Hartz III was basically adopted by the Red–Green parliamentary groups. In terms of policy learning, the parliamentary working group did not need to function as a mediating institution. As the law did not require approval by the Bundesrat, Hartz III as proposed by ministerial experts was finally enacted without substantial changes by the Bundestag. Worthy of note is that the ‘smooth’ decision-making on Hartz III was to a considerable extent facilitated by the attention paid to Hartz IV, whereby Hartz III became less scrutinised in public (Interview nos. 1, 5, 6, 8, 18, 26). Programmatically, the importance of the Hartz Commission for the substance of the actual legislation was rather limited, as the fairly general character of the Hartz proposals on the administrative reform of the PES made them of low utility for law-making. Moreover, many recommendations of the commission on this issue were, for systematic reasons, not relevant for legislation but rather for implementation by the PES. Nonetheless, the Hartz Commission, with its strong plea for NPM, was of great significance for Hartz III. Opening a window of opportunity, a comprehensive reform – involving reduced benefits for some individuals and groups – became politically

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feasible due to the common understanding developed that the PES needed to be urgently reformed in order to improve its performance. Without the Hartz Commission, some similar legislation might have been proposed in the future (as the ministry was already sensitised to the necessity for reforming the PES), but such a reform would not have had the comprehensive character of Hartz III (Interview no. 26). Along with the job placement scandal, the bureaucratic character of the Federal Employment Service became highly discredited among policy-makers and the wider public. Thereby, the NPM philosophy as the ‘only remaining alternative’ became acceptable for Social Democrats and trade unions, even though this agenda was commonly associated with the policies of Margaret Thatcher rather than social democracy and involved breaking with the objective of single-case justice, which resulted in very detailed regulation. Many SPD MPs became increasingly tired of ‘defending’ the employment service (Interview nos. 5, 15, 17). Therefore, the crisis of the PES and the Hartz Commission can be argued to have facilitated social and eventually collective learning, making NPM a predominant idea. The PES was traditionally not perceived by Social Democrats as a key problem in labour market policy. Accordingly, apart from some minor changes, the organisational reform of the PES was not subject to the Job-AQTIV Law. Nonetheless, at the senior level, there were ‘back-room’ discussions about the necessity of reorganising the employment service. The ability of the PES to reform itself was seriously called into question, but these policy-makers did not have an alternative conception of the employment service at hand. Moreover, the issue was considered very contentious, and the government was not prepared to put such a conflict-prone topic on the agenda. With the placement scandal, however, trust in the PES eroded rapidly, and discontent with the already on-going reform process rose dramatically. Any resistance to restructuring the PES more comprehensively along the principles of NPM virtually collapsed in the Red–Green parliamentary groups, though some single issues remained controversial. The reorganisation of the employment service, however, did not follow some single best practice. Rather, the process can be described as eclectic and patchy. Importantly, preceding the Hartz Legislation, with a two-step action plan the executive level of the PES had already been remodelled after the exemplar of a private corporation in accordance with NPM principles, to make public

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administration more ‘business-like’. The deregulation of private job placement and the introduction of job placement vouchers, in contrast, did not follow a best practice, but these changes were likewise heavily influenced by the NPM idea of facilitating competition. The overall plausibility of the significance of policy learning in the reorganisation of the PES is amplified by the fact that senior policymakers had already discussed the reform of the employment service in connection with the Job-AQTIV Law but had postponed this issue because of, among other things, a lack of reform perspective for the PES (Interview nos. 5, 6, 15, 17, 18, 22, 23). Accompanying the Hartz III Law, the maximum duration of unemployment benefits was shortened from 32 to 12 months (with the exception of 18 months for older unemployed persons). This change was proposed in the Agenda 2010 speech by the Chancellor, to which the ministry of labour did not contribute directly. Nonetheless, ministerial experts welcomed this measure without any reservation. The extension of unemployment benefit duration in the 1980s was perceived as motivated by fiscal reasons rather than justified in terms of labour market policy. With this measure, the incentives for early retirement were immensely strengthened, as was the intensity of the so-called ‘productivity whip’. Almost inevitably, the employment participation of older workers in Germany had become extremely low by international standards (see Chapter 4, Section 2). The costs for the social security systems associated with this policy, aggravated by demographic developments, were viewed as increasingly unbearable. In this context, the shortening of the maximum duration of unemployment benefits represented a decisive break with the ‘welfare without work’ approach of the German welfare state, while the motive of budget consolidation must be viewed as subordinate for the Red–Green government – in particular, because of the medium-term impact on the budget. Overall, the objective of higher employment participation of older workers was associated with the activation paradigm. This process of social learning, initiated by the cost crisis of the social security systems and by demographic developments, must be regarded as incompletely and inconsistently reflected at the instrumental level throughout the Red–Green labour market policy. In the Job-AQTIV Law, the necessity of improving the employment participation of this group of workers was already acknowledged, but measures were restricted to the expansion of training for older

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workers in small and medium-sized companies. When the downturn of the global economy increased the pressure on the labour market, the government was basically unprepared and reacted, as had previous governments, by boosting early retirement (see Chapter 3, Section 1). Even when they should have known better, governments regularly used early retirement to prevent rising unemployment figures (Interview nos. 3, 6, 23, 26, 33). In the Hartz Commission, Peter Hartz strongly advocated establishing some new early retirement scheme, through which firms would have been able to easily off-load redundant employees. This idea was rejected by other members of the commission and, in particular, the ministry of labour, which did not want to return to the ‘welfare without work’ approach. ‘Counter-attacking’ the early retirement strategy by Hartz, measures to improve the employment participation of older workers (namely, remuneration security and reduced unemployment insurance contributions) were proposed, in order to address the difficulties faced by this group of workers in the labour market. The Bridge System was substantially downscaled and its failure in the mediation committee facilitated by the ministry. In the knowledge that remuneration security and the reduced contribution to the unemployment insurance were insufficient for higher employment participation, it was conceded that these proposals were essentially symbolic, but the policy option of reducing the duration of unemployment benefits was not available due to the veto by organised labour within the Hartz Commission. Nonetheless, with the reduction in the duration of ALG I (and with the introduction of the ALG II scheme, to which it was conceptually linked), the financial incentives for employees to agree to early retirement in the future were eventually largely removed (Interview nos. 6, 8). To conclude, decisively breaking with the ‘welfare without work’ approach, the new policy of activating (older) employees (that is, increasing employment rates) qualified as a paradigm shift. The measures, however, by reducing the generosity of benefits, were for the most part largely coercive (that is, negative activation), while enabling measures, which might have improved the employability of older workers, remained rather underdeveloped.

7.6 The Hartz IV Law: learning without Hartz Similarly to the Hartz III Law, the integration of the unemployment and social assistance schemes can be only politically ascribed to the

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Hartz Commission and not to the substance of Hartz IV. The ministry, aware of the necessity of reforming these two benefit systems, had already started the preparation of legislation before the Hartz Commission was set up. The rising numbers of recipients of unemployment assistance in East Germany and social assistance in the West, as well as the well-recognised inefficiencies of both systems, increased the pressure to reform social security for the long-term unemployed. Attempts by the previous Kohl government to restrict access to unemployment assistance, however, were blocked by the then Social Democratic majority in the upper house. Though legislation could have been decided upon in the second half of the first Schröder government from a law-maker’s perspective, a comprehensive reform of the social security system was considered politically unfeasible in the run-up to the general election in 2002. The integration of the two benefit systems would not have taken place in any legislation that would have been proposed at that stage. Rather, a cautious approach of improving cooperation between the employment service and municipalities and reconciling the two benefits for the long-term unemployed would have been preferred by both ministerial and parliamentary experts. This idea inspired the Mozart pilot projects, by which means legislation was postponed until the next legislative period (see Chapter 5, Section 2). The first experiences with Mozart, however, fuelled the conviction that the strengthening of cooperation would not have been problem-solving, as persisting differences between the systems would have set narrow limits to cooperation. The idea of integrating the two systems gained – notably, before the Hartz Commission was established – increasing popularity among experts and eventually became virtually consensual (Interview nos. 1, 6, 9, 14). Here, the expert forum on the future of unemployment and social assistance moderated by the Bertelsmann Foundation at the request of the ministry of labour requires attention (see Chapter 5, Section 2). When the forum was set up in 1999, the programmatic development was absolutely open; the forum’s objective was to overcome ‘ritualised’ debates. The participants agreed to ‘factual’ debates – restricted to supposedly realistic reform options – and, importantly, to strict confidentiality. No member of the forum had to fear that statements would be reported publicly. Any attempt at party politics and evident interest-driven behaviour was stopped by the forum’s chair. Until

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the Bertelsmann Foundation published its policy paper in June 2002 (summarising the results of the deliberations; Bertelsmann Stiftung 2002), the membership composition of the forum was unknown to the public – and some members were not named at all, in order to protect them from public scrutiny. These rules resulted in fairly open-minded discussions, in which the participants had no need to take into account public reaction and, crucially, were not restricted to just advocating the official views of their organisations. It was possible for the most important experts on this issue to exchange ideas privately. The substance of their debates was supported by several studies commissioned by the Bertelsmann Foundation (such as the very first study on cooperation projects, a large-scale legal study on different reform options including the integration of both systems, and a fiscal study on the integration of both systems). Moreover, the expert group inspected several Mozart cooperation projects initiated at the time, as well as the reformed one-stop job centres in the Netherlands (Interview nos. 1, 6, 9, 14, 27). In the beginning, most participants were rather sceptical with respect to the prospect of a comprehensive reform overcoming the two-tiered social security system for the long-term unemployed. However, the first insights from the pilot projects on cooperation, which were confronted with several serious problems in their everyday work, and subsequent debates resulted in scepticism towards the cooperation approach. The policy option of integrating the two systems became increasingly popular and eventually consensual in the group. That this new benefit should refer to the social rather than the unemployment assistance scheme was, except by the trade unions, barely contested. The group was aware of the pressure on public budgets, so that the proposed reform was cost-neutral. However, using this reform for the consolidation of public budgets was considered inappropriate, given the necessity of activation measures for the reintegration of benefit recipients. The issue of responsibility of the new benefit scheme was disputed (among other reasons, because of the vital interests of some of the participants involved), though the majority preferred the PES to the municipalities. When this issue had become increasingly politicised, several members of the forum shrank back from making an explicit recommendation on the issue. Only various options were presented in the Bertelsmann policy paper (Interview nos. 14, 27).

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In retrospect, the Bertelsmann Forum must be considered as critical in the debate on the reform of unemployment and social assistance. There is strong evidence that the way to integrate the two benefit systems was pointed to. Importantly, the discussion was characterised by deliberation rather than bargaining. For this reason, the Bertelsmann Forum can be depicted as an institutionalised device for effective policy learning, which also qualifies as a ‘mediating institution’. The expertise of both participating and external experts was utilised in deliberations. As most relevant actors were involved, the consensual knowledge generated in the forum could become significant for the subsequent policy process. In the ministerial project group, of which the key experts were also actively involved in the Bertelsmann Forum, the main cornerstones of the up-coming legislation were prepared; these in principle corresponded with the proposals of this project group. Departing from the social insurance idea, the objective of creating a means-tested basic security for job-seekers without unemployment benefit entitlements was pursued. The social assistance scheme became the main point of reference with respect to generosity and eligibility criteria; its objective of covering only basic needs guided policy-makers. The very idea of a new means-tested basic social security benefit for the long-term unemployed had, however, been greatly ‘inspired’ by corresponding universal systems in Anglo-Saxon and Scandinavian welfare states. The UK was most instructive, as indicated by the generosity level, the strong workfare component and the emphasis on the ‘making work pay’ philosophy in combination with its reduction in unemployment benefit duration. Interestingly, the crucial issue of generosity did not generate much controversy in discussions within the Red–Green coalition – and of course it did not in those between the government and opposition in the mediation committee of the Bundestag and the Bundesrat. With the decision for an extended transitional period and the including of ALG II recipients – as ALG I recipients – into the social insurance scheme it was accepted that no further financial resources were available. Here the decision in favour of pension insurance coverage was highly contested between the labour and finance ministries. Due to the costs to the federal budget, the ministry of finance argued that it was not the taxpayer’s responsibility to pay for the old-age security of the long-term unemployed. In the end, this conflict was decided politically in favour of insurance

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coverage. Moreover, taking into consideration actual earnings in the low-wage sector, social assistance was made the primary reference model for the generosity of the new benefit, in order to provide incentives to work (Interview nos. 1, 9, 14, 23). Also based upon the consideration of income in the low-wage sector, the government wanted to consider all employment as acceptable for recipients of ALG II. This clause, however, was strongly disputed in the coalition. It was eventually dropped for political reasons in the proposed legislation due to severe resistance by a few MPs affiliated with trade unions. Overall, the new criteria for reasonable work were not particularly popular with large parts of the SPD parliamentary group. Ultimately, the clause was, however, reintroduced after bargaining in the mediation committee, when the conservative majority in the Bundesrat convincingly threatened not to pass Hartz IV. Though less controversial, the allowances for properties and assets as well as income, which related in this case to the unemployment assistance scheme, were also contested, as MPs demanded higher allowances. Interestingly, while accepting the basic benefit corresponding to that of the social assistance scheme, SPD and Green MPs criticised the allowances for properties and assets proposed by their government rather harshly, requesting more generous allowances. The government – and particularly the ministry of finance – viewed these claims negatively, as increased generosity was generally associated with an increased burden on the federal budget. The income allowance was controversial, since the two objectives of ‘making work pay’ for benefit recipients (acknowledging the necessity to make the social security system more ‘employment-friendly’) and guaranteeing a reasonable income for employees in the low-wage sector were in competition. The final decisions on both disputes were political compromises as a result of bargaining rather than being informed by knowledge. However, in the case of the income allowance, improving its generosity compared to the former social assistance scheme was ‘inspired’ by the ‘making work pay’ philosophy (Interview nos. 5, 6, 9, 14, 17, 28). In their search for reference models for a new administrative system for the unemployed, the ministerial project group paid considerable attention to the one-stop agencies in Denmark, the Netherlands and, in particular, the UK. Among these, the UK Job Centre Plus, where job-seekers are assigned a so-called ‘personal adviser’ who has

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the overall responsibility for the unemployed person and provides counselling services, was considered particularly instructive. Guided by the appeal of the ‘one face to the customer’ approach, the German ‘personal adviser’ was closely modelled on the British exemplar. Likewise, for processes in the Job Centre (such as the assessment of unemployed persons and the integration agreement), the UK served as a reference model. The Cologne model, often cited in the literature as well as by the Hartz Commission, also provided some insights on case management, but this model has been overrated in its significance and it did not serve as a reference model for ministerial policy formulation. A blanket clause in the legislation made available all SGB III measures of active labour market policy to recipients of ALG II, which was informed by the conviction that all necessary measures should be available for successful reintegration. This basically represented a policy transfer from SGB III to SGB II. However, two other measures (namely, the start-up grant and work opportunities) were introduced into SGB II. The start-up grant represents a policy transfer from the unemployment assistance scheme, as a similar allowance was available to unemployment assistance recipients. Work opportunities, on the other hand, were transferred from the ‘Help to Work’ scheme of the social assistance legislation. The proposal concerning the responsibility of the new ALG II was intensively discussed, both programmatically and politically. The ministry decided to favour the PES for three reasons. First, in its view, only the PES was able to guarantee nationwide job placement activities; second, though acknowledging innovations at the local level, the capacity of many municipalities to provide all necessary services to the unemployed for reintegration into the labour market was questioned; third, the federal level simply did not possess the legal competence to assign tasks to local authorities. Nonetheless, the municipal responsibility for the ALG II scheme was debated in the project group and later in the Red–Green parliamentary groups. But, apart from some Social Democratic MPs with a background in local politics, the decision for the PES was rather consensual in the end (Interview nos. 9, 14). When the Hartz Commission was established, the expert community – as broadly represented in the Bertelsmann Forum – already preferred the integration of the unemployment and social assistance schemes, and the ministerial project group had already prepared the cornerstones of legislation. The brief section on this problem

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in the Hartz Report built programmatically upon preceding expert deliberations in the Bertelsmann Forum and the substantial inputs from the labour ministry rather than upon deliberation within the commission. Therefore, with respect to the Hartz IV Law, the Hartz Commission should not be misperceived as being decisive in substantive terms in the programmatic shift towards the integration of the two benefit systems for the long-term unemployed. Instead, the Hartz Report was effectively used to put this reform project publicly on the political agenda – though without addressing the contentious matter of benefit generosity. For the Red–Green government, the commission essentially served as a political device for pushing the integration of the assistance schemes, which was reinforced for the wider public by the Agenda 2010 speech by Chancellor Schröder. Subsequently, the ministry prepared the actual legislation, basically following the results of the ministerial project group and incorporating the political compromises agreed within the Red–Green coalition. Because of the inability of the government and opposition to negotiate political compromises in the lower house, the Bundesrat vetoed the Hartz IV Law proposed by the government. For this reason, the law was submitted to the mediation committee of the Bundestag and the Bundesrat, in which the final Hartz IV Law and the additional Municipal Option Law were negotiated. The debates in the mediation committee were characterised by strong party competition and, accordingly, tough bargaining for some political compromise, while knowledge utilisation for finding a functionally feasible compromise must be considered negligible. Put differently, the opposite and entrenched programmatic points of view undermined any prospect of deliberation and policy learning in the mediation committee. Nonetheless, though the bargaining in the Bundesrat required some substantial changes in the Hartz IV Law for approval by the conservative opposition, both social and instrumental learning was crucial in the Bertelsmann Forum as well as in the ministerial project group, where the overall direction and cornerstones of this legislation were developed. To conclude this analysis of the Hartz Commission and the legislation following it: despite the predominantly political motivation for establishing the Hartz Commission, it developed into an effective learning mechanism, by utilising national and foreign experiences for policy formulation. Saying this, however, should

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not imply that the political dimension of the Hartz Commission is being downplayed. The issues of benefit cuts, early retirement and temporary agency work, for instance, illustrate that political conflicts, divergent interests and ideas were prevalent in the commission; these put limits upon the comprehensiveness of the report and the scope of policy learning. For the subsequent legislation, the Hartz Commission was crucial – as both a political and a policy learning device. The Chancellery successfully used the Hartz Report for agenda-setting and circumventing – or at least reducing – resistance to change within the Red–Green coalition and the trade unions. Following the Chancellor’s commitment to fully implementing the Hartz Report, the parliamentary groups’ as well as the ministry’s room for manoeuvre were severely reduced. Policy learning in the Hartz Commission, despite some changes and adjustments in the policy process, had a strong impact on the substance of the Hartz I and II Laws. With this legislation, Hartz proposals were implemented against the considerable reservations of ministerial experts and MPs, so that collective learning cannot be assumed. The requirement of collective learning for policy change was ‘substituted’ by the Chancellor’s capacity of political leadership, underlining the importance of political agency in institutional change. In the following Hartz III and IV Laws, the agenda-setting and leadership by Gerhard Schröder were likewise crucial in the policy process; this particularly applies to the politically and publicly very contentious Hartz IV Law. However, in contrast to Hartz I and II, the commission had barely any impact on the substance of legislation. Rather, the ministry of labour regained its significance in lawmaking. Due to its technical complexity, Hartz III was, with hardly any political contestation, extremely expert-driven by the responsible ministerial project group – notwithstanding its comprehensive character. Hartz IV, by contrast, was highly disputed outside the government. The highly politicised decision-making process, however, was preceded by policy learning before the integration of the unemployment and social assistance scheme was put on the public agenda. Here, the ministerial project group on the reform of assistance schemes and particularly the Bertelsmann Forum were pivotal arenas of policy learning. Accordingly, for the Hartz III and IV Laws, the commission was of only political importance. In both cases, policy

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learning was institutionally embedded (in ministerial expert groups and the Bertelsmann Forum), whereby learning was facilitated. In sum, despite highly politicised policy processes, there is considerable evidence of substantial policy learning in both the Hartz Commission and the Hartz Legislation, consolidating the activation paradigm (including workfare measures) and making the NPM philosophy predominant. Without the acknowledgement of learning, the institutional change induced by the Hartz Legislation cannot be explained fully. Limits to the scope of effective policy learning, however, can be linked to the veto power of the conservative opposition in the Bundesrat, where bargaining almost exclusively dominated the debate.

8 Conclusions

It has been argued here that predominant political theories of the welfare state – namely, the parties matter thesis of power-resources theory, the party competition approach, the functionalist argument of globalisation and orthodox institutionalist approaches – encounter difficulties in fully understanding and explaining the paradigmatic change labour market policy in Germany experienced under Red–Green rule (see Chapter 1, Section 1). This is not to argue that these approaches have lost their explanatory capacity for welfare state research. However, according to common wisdom in the literature, the reforms of the Red–Green government – accelerating the departure from conservative–corporatist welfare involving retrenchment and comprehensive measures of workfare – should not have happened. Instead, the government of the Social Democrats and the Green party should have ended the policy trajectory of its predecessor. It appears that the ‘conventional’ treatment of political parties, following the parties matter thesis, seems to have exhausted the study of the German welfare state and its labour market policy. The scrutiny of Red–Green labour market reforms in the preceding chapters has shown that political parties can change fundamentally. German Social Democracy introduced significant programmatic revisions in a core domain of its policy ‘menu’. The learninginduced change in Social Democratic policies, and the associated rise of a new hegemonic discourse in economic and social policy, makes the categorical distinction between a right and a left political camp in welfare policy ever more difficult. The argument here is not that all programmatic differences have disappeared but that these 179

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are differences in accentuation rather than fundamental ideological divisions. In compliance with arguments about party competition, these differences can partly be ascribed to electoral strategies, as has been argued for the intensified conflict in social policies in recent years. However, the party competition approach falls short in accounting for the overall direction of labour market reforms. The same applies for approaches emphasising policy inertia due to political institutions. Certainly, the Federal Council was frequently utilised by partypolitical strategists in electoral competition to block policies by the governing coalition. However, this institutional veto player did not stop the departure from the conservative–corporatist path of welfare. For the direction of policy change, the perception of increased economic integration and related competitive pressure was vital; it structured the assessment of the viability of policy strategies. However, a functionalist account of globalisation prescribing a universal ‘race to the bottom’ cannot explain the concrete responses and political strategies of policy-makers. Looking beyond the domain of labour market policy, it in particular fails to grasp why policy-makers could resist the pressure of competitiveness in family policy, which has been experiencing a substantial expansion in recent years. Without challenging the idea that economic integration has changed the functional underpinnings of social policies, this observation makes a case for recognising the importance of domestic institutional settings (both political-economic and discursive structures) filtering the impact of global market integration instead of expecting linear responses by welfare states (Scharpf 2000). Where does this leave us in the investigation of welfare state change? It appears that Social Democracy has transformed, thereby destabilising the political equilibrium of social policy and undermining the assumptions of the power resources approach. Rational choice and functionalist approaches cannot fully grasp the changed behaviour of the SPD. But what about new institutionalism? New institutionalism and the path dependence theorem of its historical variant have been ascribed a strong role in understanding comparative social policy and political economy (Amenta 2003; Hall and Soskice 2001; Pierson 2001; Thelen 2004); and for much of the development in German labour market policy, this approach has proven a powerful tool, with its emphasis on the stability and inertia of

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welfare states. Yet, the focus on the stickiness of institutions has contributed to conceptual deficits in explaining institutional change as it actually occurs (Crouch 2005: 2; Hay 2006; Peters et al. 2005: 1278; Thelen and Steinmo 1992: 14ff.). The problem with accounting for change is commonly associated with the model of punctuated equilibriums and the concept of critical junctures. Political development is depicted in terms of long periods of stability that are interrupted by moments of abrupt change. In contradiction to this understanding, it has been argued that most policy change in advanced political economies and welfare states is instead of an incremental nature. The path departure in German labour market policy matches this description; though accelerating, policy development remained incremental. But how can one explain change that is not related to some obvious exogenous shock? Does historical institutionalism ‘allow’ endogenous change? In the case of German labour market reforms, the conceptual utility of policy learning as a mechanism of institutional change has been demonstrated here. Despite the difficulties with generalising the findings of a single case study, the heuristic case of labour market reforms in Germany can shed important light on the explanatory capacity of policy learning, allowing the use of the findings for theory-building; that is, integrating policy learning into new institutionalism as a knowledge-based mechanism for institutional change to address its stability bias (see on case study research Eckstein 1975; Gerring 2004; Lijphart 1971).

8.1 Learning to depart from a policy path The in-depth examination of labour market policy-making in the preceding chapters has shown that social and instrumental learning was crucial in the formulation of Red–Green labour market reforms. Both the development towards activation and towards new public management were discontinuous and partly inconsistent, confirming that Red–Green policy-makers were not only ‘powering’ but also ‘puzzling’ (Heclo 1974: 305). When the Schröder government came into office, it apparently did not have a ‘master plan’ for the reform of labour market policy; postponing the labour market reform to the second Red–Green government was even discussed. While the reform of the PES was not addressed in the Job-AQTIV Law at all, activation was first reduced to ‘patchy’ positive activation, while a

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comprehensive reform appeared to be beyond its technical capacity; negative activation was politically ruled out. In addition, though the law was ‘committed’ to activation, early retirement continued to be widely used; particularly, in the 2001 downturn of the global economy, it was ‘routinely’ employed as it had been during the Kohl government. Thus, the inhibited character of the labour market policy of the first Red–Green government not only points to the politics dimension of welfare reform, which is commonly looked at, but also to the ‘puzzling’ dimension of policy-making. Confronted with perceived policy failure and uncertainty about viable policy alternatives, resources were ‘invested’ in learning in both the Job-AQTIV Law and the Hartz Legislation. Following the agenda-setting literature, the perception of policy failure combined with political pressure to address the particular underperformance establishes the conditions for a ‘window of opportunity’; that is, a condition in which change can be introduced (Kingdon 1984). Under conditions of uncertainty, policy-makers are then inclined to engage in policy learning as a mechanism for reducing uncertainty and enabling agency, whereby a window of opportunity can become a ‘window of innovation’ for knowledge-induced change. Learning can develop the capacity to facilitate paradigmatic change. It can transform the knowledge instructing policy-makers; it is a mechanism for departing from a given policy path. Driven by the perceived poor performance of the German labour market in comparison to other European countries and by the underperformance of the Federal Employment Service (most dramatically reflected in the placement scandal), policy-makers ultimately broke with the previously predominant ideas of securing achieved living standards, ‘welfare without work’ and the standard work arrangement, as well as with the PES organised as a traditional public bureaucracy and the corporatist governance of the PES. Admittedly, a poor labour market performance was by no means a new experience for German policy-makers, but the persistence of high unemployment at a time when some European neighbours were able to significantly reduce unemployment fuelled the conviction that redirecting labour market policy was inevitable. The previous approach of labour market policy was increasingly considered incapable of contributing to the reduction of unemployment. Given the electorate’s concern about the persistence of high unemployment and

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given the priority Red–Green policy-makers publicly ascribed to the reduction of unemployment, ignoring the continuous poor performance of the labour market was politically unfeasible (complementing the ‘functional necessity’ to improve employment figures due to the high fiscal costs caused by unemployment). Additionally, because Red–Green policy-makers had criticised the Kohl government heavily for its labour market policy approach, inactivity in this policy domain would have seriously undermined the political credibility of the new government. In short, addressing this problem became increasingly imperative. In this situation of perceived policy failure and political crisis, lessons drawn from abroad were utilised as ‘institutional blueprints’ (Blyth 2001: 3) for reform, which eventually facilitated the paradigmatic change towards activation in labour market policy and the NPM philosophy for the reorganisation of the PES. In searching for policy solutions at the instrumental level to implement the new paradigms, the Red–Green government used both national and foreign models, though lessons from abroad were often of lower instrumental utility than national ‘best practices’. In the Hartz III and IV Laws, for instance, foreign lessons were decisive for the overall direction of reform, but were less useful in concrete law-making. Therefore, ministerial experts referred strongly to the social assistance scheme as an institutional blueprint for the new Social Code II. Likewise, despite copying the British personal adviser, the UK Job Centre Plus had only an ‘inspiring’ character for the German one-stop agency. In Hartz III, policy-makers also were only guided by foreign NPM practices, and had to rely on their ‘creativity’ when translating NPM principles into legislative proposals. Overall, the pattern that seems to appear is that foreign practices provided the guiding ideas of (enabling and coercive) activation and NPM – and, for this reason, just very general blueprints for reform, that is, social learning (for example, a universal benefit system for the long-term unemployed, the ‘making work pay’ philosophy and decentralising the PES). Concrete proposals in law-making, on the other hand, referred to national exemplars, that is, instrumental learning (for example, the social assistance scheme for ALG II, PSA and case management), except when a satisfactory national best practice was not available. In that case, in the translation of the overall blueprint for reform into concrete proposals, policy-makers referred

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to foreign exemplars (for example, job rotation, the one-stop agency, reintegration agreements and profiling), relied on their ‘creativity’ to develop new instruments (such as ‘Me, Inc.’, training and placement vouchers and structural adjustment measures) or ‘adjusted’ existing instruments according to the new paradigm (for example, job creation measures, the sanction regime, the criteria of reasonable work, shortening the duration of ALG I and the Mini-Job scheme). This finding of the importance of ‘proximity’ in learning basically corresponds with an argument put forward by Crouch and Keune (2005); policy-makers seem to prefer reference models they are already familiar with. These might derive from other domestic domains, whose paradigms thereby get extended to neighbouring fields, as illustrated by the example of increased recommodification of the long-term unemployed by extending the principles of social assistance legislation through the introduction of the ALG II scheme. Thus, a policy might depart from its path by ‘joining’ a previously subordinated path, in that way expanding its logic of reproduction. However, the social assistance legislation was, primarily, of instrumental utility in policy formulation. The very idea of coercive – as well as enabling – activation was predominantly ‘inspired’ by foreign exemplars. Nonetheless, the incoherence of policies and the diversity of institutional legacies can offer viable policy alternatives to decision-makers, ‘helping’ them to depart from a policy path (Orren and Skowronek 1994; Crouch and Keune 2005). Thus, increasing their discretion, actors can refer to policy alternatives from the same or neighbouring policy domains of their national setting. These are more easily accessible and assumed to typically cause fewer costs of institutional change than reference to ‘foreign’ models, as a higher political and functional feasibility is commonly associated with domestic policy alternatives. For this reason, institutional proximity, to minimise the ‘costs’ of policy change, alleviates the barriers to change, including the rare phenomenon of displacing existing institutions with new ones. With the reforms resulting from policy learning, Red–Green policymakers facilitated the departure from the conservative–corporatist path of welfare initiated by their predecessor in government. Labour market policy of the ‘social insurance state’ (see Chapter 3, Section 1), focusing on the preservation of achieved living standards, the standard work arrangement and the ‘welfare without work‘ philosophy,

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had been successively replaced by ‘activating’ labour market policy. In this context, the Federal Employment Service, delivering ‘oldstyle’ labour market policies, was also reorganised, departing from the ideas of tri-partite governance and public bureaucracy towards the paradigm of NPM. However, privatisation of the PES was not seriously discussed; policy-makers stuck with the PES as the main provider of labour market services. The case of Red–Green labour market reforms complies with Thelen’s notion of ‘functional conversion’ (2003: 213), according to which key institutions commonly persist during paradigmatic changes but the ideas governing these institutions are subject to change; that is, use of the formal institutional setting for new policy objectives without the dismantling of existing institutions. For this reason, persistence at the first glance should not be misperceived as simply reproducing some policy paradigm. The replacement of an institution induced by policy learning is a rare occurrence, due to high political and technical barriers. However, under conditions of widespread discontent with an institution and the availability of a feasible alternative institutional design ‘at hand’ (such as in the case of the new basic security for the long-term unemployed), the barriers for substituting an underperforming institution that is perceived as inferior to alternative designs can be overcome. This is not to say that paradigmatic institutional change triggered by policy learning does not typically follow the logic of incrementalism (see Chapter 2, Section 1; and also Lindblom 1959, 1979; Streeck and Thelen 2005: 6). To summarise, policy learning, triggered by the perception of policy failure and crisis, generated presumably viable policy alternatives, reduced uncertainty in ‘unsettled times’ and eventually facilitated Germany’s departure from the conservative–corporatist path of welfare in the domain of labour market policy, despite widespread scepticism about the reform capacity of the German welfare state (see Chapter 1, Section 1 and Chapter 4, Section 1; and also Cox 2001; Esping-Andersen 1996: 24; Pierson 2001a: 448; V. Schmidt 2000: 266, 274–281; Streeck and Kitschelt 2003). While the ideas of status preservation and welfare without work were increasingly discredited, the challenging idea of activation became – across the political spectrum – predominant in both discourse and actual policy-making. However, depending on political background, differences in emphasis persisted. Likewise, the previous conception of the employment service

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as a traditional bureaucracy became successively undermined, whilst the NPM philosophy gained popularity and eventually dominated the reform debate on the PES. But what about the labour market policies of the Grand Coalition of Christian and Social Democrats from 2005 to 2009? Did the successor to the Red–Green government continue on the path of departing from conservative–corporatist welfare? In their coalition agreement (CDU, CSU and SPD 2005: 28–36), the three parties outlined the objective of a comprehensive reorientation of employment promotion to increase the effectiveness and efficiency of labour market policy in accordance with the activation and NPM paradigms. In addition to this, the agreement included the aim of reducing the contributions to the unemployment insurance scheme as well as an explicit commitment to the integration of the social and unemployment schemes and the extension of the experimental clause for municipalities running the new benefit scheme. In the Hartz IV Law, the responsibility for the new scheme was a source of major disagreement between Christian and Social Democrats. Apparently the coalition partners could not agree on a consensus in the coalition agreement either; hence the extension of the experimental clause of the Municipal Option Law. Overall, the coalition agreement should be interpreted as a continued commitment to activation and new public management as policy blueprints as well as the conviction that labour costs needed to be reduced for the sake of international competitiveness. However, the policy change that received most attention was not part of the coalition agreement. Responding to widespread public discontent with Hartz IV, the Grand Coalition increased the maximum duration of the unemployment benefit I from 18 to 24 months for the unemployed of 58 years and older (BMAS 2009). Though the regular duration remained at 12 months and eligibility for more than 12 months was still much tighter than before the Hartz Legislation, this policy change of the Grand Coalition can be read as a violation of the activation paradigm. This caused some surprise in the context of the continued commitment to activation in the coalition agreement. Looking at the political dynamics of this legislative change, one finds prominent Christian Democrats who wanted to channel discontent with the SPD and Hartz IV into support for Christian Democracy, using the framing of a ‘social justice

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gap’. The Social Democrats responded to this campaign by conceding the need to ‘correct’ the Hartz Legislation in order to prevent the Christian Democrats from gaining more influence in this important electoral issue of social justice. In this light, the partial policy ‘uturn’ triggers a déjà vu as two ‘pro-welfare parties’ try to compete for electoral support with their social policies (M. G. Schmidt 1998: 168). For this reason, this policy initiative is best viewed as an example of party competition that is conducive to welfare state expansion, rather than a dogmatic renunciation of activating labour market policy, as other policies of the Grand Coalition complied with the activation paradigm, even though these remained rather modest in their scope. With the so-called ‘Initiative 50 plus’, the government sought to improve the prospect of employment for older employees with improved training opportunities, integration subsidies and remuneration security. At the other end of the age scale, new activation measures were introduced with different subsidies for employers to hire a young person who has been searching for a job for at least six months. These different activation measures were primarily timelimited ‘combined wages’ (Kombilohn), with which the government sought to improve the employment prospects of job-seekers who were otherwise difficult to integrate into the labour market (especially because of qualification and training deficits). This can be considered a temporary subsidy for the low-wage sector. In addition to this, the Grand Coalition ‘cleaned up’ the employment promotion legislation by terminating policy instruments that were rarely used and that were considered inefficient and ineffective. These legislative changes, following NPM, also included the introduction of a new flexible budget item for re-integration measures, with which it was intended to grant more discretion to case managers (BMAS 2009). It appears that the Grand Coalition struggled to pursue the comprehensive reorientation of the employment promotion legislation as announced in the coalition agreement, despite a general consensus on the activation and NPM paradigms. No agreement was possible on the reform of the Job Centres, which had become necessary with a decision by the Federal Constitutional Court in the end of 2007 that the shared administrative responsibility of PES and municipalities for the long-term unemployed violated the constitution. The Grand Coalition was obviously not in a position to resolve the conflicts that

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had existed between the Red–Green government and the conservative opposition over the Hartz Legislation. For this reason, it was decided to leave this reform to the next government. Hence, the party competition surrounding Hartz IV was carried into the Grand Coalition, undermining any attempt to reform the administrative system for the long-term unemployed, as it did not allow major changes in employment promotion. However, it needs to be acknowledged that, prior to the financial crisis, unemployment figures were rather favourable, so that employment promotion was not a political priority for the Grand Coalition. Thus, the political leadership that was critical for the Hartz Legislation of the Red–Green government did not act in this policy domain during the Grand Coalition. Instead, attention shifted to the issue of the minimum wage and other social policy domains, such as pension and family policies. The ‘reform gridlock’ of the Grand Coalition in labour market policy is a manifestation of the politics associated with party competition, which poses serious barriers (path-deviating) to policy change in political economies that are prone to institutional and partisan veto players despite some consensus in principle. It is clear that the imperatives of voteseeking can undermine the political feasibility of reform proposals, a situation that might facilitate discontinuous policy development.

8.2 The politics of learning ‘Politics’ is typically associated with inhibiting policy learning. And indeed, conflicts between Social Democratic traditionalists and affiliated trade unions on the one side and modernisers in the party and government on the other side illustrate this. Though in principle agreeing with the activation paradigm, traditionalists were not only strongly opposed to negative activation but also possessed the capacity to veto corresponding measures in the labour market legislation of the first Red–Green government. Accordingly, the modernisers, who had already been strongly dissatisfied with the predominant stance of their party and who for this reason had more comprehensively broken with the ‘old’ Social Democracy, were not in a position to promote workfare measures. In the Alliance for Jobs, trade unions were also de facto capable of vetoing this legislation, given the Chancellor’s lack of political leadership at that time and his commitment to consensual decision-making.

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The expertise and policy recommendations provided by the benchmarking group in the Alliance for Jobs could not develop much influence in policy-making; this includes the proposals for subsidising low-wage employment (‘making work pay’). Because of the partisan veto by SPD traditionalists supported by organised labour, effective learning in the Job-AQTIV Law was confined to positive activation. The case of this legislation and the Alliance for Jobs highlights the importance of ‘cognitive locks’ (Blyth 2001) combined with veto players (Tsebelis 1995) for the scope of learning and corresponding policy change. Under conditions of irreconcilable ideas or interests of actors, the capacity to veto policies is decisive for the scope of learning and associated institutional change (see Chapter 2, Section 2). In addition to this, the development of ‘making work pay’ measures in the second Red–Green government illustrates the importance of ‘cognitive locks’ in restricting the scope of effective learning. Like the Mini-Job scheme proposed by the Hartz Commission, the political compromise of the mediation committee and other related measures (such as the start-up and income allowances of Hartz IV) remained fairly modest in comparison to policies in other countries (such as the UK, to which it was otherwise commonly referred in the second Schröder government), though ‘making work pay’ was considered an integral part of activation strategies. A predominant consensus emerged that boosting (low-wage) service sector employment was pivotal for the reduction of mass and long-term unemployment. However, in face of considerable financial costs associated with such a strategy, scepticism towards the idea of publicly subsidising lowwage employment prevailed in the Red–Green government and was not restricted to the ‘usual suspects’, namely the trade unions. In particular, ministerial experts, and here the ministry of finance was at the forefront, were heavily opposed to comprehensive approaches (such as the proposals by the benchmarking group). The ministry of finance saw such strategies as being in irreconcilable conflict with the imperative of budget consolidation. In other words, comprehensive policy proposals built upon the idea of ‘making work pay’ were perceived to be incompatible with the broad politicaleconomic parameters for reform. Accordingly, measures remained rudimentary, despite the predominance of the associated activation paradigm.

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Turning from the ideational dimension of non-learning towards the formal institutional setting, the Hartz Legislation draws our attention to the Federal Council, which had veto powers for Hartz II and IV, since these laws affected the revenue of the Länder and required their administrative implementation. These pieces of legislation as proposed by the Red–Green government were vetoed by the second chamber and then negotiated in the mediation committee, where the conservative opposition was in a position to accomplish considerable change. The conflict between government and opposition had its foundations in party competition rather than in substantial programmatic difference. Hence, in the absence of policy learning, the negotiation in the mediation committee can be described as bargaining where knowledge-based arguments were secondary (if not negligible), since the rationale of the negotiations was finding a politically acceptable compromise for both parties involved instead of engaging in deliberation for finding a functionally feasible policy solution. Confronted with this powerful institutional veto player, the Red–Green government was forced to make concessions to the conservative opposition to overcome the political stalemate (such as over the Mini-/Midi-Job scheme, the criteria of reasonable work and the Municipal Option Law). Though the reference to the existence of institutional veto players is highly useful for explaining policy continuity as well as the speed of policy change, an understanding of the preferences and strategies of actors in the position to veto policies is, in the end, indispensable for the understanding of institutional change – as well as of the effectiveness of veto players (Clasen 2005: 30). However, the dynamics of politics can also help to facilitate policy learning, as the ‘window of opportunity’ opened by the placement scandal and prolonged by Agenda 2010 illustrated. It was politically decisive for the comprehensive legislation of the second Red–Green government. In addition to gaining time for policy formulation in face of the placement scandal, Schröder, breaking with the unsuccessful corporatist policy-making of the Alliance for Jobs, used the Hartz Commission and the imminent general election to circumvent resistance within the parliamentary groups and trade unions (see Czada 2004; Dyson 2005; Heinze 2002 on ‘government by commission’). Referring to Offe (2001: 368), Schröder can be depicted as an ‘institutional opportunist’ who was able to utilise the ad hoc opportunity

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for change that ‘accidentally’ arose without having a ‘grand master plan’; this plausibly explains some of the inconsistencies in the Hartz Legislation (such as increasing the regulatory density of the Social Code III despite the commitment to the idea of NPM). Therefore, rather than ‘binding the hands of government’ (Dyson 2005), the Hartz Commission enhanced the political room for manoeuvre of the Chancellery and modernisers in government, for which the exact content of the Hartz proposals was secondary. The commission also served as an effective device for agenda-setting. It is clear that Schröder’s institutional entrepreneurship was predominantly characterised by political leadership. This is not to argue that Schröder did not learn; indeed not only the Schröder/Blair Paper but also a policy paper in 1997 (the so-called Dresdner Thesen) strongly indicated that Schröder did learn, resulting in the break with ‘traditional’ social democracy. However, the leadership exercised by the Chancellor, rather than his previous social learning, was more significant for the concrete content of the Hartz Legislation through its enforcement of parliamentary approval for the proposed legislation. Nonetheless, social learning by Schröder (that is, adopting the agenda of modernised social democracy) – as well as political learning (that is, the dissatisfaction with corporatist concertation after the failure of the Alliance for Jobs) – was crucial for the Hartz Legislation insofar as he not only set the guidelines for legislation (by prescribing reforms that include benefit cuts and workfare measures) but also delegated the competence for policy formulation first to the Hartz Commission (with members essentially selected by the Chancellery) and then to allied modernisers in the ministry of labour and in parliament. With the backing of the Chancellor, the new Federal Minister of Labour politically dominated the labour market policy-making of the second Red–Green government. In doing this, Schröder lowered the requirements for effective learning by restricting the necessity for collective learning to modernisers in the Red–Green government and the ministerial bureaucracy. Traditionalists and trade unions, on the contrary, were no longer in the position to challenge the agenda of modernisers; Schröder politically marginalised these actors. The capacity to lessen the barriers to collective learning derives from the authority enforcing the compliance of actors genuinely opposed to certain policies. Here it is secondary whether such an entrepreneur has learnt or not,

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in the same way that it is irrelevant why such an actor agrees with the learning outcomes of other actors who have gained significance due to the exercise of political leadership. In Hall’s terms (1993: 280), the paradigm shift in Red–Green labour market policy was preceded by a shift of authority through which modernisers became predominant within the government. It became possible to politically circumvent and neutralise veto players who would have been prepared to block policy proposals. In such a case, the scope of policy learning does not expand, but actors come into a position that enables them to implement their ideas, which were not previously politically feasible. Put briefly, political leadership, shifting the balance of power, represents a means of lowering the high requirements for effective collective learning. Importantly, for the causal relevance of learning, it is not necessary that the actor exercising political leadership has learnt. The only requirement is that actors who have learnt are enabled to implement their policy ideas. Against this background of increased political leadership by the Chancellor, it could be argued that social policy-makers lost relative political weight. While they were formerly able to decide relatively autonomously on social policy (von Beyme 1998: 39), such issues became increasingly subject to party-political strategies and decision-making outside the realm of social policymakers (Trampusch 2004). Here, it is important to recall that the utilisation of some knowledge is not necessarily related to policy learning. Ideas used as ‘political weapons’ (Blyth 2001; Robertson 1991) does not qualify as policy learning, since knowledge is used strategically to push an agenda. In this scenario, ideas are a means for ex-post legitimation and ‘political learning’ (see Chapter 2, Sections 2 and 3). This is, however, not to say that ideas that are used as political weapons cannot serve as ‘blueprints’ for institution-building and reform. By highlighting the leadership of the Chancellor, the role of political entrepreneurship in knowledge-induced institutional change is emphasised. However, the importance of political agency should not distract from actors who actually engage in policy learning and formulation. In the reform of labour market policy by the Red–Green alliance, most expertise in policy formulation was provided by policy experts from the ministry of labour which, in close cooperation with the responsible Parliamentary State Secretary, dominated the deliberations of the Red–Green working group on labour

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market policy of the first Schröder government (see Chapter 5, Section 1). While the ministry had hardly any substantial influence on the first two pieces of Hartz Legislation, ministerial experts regained their importance in the policy formulation of Hartz III and IV. Approval for their proposals was – in contrast to the Job-AQTIV Law – required by the Chancellery rather than by the parliamentary experts of the Red–Green working group on labour market policy, as a result of the political leadership by Schröder. But also new actors in the policy community generating policy-relevant knowledge, such as the Bertelsmann Foundation (as an advocacy think tank), management consultancies and individual actors in expert groups, were – though to a different extent – important for actual policy learning, as institutional entrepreneurs. The identification of institutional entrepreneurs as key actors fostering policy learning raises the question as to what type of entrepreneur is most significant in knowledge-based institutional – and in particular, paradigmatic – change. The literature predominantly clusters around politicians as ‘creative actors’ (Hall 1993: 288; Peters et al. 2005: 1277ff.) and ministerial bureaucrats as ‘policy experts’ (Heclo 1974: 301–304; Marier 2005; Marmor 1987; Page 2003); this could be rephrased as ‘politics’ versus ‘expertise’ in policymaking. Though the issue of ‘what matters most’ might eventually be an empirical question, the case of Red–Green labour market policy-making suggests that the understanding of the interaction of political leadership and (ministerial) expertise is decisive in the scrutiny of agency in institutional change. Thus, leadership (politicians) and expertise (civil servants) should not be viewed as opposed but as complementary categories. In any case, agency with entrepreneurial capacity has been described as critical, if not indispensable, for learning-induced institutional change, either by producing policyrelevant knowledge or by exercising political leadership to enforce ‘implementation’ of policies derived from knowledge utilisation (that is, policy learning).

8.3 An institutional approach to learning Though learning remained limited in some instances and was irrelevant in the bargaining between government and opposition, it has been demonstrated that policy learning, fuelling the paradigm

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shift towards activating labour market policy and NPM in the public employment service, is crucial to the understanding of the labour market reforms of the Red–Green government. Policy learning reduced uncertainty in policy-making and, by instructing agency in ‘unsettled times’, it enabled policy-makers who were confronted with severe policy failure. For this reason, policy learning can be considered a powerful mechanism of institutional change. Despite underlining the potential of the concept of learning for explaining institutional change, predominant models of policy learning (Hall 1993; Heclo 1974; Jenkins-Smith and Sabatier 1993; Knoepfel and Kissling-Näf 1998; Sabatier 1988) have been criticised for their rather instrumentalist character, reducing learning to a deliberate exercise, of which actors are basically in control (see Chapter 2, Section 3). Despite paying considerable attention to agency (Dolowitz and Marsh 1996: 345, 2000: 10–12; Hall 1993: 287–289; Heclo 1974: 308ff.; Knoepfel and Kissling-Näf 1998: 355ff.; Rose 1992: 15ff.; Sabatier 1988: 133), the literature lacks a comprehensive understanding of agency. The focus is predominantly on constraining factors with the implicit assumption that policy-makers are more or less keen on learning to improve their problem-solving capacity. These approaches must be criticised for being under-theorised and ahistorical, resulting in an eclectic listing of factors that can constrain and facilitate policy learning. Paradigmatic change cannot be explained sufficiently. The knowledge utilisation literature (Rich and Oh 1994; Weiss 1979; Wittrock 1991) provides strong arguments for challenging the reduction of learning to a deliberate exercise, as much learning takes place ‘behind the backs’ of actors. For fully understanding policy learning as a mechanism of institutional change, actors must be conceptualised as ‘embedded agency’, whose capacity for learning is both facilitated and constrained by the institutional setting. To address the widespread instrumentalism of the policy learning literature, the new institutionalist approach provides valuable insights for the substantiation of the concept of learning; this claim has been underpinned by the case of Red–Green labour market reforms. Approaching the concept of policy learning from a new institutionalist perspective, it has been argued that learning is institutionally embedded, in both the formal and informal dimensions of the institutional setting. Thus, processes of policy learning and, eventually, the change of ideas instructing policies do not happen in some

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vacuum. The formal institutional setting has a two-fold impact on policy learning. First, we have seen that the existence of veto players (Tsebelis 1995), whose authority derives from their formal position in the legal system (that is, institutional veto players), can undermine effective policy learning. However, the concept of veto players is ambiguous insofar as the simple presence of actors with the potential capacity to block change does not mean that proposals for change are eventually vetoed. Accordingly, the veto player theorem can be considered a valuable device in accounting for identified inertia and ineffective learning, but incomplete for the explanation of change that is actually taking place in spite of the presence of veto players, since this concept does not sufficiently deal with the rationales guiding the behaviour of veto players. Second, institutionalised learning mechanisms facilitate the generation of policy-relevant knowledge, which is a precondition for institutional change induced by policy learning. Whether these learning mechanisms are effectively used not only depends upon the specific learning culture (Popper and Lipshitz 1998: 172) but also on the institutional structures of the policy community. Knoepfel and Kissling-Näf (1998: 347) argue that the utilisation and exchange of knowledge and building-up new consensual knowledge relies on ‘mediating institutions’; these are structures facilitating the exchange and utilisation of knowledge. Mediating institutions can have a permanent as well as a temporary character (such as the parliamentary working group and the Bertelsmann Forum, respectively). The inclusiveness of mediating institutions can vary considerably. It is noteworthy that exclusive structures do not necessarily result in a limited scope of policy learning. On the contrary, these institutions, if key actors are involved, can develop into highly efficient and effective mechanisms for generating new consensual knowledge (such as the Bertelsmann Forum). In addition to the general persuasiveness of generated knowledge, effective learning mechanisms rely on the commitment of policy-makers, which typically requires a ‘window of innovation’. The requirement for genuine commitment can be lowered with the exercise of political leadership; then the authority of generated knowledge derives from political support rather than genuine persuasiveness. Conversely, ineffective learning mechanisms and mediating institutions seem to be related to the generation of knowledge that cannot tie into on-going policy debates; secondly,

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ineffectiveness appears to be linked to the scope of actors involved and their authority, that is, if key actors are not involved and/or the actors taking part are ‘weak carriers’ of new ideas due to insufficient political or expert authority. Thus, an institutional environment of learning mechanisms and mediating structures possesses the capacity to facilitate policy learning, which, however, does not necessarily result in (immediate) effective learning. In the Job-AQTIV Law, the parliamentary working group of the Red–Green coalition functioned as ‘mediating institution’, where parliamentary experts, the responsible Parliamentary State Secretary for the government, ministerial experts and Länder representatives worked on labour market policy legislation. Given the relative autonomy and discretion Red–Green labour market policy-makers enjoyed at that time (as long as a cost-neutral reform was proposed), the working group held sufficient mediating capacity as long it did not veer into measures of negative activation. The Bundesrat did not hold veto powers for the Job-AQTIV Law. Only a partisan veto exercised by SPD traditionalists applied to this legislation, resulting in its restriction to measures of positive activation. Despite high expectations, the Alliance for Jobs did not, however, develop much mediating capacity due to the limited steering capacity of the Chancellery. Gerhard Schröder could not prevent trade unions from vetoing more comprehensive reform proposals. In policymaking, the ministerial bureaucracy, in close coordination with the Parliamentary State Secretary, provided most programmatic inputs and indispensable expertise, which were crucial for both the white paper of the Job-AQTIV Law and the actual legislation. In the search for policy solutions, policy-makers showed considerable openness to foreign practices; ministerial experts were encouraged to utilise best practices from other countries. Here, the benchmarking group of the Alliance for Jobs is a reflection of this philosophy of policy-making in the first Red–Green government. Notwithstanding this positive learning culture, political considerations and cognitive locks (such as in the cases of workfare and ‘making work pay’ measures) restricted the scope of effective policy learning. The Hartz Legislation differed in many respects from the JobAQTIV Law. With the Hartz Commission, an expert body provided policy recommendations prior to the actual legislative process. These recommendations were used strategically by the Chancellor for

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agenda-setting in the run-up to the general election as well as after re-election. Accordingly, the Hartz Report gained considerable political and programmatic weight for the Hartz I and II Laws, making the Hartz Commission an effective learning mechanism, while the ministry of labour and the parliamentary groups lost significance in policy-making. Despite continuing strong political leadership by the Chancellor, the ministry of labour, however, regained its importance for the substance of the Hartz III and IV Laws. The Hartz Report remained politically important, but its policy recommendations were insignificant for concrete law-making. In particular, the technically very complex Hartz III Law was driven by ministerial experts, who developed the legislation in collaboration with practitioners from the PES in a ministerial project group; inputs by MPs were negligible. With respect to ‘embedded’ learning, the Hartz IV Law is an especially interesting case. Legislation was, at first, postponed as a result of the pilot projects of the Mozart scheme, designed to test different strategies for improving the cooperation between the employment service and the social assistance authorities. Nonetheless, the ministry of labour started the preparation of legislation by asking the Bertelsmann Foundation, which was also involved in the benchmarking group of the Alliance for Jobs and the Hartz Commission, to organise an expert forum on the future of the unemployment and social assistance schemes. Among policy experts, this forum for deliberation ‘mediated’ the shift towards the agenda of integrating both systems instead of sticking with the previously virtually unchallenged approach to improving the cooperation between both systems. Thus, the Bertelsmann Forum can be described as crucial for the substance of Hartz IV. Parallel to the forum and prior to the Hartz Commission, a ministerial project group was set up to prepare legislation, whose recommendations were basically adopted in the Hartz Report. Against this background, the Hartz Commission can be considered largely insignificant for the substance of the Hartz IV Law. Rather it was the Bertelsmann Forum and eventually the ministerial project group, whose key experts were involved in the forum, that became the relevant loci of policy learning and formulation, with the former being a ‘mediating institution’ as well. By contrast, the knowledge that derived from the European Employment Strategy was largely negligible, though it was very similar to the actual reforms proposed by the Red–Green government.

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The learning tools provided by the supranational level did not possess the capacity to gain much acceptance, standing as they did in ‘competition’ with domestic learning mechanisms. Knowledge and policy recommendations from the EES did not diffuse within the ministerial bureaucracy, though they did relate to the on-going activation discourse. This lack of attention can be attributed to the insufficient learning culture existing around the Luxembourg Process. The EES could not develop significance in labour market policy-making. Complementing the formal institutional setting, ideas – the informal dimension of the setting – structure policy learning and knowledge-based institutional change; they must, however, be considered particularly ambiguous in policy learning. Ideas as ‘cognitive locks’ can block knowledge-based institutional change, a process which is especially pronounced when in combination with veto players. Certain policy options are not seriously considered in the first place due to preconceptions or are not politically feasible due to the resistance of certain actors, reinforcing path-dependent development. This is a case of non-learning. A similar argument about institutional stickiness in policy learning – though less emphatic – applies to ideas informally institutionalised in discourses and/or collective identities as well as ideas ‘crystallised’ in formal institutions. Pre-existing ideas effectively frame policy deliberations, potentially undermining the persuasiveness of ‘challenging ideas’. Accordingly, certain policy alternatives are perceived as being politically and/or functionally unfeasible. However, in situations of severe policy failure and crisis, policy learning possesses the capacity to destabilise well-established preconceptions. The infusion and the processing of new policy-relevant knowledge – or knowledge that was not seriously considered previously – can call into question predominant ideas and undermine their persuasiveness. Thereby, it becomes possible for challenging ideas to gain prominence in the policy discourse and eventually become ‘institutional blueprints’, instructing policy-makers in situations of policy failure and subsequent policy formulation. However, in compliance with the path dependence theorem, the persuasiveness of challenging ideas and accordingly policy learning is prestructured by the previous institutional setting and discourse; ideas do not enter some vacuum. The way new ideas relate to the policy legacy and moreover the overall paradigm of the political economy

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is crucial for their persuasiveness. Emerging ideas that are entirely detached from the policy legacy can be expected to commonly fail institutionalisation. For this reason, policy learning as a mechanism for the destabilisation of institutional reproduction typically follows a pattern of incremental change; that is, ‘gradual adaptation through partial renewal of institutional arrangements and limited redirection of core principles’ (Ebbinghaus 2005: 17). Somewhat surprisingly, though the Hartz Legislation was heavily disputed in the public domain and within the SPD and Green party and had previously been strongly resisted by both parties, the overall direction of the legislation was hardly contested among policy experts and within the parliamentary groups of the Red–Green coalition. In the SPD parliamentary group, for instance, the predominant reference to the social assistance scheme for the ALG II benefit was accepted with little protest, although such an integration of the unemployment and social assistance schemes was explicitly ruled out in the 2002 party manifesto (SPD 2002), complying with the traditionalist image of Social Democracy. Instead of being concerned with general redistributional issues, conflicts instead focused on details such as the exact amount of allowances for assets and properties as well as income. The lack of resistance towards restructuring and retrenchment in the second Schröder government has been ascribed to a considerable extent to the leadership exercised by the Chancellor. However, it has also been argued that the SPD eventually accepted the imperatives of budget consolidation as well as globalisation and increasing international competitiveness, whereby the perceived room for political manoeuvre was severely limited, leaving politics with supposedly no alternatives. In particular, these perceived constraints put severe limits upon strategies of enabling activation, since these normally involve an increase in expenditure on active labour market policy. However, increasing taxes or social insurance contributions was categorically ruled out in the light of these policies’ implications for the international competitiveness of German industries. On the contrary, lowering the burden of taxes and contributions was declared a governmental priority. For this reason, given the policy objectives of budget consolidation and the improvement of competitiveness, labour market and social policymakers were confronted with ‘external’ constraints to decisionmaking in their policy area (see Chapter 4, Section 2).

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These imperatives set narrow boundaries for the paradigmatic shift towards activation. Already in the first Red–Green government, proposals to improve benefit generosity and increasing expenditure for active labour market policy, which were a commonplace in opposition, were dropped. Politically, this legislation needed to be cost-neutral, an orthodoxy enforced by the ministry of finance. The increasing neglect of positive activation and the gradual predominance of negative activation in the second Schröder government must be seen as a reflection of the political predominance of the imperatives of increasing competitiveness and consolidating the budget. This overall frame favours measures of negative activation, since they commonly involve fewer costs than enabling activation (such as training measures to improve employability). Negative activation can even contribute to reducing social expenditure. Likewise, comprehensive changes to ‘making work pay’ were rejected due to the financial burden for the federal budget. This encouraged policymakers to propose and introduce changes that were closely related to the pre-existing institutional setting (such as the Mini-/Midi-Job scheme deriving from the framework for marginal employment). To conclude, the overall paradigm and the general discourse of the political economy, functioning as a ‘cognitive lock’, effectively structure the emergence of new ‘predominant ideas’ and accordingly reduce the range of choices at the policy level. The persuasiveness of new predominant ideas depends on how they relate to the imperatives of the discourse and the policy legacy. Challenging ideas that are largely detached from the general discourse and the pre-existing institutional setting are likely to fail institutionalisation. With effective social learning, however, the limits of learning-induced institutional change can be ‘moved’, reconfiguring the scope of instrumental learning and ‘feasible’ institutional change. Social learning, destabilising the ideational basis of an institutional setting, has the capacity to redefine what is perceived as ‘feasible’ and ‘desirable’. The boundaries of the policy path are subject to change, increasing the discretion of agency and potentially resulting in a departure from the path. Instrumental learning can serve as a means for the ‘technical’ implementation of the new policy paradigm by generating the knowledge for appropriate policy instruments. The effectiveness of both social and instrumental learning also depends on the formal institutional setting, which might either facilitate or

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constrain policy learning and corresponding institutional change. To reduce the costs of policy formulation, actors commonly refer to field-tested domestic and foreign models, which can either be used just for ‘inspiration’ or for ‘emulation’ and ‘copying’ (March and Dolowitz 1996; Rose 1992).

8.4 New Institutionalism, learning and policy change Against this background, it can be argued that an institutional account of policy learning can be sensibly integrated into new institutionalism to address the stability bias of this approach. To recall, new institutionalism, and in particular its historical variant, has proven a powerful approach for explaining political and policy development (see Chapter 2, Section 1; and also Amenta 2003; Esping-Andersen 1990; Hall and Soskice 2001; Immergut 1992; Pierson 1994; Thelen 2004). Ascribing the formation of preferences to the institutional setting as well as to the constitution of political opportunities and the structure of power relations, historical institutionalism represents a highly contextual approach. A historically generated context is considered decisive for understanding causality. According to the path dependence theorem, policies develop along a historically embedded path, confined by the ‘rules of the game’ of the particular policy. The discretion of agency is consequently viewed as being restricted by policy legacies. Its strengths in accounting for the inertia and stickiness of institutions, however, results in deficits in both grasping and explaining institutional change. In particular a conception of path dependence relying on increasing returns confronts serious problems in explaining institutional change. It needs to refer to the model of punctuated equilibriums (Krasner 1988) and the concept of critical junctures (Collier and Collier 1991) to account for change that does not comply with the logic of a given path. The difficulty with this approach to the problem of institutional change is that ‘institutions explain everything until they explain nothing’ (Thelen and Steinmo 1992: 16). The depiction of institutional development characterised by long periods of stability and moments of abrupt change has fuelled widespread criticism of the stability bias of new institutionalism (Clemens and Cook 1999: 442; Crouch 2005: 2; Hall and Taylor 1996: 21; Hay 2001: 194ff.; Levi 1997: 29; Mayntz and Scharpf 1995: 45; Peters et al.

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2005: 1278; Rothstein 1996: 153ff.; Thelen and Steinmo 1992: 14ff.). With this conception of change, incrementalism – the most common mode of change in advanced political economies and welfare states – can hardly be captured, since stability in institutions at first glance is often misinterpreted as inertia. However, modes of change such as the functional conversion of existing institutions and layering might result in a gradual deviation from a given path without disruption (Thelen 2003). In addition to exogenous shocks (such as changes of the socio-economic environment), three sources of endogenous institutional change have been identified. First, calling into question new institutionalism’s predominant assumption of homogeneity (in particular, the logic of appropriateness), incongruities and incoherence of routine behaviour and institutional settings have been argued to possess the capacity to trigger change with a potentially transformative character (Orren and Skowronek 1994; Crouch and Keune 2005). Crucially, the ‘empirical diversity of institutional legacies’ (ibid.: 85) does not only constitute an important source of institutional instability but also offers (subordinated) stocks of knowledge within the particular policy domain or neighbouring domains of the national setting, to which actors can refer for relatively few ‘costs’ in learning complementary ‘foreign’ knowledge. This alternative source for policy-relevant knowledge can facilitate learning-induced departures from established policy paths. Second, the acknowledgement of the incoherence and diversity of institutional practices substantiates the claim for the discretion of agency, with multiple choices available despite institutional constraints (Clemens and Cook 1999: 459; Crouch and Keune 2005: 99; Katznelson 2003: 294; Peters et al. 2005: 1277ff.; Sikkink 1991: 27). For this reason, actors with ‘entrepreneurial creativity’ (Offe 2001: 368) must be depicted ‘as objects and as agents of history’ (Thelen and Steinmo 1992: 10). Using the concept of learning, calls for ascribing more prominence to agency in new institutionalism can be addressed appropriately, since actors are the very subjects of learning. Despite the limits of a knowledge-based approach, the mechanism of policy learning has been introduced as a powerful device with which the political behaviour of agency – particularly, changed behaviour – can be explained to some considerable extent. Institutional entrepreneurs have been depicted as being decisive for

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learning-induced institutional change (see Chapter 2, Section 2). Policy experts with entrepreneurial quality not only provide the expert knowledge that is needed for effective learning but also possess the skills for fostering knowledge utilisation. With their recognised expertise and their ‘claim to hearing’ (Kingdon 1984: 189), they have the capacity to first discredit taken-for-granted rules (Beckert 1999: 786) and then establish challenging ideas with their expert and social skills (Fligstein 1997: 398). Finally, ideas, both at the cognitive and normative level (Campbell 2002: 22ff.; Rueschemeyer and Skocpol 1996: 300), have been discussed as instructing agency in times of both stability and change. Ideas define what is ‘desirable’ and what is ‘feasible’. In other words, ideas are the ‘moral or cognitive templates for interpretation and action’ (Hall and Taylor 1996: 8). Contributing to inertia, ideas as ‘cognitive locks’ facilitate path stabilisation (Blyth 2001: 4), which is particularly pronounced if it is a veto player who holds the particular idea. Likewise, ideas can reinforce path-dependent development, if ‘crystallised’ in formal institutions (Goldstein 1988: 181; Sikkink 1991: 2) or institutionalised informally in discourses and collective identities, which can influence institutional change by providing guidance to policy-makers (Berman 2001: 238). In accordance with the ‘stickiness of institutions’ argument of new institutionalism, ideas create policy legacies, setting up barriers to institutional change (that is, ideational path dependence; see also Hay 2006). However, conversely, ideas as ‘institutional blueprints’ (Blyth 2001: 3) can facilitate transformative changes by instructing policy-makers in the event of perceived policy failure and crisis. But even in path departures, ideas as blueprints are not detached from the policy legacy. Pre-existing institutional settings shape the political and functional feasibility of new ideas, resulting in the typical pattern of incremental change. Since ideas define the boundaries of the policy path and both constrain and enable agency as much as formal institutions do, it has been claimed that ideas must be considered ideational institutions in a comprehensive understanding of policy change from a new institutionalist perspective. Without taking ideas seriously, new institutionalism is ill-equipped in attempts to explain transformative changes that do not comply with the logic of a given policy path. ‘Predominant ideas’ (that is, ideational institutions) are either

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institutionalised formally or guide actors by defining what is considered politically and functionally feasible. By contrast, ‘challenging ideas’ have not yet generated the capacity to guide political action and thereby to structure policy change. In addition to instructing agency, ideas can also be used instrumentally as ‘political weapons’ fostering a political agenda (Blyth 2001: 4; Robertson 1991). Ideas not used genuinely in deliberation are negligible for institutional change induced by policy learning. Paradigmatic change has been argued to be typically preceded by ideational change (see also Hay 2001, 2006), raising the issue of what mechanism initiates the transformation of knowledge. Learning is a mechanism destabilising the ideational foundations of institutions and thereby destabilising the reproduction of institutional settings, potentially triggering a path departure. Effective learning can be undermined by the rigidities of the decision-making process (in particular, in the presence of veto players). Further to this, learning and the emergence of new ideas are pre-structured by the ideational dimension of the institutional setting; challenging ideas do not enter some vacuum. In other words, the political and functional feasibility of new ideas – and thereby the effectiveness of policy learning – is structured by the pre-existing policy legacy, complying with the path dependence theorem. Yet it is facilitated by the availability of institutionalised learning mechanisms and mediating institutions. To conclude, the constraints of the formal institutional setting, in particular veto players, are important determinants of institutional change (by providing the strategic context for action), but formal institutions can only explain the ‘speed’ and not the ‘direction’ of transformative change. Understanding the direction of institutional change in the departure from a policy path requires the scrutiny of ideas that instruct policy-makers. Ideas essentially define what is considered ‘desirable’ as well as what is considered ‘feasible’. Change in predominant ideas is related to the processing of policy-relevant knowledge (in other words, policy learning). Acknowledging the importance of the institutional setting allows conceptualising ‘embedded agency’ to substantiate the concept of policy learning in new institutionalist terms. The claim of institutional incoherence and the diversity of institutional legacies, as well as the availability of ‘foreign’ knowledge, are crucial for the understanding of the discretion of embedded agency. The concept of policy learning is

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related to all three endogenous sources of institutional change, which allows the integration of policy learning into new institutionalism as a mechanism of knowledge-based institutional change, not only to address the widely criticised stability bias of the approach but to improve our understanding of paradigmatic change more generally.

Appendix: List of Interviewees Note: This is an alphabetical list of interviewees. The interview numbers in the text are the author’s own reference, and are not a direct cross-reference, in order to protect the interviewees’ anonymity. Gerd Andres, interviewed 28 September 2006 Federal Ministry of Labour and Social Affairs, Parliamentary State Secretary Dr Arne Baumann, interviewed 28 September 2006 Officer of the Green Parliamentary Group Klaus Brandner, interviewed 22 October 2005 Member of Parliament, SPD Spokesman for Labour Market Policy and Social Affairs Bernd Buchheit, interviewed 15 July 2005 Federal Ministry of Labour and Social Affairs, Head of the Labour Market Division Hans-Dieter Fahnauer, interviewed 25 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on General Issues of the Social Code Book III and the Federal Employment Agency Professor Dr Gerhard Fels, interviewed 27 June 2005 Member of the Benchmarking Group of the Alliance for Jobs Frank Frick, interviewed 18 August 2003 and 09 September 2005 Bertelsmann Foundation, Project Manager Dr Wolf-Dieter Füchsel, interviewed 25 August 2005 Federal Ministry of Economics, Head of the Unit on Economic Issues of Health, Labour Market and Social Policy Dr Helga Hackenberg, interviewed 21 August 2005 Bertelsmann Foundation, Project Manager Dr Rolf Hagedorn, interviewed 24 August 2005 Federal Ministry of Finance, Head of the Unit on the Budget Item for Labour Market Policy Gerd Heyer, interviewed 23 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on General Issues of Labour Market Policy Dr Karlheinz Hupfer, interviewed 12 July 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on General Issues of the Basic Security for Jobseekers 206

Appendix: List of Interviewees

207

Professor Dr Werner Jann, interviewed 19 April 2004 Member of the Hartz Commission Peter Jülicher, interviewed 16 July 2002 and 10 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on International Labour Market Policy Dr Martina Klein, interviewed 06 July 2005 Supporting Staff of Heide Pfarr, Member of the Benchmarking Group of the Alliance for Jobs Dr Hans-Peter Klös, interviewed 17 August 2005 Supporting Staff of Gerhard Fels, Member of the Benchmarking Group of the Alliance for Jobs Armin Knospe, interviewed 23 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on General Issues of the Social Insurances Markus Löbbert, interviewed 19 July 2002 Federal Ministry of Labour and Social Affairs, Officer in the Unit on European Employment Policy Stefan Marx, interviewed 22 August 2003 and 12 July 2005 Federal Ministry of Labour and Social Affairs, Officer in the Unit on General Issues of the Social Code Book III and the Federal Employment Agency Marc Nellen, interviewed 25 August 2005 Federal Ministry of Labour and Social Affairs, Officer of the Unit on General Issues of the Basic Security for Jobseekers Christiane Polduwe, interviewed 25 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on the Benefit System of the Basic Security for Jobseekers Stefan Ramge, interviewed 24 August 2005 Federal Chancellery, Head of the Unit on Economic and Labour Market Policy Matthias Rockstroh, interviewed 10 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on Unemployment Insurance Wilhelm Schickler, interviewed 14 July 2005 Member of the Hartz Commission, Federal Employment Agency Dr Christoph Schumacher-Hildebrand, interviewed 15 July 2005 Federal Ministry of Labour and Social Affairs, Head of the Unit on European Employment Policy Dr Rolf Schmachtenberg, interviewed 23 August 2005 Federal Ministry of Labour and Social Affairs, Head of the Sub-Division on Employment Promotion and Unemployment Insurance

208 Appendix: List of Interviewees

Professor Dr Günther Schmid, interviewed 15 August 2003 and 13 July 2005 Member of the Hartz Commission and the Benchmarking Group of the Alliance for Jobs Professor Dr Wolfgang Streeck, interviewed 27 June 2005 Member of the Benchmarking Group of the Alliance for Jobs Dr Werner Tegtmeier, interviewed 10 August 2005 Federal Ministry of Labour and Social Affairs, former Permanent State Secretary Thomas Zuleger, interviewed 12 July 2005 Former Senior Officer of the SPD Parliamentary Group

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Index achieved living standard (also status preservation) 2, 61, 74, 90, 91, 182, 184 activation coercive activation 13, 80, 105, 121, 127, 183 enabling activation 19, 80, 90, 119–21, 199, 200 negative activation 17, 107, 113, 119–21, 126–7, 149, 170, 182, 188, 196, 200 positive activation 18, 89–90, 106, 113, 119, 120–21, 126, 181, 189, 196, 200 rights and obligations (also ‘demanding and fostering’) 104–7, 110, 120, 146–7 workfare 71–2, 75, 89–92, 105, 112, 119–20, 126–7, 148, 173, 178–9, 188, 191, 196 making work pay 19–20, 81, 86, 90, 105, 112, 132, 144, 148, 173–4, 183, 189, 196 advocacy coalition framework (ACF) 44, 47, 52 Agenda 2010 1, 5–6, 78, 80–92, 101–2, 105–6, 125–7, 130, 169, 176, 190 Alliance for Jobs 76, 96, 101, 126, 136–143, 147–9, 152–5, 164, 188–91, 196–7 Austria 120, 142, 155–6, 161, 167 benchmarking 54–7, 98–100, 130, 133 benchmarking group 17, 113, 136–46, 148–9, 152, 155, 161, 164, 189, 196–7 benchmarking reports 137, 141–9 Bertelsmann Forum 124, 171–3, 175–8, 195, 197

Bertelsmann Foundation 124, 141, 147, 155, 160, 171–2, 193, 197 bounded innovation 38 bridging allowance 66–7, 83 budget consolidation 13, 65, 67, 69, 74, 89, 102, 111–12, 169, 189, 199 bureaucrats (also civil servants) 39, 45, 47–51, 81, 108–9, 112–13, 115–7, 122, 125, 129, 133, 141, 182, 185, 186, 191, 193, 196, 198 Bundesrat (also Federal Council and Upper House) 10, 19–20, 78, 82–7, 94–5, 118, 122–3, 125–7, 129, 147, 167, 171, 173–4, 176, 178, 180, 190, 196 Bundestag (lower house) 94–5, 126, 129, 167, 173, 176 Christian Democracy (also CDU) 3–4, 95, 125, 186–7 Chancellery 117, 122, 128, 137–8, 140–1, 144, 148–52, 162, 164, 177, 191, 193, 196 cognitive filter 37, 58 collective bargaining agreements 68, 72, 84, 87, 139, 143, 160 Cologne Model 156, 175 community work 69 corporatism 2, 17, 62, 69, 74, 91, 94–6, 112, 136, 138–9, 149, 153, 182, 190–1 Commission for the Reform of Municipal Finances 125, 159 conservative–corporatist welfare state 1–2, 9, 16, 18, 60, 62, 91, 113–14, 151, 179, 180, 184–6 Conservative–Liberal government (also Kohl and centre-right government) 9–10, 16–17, 60, 66–75, 78, 80, 89, 91–2, 93–5, 230

Index

106, 108, 110–1, 105, 116, 119, 121, 127–8, 136–7, 149, 154, 171, 182 consultancies 47, 156, 161, 193 conversion 30, 185, 202 constructivist institutionalism 35 competitiveness 7–9, 13, 16, 19, 89, 100–2, 111, 137–8, 180, 186, 199–200 complementarities 32 cost containment 84, 89 criteria for reasonable work 13, 64–5, 71, 75, 79, 81–2, 88, 90–1, 107, 120, 149, 157, 174, 184, 190 critical juncture 28, 29, 31, 41, 181, 201 Denmark 99, 120–1, 142, 144–5, 148, 174 discourse 1, 10, 12–13, 16, 19, 37, 53, 77, 80, 93, 98, 100–1, 103, 109–12, 130, 132, 134, 179, 185, 198, 200, 203 divided government 94 early retirement 65–71, 74–5, 84–5, 104, 107, 158, 169, 170, 177, 182 employers 2, 8, 55, 61–2, 71–2, 79, 83, 95, 100–1, 111, 137–9, 141–3, 148, 152, 156–7, 187 employment guidelines 129–30, 132 employment promotion consolidation law 65 European Employment Strategy (also Luxembourg Process) 17, 97, 113, 128–35, 144, 197–8 European integration 100–2, 128, 138 European Union (EU) 94, 96–7, 128, 131–3, 138 expert commissions 46, 150, 153 evaluations 20, 54–6, 76, 118, 130, 143, 151 Federal Audit Office (BRH) 80, 151–2 Federal Employment Service 17, 74, 76, 80–1, 84, 88, 95, 108–9,

231

122, 124, 146, 150, 152, 161, 168, 182, 185 frames 35, 37, 41 globalisation 2, 6–9, 100–2, 111, 179–80, 199 Hartz Commission 17–18, 76–7, 81–2, 108, 113–4, 121–8, 136, 150–78, 189–91, 196–7 Hartz Legislation 1, 5–6, 9, 13, 16–18, 60, 76, 78, 80, 85–6, 88, 90–2, 101–3, 106, 110, 113, 118, 121, 126–8, 132, 150–1, 165, 168, 178, 182, 186–8, 190–1, 193, 196, 199 Hartz I 82–4, 88, 122–3, 128, 165–6, 177, 197 Hartz II 83, 88, 122–3, 128, 165–6, 177, 190, 197 Hartz III 84, 88, 123, 128, 151, 166–70, 177, 183, 193, 197 Hartz IV 6, 86, 88, 110, 123, 151, 167, 170–8, 186, 188–9, 197 Hartz Report 18, 77–8, 81–2, 84, 122–3, 125, 130, 151, 153, 156–66, 176–7, 191, 197 help to work schemes 70, 175 historical institutionalism 10, 12, 21, 24–5, 31, 35, 41, 181, 201 ideas cognitive ideas 36, 38, 39, 42, 203 challenging ideas 39–58, 80, 121, 126, 144, 185, 198, 200, 203–4 ideas as institutional blueprints 19, 38, 40, 55, 59, 114, 121, 139, 156, 183, 186, 192, 198, 203 ideas as cognitive locks 37, 58, 144, 148–9, 189, 196, 198, 200, 203 ideas as weapons 39, 44, 192, 204 normative ideas 36–8, 48, 203 predominant ideas 2, 13, 39–40, 58–9, 80, 91, 105, 112, 127, 144, 168, 178, 182, 185, 198, 200, 203–4

232

Index

increasing returns 26–8, 58, 201 incremental change 9, 30–1, 58, 74, 90, 92, 95, 97, 120, 143, 146, 181, 185, 199, 202–3 inertia (also stickiness of institutions) 10–11, 22, 27, 30, 37, 40, 48–9, 97–8, 180, 195, 198, 201–3 institutional entrepreneurs (also policy entrepreneurs) 34, 39, 41, 50–1, 127, 164, 191–3, 202–3 institutions formal institutions 12, 15, 22, 27, 30–1, 35, 37, 39–40, 58, 185, 190, 195, 198, 200, 203–4 ideational institutions 39–40, 203–4 informal institutions 19, 22–3, 48 institutional stickiness 11, 22, 29–30, 37, 180, 198, 201, 203 mediating institution 13, 19, 48, 51, 57, 167, 173, 195–7, 204 institutional incoherence 21, 41, 204 Job-AQTIV Law 16–17, 60, 76–80, 85, 89–90, 101, 106–7, 113, 115–21, 123, 126–7, 132–3, 146–9, 167–9, 181–2, 189, 193, 196 Job Centre 86–8, 133, 156–9, 163, 172, 174–5, 183, 187 job creation measures 64–5, 67–8, 70–1, 75–6, 79–80, 85, 106, 118–9, 121, 145–6, 166, 184 job placement 66, 69, 71–2, 74–5, 77–8, 80–1, 85–8, 91, 120, 122, 133, 144–5, 151–2, 154, 156–7, 168–9, 175 job placement and unemployment insurance law 62 joint decision trap 10, 98 jump programme 76 Kohl, Helmut 9–10, 60, 66–70, 73, 75, 78, 89, 91–5, 106, 108,

110–11, 119, 121, 127–8, 136–7, 149, 171, 182–3 knowledge 13, 15, 19–20, 33, 36, 39, 41–59, 114–15, 123–4, 130, 133–6, 141, 145, 150, 156, 165–6, 170, 173–4, 182, 190, 192–5, 197–8, 200, 202–4 knowledge-based change 14–15, 19, 21, 24, 41, 44, 50–1, 58–9, 121, 165–6, 181–2, 192–3, 198, 205 knowledge utilisation literature 43, 48, 53, 57, 59, 114, 150, 193–4, 203 Labour Promotion Law (AFG) 63–5, 65, 68, 73–4, 78, 96 Labour Promotion Reform Law (AFRG) 71 wage costs 8, 72, 79–80, 81, 85, 89, 100–2, 111–12, 129, 142, 147, 186 layering 30, 202 leadership 18, 33, 127–8, 137, 138, 144, 149, 166, 177, 188, 191–3, 195, 197, 199 learning collective learning 19, 44, 46, 49–52, 57, 128, 135, 143, 149, 166, 168, 176–7, 191–2 instrumental learning 43, 50, 52, 128, 133, 162, 167, 176, 181, 183, 200 learning mechanism 13, 19, 54, 57, 130, 135, 149–50, 165, 176, 195–8, 204 lesson-drawing 52, 55–6, 120, 138, 144, 147, 156, 161 non-learning 19, 190, 198 pathological learning 43, 57 policy learning 13–59, 94, 98, 112–15, 121, 127–31, 133–6, 138–40, 149–51, 154, 156, 161–7, 169, 173, 176–8, 181–2, 184–5, 188, 190–9, 201–2, 204–5

Index

policy-oriented learning 44, 47–8, 52 policy transfer 33, 52, 129, 156–7, 159, 161, 163, 175, 194 political learning 43, 46, 139, 153, 161, 164, 191–2 social learning 18, 43–4, 49–53, 127, 133, 162, 167, 169, 183, 191, 200 lock-in effects 10–11, 14, 26 logic of appropriateness 24, 32, 34–5, 202 long-term unemployment 6, 63, 66–7, 71, 75, 78–9, 81–2, 85–90, 99, 106–7, 124–5, 137, 145, 157, 159, 171–3, 176, 184, 187–9 low–wage employment 69, 76, 83, 102–3, 134, 142–4, 147, 174, 187, 189 Mainz Model 76, 143 male breadwinner model 61, 63 marginal employment (also Mini/ Midi–jobs) 83–4, 88, 122, 132, 160–1, 165, 184, 189–90, 200 marshalling yards 70, 109–10, 158 Me, Inc (ICH–AG) 83, 122, 132, 160, 165, 184 ministry of finance 19, 118, 143, 173–4, 189, 200 ministry of labour 18, 20, 68, 96, 116–18, 121–2, 124, 129–31, 141, 151, 155, 159, 162, 164–6, 169–71, 177, 191–2, 197 mediation committee 83, 87, 126, 170, 173–4, 176, 189–90 modernisers 18–19, 105, 119, 121, 126–8, 188, 191–2 monitoring 54–6, 73, 108, 130 Mozart Scheme 76, 110, 123–4, 159, 171–2, 197 Municipal Option Law 88, 176, 186, 190

233

new public management (NPM) 2, 18, 60, 80, 91–2, 107–9, 112, 121, 123, 145–6, 161, 167–9, 178, 181–3, 185–7, 191, 194 management by objectives (MBO) 72–3, 91, 108, 112, 161, 167 Netherlands, the 99, 120, 139, 142, 144, 148, 155–7, 159, 167, 172, 174 Nixon Goes to China thesis 5 paradigm 1, 2, 13, 17–19, 31, 35, 37–42, 49, 52, 54, 58–9, 65, 89–94, 98, 105, 107, 109–13, 121, 127, 132–3, 144, 157, 178, 182–9, 193–4, 198, 200, 204–5 paradigm shift 1, 14, 30, 49, 50, 52, 73, 90, 92, 113, 119, 170, 192–3, 200 Parliamentary State Secretary 116–17, 119, 127, 146, 192, 196 Parliamentary Working Group 117–18, 123, 166–7, 195–6 party competition 2, 4–6, 10, 20, 111, 147, 176, 179–80, 187–8, 190 parties matter thesis 2–4, 6, 179 path dependence 10–14, 20, 21, 24–41, 51, 53, 58–9, 114, 180–1, 198, 201, 203–4 path departure 1–2, 9–12, 31, 35–6, 58, 60, 92, 114, 151, 179–82, 184–5, 200, 203–4 peer pressure 129 Personnel Service Agency (PSA) 82, 88, 159 pilot projects 54, 56, 124, 143, 171–2, 197 placement scandal 18, 76–7, 80, 108, 124, 126, 150, 153–4, 168, 182, 190 policy failure 14, 38, 43–4, 52, 59, 182–3, 185, 194, 198, 203 positive feedback processes 26–8

234

Index

power resources approach (also parties matter thesis) 2–4, 6, 179–80 principles of equivalence and performance 61, 73 punctuated equilibrium 28–31, 181, 201 qualification offensive 66–7 rational choice 2, 4, 22–5, 33–4, 36, 180 rational choice institutionalism 23, 25, 33 reactive sequences 26–8, 41, 58 recommodification 71, 74, 90, 104–5, 112, 184 reform gridlock 1, 9, 97, 101, 136, 139, 149, 188 rules of the game 23–4, 27, 39, 57, 201 sanction(s) 13, 23, 65, 70, 72–3, 75, 80–2, 85, 87–8, 91, 105, 107, 126, 129, 144, 157, 184 Schröder, Gerhard 1, 4–6, 12, 16–19, 60, 75–8, 80–2, 88–9, 91, 94–5, 101–2, 105–6, 112–13, 121–3, 125–7, 136–7, 138–9, 144, 147–8, 149–50, 152–4, 156, 162, 165–6, 169, 171, 176–7, 181, 188–91, 192–3, 196–7, 199–200 Schröder/Blair paper 127, 147, 191 self-employment 66, 83, 129, 145, 160 self–reinforcing processes 11, 26–9, 41 semisovereign state 14 service sector gap 102–3 social assistance 6, 61–3, 70–1, 76, 81, 86, 88, 91, 107, 109–10, 123–5, 145, 152, 154, 158–9, 170–1, 173–5, 177, 183–4, 197, 199 Social Code II (SGB II) 86, 183

Social Code III (SGB III) 71, 88, 191 social-liberal coalition 65–6, 88 social partners 14, 17, 61–3, 74, 95–6, 111, 136–9, 152–3 sociological institutionalism 23–5, 32, 35 Social Democracy (also SPD) 1–3, 5–6, 10, 13, 19–20, 64–5, 88–9, 95–6, 101, 105, 116–17, 119, 121, 125–30, 137, 143–4, 152, 154, 162, 168, 171, 175, 179–80, 186–8, 191, 199 standard work arrangement 61, 63, 90–1, 182, 184 Standortdebatte 100–2 Stability and Growth Pact 96 stability bias 11–13, 15, 21, 31, 33, 35, 41, 181, 201, 205 substandard employment 63–4, 70, 72, 74 sunk costs 11, 13, 58 Sweden 65, 121, 155 Switzerland 98, 155, 161, 167 temporary agency work 82, 88, 144, 159–60, 163, 177 temporary employment 70, 84 think tanks 46, 124, 155, 193 Third Way 77, 105, 129 trade unions 2, 5, 62, 77–8, 82, 84, 95–6, 103, 105, 116–18, 127, 137, 139–41, 143–4, 147–9, 152, 154, 157, 158, 159, 160, 163, 164, 168, 170, 172, 174, 177, 188–91, 196 traditionalists 19, 77, 89, 105, 120–1, 126–7, 144, 147–9, 188–9, 191, 196, 199 training allowance 64, 66, 67, 69, 75 unemployment assistance reform law 69 unemployment protection unemployment insurance 9, 61–2, 64–5, 67, 74, 83, 88, 102, 111, 145, 158, 165, 170

Index

unemployment benefit (also Unemployment Benefit I) 62–3, 65–8, 70, 72–3, 75–6, 82–3, 85–8, 91, 101, 104, 107, 109, 125, 132, 137, 154, 158–160, 169–70, 173, 184, 186 Unemployment Benefit II 86–7, 90, 125, 158–9, 173–5, 183–4, 199 unemployment assistance 62–3, 69–72, 75–6, 79, 84, 86, 91, 95, 109–10, 125, 148, 158, 171–2, 174–5 unintended consequences 11, 27 United Kingdom 99, 119–20, 127, 133, 144, 148, 155–6, 159, 161, 167, 173–5, 183, 189, 156, 175, 183 uncertainty 15, 27, 36–8, 44–5, 59, 182, 185, 184

235

wage subsidies 66–7, 69 welfare without work 68–9, 71, 74–5, 89–90, 90, 103, 111, 169–70, 182, 184–5 window of innovation 44, 135, 182, 195 window of opportunity 18, 44, 77–8, 95, 126, 154, 167, 182, 190 veto players 11, 14, 19, 26–7, 33, 57, 94, 97, 127, 153, 180, 189–90, 192, 195, 198, 203–4 institutional veto player 26, 190, 195 partisan veto player 26, 58, 77, 95, 121, 188 veto points 11, 27, 93 vocational protection 64, 71–2 vocational training 64–5, 67–8, 79–80, 121–2, 145