The Handbook of European Welfare Systems

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The Handbook of European Welfare Systems

This book provides the ﬁrst comprehensive information and detailed data on the welfare systems of all 27 EU member states and oﬀers the reader an invaluable introduction and basis for comparative welfare research. The introductory chapter summarizes the actual debate about welfare states and welfare (state) regimes, gives an overview on current welfare (state) research and analyses the main recent developments necessitating a new focus on European Welfare Systems. The 27 chapters on the welfare systems of the member states are written on the basis of a common structure by experts from the individual states. An additional chapter analyses the current social and welfare policies of the EU and focuses on the interplay and limits between European and national social policies. Two concluding chapters provide (a) a ﬁrst comparative analysis on the basis of all 27 European Welfare Systems and (b) a theoretical reﬂection both arguing for and venturing the idea of politically limited pluralism in European welfare politics. Klaus Schubert Professor of German Politics and Policy Analysis at the Institute of Political Science, University of Münster, Germany. Simon Hegelich Research Fellow and Coordinator of the Graduate School of Politics at the Institute of Political Science, University of Münster, Germany. Ursula Bazant Counsellor at the Federal Chancellery of Austria, Department for Economic and OECD Aﬀairs, Labour Market and Social Policy, Vienna, Austria.

The Handbook of European Welfare Systems

Edited by Klaus Schubert, Simon Hegelich and Ursula Bazant

First published 2009 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business

This edition published in the Taylor & Francis e-Library, 2010.

To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2009 Edited by Klaus Schubert, Simon Hegelich and Ursula Bazant All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data European welfare systems / Klaus Schubert, Simon Hegelich, Ursula Bazant. p. cm. 1. Public welfare–European Union countries. 2. European Union countries– social policy. I. Schubert, Klaus, Dr. II. Hegelich, Simon. III. Bazant, Ursula. IV. Title: Handbook of European welfare systems. HV238.E9613 2009 361.94–dc22 2008048236

ISBN 0-203-87859-0 Master e-book ISBN

ISBN 978-0-415-48275-2 (hbk) ISBN 978-0-203-87859-0 (ebk)

Contents

List of contributors Preface

viii xi

Part I: Introduction

1

European Welfare Systems: current state of research and some theoretical considerations Klaus Schubert, Simon Hegelich and Ursula Bazant

3

Part II: Country studies

29

at Welfare state development in Austria: strong traditions meet new challenges August Österle and Karin Heitzmann

31

be Belgium: the quest for sustainability, legitimacy and a way out of ‘welfare without work’ Ive Marx

49

bg Impact of the reforms of the welfare state in Bulgaria after 1989 on stratiﬁcation, solidarity and integration of groups at risk Rumiana Stoilova

65

cy Welfare adaptation in a divided state: the Cypriot welfare system Anthos I. Shekeris, Christina C. Ioannou and Christos Panayiotopoulos

83

cz The Czech welfare system Vojteˇch Ripka and Miroslav Mareš

101

de Conﬂict, negotiation, social peace: the German welfare system Simon Hegelich and Hendrik Meyer

120 v

C O NT E N T S

dk Between economic constraints and popular entrenchment: the development of the Danish welfare state 1982–2005 Christoﬀer Green-Pedersen and Michael Baggesen Klitgaard

137

ee The welfare system of Estonia: past, present and future Avo Trumm and Mare Ainsaar

153

es The welfare state in Spain: unﬁnished business Paloma Villota Gil-Escoin and Susana Vázquez

171

ﬁ

189

The welfare system of Finland Olli Kangas and Juho Saari

fr The French social protection system: current state and future prospects Camal Gallouj and Karim Gallouj

207

gr Inequalities and deﬁciencies in social protection: the welfare system of Greece Christos Papatheodorou

225

hu From state socialism to a hybrid welfare state: Hungary Katalin Tausz

244

ie The Irish welfare system Anthony McCashin and Judy O’Shea

260

it

lt

The Italian welfare state (still) in transition: the progressive recalibration of social programmes and greater ﬂexibility of labour market policies David Natali The welfare system of Lithuania Jolanta Aidukaite

lu The welfare system of Luxembourg: from past dependency to the European approach Nicole Kerschen

277

294

310

lv The welfare system in Latvia after renewing independence Feliciana Rajevska

328

mt The Maltese welfare state: hybrid wine in rightist bottles (with leftist labels)? Charles Pace

344

nl The Dutch welfare system: from collective solidarity towards individual responsibility Wim van Oorschot pl The welfare state in Poland: transformation with diﬃculties Renata Siemien´ska and Anna Domaradzka vi

363

378

C ON T E N TS

pt The Portuguese welfare system: from a corporative regime to a European welfare state José António Pereirinha, Manuela Arcanjo and Francisco Nunes

398

ro The Romanian welfare state: changing and developing Suzana Dobre

415

se The Swedish welfare state: a model in constant ﬂux? Sven E. O. Hort

428

si

444

The Slovene welfare system: gradual reform instead of shock treatment Zinka Kolaricˇ, Anja Kopacˇ and Tatjana Rakar

sk The Slovak welfare system: neo-liberal nightmare or welfare pioneer of middle-eastern Europe? Olaf Wientzek and Hendrik Meyer

462

uk The British welfare system: marketization from Thatcher to New Labour Lavinia Mitton

478

eu European Union social policy: towards a post-national welfare state? Wolfram Lamping

495

Part III: Comparative analysis

511

European Welfare Systems: diversity beyond existing categories Ursula Bazant and Klaus Schubert

513

Politically limited pluralism as European identity: European Welfare Systems Simon Hegelich and Klaus Schubert

535

vii

Contributors

Jolanta Aidukaite Research Fellow at the School of Social Science at the Södertörn University in Stockholm, Sweden. Mare Ainsaar Research Fellow at the Faculty of Social Sciences, University Tartu, Estonia. Manuela Arcanjo Assistant Professor at the School of Economics and Management (ISEG), Technical University of Lisbon, Portugal. Michael Baggesen Klitgaard Associate Professor at the Department of Political Science, University of Southern Denmark, Odense, Denmark. Ursula Bazant Counsellor at the Federal Chancellery of Austria, Department for Economic and OECD Aﬀairs, Labour Market and Social Policy, Vienna, Austria. Suzana Dobre Executive Director at the Romanian Academy of Sciences, Bucharest, Romania. Anna Domaradzka Research Fellow at the Institute of Social Studies, University of Warsaw, Poland. Camal Gallouj Professor at the Department of Management Sciences, University of Brest, France. Karim Gallouj Physician and Head of the Geriatrics’ Department at the Dron Central Hospital, Tourcoing, France. Christoﬀer Green-Pedersen Research Professor, Department of Political Science at the University of Århus, Denmark. Simon Hegelich Research Fellow and Coordinator of the Graduate School of Politics at the Institute of Political Science, University of Münster, Germany. viii

C O N T RI BU T O RS

Karin Heitzmann Assistant Professor at the Institute of Social Policy, Vienna University of Economics and Business, Austria. Sven E. O. Hort Professor of Sociology at Södertörn University Stockholm, Sweden. Christina C. Ioannou Lecturer at the Department of European Studies and International Relations, University of Nicosia, Cyprus. Olli Kangas Research Professor at the Social Insurance Institution, Helsinki, Finland. Nicole Kerschen Research Fellow at the University Paris X, CNRS, France. Zinka Kolaricˇ Professor of Social Policy at the Faculty of Social Sciences, University of Ljubljana, Slovenia. Anja Kopacˇ Research Fellow at the Institute of Social Sciences, University of Ljubljana, Slovenia. Wolfram Lamping Associate Professor at the Institute of Political Science, University of Hannover. Miroslav Mareš Associate Professor at the Institute of Comparative Political Research, Masaryk University, Brno, Czech Republic. Ive Marx Research Fellow at the Centre for Social Policy, University of Antwerp, Belgium. Anthony McCashin Lecturer at the School of Social Work and Social Policy, Trinity College Dublin, Ireland. Hendrik Meyer MA, Research Fellow at the Institute of Political Science, University of Münster, Germany. Lavinia Mitton Lecturer at the School of Social Policy, Sociology and Social Research at the University of Kent, UK. David Natali Research Fellow at the Insitute of Social Sciences, University of BolognaForli, Italy. Francisco Nunes Assistant Professor at the School of Economics and Management (ISEG), Technical University Lisbon, Portugal. August Österle Associate Professor at the Institute of Social Policy, Vienna University of Economics and Business Administration, Austria. Wim van Oorschot Professor of Sociology and Director of the Institute for Social and Cultural Studies at the University of Tilburg, the Netherlands. Judy O’Shea Lecturer at the School of Social Work and Social Policy, Trinity College Dublin, Ireland. ix

C O NT R I B U T OR S

Charles Pace Senior Lecturer at the Department of Social Policy and Social Work, University of Malta, Malta. Christos Panayiotopoulos Professor of Social Work at the Institute of Social Sciences at the University of Nicosia, Cyprus. Christos Papatheodorou Associate Professor of Social Policy at the Department of Social Administration, Democritus University of Thrace, Greece. José António Pereirinha Professor of Economics and Social Policy at the School of Economics and Management (ISEG), Technical University of Lisbon, Portugal. Feliciana Rajevska Associate Professor at the Institute of Political Science, Vidzeme University College, Latvia. Tatjana Rakar Research Fellow at the Institute of Social Sciences at the University Ljubljana, Slovenia. Vojteˇ ch Ripka Research Fellow at the Institute of Comparative Political Research, Masaryk University, Brno, Czech Republic. Juho Saari Professor at the University of Kuopio, Finland. Klaus Schubert Professor of German Politics and Policy Field Analysis at the Institute of Political Science, University of Münster, Germany. Anthos I. Shekeris Research Fellow at the University of Nicosia, Cyprus. Renata Siemien´ska Professor of Sociology at the Institute of Social Studies, University of Warsaw, Poland. Rumiana Stoilova Senior Research Fellow at the Institute of Sociology, Bulgarian Academy of Sciences, Soﬁa, Bulgaria. Katalin Tausz Research Fellow at the Eötövös Loránd University, Budapest, Hungary. Avo Trumm Research Fellow at the Institute of Sociology and Social Policy, University of Tartu, Estonia. Susana Vázquez Research Fellow at the Institute of Social Science and Economics, University Complutense, Madrid, Spain. Paloma Villota Gil-Escoin Professor of Economic Policy at the Institute of Social Science and Economics, University Complutense, Madrid, Spain. Olaf Wientzek MA, EU advocacy assistant at the International Crisis Group Brussels, Brussels, Belgium. x

Preface

This book focuses on the plurality of European Welfare Systems. It pays great deference to international welfare state research, but argues that serious political, social and economic changes make it necessary to reconsider the usual categories and typologies. Not only that, the editors are of the opinion that it is currently advisable – ﬁguratively speaking – to take a step back and reaﬃrm the empirical basis of our subject matter. Only with a ‘pre-comparative’ understanding can we approach the real phenomenon as well as the more recent developments in social and welfare politics. This step, as becomes apparent particularly from the studies of the EU27, discloses the diversity of national systems of welfare production, their distribution and consumption. The 27 country studies are generally uniformly structured and vary primarily in details speciﬁc to the countries. After a short historical introduction, the current status quo is described and analysed. What are the welfare arrangements? In what form are they available? For whom are they intended? According to what criteria are they distributed? And who pays for them? The analysis is directed at questions of the distribution, the pros and cons, the services and deﬁcits of the respective welfare systems. A short outlook on current developments, questions and problems rounds the individual studies oﬀ. In an additional chapter, the scope and limits of EU social politics are discussed in more detail. The editors end the volume with a preliminary examination of the ‘diversity beyond existing categories’ on the one hand, and with the claim of a ‘politically limited pluralism’ speciﬁc to Europe on the other hand. Whoever has worked on a project of this scale, will appreciate the fact that the editors have a large number of colleagues to whom they are indebted for their words and deeds. We would particularly like to thank the authors of the EU27 states for their willingness to cooperate in this project and in bringing this book to fruition, as well as in many cases for their support and patience. Our thanks also go to the translators and other collaborators, in particular to Sonja Blum, Jochen Dehling and Hendrik Meyer (all truly reliable ‘trouble-shooters’). Special thanks go to Cathryn Backhaus for dealing with the often lengthy correspondence and organization and for her countless assistance with translations. It is however, above all, her always friendly, considerate nature, which xi

P R EF A C E

consistently has a positive eﬀect on our working environment. Her strong commitment contributed considerably to the making of this book. Klaus Schubert, Simon Hegelich and Ursula Bazant Münster, January 2009

xii

Part I Introduction

European Welfare Systems Current state of research and some theoretical considerations Klaus Schubert, Simon Hegelich and Ursula Bazant

Looking from the outside, comparing world regions, the most signiﬁcant characteristic of the European Union (EU) is the high level of welfare and social beneﬁts. Viewed from within, the central characteristic is of course the plurality, the high level of diﬀerentiation and variance between the member states. This distinctive feature – plurality and variance – particularly applies also to the welfare systems in the states of the EU. The comparatively high level of material and ﬁnancial beneﬁts, the circle of direct and indirect beneﬁciaries and the peculiarities of national domestic policy elucidate why great importance is attached to welfare and social policy in the political practice of all EU countries. The same can be applied to political science research. It was in particular comparative welfare state research that carried out the pioneering work and produced highly valuable results. However, it is not surprising that the empirical diversity, even beyond the European framework, spawned attempts at the theoretical systematization and categorization even at an early stage. A particularly outstanding and to this day inﬂuential work classiﬁes the most important Capitalist economies in just three welfare regimes (Esping-Anderson 1990). The persistent and recently increasing criticism of this work, however, concerns the limits of ideal types and categorization. In view of the high national signiﬁcance of welfare and social policy – at least from a European standpoint – this theoretical and abstract distance of political science to the actual subject matter is very remarkable. What is similarly surprising is that having introduced certain categories or rather types of welfare state or regime types, particularly in comparative research, the number of countries studied or used as evidence remained relatively small. As a consequence, in spite of the lively and broadly based welfare state research, no attempt was made to at least make a descriptive survey of the European Welfare Systems. In a research context this would be interesting because even good theoretical generalizations tend to restrict the relevance for empirical factors. On an empirical level this is interesting because in the last few years all of these systems were under pressure to reform. Added to this is the fact that the picture of the European welfare systems has changed signiﬁcantly. This has occurred through (a) the processes summed up under the headword globalization, (b) through the enlargement processes of the EU, (c) through the 3

K . S C H UB E R T, S . H E G EL I C H A N D U . B AZ A N T

gradual deepening processes of the EU, and (d) through varying national developments. If one is to retain a European perspective in the framework of comparative research as a reference for national investigations or as independent research subject matter, it is advisable to create an overview of the current state of aﬀairs of the European Welfare Systems. It is intended that this volume should serve this purpose. For the ﬁrst time all 27 EU member countries will be analysed using the same categories and structure to show the development, current situation and problems. Over 30 experts from all the EU states have contributed. The result is a comprehensive overview of the welfare systems in Europe at large, a kind of mapping out of the European welfare landscape. The evaluation of this survey has yet to be concluded since the individual extracts must be analysed in relation to each other. In this sense, this volume can be regarded as ‘pre-comparative’. It is our view that comparative welfare research in particular ﬁrst of all needs an aﬃrmation of its empirical basis. Our assumption is that the brieﬂy mentioned developments have eroded the theoretical groundwork of welfare research. Since this thesis has provided the structural guidelines for analysing the individual welfare systems, these will subsequently be looked at in more detail on a theoretical level. Following the chapters on the individual welfare states, it will then be shown if and to what extent the empirical ﬁndings substantiate this.

Research to date1 Comparative European welfare state research in the past years can roughly be seen to be going in three main directions, which, though with much overlapping, ﬂaws and redundancies, provide an approximate chronology of the theoretical development of this discipline: the development of categories and clusters, the analysis of the reduction of welfare state beneﬁts (retrenchment) and the question of convergence and or path dependency between the welfare states. Categorization and cluster formation The term ‘welfare state’ can be understood as a ‘comparative device’. Very diﬀerent institutional arrangements are deliberately put on the same notional level, without there being an agreed concept of what the ‘welfare state’ actually is. In the widest sense of the term ‘welfare state’ describes a certain type of state activity, which closely connected to capitalism and representative democracy as a means of political decision-making, in which an institutionalized obligation to social security and support of the citizen exists (Schmid 1998: 2f.). The newly formed welfare states, particularly those in Europe, were quickly developed and led to the so-called ‘golden age’ of the welfare state (EspingAndersen 1996a). Early welfare state research is particularly characterized by normative debates and was initially mainly concerned with the reason for social advancement and the identiﬁcation of various welfare state aims and means. In addition to the signiﬁcant work of T.H. Marshall ‘Citizenship and Social Class’ (1950), in which he highlights a development from citizens’ rights to political participation to social rights, teleological models were developed, such as from ‘Positive State’ through ‘Social Security State’ to ‘Social Welfare State’ (Marshall 1975, Rees 1995). While creating the basic categories, until the 1980s, two lines of research can be ascertained: (a) predominantly qualitative approaches, which were frequently based on 4

E UR O P EA N W E L F A R E S Y S T E MS

historical works (Briggs 2001; Flora and Heidenheimer 1982; Baldwin 1990), and (b) predominantly quantitative studies, for which works such as Harold Wilensky’s The welfare state and equality: structural and ideological roots of public expenditures (1975) were groundbreaking. A further frequently used classiﬁcation makes a division between for example the welfare systems according to Beverage and Bismarck (Prinz 1998; Pinker 1996; Baldwin 1992; Machtan 1994; Schludi 2001). With regard to historical changes, these classiﬁcations can further be developed so that even more clusters can be formed (Hinrichs 2000). In view of theoretical diﬃculties the method of institutional comparison was increasingly applied, whereby individual areas of social policy were subject to a systematic comparison and thus alongside categorization, cluster formation came into being (compare Kaufmann 2003: 16ﬀ.). These approaches together with Esping-Andersen’s ground-breaking The Three Worlds of Welfare Capitalism (1990) eventually became the most important basis of discussion in the last 20 years. The method to build ‘types’ and ‘ideal types’, whereby certain features common to several countries were correlated, was actually used prior to Esping-Andersen. Titmuss presented three archetypes for discussion: ‘the residual welfare model’, ‘the industrial achievement-performance model’ and ‘the institutional redistributive model’ (Titmuss 1972; see also Titmuss 1950, 1987; Sainsbury 1991; Brusis 1999). Here, in a particular way, the connection between quantitative and qualitative aspects of research was successful. The idea to use the typology of welfare states was also subsequently pursued. With the marginal and institutional welfare types, Walter Korpi developed two poles to which the individual states largely could be attributed (Kopri 1980, 1985; Korpi and Palme 2003). With the publication of Esping-Andersen’s concept of a social-democratic, liberal and conservative welfare state The Three Worlds of Welfare Capitalism however soon became the benchmark of international welfare state research, which even 20 years after its publication still enriches and dominates the debate (Bambra 2005; Leibfried and Zürn 2006; Meyer and Schubert 2007, Esping-Andersen 1987, 1989, 1996a, 1999; Allmendinger and Hinz 1998; Goodin 2001; Manow 2001). Thus, for example, in the analysis of so-called ‘new social risks’, categorization is frequently used as the framework (see Taylor-Gooby 2004; Bonoli 2005). However, from the start the ‘three worlds concept’ was criticized, though this research and debate can be regarded as an independent branch in the area of type construction and cluster formation. For one thing, criticism is directed at the claim to have developed a (concluding) all-embracing typology. The question is frequently put as to whether, alongside the three types, there are not more ‘worlds of welfare’ in order to include cases which don’t quite ﬁt (Arts and Gelissen 2002; Andreß and Heien 2001; Lessenich 1994; Ferrera 1996). Stephan Lessenich (1995) for instance describes Spain as a fourth, postdictatorial type of welfare capitalism and Castles and Mitchell (1990) regard the Australian and New Zealand welfare states as not being represented at all. This criticism was again further fuelled by the admission of the east European countries in the EU (Brusis 1999; Aidukaite 2004; Kovacs 2003; Oﬀe 2003; Tamás 2001; see also Götting and Lessenich 1998; Deacon 2000; Kvist 2004; Sykes 2005). Further argument concerning the division into regime types states that most countries – whether due to diﬀerent developments in various ﬁelds of social policy or because of the participation of diﬀering social-political actors – pursue an unconnected set of welfare state policies, so that a standard regime type does not exist (Kasza 2002). Part of the criticism refers to the fact that Esping-Andersen makes no systematic distinction between ideal types and actual countries, but merely assigns the countries to the various 5

K . S C H UB E R T, S . H E G EL I C H A N D U . B AZ A N T

types (Kohl 1993). The confusion regarding ideal and actual types, in other words that countries and types are frequently confused, does not just appear in ‘Three Worlds of Welfare Capitalism’, but is a shortfall in numerous texts on welfare state research (Becker 1999: 611f.). In addition there is much dissatisfaction within the ﬁeld of comparative welfare state research concerning the fact that many studies use disparate benchmarks for comparison (Kaube 2003; Lessenich and Ostner 1998; Sainsbury 1991). In particular works which refer, whether explicitly or implicitly, to Esping-Andersen’s typology, frequently use other methods and variables (Scruggs and Allan 2006a,b). The advantage and use of such a comparison is thereby considerably limited. It is a stipulation of the addition of a fourth regime type that its criteria are used (Becker 1999: 613). It is also argued that most classiﬁcations of welfare systems currently in existence are inadequate, when an explicative guideline for past and future developments in social policy is needed (Bonoli 1997: 352; see also Esping-Andersen 2000a; Room 2000). Another branch of criticism of the Three World Typology refers to the fact that this approach does not deal enough with gender-speciﬁc problems of welfare states. The work of reproduction, for example, in most instances is imposed on women (Ostner 1995; Sainsbury 1999; O’Connor 1996; Geist 2005; Braun and Jung 1997). A gender gap is also created due to the diﬀering emphasis on the family in welfare states (Fahey 2002). Retrenchment Parallel to the advances in the methodical approach, from the mid-1970s, a new phase within the welfare states can be identiﬁed, which marks the end of the so-called ‘golden era’. Changes in the welfare state, which in various publications are often associated with the external shock of the oil crisis, therefore put an end to the ‘short dream of sustained prosperity’. Since this time, not only can the end of this period of growth in almost all Western countries be ascertained, but also a phase of restructuring and retrenchment of the welfare state itself. The mutual point of reference of the (still very diﬀerent) approaches also lies in the changed political conditions, the causes of which can generally be described as demographic, social, cultural, economic and international challenges (Kaufmann 1997). Within literature on the welfare state there is a wide range of interpretation regarding the assessment of welfare state retrenchment. However, a basic common feature can be identiﬁed. The basis of the majority of publications on welfare state research is the ‘crisis’ of the welfare state (Flora 1985; Schmid 2002; Aust et al. 2002; Bäcker 1995; Butterwegge 2005; Flora 1985; Manow and Seils 2000; Huber and Stephens 2001; Scarbrough 2000; Svallfors and Taylor-Gooby 1999; for Germany, see also Nullmeier and Rüb 1993). This discourse on the crisis, which has also been recurrent since the mid 1970s – about the use of social spending to slow down economic growth – characterizes not only social policy in almost all European countries, but also the academic debate on this policy. Paul Pierson’s work ‘Dismantling the Welfare State?’ received much attention in the context of the discussion on the form and extent of welfare state retrenchment (Pierson 1997; see also Clayton and Pontusson 1998, 2000; Bonoli et al. 2000; Kuhnle 2000; Pierson 2001). Even if there are relevant studies which show that welfare policy does not have a negative eﬀect on economic growth, employment and productivity (see for example Atkinson 1995), the ‘crisis discourse’ remains a central feature of the debates. However, this does not mean that in this context one can talk of a collective crisis: Between the states there are great diﬀerences in the extent and duration of ﬁscal endeavours and debt. There is also much proof that the welfare state 6

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has not caused the level of debt, so that it would make no sense to talk of a general crisis in the European welfare states (see also Castles 2004). Since the end of the 1990s the crisis discourse has been associated with the globalization debate and newly revived (Kaufmann 2005: 314) by getting closely involved with the nexus of globalization–welfare state (see also Esping-Andersen 1996a; Seeleib-Kaiser 2001; Crouch 2000; Czada 1999; Föllesdal 1997; Genschel 2004; Hay 2005; Rhodes 1998; Scharpf 2000; Swank 1998, 2005). In view of the increasing international competition, the welfare state would thus seem in need of revision (Brady 2003) or even to be completely outdated (Zürn 2003:1065). The notion up to now of a quantitative reversal of welfare state policy noticeably gains signiﬁcance with the question of a qualitative dysfunctionality. The crisis is no longer seen as a problem situation to be overcome, but the welfare state itself is put into question. A prominent line of discussion in this nexus of ‘globalization’ and ‘Europeanization’ is whether national welfare systems can still be controlled, which, in view of these developments, is becoming increasingly diﬃcult (see, among others, Castles 2004; Ferrera 2005; Alber 2006; Pierson and Castles 2000; Obinger et al. 2005; Leibfried and Pierson 1999). The subject matter of the loss of sovereignty of national welfare states makes clear how closely linked the current welfare state debate is to Europeanization and globalization (see for example Rhodes 1996; Crouch 2000; Palier and Sykes 2001). It is symptomatic that this crisis has clearly become a long term phenomena, or at least a recurrent one. Few works so far have taken up this development (in particular Jessop 1999, 2002; Bonoli et al. 2000) in order to create a bridge between this crisis discourse and the question of categorization and concept deﬁnition. Path dependency and convergence In the mid 1990s a third line of discussion was increasingly being taken up in comparative welfare state research, which put welfare regimes in the context of a development process over time. In particular in studies concerning Europe, there are two very diﬀerent assumptions. While the path dependency theory assumes a relatively small potential for change of the welfare states, supporters of the convergence theory assume an increasing standardization of the welfare states due to globalization and Europeanization (Pierson 2000a; Ebbinghaus 2005; Borchert 1998; Mohr 2004; Alber and Standing 2000; Montanari 2001; Threlfall 2003; Bonoli et al. 1996; Prior and Sykes 2001; Kemmerling and Bruttel 2006; Korpi 2001). The idea of path dependency is often associated with the ‘Three Worlds of Welfare’, not least because Esping-Andersen’s (1996b: 24) appropriate term ‘frozen landscapes’ regarding the potential of welfare regimes to change, has become a dictum. Other categorizations such as the Bismarck–Beveridge classiﬁcation also come under the concept that decisions at a certain point in time have an inﬂuence on the later development (Hinrichs 2000). While the path dependency debate initially solely emphasized continuity, the discourse on convergence is focusing on changes in the European welfare states, through which a standardization is expected. This particularly applies to the change taking place in the course of European integration and to the progressive Europeanization in the ﬁelds of social policy, in which questions are put concerning the role and function of individual national states (Leibfried and Pierson 1995; Crouch 1999), of a common ‘European social state’ or rather of a ‘European social model’ and the ‘open method of coordination’ (Baldwin et al. 2003; Leibfried 2000; Scharpf 2002; Adnett and Hardy 2005; Palier 2006). 7

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This inner European convergence debate is currently acquiring interest due to the accession of the eastern European states. With regard to the new member states, the transformation process of these welfare systems as well as the subsequent consequences for all the other European welfare states, a constructive mix of transformation research and welfare state research is taking place (see Götting and Lessenich 1998; Deacon 2000; Kvist 2004; Sykes 2005). Because of its focus on continuity, the concept of path dependency has over the last few years been increasingly criticized (Kay 2005; Hinrichs and Kangas 2003; Bennett and Elman 2006). This criticism, however, has become incorporated into the concept of path dependency by highlighting changes with the help of the path dependency concept (Ebbinghaus 2005). Particularly worth noting are recent works by Paul Pierson, in which an attempt is made to create a systematic methodology of temporal aspects of processes in politics (Pierson 2004, 2000b; see also Rittberger and Schimmelfennig 2006).

Theoretical–methodological considerations In our opinion there are two dimensions in particular which have greatly undermined the theoretical groundwork of welfare state research: space and time.2 According to Oﬀe (2003: 439), in both dimensions one can talk of a ‘logic of discontinuity’ regarding the European development. Oﬀe argues from an historical perspective, ‘Modern European history is arguably shaped [ … ] by what one might call a “logic of discontinuity”. This discontinuity poses challenges and calls for types of response that exhibit some European elective aﬃnity. Spatial discontinuity results from the contest over land borders [ … ]. By discontinuity in time, I mean the relative frequency of regime changes in European history.’ With regard to the European Welfare Systems, three signiﬁcant changes in the political space can be determined: ﬁrst, because of the enlargement of the EU, welfare systems were integrated which diﬀered fundamentally from the ‘old European Welfare Systems’. Second, due to the deepening process of the EU, a vertical diﬀerentiation of the political levels of governance occurs, which is evident not least in the increasing regionalization of the welfare systems. Third, as the multi-level governance discussion shows, the increase in supranational authority leads to a horizontal diﬀerentiation of the political space (Beck and Grande 2003). These interwoven processes lead to the fact that welfare state research is confronted with various connotations of the term ‘European’. In the dimension of time, it should not be overlooked that the past few decades were marked by developments that have signiﬁcantly changed the picture of Europe. These include the end of the Cold War, the globalization process of the world market, macroeconomic developments, which can be summarized by such terms as ‘network society’, and last but not least the dynamics of the European integration process itself. These developments as a whole are often connected to the problem of loss of governance of modern nation-states with regard to welfare services. Added to this is the fact that in almost every European country in the past 15 years, speciﬁc national developments have aﬀected the welfare system, such as German reuniﬁcation, Poland’s orientation to the West, the introduction of the ‘ﬂat tax’ in the Czech Republic, Italy’s entry to the currency union, and many more. These references clearly indicate that the European Welfare Systems in their present form show that welfare state research still has a great deal of uncharted territory. The majority of comparative welfare state research is still concentrating on the state as the 8

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single player and on the European core countries. These trends, referred to as ‘methodological nationalism’ (Beck and Grande 2003) and methodological centralism, are not appropriate enough to throw light on the current situation of European welfare states. Indeed, there are several innovative research projects which are trying to ﬁll this gap. However, there is a tendency to cover safe territory and to analyse social policy in Germany, France, Great Britain or Sweden. The argument of this chapter is that the changing of the ‘landscape’ of European Welfare Systems leads to methodological challenges for welfare research. That a rethink of the methods used so far was necessary has clearly been shown in the fact that political science research has developed useful instruments to analyse these processes including unintentional consequences, system change, non-decision-making and of course works on multi-level governance. Nevertheless researchers who want to point out those changes still refer to categories whose empirical content for today’s European Welfare Systems is in dispute. In order to prove this, we intend to show in the following that the two main categories of contemporary welfare research ‘welfare state’ and ‘welfare state regimes’ include methodological barriers to analysing the current state of European Welfare Systems. These categories are limiting the focus of research on state intervention (or non-intervention) in the ﬁelds of pensions, health, unemployment and social security. Similarities and diﬀerences between the countries are taken for granted, which can no longer be empirically proven. Both categories lead to a doubtful focus on policy outputs, assume welfare reforms to be ‘problem-solving mechanisms’ and thereby neglect the importance of policies and politics. Welfare states? The state, which otherwise in contemporary political science is increasingly questioned as a basis of analysis, is almost automatically used as the basis for welfare state research. On the one hand, for years there have been theoretical debates in the ﬁeld of welfare research, on what the welfare state actually is (Myles 1984; Alber et al. 1987; Baldwin 1997; Bonoli 1997; Esping-Andersen 2000b; Jessop 2002). Too little use of empirical research is made regarding the problem of deﬁning the welfare state. While in other branches of the discipline, the ‘transformation of the state’ is both theoretically and empirically deﬁned (Zürn 1998; Strange 1999; Rosenau 1995; for critical remarks see Hegelich 2006a), welfare state, at least in comparative welfare research, remains unquestioned. The majority of authors who refer to the transformation of the state, the retreat of the state, or the de-nationalization of the state would argue that this has a decisive impact on the welfare systems. For state theorists such as Bob Jessop, it is important to call the welfare state into question, whereas in comparative welfare research this debate is allocated far less signiﬁcance. A new state form is emerging in the former homelands of Atlantic Fordism and elsewhere. This is a Schumpeterian workfare postnational regime (SWPR), which can also be described in the same terms. First, it is Schumpeterian insofar as it tries to promote permanent innovation and ﬂexibility in relatively open economies by intervening on the supply side and to strengthen as far as possible their structural and or systemic competitiveness. Second, as a workfare regime, the SWPR subordinates social policy to the demands of labour market ﬂexibility, employability and economic competition. (Jessop 2005: 3) 9

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But if we accept that there is at least a prominent debate questioning the term ‘state’ as a viable category, we have to be aware that the vagueness of the ‘welfare state’ is aggravated by the three aspects of Europeanization enlargement, deepening and supra-nationality. Enlargement The EU enlargement is crucial for the understanding of the category welfare state. Eight of the 10 most recently joined EU members – as well as Bulgaria and Rumania in the last round – have, in the past few years, undergone a fundamental process of transition, which in some cases is still in progress. Only Malta and Cyprus seem to ﬁt the ‘old’ European concept of the state, although in Cyprus a major change in the political system might be on the way. It is therefore questionable whether the categories of ‘the state’ and ‘the welfare state’ can be reasonably applied to the Baltic States and the Eastern Central European states (ECE). It is not the aim of this chapter to question the quality of the democratic process in these European countries, rather it is argued that the speciﬁc development in the accession countries needs to be analysed with adequate categories. Tamás (2001: 5), for example, states that ‘there is no single monolithic concept of sovereignty to be threatened by the EU enlargement’. Sovereignty is however an essential part of the category state and therefore also of welfare states. The eastern enlargement could have repercussions for the ‘old welfare states’. Tomka (2004) argues that the communist history of the accession states might have consequences for the development of a European social model. ‘The consequences of the Communist past of Eastern Central Europe, with regard to the perspectives of the European social model, is a question which has hardly been looked at’ (Tomka 2004: 87). It is this scepticism concerning currently used categories which we would like to support. If research ignores the category of welfare state, then many aspects are lost that arise from the speciﬁc form of statehood of the accession countries. Research in the case of the accession countries often focuses mainly on social insurance systems, which in many cases were introduced in the Baltic States and in Eastern Central Europe using Western European or Scandinavian examples. By comparison, other aspects, such as housing policy and social tax subsidies, as well as non-state services, provided by the markets or the family hardly receive attention, although signiﬁcant diﬀerences can be observed. (See Tomka 2004; Tamás 2001; and the relevant chapters in this volume). This methodological nationalism with regard to the accession countries is not only a problem because certain aspects are not considered. Also in areas coming under the term ‘welfare state’, the perspective which uses the traditional national state model as its starting point leads to a distortion. The ECE and the Baltic States based their welfare systems on those of the former socialist welfare states, whose institutional arrangements diﬀered widely from the Western European understanding of welfare states (Aidukaite 2004). On the one hand, the socialist welfare states were ‘stronger’ in the sense of authority and bureaucracy (Tamás 2001: 5). On the other hand, they were not exclusively organized via the central authority. Hungary is a good example of this: ‘The fact that the social insurance system was completely under state control in Hungary, gave the state a signiﬁcantly greater inﬂuence in this area than had ever been experienced in western Europe and led to a hitherto unknown construction: Up until the 1980s, the organization of social insurance was a task of the trade unions, which functioned as part of the apparatus of power of the party. Furthermore no form of democratic control of social insurance could become established.’ (Tomka 2004: 121–22). 10

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One could argue that fundamental diﬀerences between the socialist welfare state and the western European welfare states were of little relevance because the accession countries have changed fundamentally since 1990. However, in none of the accession countries was there a strategic plan to design a new welfare state nor was there the time to develop totally new structures. In many cases they just built on the old structures. Even in countries such as Slovakia and Estonia, which clearly oriented themselves on external models, their institutional legacy is still visible (see relevant chapters in this book). In fact it can be argued that the process of the development of the welfare state is far from ﬁnished – as for example in the Czech Republic (see relevant chapter). ‘Although the said states [Poland, Slovakia, Czech Republic, and Hungary] have introduced a large number of laws, regulations and individual measures since 1989, the institutional reforms are still in a process of experimentation and deliberation.’ (Brusis 1999: 79). Instead of a structural reform of social security systems, the rapid economic transformation has created a kind of ad hoc policy, which at the same time has become increasingly institutionalized. ‘In the early years of economic transformation, the tendency to introduce emergency measures was restricted to creating institutions.’ (Brusis 1999: 87). The notion of a welfare state implies a high degree of sovereignty of the central political agencies. In the case of the middle-eastern European accession countries, the term ‘restraint sovereignty’ (Zürn 1998) would seem to be more appropriate. The process of enlargement even enforced this diﬃculty. For the accession countries, joining the EU meant a substantial loss of sovereignty – at least from the perspective of those countries. ‘The EU is already sold to the Central European public not as an immediate tool for modernization, or a shield defending the weaker economies from negative external shocks, but as an exchange in which dissolving sovereignties and clear subordination to the centre are compensated with invitations to a cash window in Brussels’ (Tamás 2001: 6). What we wanted to show is that because of the EU enlargement, the term welfare state has become increasingly vague. If this term is simply transferred to the Baltic States and the countries of Eastern Central Europe, without doubt it would become even more vague. This does not mean to say that the category ‘welfare state’ cannot be meaningfully used in these countries. However, a precondition would be a substantially grounded explanatory statement. Deepening The category of the welfare state has not only been aﬀected by the EU enlargement, but in an even more fundamental way by the process of deepening. The welfare state is commonly understood as state intervention in the market forces to insure against social risks such as unemployment, illness and old age. Owing to the deepening of the EU, the ‘market forces’ are in many ways those of a single European market. Therefore the ability of the state to intervene in the market or even to control it has been put into question. It can at least be assumed that the conditions of welfare policies have become increasingly complex because of the deepening process. The welfare state has always had to deal with interdependences. For example pension policy is closely linked to the labour market; therefore, in order for pension reforms to be successful, they often have to be accompanied by special labour market reforms (Hegelich 2006b: 146). These days however the national welfare state is confronted with a European economy and an increasingly European labour market. 11

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The frequently highlighted focus of European deepening on economic processes challenges the traditional welfare state policies, since these policies cannot be isolated from their economic background. Welfare policy reacts to economic risks, its objectives are economic, and the main instrument is the redistribution of economic results. It can therefore be assumed that the Europeanization of the economy must have a lasting eﬀect on welfare policy. But the category ‘welfare state’ tends to ignore this process because the state has not been subject to Europeanization in the same manner as the economy. Various studies have shown that welfare markets are playing an increasingly important role in Europe (Pierson 2000c; Bonoli 2005). This might be interpreted as a direct eﬀect of the Europeanization of the economy. However, if one takes the welfare state as the starting point, one ﬁnds that those welfare markets are not ‘normal’ markets but are under strict observation and regulation of the state. The result of this perspective is that an eﬀect of Europeanization is denied, because the state – and not the EU – is still the most important regulator. The initial assumption, that these markets in Europe are increasingly important can be theoretically separated from the process of Europeanization. The problem is thus that through Europeanization, the category of ‘welfare state’ highlights the question of whether and to what extent the national welfare state still represents the key analysis factor. In order to overcome this methodological nationalism, it is necessary to consider the Europeanized economic processes and not the welfare state as the independent variable. While the notion of a welfare state assumes the nation-state to be a clearly deﬁned unit, in reality the EU is more a complex system of networks of political channels. The category of nation state is too narrow a concept for the ‘complex interdependence’ of European reality.3 Strengthened by the process of European deepening, this had major consequences for the category welfare state: First the ability to intervene in the market processes must be considered limited, since many signiﬁcant factors are outside state authority. This aspect is highlighted in the general debate on loss of sovereignty due to Europeanization and globalization; however, in welfare research it is still largely ignored (Zürn 1988; Strange 1999; Hegelich 2006b). Second, the role of non-state political actors is gaining in importance. Their possibilities to intervene and to inﬂuence are not only increasing on a European level, but also on a local one due to the deliberate support of this level by the EU. However, the involvement is not symmetrical: while on the one hand there is a kind of coming together, on the other hand, the issues, participants and regions are only loosely connected with each other. For this reason the diﬀerent welfare states will be aﬀected in diﬀerent ways by the European deepening: Analyzing the dominant features of the EU’s political system we should speak about uneven Europeanization understanding the fact that functional subsystems of given societies are Europeanized to largely diﬀerent degrees and that the action capacity of politically relevant actors with regard to European aﬀairs diﬀers widely. (Tamás 2001: 7) Supra-nationality The problems with the welfare state become even worse if we take into consideration the elements of an EU supra-nationality and their eﬀects on welfare. In some areas relevant to welfare policy, sovereignty has been relinquished to EU institutions. This is not just about the direct inﬂuence of the EU on welfare policy of the member states (see Ferrera 12

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2005), but also about the eﬀect of other policy ﬁelds on welfare policy. The European Council for example has established guidelines concerning health and safety protection at the workplace as well as guidelines for industrial law (Schäfer 2005: 129). These measures have a bearing on areas of welfare policy, which are lost in the narrow understanding of the welfare state. If one restricts oneself in the analysis to the narrow understanding, as the category of welfare states assumes, then the European Council does not play a signiﬁcant role. The supra-nationality of the EU questions the state’s sovereignty especially on a judiciary level. The European Court of Justice (ECJ) was established to provide the general juridical framework for the single European market, but the recognition of economic rights directly aﬀects the welfare state. Right from the beginning the economic Europeanization led to a Europeanization of welfare, though not to the same extent. Two early examples of standardization regarding welfare can be cited: the equal treatment of nationals and migrant workers, which concerned the freedom of movement for workers within the Community, and the principle of wage equality for men and women based on the council regulations EEC No. 1612 and 68 (7, 2), EEC No. 1408 and 71 (3), Article 235 of the EEC treaty, and the council directives 76 and 207. Both initiatives were enacted for economic reasons, but can also be regarded as the beginning of European social policy (Falkner 2005; Schulte 2004; Leiber and Treib 2006). The most prominent example so far of how the recognition of economic rights restricts the sovereignty of European welfare states are the regulations concerning health. Several rulings of the ECJ since 1998 have opened the way for citizens to have access to health services in every member country. The ECJ has argued that health services should be treated like normal goods. Therefore no state is allowed to forbid other EU citizens to trade these goods on its territory or to forbid its citizens to participate in this trans-national health market. ‘This emerging “Europe of Health” is part of a European social space, which represents an extension of the European Common Market’ (Falkner et al. 2002; Schulte 2004). The prevailing law of the ECJ however stipulates that state-organized health systems in various areas are an exception. On the one hand the sovereignty of welfare states is thus acknowledged by the ECJ, but at the same time restricted, since the extension of welfare markets in this area would lead to the erosion of the special status of state-organized health systems (Ferrera 2005; 292). Following the thesis that ‘the overall direction of recent changes in the EU is towards multi-level metagovernance in the shadow of post-national statehood’ (Jessop 2005: 10) then it can be expected that in future this process will become more important and the sovereignty of the welfare state will be limited because of the increase in horizontal ‘settings of multilevel governance’. These arguments are widely propagated in political science discussions and as such are generally accepted. If we apply these arguments to the category ‘welfare state’, then a picture emerges of very diverse welfare states with limited sovereignty in a state of growing complex interdependence. Therefore, the category has at least three analytic deﬁcits: ﬁrst, it is unclear, especially in view of the enlargement process, what the shared quality of all socalled welfare states is. Second, the ‘welfare state’ is a static category that excludes processes through which new aspects as well as new actors of welfare gain importance, and thus does not do justice to the complex interdependence caused by the deepening process of the EU. Third, the supra-nationality of the EU has only a limited inﬂuence on welfare policy – and a negative eﬀect on welfare states. From a state-centred perspective sovereignty appears indivisible; either it has to be with the welfare state, or it has to be 13

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transferred to a European super-welfare state. ‘Theorists overlook the successive transformations of modern territorial state forms since the mid-to-late nineteenth century. They therefore adopt an anachronistic model of the national state to judge whether and how far a European superstate has emerged’ (Jessop 2005: 6). Welfare state regimes? The notion of welfare state regimes is commonly linked with the work of Esping-Andersen who stated: As we survey international variations in social rights and welfare-state stratiﬁcation, we will ﬁnd qualitatively diﬀerent arrangements between state, market, and the family. The welfare-state variations we ﬁnd are therefore not linearly distributed, but clustered by regime-types. (Esping-Andersen 1990: 26) Although almost every aspect of Esping-Andersen’s original concept of the Three Worlds of Welfare Capitalism has at some time come under criticism, the idea, that the diﬀerent welfare states form clusters that can be called regimes, is still fascinating the academic community (see Scruggs and Allan 2006a, b; Edwards 2003; Bambra 2006; Hicks and Kenworthy 2003; Kangas 1994). While the categories of Esping-Andersen – socialdemocratic, liberal and conservative welfare state regimes – are nearly as often criticized as they are used, the basic concept that such a division is meaningful is seldom questioned.4 There are many variations of the Esping-Andersen model, such as a southern and an eastern European welfare regime, as well as alternative regime clusters such as Beveridge and Bismarckian welfare regimes. In addition, the notion of a welfare regime is applied to a speciﬁc European welfare regime in contrast to an Anglo-Saxon regime type. Again, we will argue that the three dimensions of Europeanization – enlargement, deepening and supra-nationality – make it more diﬃcult to apply the category ‘welfare regime’. Enlargement With the EU enlargement, welfare research now had to solve the problem that some countries had become part of the EU which had not been in the focus of former research. The easiest way to deal with this was to add another cluster to the existing welfare regimes. ‘The European social model can be subdivided into ﬁve types, or regimes: British, Nordic, Continental, Mediterranean, and Eastern’ (Palier 2006: 105). Malta and Cyprus could be added to the Mediterranean type, which many researchers have already referred to. The creation of an Eastern regime type could be justiﬁed by the fact that the post-Soviet states would develop in the same direction. This idea seemed plausible due to the path dependency theory. However. research in the last years has shown empirically, as well as analytically, that the diﬀerences within this new regime type are immense (see the relevant texts in this volume). Thus the Eastern regimes are often divided into post-Soviet and Eastern Central European (Aidukaite 2004), though it is questionable whether the problems can be solved in this way. In the cases of Poland, Slovakia, the Czech Republic and Hungary, Brusis has shown that the welfare arrangements are quite diﬀerent, since the development of the welfare systems in these countries was based on disparate ideas and the inﬂuence of various groups involved: 14

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The results of the reforms carried out in the four countries (Poland, Slovakia, the Czech Republic, Hungary) are hybrid institutional arrangements, which represent the compromises between liberal-residual and conservative-corporatist welfare concepts and the coalitions, which support the various concepts. (Brusis 1999: 80–81) The same is true for the Baltic States. Aidukaite (2004: 85) has proved in diﬀerent empirical researches that The development of social policy in Eastern European countries is more complex than some other studies have tended to suggest. The example of the three Baltic States demonstrates that there is great diversity regarding how these countries solve problems in the social policy ﬁeld, even if they started with identical social security institutions inherited from the Soviet period. Therefore, the idea that many of the Eastern European countries tend to develop a similar model of social policy, which is closest to the liberal or residual one, should be considered with some caution. It might be tempting to retain the established division of welfare state regimes, but one should bear in mind that even before the EU enlargement, the regime typologies were criticized for the variation within the regime types. Especially the conservative welfare regimes tend to contain a wide range of diﬀerent welfare arrangements (Lamping and Rüb 2006). If another vague type is now added, there is the danger that variations within the types are stronger than between single countries from diﬀerent clusters. Empirically this would annul the logic of welfare state regimes. If one assumes a post-Soviet welfare regime, then the following can be ascertained: The social security system of Latvia can be labelled as a mix of the basic security and the corporatist models. The Estonian social security system can also be classed as a mix of the basic security and corporatist models, even if there are some weak elements of the targeted model in it. It appears that the institutional changes taking place within Lithuania’s social security system has led to a combination of the basic security and targeted models of the welfare state. (Aidukaite 2004: 82, with regard to the regime division by Korpi) In our view this represents a profound methodological problem, which up to now has hardly been dealt with in comparative welfare state research. The argument is that the addition of a new type of welfare regime or cluster aﬀects the existing typology, since, as just mentioned, the danger exists that diﬀerences within the regimes could be greater than between them. Methodically speaking, it would be inadmissible to add a new cluster to an existing cluster analysis without reassessing the overall ratio of the individual elements. The same is true if new elements are assigned to existing clusters instead of creating a new one. The concept of welfare regimes is predominantly based on the assumption that it is an empirically based typology,5 but this distinction is always the result of the relative position of the elements (Bambra 2006: 79). Therefore, new elements cannot be added without new analyses. With the enlargement of the EU, the long-used empirical basis of the typology welfare regimes is eroding. From a theoretical point of view, it does not matter, if the distinction of clusters is made via proper cluster analysis or in a more ‘descriptive’ manner. This crucial diﬀerence in approach will be looked at again later. 15

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Up to now, there has been no attempt to integrate the accession countries in the empirical framework of the common three worlds of welfare typology. As Scruggs and Allen (2006a,b) have recently shown, a recalculation of the Esping-Andersen model has to deal with numerous problems, starting with the lack of accessibility to the original data. Most alternative calculations rely on Organisation for Economic Co-operation and Development (OECD) data and are therefore not adequate for the accession countries. McMenamin (2003) tested 22 countries, including the ECE countries Poland, Czech Republic and Hungary against diﬀerent variables taken from the discourse on the ‘Varieties of Capitalism’. In this calculation, the three countries form an independent cluster. But this result is mainly based on political factors: Their welfare states are not as distinctive as their polities. Most measures point in the direction of relatively generous welfare regimes which crowd out non-state methods of provision. However, their unemployment replacement rates and overall social transfers are fairly low. Their low female labour participation rate contrasts with narrow gender gaps in both wages and unemployment. By far the most unusual aspect of their welfare system is the very high contribution rate of employers to social insurance. (McMenamin 2003: 14) There is no clear picture of where to put the accession countries. For example, Klaus Armingeon has examined the inﬂuence of trade unions across Europe and thus gives at least clues to considerations of how welfare regimes develop – at least if, like EspingAndersen, one assumes a class-mobilization theory (Armingeon 2006). He comes to the conclusion that the Baltic States, the central Eastern European countries, Malta and Cyprus diﬀer substantially. Trade unions have strongly defended the traditional welfare state that cared for the unemployed, the pensioners and the sick. They support – also to a much more moderate extent and not in all countries – the welfare state that covers new social risks, such as reconciling work and family in case of highly qualiﬁed female workers or long-term unemployment by poorly qualiﬁed employees (Bonoli 2005; Ebbinghaus 2006). In EU15, there were only two nations with weak union movements; in EU27, this group will increase to 11 nations. The group of medium strong national union movements will grow from nine to 10 by adding Slovenia; and the four-strong union movements of EU15 (Sweden, Finland, Denmark, Belgium) are joined by another two movements from very small member countries (Malta, Cyprus) (Armingeon 2006: 23). It seems the diversity within the accession countries is much greater than is often presumed. It would therefore make little sense to save the typology welfare regimes by simply including additional cases in existing regimes or dividing them into new ones, not least because it would draw the whole typology into question. Up to now, welfare research has focused on how the new countries could be classiﬁed. How existing classiﬁcation might be aﬀected has up to now been seldom considered, let alone answered. To do so, it would be necessary to accept a larger diversity of welfare systems as an analytical starting point. Deepening The deepening process of the EU challenges the usability of the category welfare regimes on various levels. First of all, it must be noted that the Three Worlds Typology never 16

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used European countries for analysis, but selected OECD countries. Therefore, the above-mentioned argument, that new elements cannot simply be absorbed into existing classiﬁcations, is signiﬁcant, even without enlargement of the EU. We simply do not know how many European worlds of welfare Esping-Andersen might have found had he analysed the European countries, not least because an increase in the number of cases could even reduce the number of clusters. It must also be taken into account that over time the deepening process has an eﬀect on the nature of what is considered European. The most prominent typology of welfare state regimes still relies on data that was collected in 1980 (Esping-Andersen 1990: 50, 70). It does not take much imagination to realize that the process of deepening of the EU has had an eﬀect on welfare systems over the past 29 years. Remarkably, it took 16 years after 1990 (the year of publication of ‘Three Worlds of Welfare Capitalism’) before an attempt was made at the recalculation of the two factors ‘decomodiﬁcation index’ and ‘stratiﬁcation’. ‘Welfare-state research has neither replicated the original data nor directly grappled with whether (or to what degree) welfare-state “decommodiﬁcation potential” changed over time’ (Scruggs and Allan 2006b: 56). Only recently have eﬀorts been made in this direction. Bambra (2006), as well as Scuggs and Allan (2006a) have recalculated Esping-Andersen’s decommodiﬁcation index on the basis of more current data. Their results are remarkable. Scruggs and Allan (2006b: 69) state: Our analysis suggests that decommodiﬁcation indices are not strong elements of regime classiﬁcation. Our beneﬁt generosity index also suggests that EA’s index provides an inaccurate picture of actual cross-national variation in ‘decommodiﬁcation’. Relying on the same characteristics as the original decommodiﬁcation index, our results suggest a very diﬀerent ordering and clustering of countries. Based on our analysis, the previous results misclassiﬁed almost half of the cases. Bambra (2006: 79) comes to similar conclusions: An initial comparison of Esping-Andersen’s original data and the updated data [ … ] provides evidence of change, both in terms of the slight decrease in average total decommodiﬁcation from 27.2 in 1980 to 25.7 in 1998/99, and in the relative relationships and group membership of the countries: [ … ] Switzerland, France and Finland similarly move up a group to the high decommodiﬁcation grouping, whereas the relative decommodiﬁcation levels of the Netherlands and Denmark fall and they are in the medium group in the new index. Indeed, only Sweden maintains the same rank position (highest scorer) in each of the indexes as the rank order of all the other countries diﬀers. Scruggs and Allan (2006a: 21) also recalculated the social stratiﬁcation index: Most signiﬁcantly, there is less evidence of clustering in diﬀerent ‘worlds’ that was found in Esping-Andersen’s study, where a country scoring high on one index tended to score lower on other indices. In our replicated indices, we ﬁnd more evidence of liberalism and conservatism among the traditionally social democratic countries, while more ‘liberal’ countries (Canada and, to a lesser extent, the UK) also score very highly on the socialism index. Similarly, conservative Austria also places higher on our socialism index compared to the Three Worlds index. 17

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These results cannot be ignored by welfare research. If it is shown that – at least these days – there is little empirical evidence for the division into the three worlds of welfare, then the typology of welfare state regimes can no longer be used as the starting point for research on European Welfare Systems. The ‘frozen landscapes’ (Esping-Andersen 1996b) have thawed. Therefore, there is the need for a theoretical explanation which takes dynamic processes into account. One might argue that the welfare state regime typology of Esping-Andersen was theoretically based on a very dynamic foundation, namely class-mobilization. But here again, the inﬂuence of the deepening process has, at least in part, a positive eﬀect. Under the headline ‘The causes of welfare-state regimes’ Esping-Andersen has stressed: ‘It is a historical fact that welfare-state construction had depended on political coalitionbuilding. The structure of class coalitions is much more decisive than are the power resources of any single class’ (Esping-Andersen 1990: 30). We should therefore ask how class coalitions changed due to the deepening process, or, more precisely: Do we have to take European class coalitions into account when analysing European Welfare Systems? The concept of class coalition is however more narrative than genuinely analytic, at least in its popular use. In the following, we will be looking at how the process of the deepening of the EU could have an eﬀect on class coalition and possibly undermine the theoretical basis of welfare state regimes. Oﬀe (2000: 5) has argued that there is a lack of legitimacy in European integration that prevents the ‘horizontal phenomena of trust and solidarity’ that would be decisive in linking citizens to each other. In Oﬀe’s view national governments are the bearers of democratic legitimacy, but the transfer of authority that has accompanied the implementation of the Common Market has reduced their power to shape the prospects and safeguard the interests of their national populations. [ … ] Thus, there is a disjunction between the ability and the mandate to act; the former is already largely in the hands of the European institutions, but the latter still resides with the national governments. (Oﬀe 2000: 10) However this notion is only sustainable if it is assumed that the interests of the citizens are ‘national’ in other words the same. The class coalition theory however assumes different or even opposing class interests. The deepening process has very diﬀerent eﬀects on the diﬀerent classes. It can be ascertained that farmers are most aﬀected by Europeanization, especially of course by the single European agricultural market, and they are the least mobile. It is reasonable to argue that they are therefore dissatisﬁed with existing national coalitions, but have no means to form new coalitions across borders. Workers have a certain mobility which is increased by the deepening process. This is reﬂected not only in the migratory patterns within the EU, but also in European workers’ associations. If we take the welfare regimes as a starting point in order to show what changes have occurred, it could be argued that the deepening process has diﬀerent eﬀects on the work force in diﬀerent regimes. In a liberal regime with low but universal welfare arrangements the workers do not lose national privileges through Europeanization because they are already at the bottom of European welfare stratiﬁcation. But on this level, the welfare state favours the working class. The idea of universal social rights might help to build new coalitions beyond national boundaries. In conservative regimes, universalism is least distinctive and workers understand welfare as a national privilege. In social democratic regimes 18

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we ﬁnd universalism on a very high redistribution level so that it is unclear if workers would tend to universalism or to national privileges. The middle class in liberal regimes would be against a general rise in the level of universally granted welfare, while in conservative and in social democratic regimes, the middle class would defend national welfare privileges. It is capital which ultimately has the greatest mobility and through European deepening is free of almost all national barriers. There is therefore little need to form coalitions. In view of these aspects, there are two possible eﬀects on welfare state regimes. The deepening process might aﬀect existing welfare arrangements in a way that leads to the erosion of former class coalitions. This could be the case especially in the social democratic welfare regimes. The alternative could be that the deepening process might lead to new European class coalitions, which go beyond national boundaries and possibly beyond the regimes. For example, a coalition of workers from liberal regimes together with the middle class from social democratic regimes and European farmers would be conceivable. The problem is that Esping-Andersen’s class coalition theory works with ex post categories and has a strong narrative character. These ideas, concerning how coalitions could change, themselves adopt these weaknesses. Nevertheless, this approach is the analytical backbone of his concept. Thus it can be summed up that the category ‘welfare regimes’ is not only empirically eroding due to European deepening, but becomes analytically more questionable because it is not apparent why such a fundamental process has such little eﬀect on the class coalitions. Supra-nationality Under the headline ‘supra-nationality’ we will discuss the second connotation of European welfare regime: a distinctive kind of welfare arrangement that is characteristic of Europe as a whole, often named the European Social Model. The methodological problem is that this model is only visible when Europe is compared with other parts of the world. ‘Perhaps a reasonably clear and meaningful identity of “the” European model emerges only if Europe is contrasted with non-European global regions, such as East Asia, the underdeveloped South, or North America’ (Oﬀe 2003: 439). This comparison creates two problems: ﬁrst the most common division between the European social model and the Anglo-Saxon model does not conform to the European reality. Second, it is methodologically insuﬃcient to operate with negatively deﬁned categories. These two problems will be dealt with in the following. A comparison of the ‘Anglo-Saxon liberal model and the Continental European social model’ (Cuperus 2006: 65) divides Europe in a strange way. First, Great Britain would be separated from Europe. Second, it is questionable as to what extent some of the accession countries are part of the European model, since in some areas they show signiﬁcant similarities to the liberal model (Aidukaite 2004: 85). Third, this classiﬁcation negates the great inﬂuence of the US on some welfare systems in Europe. ‘(West) European history of the second half of the twentieth century is to a large extent shaped by the US and its military, political, intellectual, economic, and aesthetic hegemony’ (Oﬀe 2003: 439). In addition to the fact that such a classiﬁcation does not correspond to the European reality, there is also a methodological problem in the notion of a European social model. To begin with, the European social model is deﬁned in a purely negative way: Europe is not like the USA. Such assertions, which stick to a negative deﬁnition can be criticized for their inﬁnite and tautological character; inﬁnite because endless deﬁnitions can be constructed (Europe is not like Asia, not like Africa, it is not like a multinational concern or an 19

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extended family, etc.). Therefore, you cannot learn anything about the category in question by knowing what it is not. The assertion of the European social model and the Anglo-Saxon model holds true because the adjectives ‘European’ and ‘Anglo-Saxon’ already indicate a (geographical) diﬀerence. So there is no new knowledge if one just points to the diﬀerence. It is like saying apples are unlike pears to explain the diﬀerence between these fruits. A positive deﬁnition must also be provided. But if researchers try to deﬁne the European model in a positive way, they tend to speak about what could be and what should be (see Lamping in this volume). ‘Arguably, “Europeanness” is nothing that can be found in the shared histories of European societies but, to the contrary, something that is in the still elusive state of “becoming”, an artefact of European integration and its homogenizing impact’ (Oﬀe 2003: 439). Even if one believes that the European model is in the state of nascency, then this process must be deﬁned in such a way that can be veriﬁed or falsiﬁed, or else this model could only be used as a purely normative category. In the latter case we would not so much be dealing with an analytical category, but rather with an overall concept, and this should be made clear in the relevant research (Lessenich and Möhring-Hesse 2005: 115). The problem thus remains that the use of the regime category on a supra-national level requires a positive deﬁnition, in which according to their quality all individual European Welfare Systems are European and also to what extent it makes sense to speak of a standard European social model.

Conclusion On the basis of a compilation of various critical points, we have tried to show that the categories ‘welfare state’ and ‘welfare regime’ have always been problematic and that the three dimensions of Europeanization ‘enlargement’, ‘deepening’ and ‘supra-nationality’ even increase these problems. Instead of the one welfare state, we must assume a diversity of welfare states in a state of complex interdependence and with limited sovereignty. Concerning the ‘welfare regimes’ category, we have to take into consideration the erosion of the empirical base, developments which undermine the theoretical foundation of categorization, and the problem of the negative deﬁnition of a European social model (Table 0.1). Most of these critical points are not new, but by summing them up it should be made clear that comparative work with the categories ‘welfare state’ and ‘welfare regime’ is becoming increasingly diﬃcult. Our recommendation that is followed in this book is relatively simple. Instead of using dubious generalizations, it is advisable to (initially) enlarge the categories considerably. Kaufmann (2003) and Seeleib-Kaiser (2007) refer to welfare

Table 0.1 The inﬂuence of Europeanization on ‘welfare states’ and ‘welfare regimes’

Welfare state

Welfare regime

Enlargement

Enhanced diversity of welfare states

Deepening

Complex interdependence

Supra-nationality

Limited sovereignty

Erosion of empirical base because of the addition of cases Erosion of empirical base because of the temporal changes European class coalitions? Negatively deﬁned European social model

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systems that include all welfare arrangements relevant to secure social risks and to open up new social possibilities. This would mean taking such areas as taxation, economic policy, education, etc., into consideration, as well as widening the circle of the participants of welfare policy outside the state to include private companies, the family or nongovernmental organizations (NGOs). As with Kaufmann’s category ‘welfare production’ (Kaufmann 2003), the category ‘welfare system’ also came under criticism for being too wide, including too many aspects, and therefore being hard to handle in empirical research. Indeed, it is hardly possible to analyse the whole range of variables. However, it seems more reasonable to us to decide for each individual case which variables and political actors are relevant for a speciﬁc welfare system than to use categories that do not reﬂect the complex reality of European Welfare Systems and produce systematic misinterpretations. Such an approach must ﬁrst be pre-comparative, since only if we take the plurality of European Welfare Systems as a starting point, will we be able to ﬁnd structures and categories adequate for comparisons. Our aim was to present a well-founded scepticism of the methodological toolbox of welfare research against the background of Europeanization. What we have not done is to provide a well-grounded review of the existing analyses that have used and continue to use these tools. It is our intention to open the debate on European Welfare Systems and not to challenge the relevance of previous research. We do not want to start from zero, but to ﬁnd a methodical way to deal with the variety of European Welfare Systems. What we have not yet done is to provide the empirical proof that the consideration of plurality, as we have suggested, does in fact change our picture of European Welfare Systems. For this purpose, numerous colleagues from all over Europe have contributed.

Notes 1 2 3 4

We would like to thank Hendrik Meyer for his preparatory work for this chapter. For the relevance of these two factors to political science, see Schubert 2003: 117ﬀ. The term coined by Keohane and Nye (1977). A noteworthy exception is provided by Kaufmann’s Varianten des Wohlfahrtsstaats, which deliberately forgoes a regime classiﬁcation (Kaufmann 2002). 5 Only few of the authors who use this category refer to the underlying theoretical assumptions such as the class coalition approach.

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Kemmerling, A. and Bruttel, O. (2006) ‘“New politics” in German labour market policy? The implications of the recent Hartz reforms for the German welfare state’, West European Politics, 29/1: 90–112. Keohane, R.O. and Nye, J.S. (1977) Power and Interdependence, World Politics in Transition, Boston, MA: Little, Brown. Kohl, J. (1993) ‘Der Wohlfahrtsstaat in vergleichender Perspektive, Anmerkungen zu Esping-Andersen’s “The Three worlds of Welfare Capitalism”’, Zeitschrift für Sozialreform, 39/2: 67–82. Korpi, W. (1978) The Working Class in Welfare Capitalism, Work, Unions and Politics in Sweden, London: Routledge & Keagan Paul. —— (1985) ‘Economic Growth and the Welfare System: leaky bucket or irrigation system?’, European sociological review, 2: 97–118. —— (2001) ‘Contentious Institutions: an augmented rational-action analysis of the origins and path dependency of welfare state institutions in Western countries’, Rationality and Society, 13/2: 235. Korpi, W. and Palme, J. (2003) ‘New Politics and Class Politics in the Context of Austerity and Globalisation: welfare state regress in 18 countries, 1975–95’, American Political Science Review, 97/3: 425–46. Kovacs, J.M. (ed.) (2003) Small Transformations, The Politics of Welfare Reform – East and West, Münster: Lit-Verlag. Kuhnle, S. (2002) ‘European welfare lessons of the 1990s’, in S. Kuhnle (ed.) Survival of the European Welfare State, London, New York: Routledge. Kvist, J. (2004) ‘Does EU Enlagrement Start a Race to the Bottom? Strategic Interaction among EU Member States in Social Policy’, Journal of European Social Policy, 14/301–18. Lamping, W. and Rüb, F. (2006) ‘“Experimental Law-Making” and the Politics of German Pension Reforms’, in S. Hegelich and K. Schubert (eds) Politics of Pension Policies, Special Issue of German Policy Studies, Harrisburg: SPAEF. Leiber, S. and Treib, O. (2006) ‘Was bewirken EU-Richtlinien in der Sozialpolitik? Ein Ost-WestVergleich’, WSI Miteilungen, 10/2006: 547–52. Leibfried, S. (2000) ‘Towards a European Welfare State?’, in C. Pierson and F. Castles (eds) The Welfare State. A Reader, Cambridge: Polity Press. Leibfried, S. and Pierson, P. (eds) (1995) European Social Policy Between Fragmentation an Integration, Washington DC: The Brookings Instition. Leibfried, S. and Pierson, P. (1999) European Social Policy, Bremen: Zentrum für Sozialpolitik. Leibfried, S. and Zürn, M. (eds) (2006) Transformationen des Staates? Frankfurt am Main: Suhrkamp. Lessenich, S. (1994) ‘“Three Worlds of Welfare Capitalism” – oder vier, Strukturwandel arbeits- und sozialpolitischer Regulierungsmuster in Spanien’, Politische Vierteljahresschrift – Zeitschrift der Deutschen Vereinigung für Politische Wissenschaft, 35/2: 224–44. —— (1995) Wohlfahrtsstaat, Arbeitsmarkt und Sozialpolitik in Spanien, Eine exemplarische Analyse postautoritären Wandels, Opladen: Leske + Budrich. Lessenich, S. and Möhring-Hesse, M. (2005) ‘Ein neues Leitbild für den Sozialstaat, Eine Expertise im Auftrag der Otto Brenner Stiftung (Auszüge)’, in S. Lessenich, A. Nahles, J. Peters and B. Stolterfoht (eds) Den Sozialstaat neu denken, Hamburg: VSA-Verlag. Lessenich, S. and Ostner, I. (1998) ‘Welten des Wohlfahrtskapitalismus – Wandel der Wohlfahrtsstaatsforschung’, Beiträge aus der ‘dritten Welt’, in S. Lessenich and I. Ostner (eds) (1998) Welten des Wohlfahrtskapitalismus. Der Sozialstaat in vergleichender Perspektive, Frankfurt am Main: Campus. Machtan, L. (ed.) (1994) Bismarcks Sozialstaat, Beiträge zur Geschichte der Sozialpolitik und zur sozialpolitischen Geschichtsschreibung, Frankfurt am Main: Campus. Manow, P. (2001) ‘Comparative Institutional Advantages of Welfare State Regimes and New Coalitions in Welfare State Reforms’, in P. Pierson (ed.) The New Politics of the Welfare State, New York: Oxford University Press. Manow, P. and Seils, E. (2000) ‘The Unemployment Crisis of the German Welfare State’, in M. Ferrera and M. Rhodes (eds) Recasting European Welfare States, London: Cass. Marshall, T.H. (1950) ‘Citizenship and Social Class’, in C. Pierson and F. Castles (eds) The Welfare State, a Reader, Cambridge: Polity Press. —— (1975) Social Policy in the Twentieth Century, London: Hutchinson University Lib.

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Rhodes, M. (1996) ‘Globalization and the Welfare State: a critical review of recent debates’, European Journal of Social Policy, 6/4: 305–27. —— (1998) ‘Globalization, Labour Markets and Welfare State: a future of “competetive corporatism”?’, in M. Rhodes and Y. Mény (eds) The Future of European Welfare. A New Social Contract, New York: Palgrave. Rittberger, B. and Schimmelfennig, F. (2006) ‘Explaining the Constitutionalization of the European Union’, Journal of European Public Policy, 13/8: 1148–67. Room, G. (2000) ‘Commodiﬁcation and Decommodiﬁcation: a developmental critique’, Policy & Politics, 28/3: 331–51. Rosenau, J.N. (ed.) (1995) Governance without Government, ORDER and change in World Politics, Cambridge: Cambridge University Press. Sainsbury, D. (1991) ‘Analysing Welfare State Variations, the Merits and Limitations of Models Based on the Residual-institutional Distinction’, Scandinavian Political Studies, 14/1: 1–30. —— (ed.) (1999) Gender and Welfare State Regimes, Oxford: Oxford University Press. Scarbrough, E. (2000) ‘West European Welfare States: the old politics of retrenchment’, European Journal of Political Research, 38: 225–59. Schäfer, A. (2005) ‘Verfassung und Wohlfahrtsstaat: Sozialpolitische Dilemmas Europäischer Integration’, Internationale Politik und Gesellschaft, 4/2005: 120–41. Scharpf, F.W. (ed.) (2000) Diverse Responses to Common Challenges, Oxford: Oxford University Press. —— (2002) ‘The European Social Model: coping with the challenges of diversity’, Journal of Common Market Studies, 40/4: 645–70. Schludi, M. (2001) ‘The Politics of Pension in European Social Insurance Countries’, Köln: Max-PlanckInstitut für Gesellschaftsforschung, Discussion Paper. Schmid, J. (1998) ‘Vom Sozialstaat zur Wohlfahrtsgesellschaft, Institutioneller Wandel in der Sozialpolitik’, Forschungsjournal Neue Soziale Bewegung, 11/2: 25–37. —— (2002) Wohlfahrtsstaaten im Vergleich, Soziale Sicherung in Europa: Organisation, Finanzierung, Leistungen und Probleme, Opladen: Leske + Budrich. Schubert, K. (2005) ‘Neo-Korporatismus – und was dann?’, in: W. Woyke (ed) Verbände, Schwalbach: Wochenschau Verlag. —— (2003) Innovation und Ordnung, Münster/London: LitVerlag. —— (1995) ‘Pluralismus versus Korporatismus’, in D. Nohlen and R.-O. Schultze (eds) Lexikon der Politik, Band 1: Politische Theorien, München: C.H. Beck Verlag. Schulte, B. (2004) ‘Die Entwicklung der Sozialpolitik der Europäischen Union und ihr Beitrag zur Konstituierung des europäischen Sozialmodells’, in H. Kaelble and G. Schmid (eds) Das europäische Sozialmodell, Auf dem Weg zum transnationalen Sozialstaat, Berlin: Edition Sigma. Scruggs, L. and Allan, J. (2006a) ‘Social Stratiﬁcation and Welfare Regimes for the 21st Century: Revisiting the “Three Worlds of Welfare Capitalism”’, Paper prepared for delivery at the 15th International Conference of Europeanists, Drake Hotel, Chicago, IL, March 30–April 1, 2006. (www.europanet.org/conf/papers/ScruggsAllan.pdf) (accessed 10 July 2006). —— (2006b) ‘Welfare-state Decommodiﬁcation in 18 OECD Countries: a replication and revision’, Journal of Euroean Social Policy, 16/1: 55–72. Seeleib-Kaiser, M. (2001) Globalisierung und Sozialpolitik, Ein Vergleich der Diskurse und Wohlfahrtssysteme in Deutschland, Japan und den USA, Frankfurt am Main: Campus. —— (2007) ‘Welfare State Transformations in Comparative Perspectives: Shifting Boundaries of ‘Public” and “Private” Social Policy’, Paper presented at the Political Studies Association’s Annual Conference 2007, University of Bath. Strange, S. (1999) The Retreat of the State, the Diﬀusion of Power in the World Economy, Cambridge: Cambridge University Press. Svallfors, S. and Taylor-Gooby, P. (1999) The End of the Welfare State? Responses to state retrenchment, London: Routledge. Swank, D. (1998) ‘Funding the Welfare State: globalization and taxation of business in advanced market economies’, Political Studies, 46/4: 671–92.

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—— (2005) ‘Globalisation, Domestic Politics, and Welfare State Retrenchment in Capitalist Democracies’, Social Policy & Society, 4/2: 183–95. Sykes, R. (2005) ‘Crisis? What Crisis? EU Enlargement and the Political Economy of European Union Social Policy’, Social Policy & Society, 4/2: 207–15. Tamás, P. (2001) ‘The European Welfare State and Welfare Expectations in the Central European Enlargement Countries’, in P. Tamás and U. Becker (eds) NEWSLETTER Social Science in Eastern Europe, Special Edition 2001, Bonn: Social Science Information Centre. Taylor-Gooby, P. (2004) ‘New social risks in postindustrial society: some evidence on responses to active labour market policies from eurobarometer’, International social security review, 57/3: 45–64. Threlfall, M. (2003) ‘European Social Integration: Harmonization, Convergence and Single Social Areas’, Journal of European Social Policy, 13/2: 121–39. Titmuss, R.M. (1950) Problems of social policy, London: HMSO ——(1972) The Philosophy of Welfare: selected writings of Richard M. Titmuss, London: Allen & Unwin. ——(1987) ‘Welfare State and Welfare Society’, in Titmuss, R.M. (ed.) The Philosophy of Welfare, London: Allen & Unwin. Tomka, B. (2004) ‘Wohlfahrtsstaatliche Entwicklung in Ostmitteleuropa und das europäische Sozialmodell, 1945–90’, in H. Kaelble and G. Schmid (eds) Das Europäische Sozialmodell, Berlin: Edtion Sigma. Wilensky, H.L. (1975) The Welfare State and Equality: structural and ideological roots of public expenditures, Berkeley, CA: University of California Press. Zürn, M. (1998) Regieren jenseits des Nationalstaates, Globalisierung und Denationalisierung als Chance, Frankfurt am Main: Suhrkamp. ——(2003) ‘Wohlfahrtspolitik im Zeitalter der Globalisierung – The New Politics of Intervention’, in J. Allmendinger (ed.) Entstaatlichung und soziale Sicherheit: Verhandlungen des 31. Kongresses der Deutschen Gesellschaft für Soziologie in Leipzig, Opladen: Leske + Budrich.

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Part II Country studies

Chapter 1

at Welfare state development in Austria Strong traditions meet new challenges August Österle and Karin Heitzmann

Retrenchment or restructuring are attributes widely used in Europe to describe current welfare state developments. Austria is no exception. The Austrian welfare state is comparatively generous concerning social protection expenditure. In relative terms [28.8 per cent of gross domestic product (GDP) in 2005], it ranks sixth in the EU27. In absolute terms (€8573.4 per inhabitant), it even ranks ﬁfth. Together with challenges arising from demographic changes and from the broader politico-economic context, this high level of statutory expenditure is at the core of current debates about the future of the Austrian welfare state. This chapter presents the Austrian welfare system by studying historical developments, identifying its major characteristics and discussing current trends. The ﬁrst section of this chapter illustrates its roots, locates the Austrian system in the comparative welfare state literature, and introduces the role of public and private actors. Major welfare sectors are then described in more detail in the second section leading to an analysis of key features of the contemporary Austrian welfare system. Finally, the third section provides a brief conclusion and discusses future perspectives.

A general characterization of the Austrian welfare state The roots of the modern Austrian welfare system can be traced back to the 1880s (Tálos 1981). Against the background of an increasingly powerful labour movement, and the German example of social insurance implemented under Bismarck, work accident and sickness insurance have been introduced as the ﬁrst two branches of the social insurance system. At that time, obligatory insurance, self-administration and close employment links were established as key principles of the Austrian social insurance model. And these principles are still valid in this country. In the following decades, old age insurance (1907) and unemployment insurance (1920) was introduced as the third and fourth branch of the Austrian welfare system. Until the 1930s, social security was generally characterized by extending the range of beneﬁts and population coverage for white- and blue-collar workers as well as public employees. However, there have also been times of retrenchment and of questioning these developments. During the Ständestaat period 31

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(1933–38), social policies have been dominated by the state. Traditional interest groups came under intense pressure or were eliminated. During the Nazi regime, the system was replaced by the German Reichsversicherungsordnung. After the Second World War, European countries were rethinking their welfare schemes. While many systems started to adopt the Beveridge idea of citizenship orientation and universalism, Austria re-introduced the social insurance system (Tálos 2005b). A previously fragmented legal basis was brought together in the General Social Security Act (Allgemeines Sozialversicherungsgesetz) in 1955, which still forms the basis for social insurance in Austria. Until the 1960s, social insurance was mainly understood as a welfare system for employees. Only in 1965 and 1966, were insurance branches for farmers and the self-employed, respectively, set up. With the economic crisis in the 1970s, the issue of ﬁnancial sustainability of the welfare state moved towards the centre of welfare state debates. However, until the 1990s there were still important extensions in the welfare system, including material extensions in health insurance coverage, the introduction of a comprehensive long-term care scheme in 1993 or the extension of social insurance coverage to new forms of atypical employment. From the mid-1990s, issues of cost containment clearly dominated social policies. Apart from related changes in the levels of provision, there have also been some structural modiﬁcations in the past 15 years. Recent developments in the area of family and long-term care policies have emphasized the universal approach rather than the social insurance principle (see below). Also, there has been an emphasis on cash beneﬁts in new programmes. Opening up choices for recipients and cost containment are the major objectives underlying these developments. In terms of actor relationships, the strong role of social partners in this country has been repeatedly questioned. Though the inﬂuence has not been diminished substantially, their role seems no longer as powerful as it has been for the last 40 years. In current debates, arguments of ageing societies, funding limits or the loss of competitiveness are put forward in calls for welfare retrenchment or a restructuring of the welfare state. These calls have been translated into policy changes in some areas such as pension policies, but so far this has not led to a fundamental reform of the Austrian welfare model. In terms of expenditure, public social protection spending in Austria amounted to 28.8 per cent of GDP in 2005 (Table 1.1). In a historical perspective, social expenditure has been at rather stable levels during the past 10 years (28.8 per cent of GDP in 1995) and has increased only slightly since 1980 (26.1 per cent of GDP). This conﬁrms ongoing extensions in welfare programmes until the early 1990s, and a stronger cost containment approach since. In a European perspective, social expenditure in Austria is slightly above EU25 average (27.4 per cent in 2005), lower than in the Nordic welfare states (e.g. 32.0 per cent in Sweden) but far beyond the levels in the new EU12 member states (except for Slovenia) or in Ireland (all below 20.0 per cent) (Eurostat 2008). In the comparative welfare state literature, Austria is characterized as a corporatist, conservative, continental or male breadwinner welfare state (Esping-Andersen 1990, Castles and Mitchell 1993, Sainsbury 1999). The welfare model builds on the main pillar of social insurance, combined with the two pillars of universal state support and social assistance (Badelt and Österle 2001). The social insurance principle dominates pension, health, work accident and unemployment schemes. In these schemes, ﬁnancing is based on incomerelated contributions from employers and employees, with larger shares of tax funds used in health and pension schemes. While the beneﬁt–contribution nexus is strong in pension, work accident and unemployment schemes, health care provision is almost universally accessible. In addition to the employment nexus, there also is a close family nexus in 32

A U S T RIA

Table 1.1 Social protection expenditure

at

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

52705.9 53424.0 52639.2 54033.3 57463.4 59103.8 61351.4 63972.4 66272.8 68384.3 70612.4

6631.1 6712.4 6606.3 6773.8 7189.8 7377.3 7627.9 7913.8 8160.5 8366.8 8573.4

28.8 28.7 28.6 28.3 28.7 28.1 28.4 29.0 29.3 29.0 28.8

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7 27.8

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Austrian social insurance schemes (Pﬂegerl and Geserick 2007), as, for example, with the existence of non-contributory beneﬁts for family members in health and pension schemes. Universal programmes as the second pillar of the Austrian welfare model dominate in speciﬁc areas, most notably care-related policies (family and long-term care policies). Finally, poverty relief is organized in a third pillar following the social assistance principle. Public responsibilities are divided between federal and provincial levels. The division of legislative and administrative competences even within single social policy sectors leads to some fragmentation and variation and repeated debates about the adequacy of social policy federalism in a relatively small country. In addition to state authorities, the Austrian welfare model is characterized by self-administered social insurance funds with the Main Association of Austrian Social Security Institutions (Hauptverband der Österreichischen Sozialversicherungsträger) as its umbrella organization. The dominance of self-administered social insurance is rooted in historical developments and determined by the strong role of social partnership in policy-making as well as in the self-administrative structure of the social insurance system. Despite comprehensive welfare systems, private responsibilities are still important in this country. Family obligations are established for parents towards their children (with regard to supporting their education until the age of 26) and for children towards their frail parents. In these care-related areas, public policies emphasize a universal cash beneﬁt approach. But beneﬁts, explicitly or implicitly, work as contributions to care-related expenditures rather than full coverage. Given the limitations in purchasing power provided through cash beneﬁts and the choices provided with these beneﬁts, a lack of facilities leaves many, above all women, with a double burden of paid work and unpaid care or the necessity to reduce labour market participation (Hammer and Österle 2003). While female labour market participation is relatively high compared with other conservative EU member states (64.4 per cent in Austria compared with 58.3 per cent in the EU27 33

A . Ö S T E RL E A N D K . H E I T ZM A N N

and 58.6 per cent in the EU25 in 2007), the gap between male and female employment participation is still considerable (78.4 per cent for men compared with 64.4 per cent for women) (Eurostat 2008). In the formal private sector, non-proﬁts dominate service provision in Austria (Trukeschitz 2006). In addition, they play an important role as lobbyists for the disadvantaged. Historically, non-proﬁt organizations complemented the supply of the public sector, mainly in health and social services as well as in services for minorities (Heitzmann 2004). Recent tendencies of outsourcing and contracting-out have made private sector organizations even stronger providers in social policy (Badelt et al., Schneider et al. 2007). The market share of for-proﬁts is still relatively low, though with growing importance in some sectors. About 6 per cent of private old peoples’ homes and nursing homes and about 3.5 per cent of kindergartens belong to this sector (BMSK 2007).

An analysis of the contemporary Austrian welfare system After outlining the history and the basic structure of the Austrian welfare state, this section focuses on the characteristics of the most prominent sectors in the Austrian welfare system. It starts with some basic data on the composition of social protection expenditure, followed by a description of the priority sectors. The following section continues with an analysis of the signiﬁcance of these schemes in terms of welfare mix, coverage, stratiﬁcation and general perceptions. Finally, the main characteristics of the Austrian welfare system are summarized. Priorities in the provision of welfare In Austria, almost half of social protection spending is made for old age and survivors’ pensions. Beneﬁts for sickness and health care represent about a quarter of total expenditure. Beneﬁts for families, disability (including invalidity pensions), unemployment, housing and social exclusion make up the remaining quarter. In a comparative perspective, Austria is a big spender on pensions and on family beneﬁts, while relative spending on housing is below the European Union average (see Table 1.2). Table 1.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

at

eu27

eu15

100.0 96.7 10.4 5.6 0.3 1.0 32.4 47.0

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: * Per cent of total social protection expenditure; e Estimated value

34

A U S T RIA

With regard to the type of provision, cash beneﬁts account for 71 per cent of total social expenditure in Austria, with almost two-thirds of these beneﬁts spent on old age beneﬁts (like pensions and care) and another 12 per cent on family beneﬁts. With regard to in-kind beneﬁts (29 per cent of social expenditure), about three-quarters are spent on health care. Within sectors, cash beneﬁts dominate over in-kind beneﬁts in most welfare sectors. The exception is the health sector, where 85 per cent of total expenditure is inkind. While cash dominates the pension sector in all countries, varying shares of cash and in-kind expenditure in family policies are an indication of respective welfare approaches. In Austrian family policies, in-kind beneﬁts account for just about 18 per cent of expenditure (BMSK 2007). In terms of funding sources, ﬁgures reﬂect the social insurance dominance in this country. Almost two-thirds of funding is from social insurance contributions, including contributions by private employers (32.2 per cent of total funding), by employees (including pension contributions) (27.4 per cent of total funding) and by federal and regional authorities as employers (5.6 per cent). Contributions almost fully cover the ﬁnance of sickness payments, accident insurance and unemployment insurance. In pension insurance schemes and in health insurance schemes just about 70 per cent of funding is from social insurance contributions. Tax-funded schemes account for one-third of total social expenditure. Provisions such as long-term care allowances, provincial social beneﬁts, tax credits or housing beneﬁts are exclusively funded from general federal and regional budgets (BMSK 2007). The major social policy ﬁelds In what follows, the major social policies in Austria and the organization of the respective schemes, including ﬁnance, allocation, distribution and targeting, are discussed. If not otherwise stated, the chapter is based on information collected in Kammer für Arbeiter und Angestellte (2008), BMSK (2007) and Badelt and Österle (2001). Beneﬁt rates and contribution rates are given for 2008. Old age pensions In expenditure terms, the pension scheme is the largest social policy sector in Austria. It is based on a two-pillar system with a compulsory social insurance scheme and voluntary private insurance. Compulsory social insurance is organized as a pay-as-you-go system in ﬁve pension funds with competence according to the professional background of insurees. Public employees have a particular organizational scheme with pensions paid as state support. Historically, the various schemes diﬀered quite considerably. More recently, however, harmonization between the diﬀerent pension schemes became a major objective in the pension reform process. This objective is also at the core of the recent General Pension Act 2005. Funding of the pension scheme is based on social insurance contributions (22.8 per cent for white- and blue-collar workers) to be paid by employees (10.25 per cent) and employers (12.55 per cent). Respective rates are smaller for the selfemployed and farmers, while public employees have to make a pension contribution ranging between 10.25 per cent and 12.55 per cent depending on the age group. The Austrian social pension insurance is characterized by three major principles: insurance, supporting living standards and solidarity. With the insurance and the living standard principle, the level of beneﬁts is determined by the length of the contributory period and the level of the previous income. Schemes are currently in a transition period 35

A . Ö S T E RL E A N D K . H E I T ZM A N N

with diﬀerent rules applying to diﬀerent groups, in particular diﬀerent age groups. From 2028 on, the pension will be determined by the previous income in the ‘best’ 480 income months (240 months in 2008, plus 12 months each year till 2028) and by a replacement factor of 1.78 per cent from 2009 (1.80 per cent in 2008) for each insurance year. Receiving a pension requires a minimum level of contributory months or insurance months. In the latter case, such non-contributory periods are given for child-caring periods (up to 4 years for each child), for periods of military or civil service and for some other more speciﬁc circumstances. Though there is no universal pension scheme available in Austria, a speciﬁc minimum pension scheme recognizes the solidarity principle. If regular old age pensions are below a threshold of €747.00 (for singles in 2008), the diﬀerence is paid as a meanstested beneﬁt (Ausgleichszulage), which is ﬁnanced from taxes. However, without fulﬁlling the basic entitlement criteria for a pension (that is a minimum number of insurance years), no pension will be paid. The regular pension age in Austria is 65 years for men, and 60 years for women, with the latter to be increased to 65 years in a period until 2033. Apart from old age pensions, the pension scheme provides invalidity pensions and survivor pensions. The objective of the survivor pension is income replacement in the case of death of the insured person, who was partner, father or mother liable for maintenance. In general, a minimum of insurance months of the insured person is required. The survivor pension amounts to a maximum of 60 per cent of the regular pension (for widows and widowers) and 24 per cent or 36 per cent for orphans. Health care The health care system is the second largest social insurance pillar with 19 insurance funds. These funds are organized in regional funds (nine regional funds for white- and blue-collar workers), four employment-related insurance funds (for the self-employed, farmers, public employees and employees in the rail and mining sector) and six company insurance funds. Financing is based on insurance contributions made by both employers and employees. As a consequence of the eﬀorts to harmonize the health care scheme, there is now a general contribution rate of 7.65 per cent (2008) for all the large insurance funds. For particular groups or insurance funds contribution rates range between 7.55 per cent and 11 per cent. Despite the social insurance principle, an important part of funding is based on taxes, in particular for the hospital sector, where tax funds account for about 50 per cent of total costs. In addition, as a response to cost containment concerns, co-payments to be made by patients are increasingly used as a third funding source. Overall, about 76 per cent of total health expenditure is publicly funded, 24 per cent is privately funded. In contrast to pension insurance, access to health provision is almost universal. This is achieved by expanding coverage to relatives of insured employees and by including speciﬁc population groups such as students, beneﬁt recipients or migrants. However, about 2 per cent of the population remain outside this social insurance scheme (Fuchs et al. 2003). Apart from small groups with an opting-out opportunity (private insurance coverage) and groups with particular schemes (e.g. diplomats), some remain without insurance coverage in transitory periods. In this case, social assistance provides health coverage. About 30 per cent of the Austrian population also has some kind of additional private insurance. Depending on the contract, it allows extra hotel services and choice of doctors in hospitals or it pays for services not covered under social health insurance such as dental care services or complementary health services. When there was an increase in patients’ contributions to health services from their own pockets, cross-border health care 36

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became an increasingly attractive alternative recently, in particular in the ﬁeld of dental care with Austrian patients going to Hungary (Österle 2007). Provision in the health care ﬁeld includes access to doctors, ambulatory medical care, free accommodation and medical and nursing care during stays in state-funded hospitals (which are not necessarily provided by the public sector) as well as pharmaceuticals. In addition to these in-kind beneﬁts, sickness payments are made according to the insurance principle. Not covered are complementary medical care and long-term care (for the latter see below). In the inpatient sector, public and non-proﬁt hospitals dominate as providers, while private for-proﬁt hospitals mostly deliver extra hotel services or long-term stays for private patients. In the outpatient sector, services are provided by self-employed doctors. Patients are in general free to choose their doctor. There is, however, a limitation with regard to so-called contract and non-contract doctors. Treatment by contract doctors is fully reimbursed by health insurance, while treatments by non-contract doctors are reimbursed only with 80 per cent of the rate agreed with contract doctors. This works as a ﬁnancial incentive to consult contract doctors, but at the same time leaves a substantial market for non-contract doctors. The organization of the outpatient sector is another example of the role of self-administration and social partnership. Both the establishment of contract doctor practices as well as the remuneration of these doctors is agreed upon in negotiations between the medical associations and social insurance funds. As a consequence of these negotiations and underlying framework contracts, some doctors have contracts with all funds, some only with special funds, and still others have no contracts at all. Long-term care As in most European countries, public support in long-term care is more limited than in other areas of social policy. Historically, the major public role was in contributing to the funding of care in residential care settings, and in providing speciﬁc cash beneﬁts and social assistance support in a rather fragmented way. With the introduction of a universal longterm care beneﬁt in 1993, a major policy shift took place (Österle 2001). Since then, people of all age groups in need of long-term care are entitled to needs-related beneﬁts paid in seven levels. This beneﬁt scheme applies the citizenship principle and breaks with the tradition of social insurance in this country (other than, for example, Germany, which has introduced a long-term care insurance scheme). Beneﬁts range from €1562.10 in level 7 to €148.30 per month in level 1 in 2008. About 4.6 per cent of the country’s total population receive such support, about 80 per cent of them are 60 years of age and older (Da Roit et al. 2007). Beneﬁts are explicitly deﬁned as a contribution to care-related expenditure, implying that there has to be additional private funding. The intention of the beneﬁt is to ﬁnancially support either family care or social service provision. With the strong cash orientation the system emphasizes to provide recipients with choices. There is no explicit requirement to spend beneﬁts in a speciﬁc way. Though there has been an expansion of social services in the past 10 years, there still is a considerable lack in this respect. As a substitute, migrant care became an increasingly attractive and aﬀordable alternative to social services as well as to family care (Hammer and Österle 2003). The long-term care service sector is the responsibility of the provinces. While residential care settings have a long history, social services have been limited to parts of the country and became more widespread only in the past 15 years. Provision is dominated by the public and the non-proﬁt sector in residential care, while the non-proﬁt sector dominates ambulatory social service provision. Though the market share of for-proﬁt 37

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providers is growing, it remains at relatively low levels so far. Financing residential care as well as social services in the community requires substantial user contributions. Beds in residential care settings are funded from pensions and long-term care beneﬁts, to be transferred directly to the owner of these institutions. As this will usually not cover full costs, the diﬀerence is funded from residents’ assets and from social assistance, which in turn can be recalled from close relatives by way of recourse in some provinces. Financing ambulatory social services is based on a combination of users’ co-payments and provincial funding. Though the introduction of the cash beneﬁt scheme has increased the attractiveness of social service provision, a lack of rights to receive such services, an increase in co-payments to be made by clients, the alternative of grey market care and the availability of migrant care have hindered larger growth (Da Roit et al. 2007). Care provided by migrants and commuters from the neighbouring Eastern European countries became the major policy concern in long-term care in the recent past in Austria. Until 2007, most of these arrangements have been in the shadow economy, with care arrangements where two carers have been alternating with each other on a bi-weekly basis. In a regularization eﬀort from 2008, these migrant workers can either be employed or work as self-employed carers. Both models are ﬁnancially supported by the state. However, because of work and minimum wage regulations, most workers opt for the self-employment option. In an overall perspective, the situation of care recipients has improved considerably in the past 15 years. The situation of informal carers, however, often remains precarious in terms of social security and employment participation. An opportunity for insurance coverage at a reduced rate is taken up only by a few. Other support measures directed at informal carers are still rare. There are a number of pilot projects oﬀering counselling or relief programmes, but there is no systematic approach of supporting informal care work. And this, above all, aﬀects women who represent about 80 per cent of all long-term carers in the informal sector (Hammer and Österle 2003, Pochobradsky et al. 2005). Family policy Family policy is the major non-insurance-based social policy sector in Austria. It centres on a combination of family obligations and public support. Despite increasing female labour market participation and extended family support, family work is still seen as women’s responsibility, often resulting in a double burden of care and employment (Leitner 2004). It is not least this diﬃculty that has led to low fertility rates in Austria (1.40 in 2006, Eurostat 2008). Broad ranges of both cash and in-kind beneﬁts subsidize family expenditures. Cash beneﬁts are related to the birth of a child, child caring and periods of education. Funding of these beneﬁts is mainly through a fund (Familienlastenausgleichsfonds), ﬁnanced by contributions of employers and by general taxation. Additional support for families with children is provided through tax beneﬁts. In-kind beneﬁts include free education, the subsidization of kindergartens, and, in a wider perspective, medical co-insurance and subsidized transportation for minors. A ﬁrst beneﬁt is paid to mothers 8 weeks before the projected birth of the child and eight weeks afterwards (Wochengeld). The level of this insurance beneﬁt derives from previous income. Within the period of approximately 4 months, women are not allowed to work in paid employment. Two other important beneﬁts are designed as universal allowances. Child care beneﬁt (Kindergeld) is paid regardless of previous employment history, but is subject to an employment income limit for the parent on leave. The ﬂat-rate beneﬁt amounts 38

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to €14.53 per day for a maximum of 30 months. If the second parent takes parental leave as well, an extension to 36 months is possible. Protection against dismissal during this care period, however, is limited to 24 months. From January 2008, this beneﬁt scheme has been extended by two additional options diﬀering in length of the beneﬁt period and extent of the beneﬁt level. The new options oﬀer an increased beneﬁt for either 15 + 3 months or 20 + 4 months. Child care beneﬁt, which has replaced an insurance-based beneﬁt in 2002, has become a major income support for single parents (mostly women) and families with small children but just one earner (Levy et al. 2007). A further universal support scheme is family beneﬁt (Familienbeihilfe), paid to families with children regardless of household income. The level of beneﬁt depends on the age of the child and the number of children in the family and amounts to between €152.70 and €105.40 for one child. It is paid as long as the child is in full-time education, up to a maximum of 26 years. Once the child reaches the age of 18, the child’s income is taken into consideration. While social policy thus provides by comparison very generous monetary incentives for mothers to exit the labour market, the incentives to re-enter are still weak. Most notably, public provision of child care services is still low – contrary for example to most social democratic regimes. While there are not suﬃcient child care facilities available, inﬂexible opening hours of many existing facilities pose additional obstacles for working mothers. Because of their family obligations, many women tend to be either excluded from the labour market, or – if they are integrated – concentrated in low-paid, ﬂexible working arrangements, which jeopardize their chances of more eﬃciently reconciling work and family obligations. About 40 per cent of women in Austria are employed parttime. They account for around 80 per cent of all part-timers in 2008 in this country (Statistik Austria 2008, Eurostat 2008). Unemployment and labour market policy According to Eurostat data, the unemployment rate in 2007 amounted to 4.4 per cent, which compares to a EU27 average of 7.1 per cent (see Table 1.3). Despite this low level, unemployment in Austria has increased considerably up until 2005. Until the 1990s, there was broad agreement on low unemployment as the major economic goal. Consequently, the labour market in Austria was highly protected and employment problems have been shifted to other policy areas, most notably by encouraging early retirement and providing for employment in state run industries (Unger 2001). However, given the policy shift from low unemployment towards budget consolidation and liberalization in the 1990s, the protective shields of the labour market have been gradually renounced. Unemployment insurance is the only branch of social insurance that is not organized under the Main Association of Austrian Social Security Institutions. Rather, the Public Employment Service (Arbeitsmarktservice) is a three-tiered organization comprising one federal oﬃce, nine provincial oﬃces and 99 regional oﬃces. The social partners play a major role in designing labour market policies but also in supervising the employment service. In the case of unemployment, two cash beneﬁts are relevant. Unemployment beneﬁt (Arbeitslosengeld) is a contribution-based beneﬁt. Insurance contributions are made by both employers (3 per cent) and employees (3 per cent). Entitlement for unemployment beneﬁt requires a minimum period of previous insured employment, and willingness and ability to work. Beneﬁts are linked to the level of previous income and paid for a limited period only. As a result of more part-time work among women and lower female wages, unemployment 39

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Table 1.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

at

eu27

eu15

3.9 4.3 4.4 4.5 3.9 3.6 3.6 4.2 4.3 4.8 5.2 4.8 4.4

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

beneﬁt is considerably lower for women (€20.48 per day in 2005) than for men (€25.55 per day in 2005). For the long-term unemployed (roughly a quarter of all unemployed), a means-tested unemployment assistance (Notstandshilfe) may be granted after unemployment beneﬁt expires. Here, eligibility includes means-testing. The assistance is reduced if other income of the unemployed person and other household income exceed a certain threshold. In 2005, the average beneﬁt amounted to €19.99 per day for men and €15.55 for women (Statistik Austria 2008). With a major recent reform, unemployment insurance will also be opened to the self-employed from 2009 by giving them an opportunity to opt in. In addition to cash beneﬁts, and thus passive labour market policy, active labour market policies have become quite prominent since the 1990s onwards – not least to obtain funds from the European Union structural funds. However, with about one-third of total spending, the funding of the active labour market policy is still signiﬁcantly below that of the passive labour market policy. Measures include skills training in and out of work, company integration subsidies or job schemes. Many of these policies currently address older workers who are more at risk of long-term unemployment and faced with more serious diﬃculties for re-integration in the labour market. Policies attempt to improve and prolong employability and to increase activity rates. In 2007, on average some 52,000 people have been in training (Arbeitsmarktservice Österreich 2008). Poverty Poverty and poverty relief are rather recent topics in the Austrian social policy debate, but are receiving more attention due to European Union activities addressing these issues. Some 13 per cent of all Austrian households have an income below the poverty threshold (less than 60 per cent of the median equivalized per capita income) compared with an EU25 and EU15 average of 16 per cent in 2006 (Eurostat 2008). Population groups most at risk of becoming poor are the unemployed, single parents, large families with one income earner, migrants, people with low employment income and women aged 65+ (Table 1.4). The social policy programmes discussed above not only work as a measure against the corresponding social risk, but also as a major approach to prevent poverty. If poverty occurs, tax-funded social assistance provides ﬁnancial support. This system was introduced 40

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Table 1.4 At-risk-of-poverty rates by gender

at total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

13 14 13 13 12 12 12 – 13b 13 12 13

eu25 males 12 12 11 11 10 9 9 – 12b 11 11 11

eu15

females

total

males

females

15 16 14 15 14 14 14 – 14b 14 13 14

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

in the 1970s as the major response to cope with poverty (Pratscher 1992, 2008). In 2007, it has been paid to about 2 per cent of the Austrian population. Social assistance legislation is the responsibility of the provincial government in Austria, resulting in nine different schemes with variations in terms of access to and level of beneﬁts as well as in terms of organization and ﬁnance structure (Pfeil 2001). In 2008, the social assistance beneﬁt rate for a single person ranged between €351.20 and €710 per month. For couples and children, speciﬁc beneﬁt levels apply. Apart from beneﬁt level variation across the nine provinces, some provinces further diﬀerentiate according to age, living conditions or the ability to work of the recipients. In all provinces, social assistance is means-tested and leaves room for discretion. This discretionary power, the assistance orientation and debates about potential misuse make it a stigmatizing beneﬁt and lead to high non-take-up rates (Dimmel 2000). Beyond the cash payment, social assistance regulation also includes social services provided mainly to frail older people, disabled people or other social work activities. Approaches to unify social assistance laws or to establish national framework legislation have for a long time faced resistance by the provinces. However, the current coalition government plans to introduce a harmonized means-tested minimum income beneﬁt (Mindestsicherung) by 2009. If implemented, this beneﬁt will replace social assistance beneﬁts throughout the country. Social inclusion Compared with poverty, addressing social inclusion in Austria was linked even more to activities at the level of the European Union (e.g. Tálos and Badelt 1999, European Commission 2008). Existing policies have been implemented for various marginal groups, but have only recently been associated with the concept of social inclusion. Respective programmes are mostly tax ﬁnanced or of a regulatory type. The provision of 41

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services is often undertaken by non-proﬁt ﬁnanced organizations either by the public sector or by private giving (Trukeschitz 2006). Disability policies in Austria are characterized by attempts to reduce speciﬁc sheltered institutions and enhance support for integration in the regular school system and integration in the employment market. Another target issue is homelessness or inadequate housing. For many years, policies for the homeless were dominated by the provision of large shelters for the homeless, while more recent policies prioritize preventive approaches, such as consultation in case of indebtedness or the prevention of eviction. Various assistance programmes address speciﬁc groups, such as those released from psychiatric wards or prison. There is agreement on the desirability of more preventive developments. However, the various approaches are often limited to pioneering models rather than being applied as general programmes. It is mostly a lack of ﬁnancial support that leads to a great gap between good local practice examples and countrywide levels of provision. With regard to migration, policies were, historically, always very much related to developments in the labour market (Biﬄ 2002). Increasing unemployment alongside a political shift to the right has in recent years led to a tightening of policies towards immigrants and a very restrictive immigration policy. With reference to social integration, increasing emphasis is on mandatory language courses. Education The education system is usually not seen as part of the social policy system in Austria. Nevertheless, education is closely linked to social security and it co-determines the social status of citizens. Expenditure on education amounted to 5.44 per cent of GDP in 2005. As a basic principle, access to education is free for primary and secondary education. Public ﬁnance covers infrastructure, personnel, free school books and subsidizes transportation. For university education, a general fee was introduced in 2001. In 2008, it amounts to €363.36 for European Union citizens and €726.72 for non-European Union citizens. Fees for professional postgraduate studies can be set by the providers. Compulsory education in Austria lasts for nine years, with four years of primary education for all and diﬀerent choices after that. Upper secondary education ranges from general humanistic programmes to programmes with technical or commercial specialization. A unique two-tier vocational training system consisting of on-the-job training and school-based education is an alternative to upper secondary schooling. In a European Union comparative perspective, the number of academics in Austria is low. According to OECD (2007), the graduation rate at the tertiary level is 20 per cent in Austria in 2006, compared with an OECD average of 36 per cent. This is explained by the old university system where course lasted for a minimum of 4 years, with the average being more than 6 years. However, Austria is in the process of restructuring university education. It has recently established Universities of Applied Sciences (Fachhochschulen), it has accredited private universities, and is currently adopting the Bachelor, Masters, PhD system. Though the Austrian system is based on the principle of equal access to the educational system, the socio-economic backgrounds of students in secondary or tertiary education diﬀer signiﬁcantly from the average population (Bacher 2003). It has been shown that the educational background of the parents has a strong inﬂuence on the educational career of their children. As education is strongly correlated with status in society and future income opportunities, the educational system together with the social protection system is substantially status preserving. Speciﬁc problems of access to education exist for disabled children as well as for children with non-German mother tongue. In the 1990s, 42

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there have been major eﬀorts of integrating disabled children in the regular school system, which has been more successful in primary and secondary than in higher education. For children with non-German mother tongue, language problems have major negative consequences regarding their chances to achieve equal levels of education. With the publication of the PISA study results and the evidence of the strong impact of the educational background of parents on educational paths chosen by children, public debate on the future of primary and secondary education has intensiﬁed in recent years. In particular the introduction of a comprehensive school system for the ﬁrst eight years for all children is still a hotly debated concern. An assessment of actors, effects and perceptions The above portrayal of major welfare schemes underlines the characterization of Austria as a conservative–corporatist welfare state. Social insurance, links to the employment sphere and family relations are of key importance in this welfare state. This is mirrored in terms of the relative importance of insurance beneﬁts as opposed to universal beneﬁts or means-tested beneﬁts, which both derive from citizenship rather than employment. Welfare state mix The welfare mix in Austria reﬂects the major building blocks of the Austrian welfare model. There is a strong role of the public sector, divided between federal, provincial and local levels on the one hand, and social insurance institutions on the other hand. Although legislation is carried out at the federal and provincial levels, all state authority levels are involved in funding and in provision tasks. As taxing rights are only at the federal level, a Tax Equalization Act organizes the distribution of funds among authorities (Nowotny 1999). With regard to provision, there is a trend towards outsourcing, but provinces and local authorities remain important providers in speciﬁc sectors. The social insurance system with currently 22 insurance institutions follows labour market status and regional background of those insured. Though the level of self-administration has been questioned repeatedly in recent years, it still characterizes social insurance institutions. The status-preserving character of the social insurance scheme in Austria is also found in the deﬁnition of entitlements. The level of pension and unemployment beneﬁts as well as access to work accident insurance is closely linked to contributions paid, i.e. beneﬁts replicate accustomed earnings while the redistributive function remains relatively small. Beyond self-administration in the social insurance system, the role of social partners in shaping perceptions and inﬂuencing policies is still considerable. This can be illustrated by an example: in 1995, the government introduced a budget consolidation package without prior consultation with its social partners – and the package failed. Shortly thereafter, the government implemented the Structural Adjustment Act. It included much more massive cuts than the ﬁrst consolidation package. This time it was developed by and implemented with the consent of the social partners – and broadly accepted by the population (Unger and Heitzmann 2003). Insiders and outsiders In the twentieth century, social insurance schemes have been characterized by an extension of personal coverage. In pension, work accident and unemployment schemes this 43

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extension refers to the inclusion of all labour market sectors, and, in recent years, in an extension to new forms of atypical employment. Groups out of the labour market have been recognized in the pension scheme with survivors’ pensions and non-contributory beneﬁts. Accident insurance provides for consequences of accidents and illnesses related to employment while other groups are covered under health insurance schemes. In health insurance, personal coverage has been widely extended to most parts of the population, but so far without establishing a fully universal system. Yet, Austria also has seen some trend towards universalism in recent years. The 1993 long-term care reform has introduced a universal cash beneﬁt scheme and the child care beneﬁt scheme has been changed from a labour-related scheme towards a universal scheme in 2002. At the same time, these universal welfare provisions are limited in terms of the extent of beneﬁts. Long-term care beneﬁts are explicitly deﬁned as a contribution to the costs of longterm care. The income replacement idea in the child care beneﬁt scheme was replaced by a ﬂat rate model for providing a cash beneﬁt to mothers or fathers if they limit labour market participation for up to three years. The insider–outsider position with regard to the labour market has most important consequences for the economic situation in old age, for rehabilitation in the case of accidents and for periods of unemployment. Given the diﬀerent rates of employment participation between men and women, and the lower wages of the latter, women are particularly disadvantaged in terms of insurance beneﬁts. Data on income poverty and social exclusion show that this has consequences for the composition of risk groups. And these groups have not changed much in the last decade (Förster and Heitzmann 2002). Lone parents, families with three or more children, the long-term unemployed, migrants, people with low education attainment, women aged 65+ and people with low employment income are particularly likely to experience deprivation and to remain outsiders in this respect. Stratiﬁcation Various schemes in the Austrian system work diﬀerently in terms of stratiﬁcation (Mairhuber 2002). Pension and unemployment beneﬁts, in particular, uphold the existing socioeconomic distribution that results from the position in the labour market. For example, an uninterrupted full-time working career as is typical for the male breadwinner in the Austrian system is rewarded by higher pensions while career breaks or part-time work typical for the female career result in lower beneﬁts. Consequently, the average female pension is approximately 60 per cent of the average male pension. Around 70 per cent of those receiving a means-tested minimum pension are women (BMSK 2007). It is often assumed that the educational and the health care system have a strong equalizing eﬀect. Access criteria are in fact more universally deﬁned than for example in the pension system. Though detailed information on the eﬀects is limited, studies show, however, that the socio-economic background of students in secondary and tertiary education signiﬁcantly diﬀers from the population (Bacher 2003), and, in health care, that access problems occur for people with low income (Pochobradsky and Habl 1999). Perceptions In general, the Austrian population seems rather satisﬁed with its welfare system. Even though, in the light of demographic and ﬁscal challenges, the majority accepts contemporary 44

A U S T RIA

reforms of the social security system (including a stronger role for privately provided welfare), people still see a strong role for statutory welfare. In the ‘Population Policy Acceptance Study’ conducted in 2001, 93 per cent of the population suggest that the state is mainly responsible for old age provision and 92 per cent hold the state responsible for labour market policies. At the same time, 30 per cent of the respondents felt that the state has done less for families in poverty, while 43 per cent felt that it has done more for families with small children (Schimany 2004: 56). These results are conﬁrmed by the Social Survey Austria (Schulz et al. 2005). Interestingly, according to this survey, the perception of state responsibility has not changed substantially from 1986 to 2003, and has even increased for speciﬁc areas such as health care. Trust in the existing schemes is supported by strong beliefs in quality of and access to services. According to the Eurobarometer survey 2007 (European Commission 2007) more than 90 per cent of the population regard the quality of health services as very good or fairly good. For more than 90 per cent of the population access to general practitioners, dentists or hospitals is easy. But, there is also evidence that trust in public schemes, in particular pension schemes, has reduced in recent years (Tálos 2005a). Political ideologies that favour a more limited role of the welfare state together with reduced trust in public welfare schemes could facilitate future cutback approaches. Résumé of the status quo Social insurance was and is the predominant form of social protection in Austria. The success of this model is built on two major factors: ﬁrst, a well-functioning labour market and indeed full-time employment are vital for the success of a conservative welfare model. But, this traditional labour market model seems to have become a model of the past. A deregulated labour market and more ﬂexibility are common demands of contemporary economists and politicians. In recent years, atypical working arrangements have considerably increased. In 2007, 22.6 per cent of employees worked part-time (18.2 per cent in the EU27) (Eurostat 2008), 7 per cent earned less than the lower threshold for compulsory social insurance in 2007 (i.e. €341.16). Despite these developments, social security beneﬁts continue to be linked to gainful employment, and revolve around status-preserving income replacement. While they have been adapted to ﬁscal pressures and to new work arrangements, social insurance is still the predominant form of social security in this country. The second pillar of conservative welfare states is reliance on the family to provide services. Social insurance (e.g. health coverage or survivor pensions) typically recognizes children and non-working partners of breadwinners under forms of joint family coverage to safeguard traditional family patterns. At the same time, special family allowances encourage motherhood, and entice women to take on unpaid housework and care work (Esping-Andersen 1990: 27f.). The resulting low wages translate into low (or no) insurance beneﬁts, which enhances the dependence of women on their partner, their family, and/or means-tested social assistance. Thus, also the second pillar of the conservative welfare state model – family reliance – is still well in place (Unger and Heitzmann 2003).

3 Future challenges and perspectives Austria shares major challenges to the welfare state with other European countries. The country is faced with increasing life expectancy and low fertility rates, resulting in an 45

A . Ö S T E RL E A N D K . H E I T ZM A N N

ageing society and an increasing dependency ratio (e.g. Castles 2004). In a social insurance system, this implies a situation where increasing expenditure needs are faced with stable or even decreasing levels of contributory funding. Increasing expenditure levels are forecasted, in particular, for old age pensions, long-term care and health expenditure (Economic Policy Committee and European Commission 2006). Developments in the broader social, political and economic context could further aggravate related challenges. Changes in family structures, in living arrangements, in employment participation and in mobility have major impacts on the ability of families to provide care and support to their members. Ideological shifts towards more market-liberal approaches and an emphasis on competitiveness is used to increase pressure on labour costs and on public expenditure. Apart from these funding-related challenges, rethinking public and private responsibilities in society is leading to social policies characterized by an emphasis on the regulatory role of the state, favouring cash beneﬁts rather than in-kind beneﬁts and contracting-out the provision of services (Unger and Heitzmann 2003). In the past 15 years, the future of social policy has been increasingly discussed in the context of European integration, in recent times mostly with regard to budgetary pressures arising from the Maastricht Criteria (Tálos and Badelt 1999). More recently, European Union enlargement is dominating debates on the impact of European integration on the welfare system. For Austria, as a neighbouring country of four new European Union member countries, implications for the labour market are at the centre of these debates. Finally, it is increasingly realized that despite national competences in social policies, the European Union has multiple eﬀects on these policies (Falkner and Treib 2003). Taken together, recent developments and challenges are signiﬁcantly inﬂuencing Austrian social policies. Changes are not coming about as fundamental system changes, but rather as a steady process of adaptation. This process emphasizes the welfare state as a regulatory body. Funding largely remains in the public and the social insurance sector, while at the same time private responsibilities are increasingly emphasized. With regard to social protection expenditure, these developments emphasize the objective of not further increasing expenditure levels. With regard to private funding, there is some further relief with regard to traditional family responsibilities, while at the same time copayments and the promotion of private insurance coverage become more important. In the provision of welfare, the role of the public sector is changing substantially. Privatization, outsourcing or contracting are key words for respective developments. Finally, there are also changes in the private household sector. While family responsibilities are still strong in Austria, there is more emphasis on encouraging individualized risk coverage. And, at least rhetorically, individuals are increasingly addressed as recipients who should be provided with choices rather than fully predetermined services. The welfare state still has a very strong role in this country, but current policies make quite clear that the response to new needs is welfare state restructuring rather than welfare state expansion.

Bibliography Arbeitsmarktservice Österreich (2008) Geschäftsbericht 2007: Neue Impulse für den Arbeitsmarkt, Wien: AMS. (www.ams.at/_docs/001_EndversionGB2007.pdf ) (accessed 22 July 2008). Bacher, J. (2003) ‘Soziale Ungleichheit und Bildungspartizipation im weiterführenden Schulsystem Österreichs’, Österreichische Zeitschrift für Soziologie, 28 (3): 3–32.

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Badelt, C., Meyer, M. and Simsa, R. (2007) ‘Ausblick: Entwicklungsperspektiven des Nonproﬁt Sektors’, in C. Badelt, M. Meyer and R. Simsa (eds) Handbuch der Nonproﬁt Organisation: Strukturen und Management, 4th edn, Stuttgart: Schäﬀer-Poeschel. 620–42. Badelt, C. and Österle, A. (2001) Grundzüge der Sozialpolitik: Sozialpolitik in Österreich – Spezieller Teil, 2nd edn, Wien: Manz. Biﬄ, G. (2002) Arbeitsmarktrelevante Eﬀekte der Ausländerintegration in Österreich, Wien: WIFO. BMSK (Federal Ministry of Social Aﬀairs and Consumer Protection) (2007) Sozialschutz in Österreich, Wien: BMSK. (www.bmsk.gv.at/cms/site/attachments/6/5/0/CH0339/CMS1064306288445/sozialschutz_ in_oesterreich.pdf ) (accessed 22 July 2008). Castles, F. G. (2004) The Future of the Welfare State. Crisis Myths and Crisis Realities, Oxford: Oxford University Press. Castles, F. G. and Mitchell, D. (1993) ‘Worlds of Welfare and Families of Nations’, in F. G. Castles (ed.) Families of Nations: Patterns of Public Policy in Western Democracies, Aldershot: Dartmouth. Da Roit, B., Le Bihan, B. and Österle, A. (2007) ‘Long-term Care Policies in Italy, Austria and France: Variations in Cash-for-Care Schemes’, Social Policy and Administration 41 (6): 653–71. Dimmel, N. (2000) Drohen – Betteln – Verhandeln, Frankfurt am Main: Peter-Lang. Economic Policy Committee and European Commission (2006) The Impact of Ageing on Public Expenditure: Projections for the EU25 Member States on Pensions, Health Care and Long-Term Care, Education and Unemployment Transfers, Brussels: European Commission. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Cambridge: Polity Press. European Commission (2008) Joint Report on Social Protection and Social Inclusion 2008. Social inclusion, pensions, health care and long-term care, Luxemburg: Oﬃce for Oﬃcial Publications of the European Communities. (http://ec.europa.eu/employment_social/spsi/docs/social_inclusion/2008/joint_report_en. pdf ) (accessed 5 August 2008). —— (2007) Health and long-term care in the European Union. Special Eurobarometer 283. (http://ec.europa. eu/public_opinion/archives/ebs/ebs_283_en.pdf ) (accessed 23 July 2008). Eurostat (2008). Eurostat Database 2008. (http://epp.eurostat.ec.europa.eu) (accessed 23 July 2008). Falkner, G. and Treib, O. (2003) ‘Die Europäische Union als Herausforderung für die Sozialpolitik der Mitgliedsländer’, in S. Rosenberger and E. Tálos (eds) Sozialstaat: Probleme, Herausforderungen, Perspektiven, Wien: Mandelbaum Verlag. 14–27. Förster, M. and Heitzmann, K. (2002) ‘Einkommensarmut und akute Armut in Österreich’, in BMSG (Federal Ministry of Social Security, Generations and Consumer Protection) (ed.) Bericht über die soziale Lage 2001–2002: Analysen und Ressortaktivitäten, Wien: BMSG. 187–209. Fuchs, M., Schmied, G. and Oberzaucher, N. (2003) Quantitative und qualitative Erfassung und Analyse der nicht-krankenversicherten Personen in Österreich, Wien: BMGF. Hammer, E. and Österle, A. (2003) ‘Welfare State Policy and Informal Long-Term Care-Giving in Austria: Old Gender Divisions and New Stratiﬁcation Processes Among Women’, Journal of Social Policy, 32 (1): 37–53. Heitzmann, K. (2004) ‘Funktionen und Leistungen von NPOs im Wandel – illustriert anhand der Entwicklung der institutionellen Armenfürsorge in Österreich’, in D. Witt, R. Purtschert and R. Schauer (eds) Funktionen und Leistungen von Nonproﬁt-Organisationen, Wiesbaden: Gabler. 213–25. Kammer für Arbeiter und Angestellte (2008) Sozialleistungen im Überblick. Lexikon der Ansprüche und Leistungen, 10th edn, Wien: ÖGB Verlag. Leitner, A. (2004) ‘Gender Mainstreaming als erfolgreiche Strategie für Einkommensgleichheit von Frauen und Männern?’, in K. Heitzmann and A. Schmidt (eds) Wege aus der Frauenarmut, Frankfurt am Main: Peter Lang. 35–58. Levy, H., Lietz, C. and Sutherland, H. (2007) ‘Swapping Policies: Alternative Tax-Beneﬁt Strategies to Support Children in Austria, Spain and the UK’, Journal of Social Policy 36 (4): 625–48. Mairhuber, I. (2002) ‘Frauenarmut – Ein sozialpolitisches Problem?!’, in K. Heitzmann and A. Schmidt (eds) Frauenarmut, 2nd edn, Frankfurt am Main: Peter-Lang. 137–61. Nowotny, E. (1999) Der öﬀentliche Sektor, 4th edn, Berlin / Heidelberg: Springer. OECD (2007) Education at a Glance 2007. OECD Indicators, Paris: OECD.

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Österle, A. (2001) Equity Choices and Long-Term Care Policies in Europe: Allocating resources, and burdens in Austria, Italy, the Netherlands and the United Kingdom, Aldershot: Ashgate. —— (2007) ‘Health care across borders: Austria and its new EU neighbours’, Journal of European Social Policy 17 (2): 112–24. Pfeil, W. J. (2001) Sozialhilfe: Rechtswissenschaftliche Studie – Vergleich der Sozialhilfesysteme der österreichischen Bundesländer, Wien: BMSG. Pﬂegerl, J. and Geserick, C. (2007) Kinship and Social Security in Austria. A Social History for the 20th Century, Wien: Studienverlag. Pochobradsky, E. and Habl, C. (1999) Nutzung von Gesundheitsleistungen durch sozial schwächere Gruppen, Wien: BMAGS. Pochobradsky, E., Bergmann, F., Brix-Samoylenko, H., Erfkamp, H. and Laub, R. (2005) Situation pﬂegender Angehöriger. Endbericht, Wien: ÖBIG. Pratscher, K. (1992) ‘Sozialhilfe: Staat – Markt – Familie’, in E. Tálos (ed.) Der geforderte Wohlfahrtsstaat: Traditionen – Herausforderungen – Perspektiven, Wien: Löcker. 61–95. —— (2008) ‘Sozialhilfe, Behindertenhilfe und Pﬂegegeld der Bundesländer im Jahr 2006 und in der Entwicklung seit 1996’, Statistische Nachrichten, 63 (7): 598–611. Sainsbury, D. (ed.) (1999) Gender and Welfare State Regimes, Oxford: Oxford University Press. Schimany, P. (2004) ‘Einstellungen zur Alterspolitik: Ergebnisse des Population Policy Acceptance Survey in Österreich’, Österreichische Zeitschrift für Soziologie, 29 (4): 49–70. Schneider, U., Badelt, C. and Hagleitner, J. (2007) ‘Der Nonproﬁt Sektor in Österreich’, in C. Badelt, M. Meyer and R. Simsa (eds) Handbuch der Nonproﬁt Organisation: Strukturen und Management, 4th edn, Stuttgart: Schäﬀer-Poeschel. 55–80. Schulz, W., Haller, M. and Grausgruber, A. (eds) (2005) Österreich zur Jahrhundertwende. Gesellschaftliche Werthaltungen und Lebensqualität 1986 – 2004, Wiesbaden: Verlag für Sozialwissenschaften. Statistik Austria (2008). (www.statistik.at) (accessed 23 July 2008). Tálos, E. (1981) Staatliche Sozialpolitik in Österreich: Rekonstruktion und Analyse, Wien: Verlag für Gesellschaftskritik. —— (2005a) ‘Sozialversicherung zwischen Kontinuität und Umbau’, Soziale Sicherheit, 58 (9): 397–404. —— (2005b) Vom Siegeszug zum Rückzug: Sozialstaat Österreich 1945–2005, Innsbruck: Studienverlag. Tálos, E. and Badelt, C. (1999) ‘Austrian Social Policy and the EU’, Journal of European Social Policy, 9 (4): 351–61. Trukeschitz, B. (2006) Im Dienst sozialer Dienste. Ökonomische Analyse der Beschäftigung in sozialen Dienstleistungseinrichtungen des Nonproﬁt Sektors, Frankfurt am Main: Peter Lang. Unger, B. (2001) ‘Österreichs Beschäftigungs-und Sozialpolitik von 1970–2000’, in: J. Alber and J. Kohl (eds) Arbeitsmarkt und Sozialstaat: Sozialpolitik in Europa, vol. 8, Wiesbaden: Chmielorz. 340–61. Unger, B. and Heitzmann, K. (2003) ‘The Adjustment Path of the Austrian Welfare State – Back to Bismarck?’, Journal of European Social Policy, 13 (4): 371–87.

48

Chapter 2

be Belgium The quest for sustainability, legitimacy and a way out of ‘welfare without work’ Ive Marx

Conceived in the Bismarckian mould in response to The Social Question as it manifested itself in the late nineteenth century, the Belgian welfare system followed a fairly conventional continental trajectory up until the worldwide economic recession of the early 1970s. It was the same climate of social unrest during the recessionary 1880s that had led Otto von Bismarck to institute the ﬁrst labour protection laws and social security provisions in Germany that triggered the introduction of similar laws and provisions in Belgium. To be clear, social security arrangements had by then already emerged on a voluntary basis, usually within the context of mutual societies and such organizations, most of which had a much broader purpose than providing social security. These mutual societies and organizations were organized along ideological lines, the Christian-Democrat and the Socialist being the most prominent. The pluralist, decentralized and autonomous nature of social security and social welfare provision did not change once the state started taking up a regulatory and standardizing role. But out of a patchwork of arrangements emerged a compulsory and increasingly universal system of social security and health care (Deleeck, 2001). A long phase of incremental, though at times still erratic expansion of various, mostly occupationally segregated social security schemes culminated in the ‘Social Pact’ of 1944. Born in the exceptional atmosphere of solidarity and consensualism of the ﬁnal days of the war, the Pact marked a consolidation of the welfare system. The Social Pact, while extending compulsory social security coverage, conﬁrmed the subsidiary principle in the sense that non-governmental organizations (i.e. unions and mutual societies) remained responsible for the administration of beneﬁts. In addition, national agencies were created for those not aﬃliated to such organizations. The role of the state remained, as before, very much in a regulatory and complementary role. The 1950s and 1960s were essentially a period of incremental expansion. Belgium’s social protection system came to maturity just before the economic crisis struck. With the main social security pillars in place, by and large in the Bismarckian mould, all that 49

I. MARX

remained was to deploy the ﬁnal safety net as a statutory right ensured by law. This happened through three laws enacted in the late 1960s and early 1970s: the law on social assistance (providing a minimum income guarantee to all citizens), the law on guaranteed child beneﬁt (ensuring access to child beneﬁts all to those not covered under the social security scheme) and the law on the guaranteed minimum pension (ensuring a minimum pension for all pensioners). It was just after these ﬁnal pieces had been put in place that Belgium’s social protection system was challenged in a most profound way. Belgium’s economy was particularly hard hit by the oil price shocks and the subsequent economic downturn of the 1970s and 1980s. An early industrializer, Belgium’s economy was still heavily reliant on manufacturing industry, much of which tended to be comparatively energy intensive and, therefore, particularly sensitive to the energy price shocks. The share of industrial employment (including mining and construction) in total employment, which was still around 40 per cent in 1975, fell rapidly in the years thereafter, reﬂecting major structural adjustments in steel, coal and textile industries. During the 1970s and also during the 1980s, Belgium recorded among the largest relative job losses in manufacturing industry in the Organisation for Economic Co-operation and Development (OECD) area. The consequences were particularly severe because entire cities and even regions remained heavily dependent on industrial employment. The collapse in the demand for labour occurred precisely at a time when many youngsters (the sizable post-war baby boom cohort) and women were entering the labour market. It was in this context that a massive increase in beneﬁt dependency, particularly unemployment beneﬁt dependency, ensued. This happened in most continental European welfare states but virtually nowhere was it as dramatic, relatively speaking, as in Belgium. Today Belgium still epitomizes continental Europe’s ‘welfare without work’ conundrum. Belgium spends more on unemployment beneﬁts, relatively speaking, than just about any other EU member state (Table 2.1). While its unemployment rate is around the EU15 average (Table 2.3), its employment rate remains among the lowest of the northern continental European Welfare Systems. Around one in four people of working age lives on some kind of replacement beneﬁt. While still enjoying a comparatively low poverty rate, Belgium has been slipping down the tables during the last

Table 2.1 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

be

eu27

eu15

100.0 95.4 6.9 11.7 0.2 1.5 32.5 42.7

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: * % of total social protection expenditure; e Estimated value

50

B E L G I UM

decade (Table 2.4). The problem facing Belgium’s welfare system is one of sustainability, both political as well as economic and ﬁscal (Table 2.2). Despite much talk of the need to move towards an ‘active welfare state’, Belgium’s corporatist system has not shown a real capacity to deal with the root problems of sluggish job growth and persistent high beneﬁt dependency. In addition, Belgium is facing some very particular problems owing to its particular history of linguistic conﬂict, a problem exacerbated by regional economic divergence. This chapter sketches some of the key developments within Belgium’s welfare system over the past three decades and discusses the principal challenges facing it today. Table 2.2 Social protection expenditure

be

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

59475.5 60851.2 60342.6 61757.3 64417.6 66773.3 70720.5 75020.6 80022.2 85004.9 89652.3

5867.3 5991.3 5926.8 6052.9 6299.1 6513.7 6875.0 7260.4 7712.1 8157.0 8555.7

27.4 28.0 27.4 27.1 27.0 26.5 27.3 28.0 29.1 29.3 29.7

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; Last update: Dec 14 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 2.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

be

eu27

eu15

9.7 9.5 9.2 9.3 8.5 6.9 6.6 7.5 8.2 8.4 8.5 8.3 7.5

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: Jul 17 2008)

51

I. MARX

Table 2.4 At-risk-of-poverty rates by gender

be total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

16 15 14 14 13 13 13 – 15b 15p 15 15

eu25 males 15 14 13 12 11 12 12 – 14b 14p 14 14

eu15

females

total

males

females

17 17 15 15 14 14 15 – 16b 16p 15 16

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 08; last update: 16 May 2008) Notes: Cut-off point, 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate; p Provisional value

Status quo There is no ‘Belgian’ welfare system in the sense that important sectors of its welfare system are now governed and administered at the regional level, following successive steps towards devolution over the past decades. This is most notably the case for sectors like education and training, job placement, young people, and care of older and disabled people, etc. With the exception of long-term care insurance, social security remains a federal competency. The same applies to wage setting and, to a large extent, labour market and economic regulation. The distribution of authority for various elements of welfare policy are, however, neither clear cut nor entirely consistent. Social security and social assistance Pensions The origins of the modern pension system dates back to the late nineteenth century and is rooted in local or occupational voluntary initiatives. The ﬁrst compulsory pension was instituted by law in 1911 for miners. In the decades thereafter, compulsory pension provisions were gradually widened so as to encompass the total work force. The ﬁrst, mandatory pillar of Belgium’s pensions system consists of separate regimes for private sector workers (including the non-proﬁt sector), for the self-employed and for statutory civil servant workers. The legal retirement age is 65 and a full pension is in principle awarded after a career of 45 years. There are minimum pension provisions for employees after 15 years of employment. In line with its Bismarckian design, the ﬁrst pillar system for employees is funded through social contributions and co-governed by the social partners. Pensions are also, in 52

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principle, related to past contributions and past wages. However, in Belgium’s pension system, as in other sectors of Belgium’s social security system, there has been a marked shift from income insurance to minimum income provision. Maximum pension entitlements have become an increasingly smaller fraction of real past earnings for people with above average earnings. At the same time, more and more people have come to gain entitlements on the basis of activities that are deemed ‘equivalent’ to being an employee who actually pays for social security contributions or for whom such contributions are made by the employer. Though still nominally Bismarckian, large numbers of people actually receive social insurance beneﬁts that they have not directly gained right to through contribution payments. Spells of unemployment, for example, count as equivalent. Time spent in career interruption schemes do too. It has been calculated that about one-third of pension entitlements are gained on other grounds than paid work (Peeters and Larmuseau, 2005). In addition, there exists a means-tested minimum income guarantee for older people that acts as a ﬁnal safety net. Unemployment insurance and related beneﬁts Belgium’s unemployment insurance system provides a wider range of beneﬁts than is the case in most other countries, making Belgium an outlier in terms of spending on unemployment beneﬁts (Table 2.1), especially compared with its unemployment rate (Table 2.3). Apart from unemployment insurance proper, the unemployment insurance system also forms the basis of the principal early retirement scheme. Career interruption and work-time reduction beneﬁts also fall within the system. The system is typical in that it is ﬁnanced mainly through social contributions (with some additional ﬁnancing from earmarked VAT levies) and that it is co-governed by the social partners. In fact, the trade unions play an important role in the administration: most beneﬁciaries get their beneﬁt through their union. Belgium’s unemployment insurance system proper is less typical in the sense that unemployment insurance is more closely attuned to assumed need for minimum income protection than to past contributions. This is manifest in rather atypical features: (a) the absence of time limits on unemployment insurance entitlements, (b) the diﬀerentiation of the beneﬁt amount according to household composition and (c) the existence of minimum beneﬁt amounts. Three categories of claimants are distinguished: heads of households (those providing for dependent persons, namely children or non-working spouses), single persons and so-called ‘cohabitants’, namely unemployed persons who live together with a person who has an income above a certain threshold (possibly another unemployed person). The ﬁrst two categories of claimants are entitled to a full and non-time-limited beneﬁt because they are assumed to be most needy. For cohabitants, however, a certain link to previous wages is only maintained for the ﬁrst period of unemployment. After roughly the ﬁrst year and a half of unemployment (depending on their work history) cohabitants are only entitled to a relatively low ﬂat-rate amount, regardless of their previous earnings. Only cohabitants are liable to have their beneﬁt terminated after an ‘abnormally’ long spell of unemployment, and only if the total household income exceeds a certain threshold. School leavers are automatically entitled to unemployment beneﬁt when they fail to ﬁnd work for a certain period after leaving school. The unlimited duration of beneﬁts accounts in large part for Belgium’s comparatively high spending on unemployment insurance (Table 2.1). The reverse of this is that fewer of the unemployed than elsewhere deplete their insurance entitlement and end up in 53

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means-tested social assistance schemes (which again shows up in Table 2.1 in the relatively low spending on social exclusion). Child beneﬁts Child beneﬁts are quasi-universal in the sense that they have become in eﬀect independent from employment status or income level. There exist supplementary child beneﬁts for certain groups of replacement income recipients such as the long-term unemployed or orphans. The Belgian system is typically characterized by a high degree of rank progressivity, meaning that the amounts increase substantially with the rank of the child in the household. Child beneﬁt for a household with two or three children is, for instance, 2.84 or 5.34 times as high as child beneﬁt for a one-child family, and the child tax credit for a couple with two or three children is, for instance, 2.70 or 4.54 times as high as the child tax credit for a single child (see Cantillon and Goedemé 2006). The amount of child beneﬁt also increases with age. Social assistance Belgium’s ﬁnal safety net is ensured through three laws enacted around the late 1960s and early 1970s. The law on social assistance instituted a minimum income guarantee to all citizens. This law was reformed in 2002, instituting the right to societal integration, in addition to a legally guaranteed minimum income (the ‘living wage’). The law on guaranteed child beneﬁt ensures access to child beneﬁts for all of those not covered under the social security scheme. The law on the guaranteed minimum pension ensures a minimum pension for retired persons. In addition to these statutory rights, local welfare agencies have the authority to provide additional ﬁnancial support or services at their discretion. There is also a system providing additional income support to people with a handicap. Although the number of social assistance claimants has increased, the rise in structural (long-term) unemployment during the 1970s and 1980s did not cause a big inﬂux into social assistance in Belgium. Social assistance dependence at working age has remained below 1 per cent of the total population and long-term social assistance dependence below 0.5 per cent. These are considerably lower dependency levels than in most other European countries, where, moreover, the long-term unemployed tend to make up a considerable proportion of the population on social assistance. The principal explanation lies in the extent of coverage of Belgium’s unemployment insurance system. Services Education Education is a regional and more speciﬁcally a community matter, of which Belgium has three: the Dutch, the French and the German speaking. The communities are responsible for the organization and ﬁnancing of the education system. The actual provision of education is done by a variety of actors, including the communities themselves, but also by the provinces and municipalities. A large part of the education system is, however, in nongovernmental hands. These non-governmental educational establishments are for the larger part subsidized and hence regulated and monitored by the community governments. 54

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This broad organizational structure applies to virtually all educational levels and sectors. Pre-school education, though not compulsory, is provided to children from the age of two and a half until the age of six. It is widely used. Primary schooling is provided for six years and is relatively undiversiﬁed; only children with special needs are catered for separately. Secondary education is more diversiﬁed. Pupils can pursue general secondary education, but they can also opt for technical, vocational or arts secondary education. Successful completion of a secondary education trajectory opens the way to tertiary education, which can be pursued at university level or non-university level. Promoting equal access to education, higher education in particular, has always been a concern and it has become even more of a priority over recent times. It is for this reason that primary and secondary education is provided at no direct cost to the parents and that fees for higher education are kept very low. There is a system for providing ﬁnancial support to children from low income households. In Flanders, the Decree for Promoting Equal Opportunity in Education provides extra support to schools with a high density of pupils from weaker socio-economic backgrounds. Despite this, participation and success in education continue to show strong gradients by socio-economic parental background. Health care and non-medical assistance Belgium has a system of compulsory health insurance, covering virtually the entire population and providing comprehensive insurance. It is organized through private, nonproﬁt sickness funds. Membership of a sickness fund is compulsory, but the choice of the sickness fund itself is free. The sickness funds developed historically along religious and political lines. The largest ones, the Christian and Socialist Mutualities, together insure about 75 per cent of the population (Schokkaert and Van de Voorde, 2005). The insurance cover and contribution rates are identical across all funds. In health insurance, as in other branches of Belgium’s social security system, there has been a movement towards enhancing minimum protection while increasing personal medical costs. Health insurance covers a comprehensive but ‘no-frills’ package of medical services. The ‘maximum bill’ provision ensures that people will never spend an excessive proportion of their income on partially or non-covered health care expenditures, especially people with low incomes. Since 2001 a non-medical care insurance scheme exists for citizens residing in the Flemish and Brussels regions. Those residing in the French-speaking region are not entitled because the French-speaking community has yet to introduce a similar scheme. The scheme applies to people aﬄicted by a long-term and severely reduced ability to care for themselves, as a result of which they rely on non-medical assistance. This Flemish care insurance scheme not only contributes towards the cost of professional care, it also compensates for informal care provided by partners, relatives or other people. Housing Housing policy in Belgium is historically strongly geared towards owning one’s own property, particularly through (mortgage payment) subsidies, ﬁscal policy and, indirectly, through relatively liberal spatial planning regulation. At over 70 per cent, Belgium has one of the highest home ownership rates in Europe. In addition, there is a social housing sector. This is a regional responsibility and policy diﬀers substantially across the regions. 55

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Most social housing consists of apartments or houses oﬀered for rent at a moderate price. The legislation regarding rental housing is a regional matter. Child care Belgium has been categorized as a ‘conservative welfare system’ where the male breadwinner still reigns supreme. In eﬀect, it carries many of the hallmarks of what EspingAndersen (1996) has called the conservative welfare system model, in which the Christian democratic ‘subsidiarity principle’ has institutionalized familialism in the sense of supporting the male breadwinner/female career model. It is fair to say that in Belgium the labour market and welfare system remain geared towards the male breadwinner in the sense that derived social security rights are extensive and the tax system supports the sole breadwinner model. At the same time, however, child care provisions for working parents are extensive, making Belgium a case in point of what Knijn and Kremer (1997) have called ‘optional familialism’. That is to say, the caring family is supported but at the same time families are also given the option of being (at least partially) unburdened from care responsibilities. And while the sole breadwinner household is ﬁscally supported, the dual earner household has even more support. Belgium has extensive child care provisions both in the form of institutionalized day care centres and in the form of subsidized ‘substitute mothers’. Gross fees are strongly income related as well as partially tax deductible, rendering child care close to costless for those with the lowest incomes – the lowest daily gross rate is around 1.5 euro, the highest under 25 euro. In 2001, 30 per cent of children up to the age of two were in formal child care, a substantially higher share than in countries like Germany or the Netherlands. Belgium’s maternal employment rate is around 70 per cent, which is at the level of Denmark, Sweden and Norway. Important bottlenecks remain. The main problem is localized scarcity of available child care places. Waiting lists remain long and this seems to be a particular problem in larger cities. In addition, parents ﬁnd it diﬃcult to ﬁnd institutionalized child care outside regular hours – for evenings, weekends, holidays etc. This may pose a particular barrier to less skilled parents taking up jobs in the services sector where hours are often irregular. Welfare to work and active welfare state policies Over the past 15 years, there has been a massive expansion of active labour market programmes in Belgium, at the federal, regional and local level. Much eﬀort has been directed at the labour demand side in an eﬀort to boost employers’ demand for unemployed workers. This has mainly taken the form of targeted reductions in employers’ social security contributions: permanent but modestly sized reductions applying to lowpaid workers in general, and temporary but more substantial reductions for employers hiring people who have been long-term unemployed and other segments deemed at high risk of unemployment (Marx, 2001). According to OECD (2003) ﬁgures, Belgium spends 0.69 per cent of its gross domestic product (GDP) on such programmes compared with an OECD average of 0.18 per cent, making it a notable outlier. Belgium now ranks as a relatively high spender on active labour market policies in general, like most other continental welfare systems today. 56

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Eﬀorts on the demand side have been matched to some extent by measures on the supply side. In 2000, a social security contribution reduction for low-paid employees was introduced which increased net pay and which, consequently, made work at or around the minimum wage (marginally) more attractive. One of the more recent measures to increase net wages of low wage workers is the so-called ‘work bonus’. It was introduced in January 2005, and replaced the structural reductions of employee contributions and the low wage tax credit. The reduction can amount to 150 Euro per month for a low wage worker; the reduction is tapered away as the wage level increases. For the lowest wages this can lead to a halving of their employee social contributions (Marx and Verbist, 2008). In addition, there has been the so-called ‘activation of beneﬁts’. People on unemployment beneﬁts are now allowed and even stimulated to take up certain activities like gardening, house cleaning and other types of personal services – jobs deemed to have been priced out of the regular labour market. They can do so on a part-time basis and it entitles them to an income supplement on top of their full beneﬁt. This system is however in the process of being phased out. There have also been eﬀorts to activate long-term social assistance recipients.

Analysis The Belgian welfare system has undergone profound change, be it in a very gradual way. Most striking is the transformation of Belgium’s social security system from a system in the Bismarckian mould into one in which there is an overriding emphasis on minimum income protection and universal coverage. This is most evident if one looks at the main scheme providing income protection to those of working age: the unemployment insurance system. It is also particularly evident in pensions, but the subsequent analysis will focus particularly on unemployment insurance because of its relative importance in the Belgian context. The initial shift towards minimum income protection The economic recession and restructuring brought on by the oil price shocks hit the Belgian economy exceptionally hard (Cassiers et al., 1996). The reverberations are still evident today. Faced with a sudden and massive unbalance between labour demand and labour supply, Belgium, as with most other Bismarckian welfare systems, resorted to an expansion of early exit routes in order to drain oﬀ excess supply and to alleviate the social consequences of structural economic adjustment and massive job shedding in industry in the late 1970s and early 1980s (Esping-Andersen, 1996). The main exit scheme that was implemented around the late 1970s to shelter the casualties of industrial decline was an early retirement scheme consisting of a social security beneﬁt, which formally had the status of an unemployment beneﬁt, supplemented by an additional beneﬁt paid by an industry or sectoral fund. Individual ﬁrms sometimes oﬀered additional supplements. Although instituted during the late 1970s, the scheme saw its biggest expansion during the 1980s. The vast expansion of early retirement had a number of beneﬁcial eﬀects at the time (Marx, 2007). It provided adequate income protection to those who lost their jobs during a time when re-employment chances were extremely low, if not virtually non-existent. Job losses in Belgium’s industrial sector 57

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were massive in the wake of the oil price shocks and many of the workers who lost their jobs were sole breadwinners, with few formal qualiﬁcations or with very speciﬁc technical skills. Especially in the Walloon region industrial employment was hit hard. The co-funded nature of the principal early retirement scheme helped to contain the public sector cost of industrial restructuring. It would, in all likelihood, have been even more costly if the cost of providing adequate beneﬁt packages to the many casualties of the post-industrial transition had fallen entirely on the social security system. At the same time, the co-funded set-up facilitated industrial restructuring because it enabled employers to externalize a substantial part of the cost of laying-oﬀ redundant older workers. This allowed Belgium to embark on a high productivity path, following the logic of the productivity whip in Bismarckian welfare systems. Moreover, early retirement also reduced competition for jobs. Indeed, employers who resorted to early retirement were principally required to hire a young person to replace the person taking early retirement. In practice, however, the replacement rule has never been strictly adhered to. Still, unemployment rates for prime-age men – those still most likely to be the principal breadwinner – did remain comparatively low in Belgium even when overall unemployment reached peak levels. Unemployment insurance in Belgium, as in the other Bismarckian welfare systems, was instituted to protect against frictional unemployment in a full employment environment, at least as far as the male breadwinner was concerned. The ﬁrst oil shock marked a fundamental and dramatic change not only in the magnitude but also in the nature of the unemployment risk. To begin with, there was a sudden and massive increase in the number of unemployed workers. This, together with the more long-term nature of unemployment drove up expenditure and rapidly caused an imbalance between the expenditure and the income side of the system, jeopardizing the budgetary sustainability of the system. More importantly, there was the transformation of the nature of the unemployment risk: frictional unemployment increasingly became structural unemployment. The unemployed population of the post-oil shock period increasingly consisted of new labour market entrants who had never had the chance to accumulate entitlements – women and school leavers. In addition and at the same time, socio-demographic change aﬀected the redistributive eﬃciency of the system. The heterogeneity of the claimant population increased: no longer mainly breadwinners, but also more secondary (women) or tertiary earners (school leavers). With the rise of non-breadwinner unemployment, the automatic link that used to exist between risk occurrence and need (potential poverty) ceased to prevail, giving rise to an increased tension between the income maintenance function of the system and its anti-poverty objective. In response to these multiple dysfunctions, Belgium’s unemployment insurance system started to undergo a radical transformation. Belgium’s unemployment insurance system eﬀectively evolved from a social insurance system pretty much in the classic Bismarckian mould into a minimum income protection system, with the ﬁnancing and governance dimension of the system remaining distinctively ‘Bismarckian’. That is to say, beneﬁt levels became much more strongly a function of assumed need rather than past wages and contributions, but contributions remained proportionally tied to wages. This transformation happened gradually, but the accumulated eﬀect amounted to a fundamental transformation nonetheless (Andries, 1996; De Lathouwer, 1997; Kuipers, 2006; Marx, 2007). A major but by no means sole reform moment was in April 1981 when a distinction was introduced between three categories of claimants: heads of households (those 58

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providing for dependent persons, namely children or non-working spouses), single persons and so-called ‘cohabitants’, namely unemployed persons who lived together with a person who has an income above a certain threshold (possibly another unemployed person). The ﬁrst two categories of claimants remained entitled to full beneﬁts because they were assumed to be most needy. For cohabitants, however, a certain link to previous wages was only maintained for the ﬁrst period of unemployment. After roughly the ﬁrst year and a half of unemployment (depending on their work history) cohabitants became only entitled to a relatively low ﬂat-rate amount, regardless of their previous earnings. Beneﬁts for cohabitants were made increasingly more digressive throughout the 1980s and 1990s. Furthermore, the minimum income protection component of the system was selectively strengthened through selective minimum beneﬁt increases and through the widening of eligibility to minimum beneﬁts. School leavers, for example, became automatically entitled to unemployment beneﬁt when they failed to ﬁnd work for a certain period after leaving school. As a result, the income insurance function was weakened, while high earners were made to contribute more to the system, particularly through the lifting of contribution ceilings that had previously existed. ‘Welfare without work’ reaching its limits The initial policy response in the wake of the 1970s recession was relatively successful in what it sought to achieve: providing adequate minimum income protection to those who were then still regarded as the ‘victims’ of the economic crisis. Belgium was in fact remarkably successful in containing the poverty consequences of mass structural unemployment. Cross-country comparative poverty studies for the era consistently showed Belgium having one of the lowest poverty rates in the OECD area, particularly for the working age population (Marx and Verbist, 1998). The reforms to the system not only helped to alleviate poverty among the unemployed, they also helped to contain the cost consequences of the massive rise in the number of claimants. Despite a continuing rise in dependency levels, the cost of the unemployment insurance system in GDP terms dropped quite steeply during the 1980s. At the same time, the shift towards more adequate minimum income protection started to run into systemic limits during the 1980s, when the turnaround in macro-economic policy remained elusive. The strong shift towards more adequate minimum income protection grinded to a halt after the mid-1980s. Real beneﬁt levels (i.e. adjusted for inﬂation) became largely stagnant, though some segments, such as lone parents, still experienced some improvements (Cantillon et al., 2003; 2004). In addition, the late 1980s were an era of strong real wage growth, and as a consequence beneﬁts dropped rapidly relative to wages and overall living standards. So what caused this stagnation? Essentially, the transformation of the unemployment insurance system started to run into intrinsic, systemic limits. One problem was that after a period of selective increases of minimum beneﬁts, the gap between beneﬁts and minimum wages had become very small. At a certain point, some categories hardly gained anything from making the move from beneﬁt dependency to work. Lone parents even suﬀered a substantial net income loss if they made the move from a full beneﬁt package to a low-paid job, especially if they fully or even partially incurred the extra cost of child care (De Lathouwer, 2001). Even at the time, when ‘dependency traps’ were not yet a major policy preoccupation, it was accepted that a certain gap between beneﬁts and minimum wages needed to be maintained in order to maintain suﬃcient work incentives. The perception was also that there was a moral and 59

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political imperative to do so – that the legitimacy of the welfare system hinged on there being a clear hierarchy between income from work and income from social transfers. A period of selective improvements in minimum income protection had come to challenge this hierarchy. An obvious but hardly realistic way out of this cul-de-sac would have been to raise the minimum wage. But in Belgium minimum wages were already among the highest in the OECD area in absolute purchasing value terms as well as in relative terms, i.e. relative to the median wage. At a time when more jobs were destroyed than created, it was considered unrealistic to increase minimum wages even further, especially since employment growth in the services sector remained low. Add to that the fact that at the time living standards were being pushed up mainly by the proliferation of multi-earnership and not by real wage growth. Improving the poverty alleviation eﬀectiveness of the unemployment insurance system would therefore have required a stronger increase in the minimum wage than overall real wage growth. Had this happened, a further compression of an already comparatively compressed wage structure would have resulted. Reluctant ‘activation’ The 1990s, then, mark a clear shift in emphasis. The talk all across Europe became of The Third Way, the Activating Welfare State, and Belgium followed suit, at least rhetorically (Vandenbroucke, 2001). Adding poignancy at the time was the dire state of Belgium’s public ﬁnances. This became a crucial factor during the 1990s. Belgium’s public ﬁnances, which never were particularly healthy, deteriorated rapidly during the late 1970s and early 1980s, resulting in a ballooning public debt rate. By the late 1980s Belgium had the highest public debt rate in the industrialized world. In an attempt ﬁrst to maintain a hard currency (deemed essential for Belgium as an exporting country and also to maintain a good credit rating) and then to qualify for Economic and Monetary Union (EMU) membership, expenditure control became a major preoccupation. The active welfare state ﬁtted this purpose naturally. Also marking this turnaround was the introduction in 1996 of the so-called Competitiveness Law. This marked a turning point in that this was the ﬁrst successful government initiative to structurally limit the bargaining freedom of the social partners in an ex ante way. In the past interventions had only occurred after wage growth had derailed. Speciﬁcally, the law requires wage rises to remain within the limits of wage growth in Belgium’s main competitors: the Netherlands, France and Germany. As indicated in the section Status quo, there has been a massive expansion of active labour market programmes, making Belgium a relatively high spender on active labour market policies. Eﬀorts on the demand side have been matched, be it considerably more hesitantly, by social security reform. This occurred at ﬁrst through non-intervention rather than through policy reform speciﬁcally aimed at boosting work preparedness. Living on beneﬁts had become less attractive from the late 1980s onwards because governments ‘allowed’ beneﬁts to erode in value relative to wages and general living standards. Beneﬁt levels have eroded quite substantially relative to wages because of these incomplete adjustments for wage or even price increases. It has proved rather more diﬃcult to introduce more stringency on the beneﬁt side in a more purposeful way. Unemployment insurance beneﬁts in Belgium remain unlimited in time as a matter of principle. Only cohabitants are liable to have their beneﬁt terminated after an ‘abnormally’ long spell of unemployment, and only if the total household 60

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income exceeds a certain (relatively high) threshold. Until 1993, the general rule was that beneﬁt termination proceedings could be initiated if a cohabitant’s spell of unemployment came to exceed twice the average spell of unemployment in the region of residence, also taking into account the sex and age of the person. After 1993, this period was shortened to 1.5 times the average spell. But even then beneﬁt termination was not automatic and this remains so today. The local administration retains discretion in granting exemptions, if it is judged that the claimant has made ‘extraordinary eﬀorts’ to ﬁnd work. (A panel consisting of union and employer representatives has an advisory role in this process.) During the 1990s, there was a wave of beneﬁt terminations and suspensions on a variety of grounds, but the average beneﬁt duration in Belgium nevertheless remains much higher than in other countries (OECD, 2006). Over recent years, however, there has been an increase in the number of beneﬁt suspensions in relation to reporting irregularities or failure to show up for job counselling or training. The continued failure to scale back beneﬁt dependency There has been a vast expansion of active labour market measures of all sorts, but these have not yet been accompanied by the kind of social security reform, particularly unemployment insurance reform, that would be needed to create a real pay-oﬀ. Government eﬀort to boost willingness to work has relied on ‘carrot’- rather than ‘stick’-type measures. This is nowhere more evident than if one looks at early retirement. Early retirement was used everywhere across the European continent in response to industrial restructuring. But Belgium went further than any other continental European country in the extent to which it resorted to early retirement and the extent to which it persists today. Labour force participation among men over the age of 55 dropped rapidly during the late 1970s and 1980s. At 39 per cent, it is still at one of the lowest levels in Europe, the EU15 average being 53 per cent. As already explained, the principal early retirement scheme in Belgium was formally instituted as an extension of the unemployment insurance system. But as the name implies, the so-called ‘bridge pension’ was conceived from the start as a retirement scheme and not as an unemployment scheme. It was also perceived as such. By the time economic conditions improved and the deteriorating state of public ﬁnances increasingly necessitated volume containment, a powerful coalition had formed around the main early retirement scheme. Early retirement remained after all a cheap and low-resistance way for companies to make less productive workers redundant. By now the practice of using early retirement had spread beyond the industrial sector. And many workers had come to expect what many of their former co-workers had received: the chance to leave the labour market early with an attractive ﬁnancial package. They had built up quite strong expectations regarding the possibility of early retirement (Schokkaert et al., 2000). Successive attempts by the government and at times also by employers’ organizations to scale back early retirement and to increase the eﬀective age of retirement has encountered enormous resistance from the trade unions. The attitude of employers, visà-vis the main scheme has oscillated over the past 15 years. When confronted with labour shortages during economic upswings, they demanded the scaling back of the system. But generally speaking, and despite an increasingly cooler stance towards early retirement taken by the representative organizations, individual employers have remained happy users of the bridge pension as a vehicle for facilitating restructurings. 61

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In 2005, the government tried to build a consensus around the so-called generation pact. The main objective of this pact was to increase the eﬀective age of retirement. The social partners achieved an agreement of sorts, but the pact encountered strong resistance from the sectoral unions, especially within the socialist wing. The events surrounding the generation pact illustrate to what extent trade unions in Belgium have come to act as competitors now that allegiance to a particular union on ideological grounds has become weaker. The generation pact triggered a lot of posturing by the powerful sectoral organizations, outdoing each other as the true defenders of acquired rights (i.e. the right to early retirement), eﬀectively to the embarrassment of senior trade union ﬁgures who (initially) defended the generation pact and particularly the goals it tried to achieve. The generation pact was ﬁnally adopted but with modiﬁcations. The general age at which early retirement remains possible has been increased, but exceptions are still possible for workers in physically and otherwise demanding industries. Past experience shows that such ‘exceptions’ tend to lose their exceptional character with each new precedent. This said, it is worth pointing out that there may be speciﬁc contextual factors which contribute to making Belgium such an extreme case in terms of the continued prevalence of early retirement. First, the proportion of low-skilled people among the older active population – at least in terms of formal qualiﬁcations – is larger in Belgium than it is in neighbouring countries. Second, Belgium still has a relatively high degree of ‘traditional’ recession-prone industrial activity. And third, overall unemployment has remained fairly high. Hence, there may still be more of an economic imperative to relieve the supply pressure on the labour market. On the other hand, early retirement has also (or even mainly) persisted in Flanders, where there is less outdated industry and where overall unemployment is relatively low.

Outlook Despite a very clear shift in public discourse, Belgium is ﬁnding it very diﬃcult to move away from ‘welfare with work’. Spending on active labour market programmes (training, job subsidies, social security contributions, public employment programmes), as well as on child care, has increased quite substantially, even putting Belgium in the league of the top spenders on such items. But Belgian governments have largely failed to implement the kind of social security reform needed to create a real pay-oﬀ. Attempts to scale back early retirement remain largely without result, as the ﬁgures clearly show. Likewise, attempts to tighten entitlements to unemployment beneﬁts have yet to result in a really substantial drop in the number of claimants. In the 1980s and some time during the 1990s, the Belgian welfare system was giving a consistent and eﬀective answer: priority was given to providing minimum income protection. Belgium maintained at that time a very low poverty rate for the working age population with just above-average social spending. Today the Belgian welfare system is in a sort of no-man’s-land. It has an expensive welfare system, which nevertheless is becoming less and less eﬀective in achieving its primary objective of providing people with adequate minimum income (see Tables 2.2 and 2.4). Because of both inherent and external constraints, it seems impossible to go further down the road of ‘welfare without work’, that is to say to improve upon the one redeeming feature of the system: its eﬀectiveness in alleviating poverty and ensuring a decent standard of living to everyone, including those without a job. 62

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At the same time, the withering of the equivalence principle is straining the allegiance to the system. Opinion polls still show fairly strong and broad-based support for the system but the abandonment of the insurance function is feeding creeping privatization. Public pensions, as provided through social security, have become so low that average to high earners have come to rely on occupational and private schemes to obtain a pension commensurate with their past earnings. Here, a duality seems to be emerging between people with access to such schemes and the others (Debels et al., 2006; Larmuseau et al, 2007). The 2003 law on supplementary pensions aimed to contain this divide and to generalize access to such provisions but it remains to be seen to what eﬀect it is having. Unfortunately, Belgium’s institutional context is not conducive to rapid change in the directions needed. A legacy of decades of inter-regional and linguistic conﬂict is a convoluted and still not fully mature federal system in which authority remains allocated in a way which almost inevitably precludes a high degree of policy consistency. For example, while wages, beneﬁts and ﬁscal policy remain a federal matter, responsibility for activation, education and training now lies with the regions. Policy at both levels is not only not well coordinated, it is in some respects incongruent or even conﬂicting. Moreover, even at the various levels of government, authority tends to be scattered across diﬀerent ministries and departments in order to satisfy political balances. The ﬁeld of industrial relations remains as fractured as ever; there are multiple trade unions and employer’s organizations. On top of ideological and sectoral tensions, a linguistic divide is growing here too. All this makes for a context in which coherent policy formulation and execution is extremely diﬃcult. The current prospects are not altogether promising.

Bibliography Andries, M. (1996), ‘The Politics of Targeting: the Belgian Case’, Journal of European Social Policy, 6 (3) 209–33. Cantillon, B., L. De Lathouwer, I. Marx, R. Van Dam and K. Van den Bosch (1999), ‘Sociale indicatoren 1976–97’, Belgisch Tijdschrift voor Sociale Zekerheid, 41 (4) 747–800. Cantillon, B., V. De Maesschalck and R. Van Dam (2001), Welvaartsvastheid en adequaatheid van de sociale minima 1970–2001, Berichten/UFSIA, Antwerpen: Centrum voor Sociaal Beleid. Cantillon, B., I. Marx and V. De Maesschalk (2003), De bodem van de welvaartstaat, Berichten/UA, Antwerpen: Centrum voor Sociaal Beleid. Cantillon, B., I. Marx and K. Van den Bosch (2003), The Puzzle of Egalitarianism: About the Relationships between Employment, Wage Inequality, Social Expenditure and Poverty. European Journal of Social Security, 5 (2), 108–27. Cantillon, B. and T. Goedemé (2006) ‘De kinderbijslag in het werknemersstelsel: een terugblik in de toekomst. Reﬂecties bij 75 kinderbijslag’, Belgisch Tijdschrift voor Sociale Zekerheid, 48, 1, 7–34 Cassiers, I., P. De Villé and P. Solar (1996), ‘Economic Growth in Post-War Belgium’, in: N. Crafts and G. Tonioli (eds.), Economic Growth in Europe since 1945. Cambridge: Cambridge University Press. Debels, A., H. Peeters, G. Verschraegen and J. Berghman (2006), De pensioenbescherming van ﬂexibele werknemers in België, Tijdschrift voor Arbeidsvraagstukken, 22(2), 171–85. De Lathouwer, L. (1997), ‘Twintig jaar beleidsontwikkelingen in de Belgische Werkloosheidsverzekering’, Belgisch tijdschrift voor sociale zekerheid, 39 (3–4) 817–79. —— (2001), ’Les pièges à l’emploi en Belgique: diagnostic et options politique’, Cahiers Economiques de Bruxelles, 171, 41–70. Deleeck, H. (2001), De architectuur van de welvaartsstaat opnieuw bekeken. Leuven: Acco.

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Esping-Andersen, G. (1996), ‘Welfare States without Work: the Impasse of Labour Shedding and Familialism in Continental European Social Policy’, in G. Esping-Andersen (ed.), Welfare States in Transition; National Adaptations in Global Economies. London: Sage. Esping-Andersen, G., D. Gallie, A. Hemerijck and J. Myles (2002), Why We Need a New Welfare State. Oxford: Oxford University Press. Förster, M. (2000), Trends and Driving Factors in Income Distribution in the OECD area. Paris: OECD. Gough, I., J. Bradshaw, J. Ditch, T.Eardley and P. Whiteford (1997), ‘Social Assistance in OECD Countries’, Journal of European Social Policy 7 (1) 17–44. Hemerijck, A., B. Unger and J. Visser (2000), How Small Countries Negotiate Change: Twenty-Five Years of Policy Adjustment in Austria, the Netherlands, and Belgium, in F.W. Scharpf and V. Schmidt (eds.), Welfare and Work in the Open Economy–Diverse Responses to Common Challenges, Oxford: Oxford University Press. Knijn, T. and M. Kremer (1997), Gender and the Caring Dimension of Welfare States: Towards Inclusive Citizenship, in Social Politics 4(3): 328–61 Kuipers, S. (2006), The Crisis Imperative. Crisis Rhetoric and Welfare State Reform in Belgium and the Netherlands in the early 1990s, Amsterdam: Amsterdam University Press Larmuseau, H., S. Lefebure and B. Cantillon (2007), Armoede en welvaart bij Belgische ouderen: vooruitzichten bij het pensioenbeleid, Belgisch Tijdschrift voor Sociale Zekerheid 49(4): 793–812. Leitner, S. (2005), ‘Conservative Familialism Reconsidered: the Case of Belgium’, Acta Politica, 40: 419–39. Marx, I. (2001), ‘Job subsidies and cuts in employers’ social security contributions: The verdict of empirical evaluation studies’, in International Labour Review, 140 (1): 69–85. —— (2007), A New Social Question? On Minimum Income Protection in the Postindustrial Era, Amsterdam: Amsterdam University Press Marx, I. and G. Verbist (1998), ‘Low-Paid Work and Poverty: A Cross-Country Perspective’, in: S. Bazen, M. Gregory and W. Salverda (eds.), Low-Wage Employment in Europe, 63–86. London: Edward Elgar. —— (2008), ‘When famialism fails: the nature and causes of in-work poverty in Belgium’, in H.J. Andrez and H. Lohmann, The Working Poor in Europe; Employment, Poverty and Globalization, London: Edward Elgar. OECD (various issues), Employment Outlook. Paris: OECD Peeters, H. and H. Larmuseau (2005), ‘De solidariteit van de gelijkgestelde periodes – een exploratie naar de aard, het belang en de zin van de gelijkgestelde periodes in de totale pensioenopbouw bij werknemers’, Belgisch Tijdschrift voor Sociale Zekerheid, 2005–1. Pierson, P. (1996), ‘The New Politics of the Welfare State’, World Politics, 48, 143–79. —— (1999), Coping With Permanent Austerity: Welfare State Restructuring in Aﬄuent Democracies, July 30th. Schokkaert, E. and F. Spinnewyn (1995), ‘Fundamenten van Sociale Zekerheid: Solidariteit en Verzekering, Overheid en Markten’, in: M. Despontin and M. Jegers (eds.), De Sociale Zekerheid Verzekerd? Brussel: VUBPRESS. Schokkaert, E., M. Verhue and G. Pepermans (2000), ‘Vlamingen over het pensioensysteem’, in: P. Pestieau, L. Gevers, V. Ginsburgh, E. Schokkaert and B. Cantillon (eds.), De toekomst van onze pensioenen, 55–75. Leuven: Garant. Schokkaert E., C. Van de Voorde (2005), Health care reform in Belgium, Health Economics, vol. 14, S25–S39. Vandenbroucke, F. (2001), The Active Welfare State: a social-democratic ambition for Europe’, Policy Network Journal, 1. Van Ruysseveldt, J. and J. Visser ‘Weak Corporatisms Going Diﬀerent Ways? Industrial Relations in the Netherlands and Belgium’, in Joris Van Ruysseveldt and Jelle Visser (eds.), Industrial Relations in Europe: Traditions and Transitions. London: Sage, 205–64. Verhue, M., E. Schokkaert and E. Omey (1997), De kloof tussen laag-en hooggeschoolden en de politieke houdbaarheid van de Belgische werkloosheidsverzekering: een empirische analyse., Universiteit Gent (Fac. Economische en Toegepaste Economische Wetenschappen) Working Paper 36. Vilrokx, J. and J. Van Leemput (1997), ‘Belgium: The Great Transformation’, in A. Ferner, and R. Hyman (eds.), Changing Industrial Relations in Europe., Oxford: Basil Blackwell, 315–47.

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bg Impact of the reforms of the welfare state in Bulgaria after 1989 on stratiﬁcation, solidarity and integration of groups at risk Rumiana Stoilova

The period since 1989 has been marked by intensive reforms. Each public policy – on poverty and exclusion, unemployment, old age, family and children, health care – has its priorities, diﬃculties, achievements and dynamics. The common direction of the reforms was the transition from universal access and equality towards liberalization and targeting of public policy. The whole society has been transformed from homogenization and atomization towards fragmentation and individualization. Solidarity in the new conditions is a value, which has to be redeﬁned in order to be recognized in contrast to the principle of collectivism, which prevailed over the individual will and needs in the previous period. Giddens (1996) suggests the term ‘active trust’, which refers to the solidarity between individuals, indicating that no collective entity dominates the individual. Solidarity is understood as a consciously made individual choice in favour of others. This term contributes to a concept which corresponds to more dynamic social structures. Achieving both economic growth and social stability, balancing between individualization and solidarity are aims towards which the success of the welfare state reforms during the post-totalitarian transition will be measured in this chapter.

Starting point, direction and phases During the transition, market-based inequalities are increasing and broadening their inﬂuence. Market-based inequalities, which could be described as functional and contributing to growth, are only part and not the dominant type of inequalities (Sterbling 2001). The reasons for the growing inequalities could be connected with the unregulated societal relations and redistribution of resources, which do not automatically lead to a more dynamic development of society. On the contrary, if the newly emerging economic elite is not interested in community prosperity and demonstratively avoids paying taxes, preferring prestigious consumption to investments, community integration and trust break down (Stoilova 2001). Solidarity becomes a problematic value. The division between winners and losers of the transformation becomes obvious and signiﬁcant for the explanation of the political constellation, which in turn accounts for the slow process 65

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of reforming the previous totalitarian system. The slowly established institutions of the market economy and the insuﬃcient resources for social protection have led to a massive loss of social status, not only for groups at risk. The analysts speak about a ‘regressive social dynamic’ of quality of life for wide social strata (Jeliazkova 2007). The transformation of the social welfare system in Bulgaria at the beginning of the transition period and for a relatively long period of almost a decade was frozen. Thus low opportunities for labour participation for the active population put a burden on the social welfare system with the rising number of unemployed. The number of tax payers was insuﬃcient due to the unfavourable age structure of the labour force, massive emigration and the considerable share of the informal economy, which led to lower contributions from taxes and insurance payments. The work in the unregulated labour market was decreased through the introduction of a minimal security income (2000). Besides unemployment and the low level of contracting (work in the unregulated economy) the labour markets faced further dysfunctional developments – self-employment, characterized by over-representation of undereducated as well as people with an ethnic background (Stoilova and Haralampiev 2008). Self-employment bears risks not only for individuals but also for the social security system because of the low share paid by the self-employed to the ‘Public Security’ fund.1 A tendency towards a decrease in the proportion of self-employed persons could be observed after 2003. Two periods can be distinguished after 1989. The ﬁrst one is characterized by economic and political instability when the reforms in the social sphere began, and the second one, after 2001, a period of stabilization, the start of the positive trends in economic growth, a decrease in unemployment, an increase in direct foreign investments. Critics point out that the system of employment does not ensure socially acceptable minimal standards of security and income in the ﬁrst decade of the transformation (Minev 2000: 246–48). After 2001 more active measures on the labour market and programmes for transition from social payments to subsidized employment have been introduced. In 1997 there was a great economic and political crisis in Bulgaria but it also gave rise to a period of stabilization. In that year a currency board was introduced in order to stabilize the Bulgarian national currency, the negotiations for Bulgaria’s accession to the European Union started, as well as a rapid process of privatization. The reform of the health care services in Bulgaria also commenced in this period. The elaboration of the legal framework of the reforms required the adoption of 11 basic laws in a period of eight years.2 The most important laws, which started the reform, were the Law on Health Insurance (1998) and the Law on Healthcare Entities (1999). The major shift was the replacement of state-provided services with a system of private providers of out-patient services and public providers of in-patient services. Pension reform reduced the schemes for early retirement and provided for the elaboration of strategies for active ageing and decreasing the age for retirement. In the ﬁrst period (until 2001) early retirement was tolerated because of the high levels of unemployment. In the second period the employment rate for the age cohort 55–64 years old increased from 20.8 per cent in 2000 to 39.6 per cent in 2006 (Petkova 2007: 143). The transposing of European directives pushed the reforms in the direction of active ageing.3 A steady increase in the pension age could be observed.4 The increase in the employment coeﬃcient was highest for the age group 55–64 (12.6 per cent points) compared with the other age groups. On the one hand, the increase in retirement age brings the national standard closer to the practices adopted for Europe and allows people to be economically active up to a higher age without meeting legislative restrictions. Many 66

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people of retirement age approve the latter, because the income level of pensioners is still very low. On the other hand, this steady increase in retirement age could be assessed negatively because it shortens the period for receiving pension. The processes of economic restructuring, achieving political stability and starting the social sphere reforms were the central challenges during the 1990s. The idea of the welfare state was underestimated in the political debate at the beginning of the reforms. Opinions in favour of more or less fast economic transition and liberalization prevailed. A ‘social state’ was often associated with the idea of restoration of the socialist past. These attitudes have had a negative impact on the solidarity up to the present day and limit the importance of the welfare policies for the leading parties in the country. Yet in the same period, expectations that the state should provide support not only to vulnerable groups but practically for the whole population remained high. This contradicted the main direction and the philosophy of the reforms, which made them unpopular. The feeling of lost social rights during the transition phase occurred often in connection with the reforms in the social sphere and especially in terms of health care system reform. This system lost much of its former advantages of state health care which lie mainly in universal coverage and access, without yet gaining much of the advantages of a market-based provision of services, which is supposed to bring technology innovation, higher quality and customer satisfaction (Pashev 2006). Economic growth and high expectations for positive development marked the country’s EU accession in 2007. This was followed by disappointment and political apathy provoked by the not easy position of the poorest newcomer in the club of rich countries. EU accession has contributed positively to the development of the welfare state. The Joint Memorandum for Social Inclusion of the Republic of Bulgaria (2005) was elaborated with the eﬀorts of the Bulgarian Government, the Ministry of Labour and Social Policy and the European Commission, Directorate General Employment and Social Aﬀairs in order to prepare the country for participation in the open method for coordination after the country’s accession to the EU. In the previous period the reforms were initiated and led mostly by the international ﬁnancial institutions such as the World Bank and the International Monetary Fund. For individuals the challenge was to survive these reforms. The most popular joke was the Chinese proverb – ‘It is bad luck to leave in interesting times’. After EU accession, liberalization as a leitmotif has been replaced by the hope that the European model of the welfare state could be implemented (Aiginger, 2004). This was related to expectations of low unemployment rates, a lower gap between rich and poor, low poverty rates, a comprehensive social safety net and health care coverage.

Beneﬁts and services A common characteristic of the two new member states Bulgaria and Romania is the low amount of expenditure on social protection in three dimensions – as a total amount, as a sum per head of population and as a share of the total expenditure on social protection of the gross domestic product (GDP) (Table 3.1). 67

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Table 3.1 Social protection expenditure

bg

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – – – – – – – 3512.6p

– – – – – – – – – – 453.8p

– – – – – – – – – – 16.1p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Social security beneﬁts as a share of GDP increased in the period 1996–2003 by 7 per cent (Ministry of Finance 2007). However, the small social security beneﬁts are still a problem. They are insuﬃcient to meet even basic needs. The small proportion of public expenditure is an indicator of the tendency towards liberalization of the welfare state and of the transfer of the risks from economic transformation to the individual and the family. Family support in the country is traditionally signiﬁcant and in the period of transformation its importance persists. Mutual assistance between family members of different generations even when they do not live in the same household remains high and takes diﬀerent forms – between the labour emigration and remittances to the family staying in the country, to the unpaid care work in favour of small children or older family members. The structure of expenditure for social protection is similar to the other member states. The more diﬃcult task is to evaluate the relative share of public expenditure towards the actual social risks in Bulgaria, which needs ﬁnancial support from the state through the system of redistribution of income (Table 3.2). The share of public expenditure for social exclusion prevention, for sickness and disability as well as for old people and survivors in Bulgaria is higher than in EU25. However, it is not suﬃcient to compensate for the marginalization of large social groups like ethnic Roma, disabled people and pensioners. Higher expenditure on older people could be explained through the demographic process of ageing, and the higher contribution paid at the beginning of pension reform by the state to the newly established pension funds. The expenditure on unemployment is lower. There is no expenditure on housing. Public attitudes perceiving the transformation as a process through which people lost social rights could be better understood in the context of their previous experience of full employment and the existence of subsidized housing. 68

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Table 3.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

bg

eu27

eu15

100.0p 96.5p 6.6p 1.8p 0.0p 2.6p 36.2p 49.4p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

Services to cover risks Poverty and social exclusion The main factors leading to poverty are as follows: low level of income, discrepancies in regional infrastructure and economic development, barriers to access resources (land, capital, credit), unemployment, low level of education, poor living and housing conditions, high level of sickness, bad demographic and family status, aﬃliation to a marginalized ethnic group, diﬃcult access to services (health and education), as well as information. The poverty level for Bulgaria (14 per cent) is relatively close to the mean for EU27 – 16 per cent. Comparison with other countries in transition like Poland (21 per cent) and Lithuania (19 per cent) marked with the highest poverty level, is in favour of Bulgaria (Table 3.3). These results however cannot be accepted without further discussion. Diﬀerences occur when analysing the consumption expenditures of private households. Trade union leaders claim that the poverty threshold in Bulgaria is twice as low in comparison with the other new member states and about ﬁve times lower in comparison with the old member states (Hristov 2007).5 One of the latest achievements in the social sphere is the adoption of the oﬃcial poverty line. It was negotiated and accepted by the social partners (government, trade unions and business associations) but has had no concrete impact on social policy so far. The proportion of women living in poverty increases with age.6 The pension age for men and women has not been equalized. Women prevail in the total population of pensioners. They receive smaller pensions but for a longer period of time. The level of income replacement in 2000 for women (31.6 per cent) was lower than for men (51.4 per cent). In 2006, a slight increase for women to 34.0 per cent was observed, the level for men remained the same (51.8 per cent). The pension formula is apparently gender neutral. However, its elements inﬂuencing the pension level – length of service and received income – stimulate the prolonged security payment calculated on a higher income and this eﬀect is more favourable for men, who receive as a rule higher earnings and have shorter breaks in the length of employment (Mitreva et al. 2006). The lower pensions for women are also a consequence of horizontal gender diﬀerentiation in the 69

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Table 3.3 At-risk-of-poverty rates by gender

bg

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – 14 16 14 14 15 14 14

– – – – – 13 14 12 12 13 13 12

– – – – – 15 17 15 16 17 15 16

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; s Eurostat estimate

labour force, as well as from the traditional ascription of care work to women in the family. Women often accept low-paid jobs but with better chances for more free time to care for the family. Women perform the greater part of caring at home and the process of de-familialization (Esping-Andersen 1999) has future potential for improvement. Family and children The diﬀerences in the educational achievements of children depend on their family background. Children of unemployed parents and from poor families drop out from school more frequently (Nonchev et al. 2006). The children of uneducated parents are more likely to lack education. In Bulgaria the proportion of persons aged 0–17 who live in households where no-one works is high – 12.9 per cent, compared with the mean value (9.3 per cent) for the EU27. The situation in other countries with a high Roma population living in poverty is similar: Slovakia 10.5 per cent and Hungary 14 per cent. The priority for Bulgaria is supporting families with two unemployed parents, as well as the prevention of children leaving school without qualiﬁcations. Family policy is directed more towards prevention of risks than towards creating opportunities. Compared with the six ex-communist countries, Bulgaria occupies second position only in relation to social support for families with two unemployed partners. For other social indicators – share of unemployed people receiving unemployment beneﬁts, proportion between pension and income, share of GDP for health and for education – the position of the country is very low (Szelenyi 2002). The proportion of school drop-outs is higher in Bulgaria than the EU average (Table 3.4). Several reasons make dropping out of school in Bulgaria a problem – the relatively low birth rates, the increase in the number of children at risk of growing up in poverty, without an education, may risk their health and future integration into society. As a response to these risks, a National Strategy for Demographic Development has been adopted.7 UNICEF together with the Bulgarian Government has created an annual programme for 70

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Table 3.4 Share of early drop out from school

bg

eu15

eu25

bg

eu15

eu25

2005

16.9 18.8 20.3 16.5 18.5 21.0 15.9 18.1 22.4 15.9 18.0 21.4 14.9 16.9 20.0 14.7 16.5 19.5 14.2 16.1 19.6 14.0 15.9 21.6 13.6 15.6 20.7 12.7 14.5 20.6 19.0 21.1 21.1 18.7 20.9 22.5 17.9 20.2 23.3 18.1 20.4 22.1 17.1 19.4 19.5

bg

eu15

eu25

2004

total female male

bg

eu15

eu25

2003

Early drop out

bg

eu15

2002

eu25

2001

Source: Eurostat Note: Early drop out equals percentage of the population between 18 and 24 with basic as the highest educational level who are not attending educational or professional courses

‘Qualitative services placed at the disposal of families with children’, in order to improve care facilities for children from diﬀerent age groups and for combating poverty among children. The Ministry of Social Policy has expanded social investment as a new form of social support for families with children of school age (2006).8 The aim is to get behind meeting basic needs and towards development of individual opportunities, a transition from support to investments. Services to open opportunities Child care In the period before 1989 child allowances had the character of universal beneﬁts and were allocated irrespective of the parents’ income. The reform intented to make it more difﬁcult to receive beneﬁts. Over two-thirds (72 per cent) of the children in Bulgaria are supported through child allowances at the present moment. Child allowances in Bulgaria are still very low,9 and do not meet the actual needs of the families with children. They also do not take into account the tendency that a greater proportion of young people continue their education at the tertiary level. Child beneﬁts are available up to 18 years, irrespective of the educational status of the child. The share of child care allowances in the families’ budget represents 3.0 per cent for 20 per cent of the lowest income group and less than 1 per cent for the next two groups – 0.9 per cent for 20 per cent of the groups with average income and 0.2 per cent for 20 per cent of groups with high income (National Statistical Institute 2005). The low proportion of family allowances for families with a high income is a positive sign that the reform objectives – support of vulnerable families – are met to a greater extent. However, the low proportion of child allowances in the budgets of families from the middle income strata shows the withdrawal of state support from the middle class, which gives stability to society and legitimacy to the welfare state. There is a signiﬁcant discrepancy between child care policy and public expectations. Public attitudes of the Bulgarian population expressed in the Eurobarometer (Eurobarometer 2002) survey ranked the three most important state measures for supporting families with children: parental leave (61%), higher amount of child allowance (56%) and measures towards reducing unemployment (49%). The expectations in Bulgaria are similar to the other new member states and diﬀer from those in the old member states. The explanations 71

R. STOILOVA

for the similar attitudes could be found in the common economic conditions, which are lower in the new member states; in the growing inequalities; in the attitudes adopted from the previous redistributive social state and in the higher expectations for family support by the state. The higher amount of child care allowances is generally a more popular measure in countries with lower birth rates, to which Bulgaria also belongs (Eurobarometer 2002: 77). These higher expectations however remain unsatisﬁed. The extended child care infrastructure in Bulgaria, which supported the economic activity of full-time employed women during state socialism, also retained its importance in the period of transition and reforms. A total of 75.4 per cent of parents rely on child care facilities (Vikat et al. 2007). Self-organized groups for support or paid care work at home are rare in Bulgaria and restricted to the well-paid social groups (Stoilova 2007). Unemployment High levels of unemployment were registered in the ﬁrst 10 years after the beginning of transformation. The number of unemployed people of working age on beneﬁts increased by 51 per cent from 1999 to 2002. This period was marked by fast privatization and the closing of ineﬀective state-owned companies. After 2002 registered unemployment has been steadily decreasing – from 16.4 per cent in 2000 to 6.9 per cent in 2007 (6.9 per cent for EU27) (Table 3.5). The proportion of long-term unemployed however remains relatively high – 5.0 per cent (3.7 per cent for EU25). The lower proportion of unemployment beneﬁts in the structure of social expenditures (1.8 per cent for Bulgaria compared with 5.8 per cent for EU27) seems problematic having in mind the relatively high proportion of long-term unemployment. Another problem could be the motivation to register as unemployed in order to receive social security beneﬁts. In some cases those registered as unemployed were receiving beneﬁts and were working in the informal economy. The informal economy represents a major problem for the development of the welfare state. Private companies in Bulgaria largely avoid paying taxes and social security contributions. Analysts explain this with high unemployment and high business risk under which:

Table 3.5 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

bg

eu27

eu15

– – – – – 16.4 19.5 18.2 13.7 12.1 10.1 9.0 6.9

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 25 July 2008)

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Firms and their employees undertake common, low-conﬂict actions for the reduction of ﬁscal and insurance payments related to labour contracts. The threshold level for this process to kick in decreases with the increase in the size of the ﬁrm as a taxpayer, measured by the number of employees. (Zahariev 2003: 239). With the reduction of the unemployment level the scope of the informal economy is also expected to decrease. There is a stable tendency towards a reduction in the share of passive measures (from over 90 per cent in 1991 to 68 per cent in 1998) in the labour market policy structure of expenditure. Currently however the ratio of passive to active measures remains 5: 1.10 Active measures imply subsiding wages as means to increasing the incentives for enterprises/ employers.11 The forms of subsidized employment are an incentive for starting one’s own business and for programmes for short-term employment.12 The increase in the number of people on the minimum wage after 2003 (2002 – 5.10 per cent, 2005–16.00 per cent, 2006–14.59 per cent) is due to the programme for temporary employment, established as part of the active measures in the labour market.13 There has been an increase in government support for training. The national system for career guidance for adults provides information, consulting and advice for students, the unemployed and other people concerning the choice of profession and career development. An example of good practice is the collaboration with the Federal Labour Oﬃce of Germany.14 The main sources for ﬁnancing the career guidance activities are the state and municipal budgets as well as the Professional Qualiﬁcation and Unemployment Fund. Good results have been observed in the policy for youth employment. In 2001 Bulgaria had the third highest rate of youth unemployment (38.8 per cent) after Poland 39.5 per cent and Slovakia 39.2 per cent. Six years later (2007) the ﬁgure for Bulgaria was (14.7 per cent) less than the EU25 average (15.2 per cent). Several problems however remain in youth employment: low levels of professional education and qualiﬁcations; the need for practical experience; work in the unregulated economy. Being young is the most signiﬁcant contributing factor to the risk of working without a contract (Stoilova and Haralampiev 2008). Speciﬁc measures and programmes contribute to the improvement in the situation of young unemployed and comply with the identiﬁed problems. There are also special measures directed towards the economic integration of young people leaving social care institutions. Measures are directed towards employers in order to improve the employability of young people without any practical experience, and for apprenticeships. Measures ensuring the participation in EU-ﬁnanced programmes, such as PHARE and Leonardo da Vinci, are also signiﬁcant. Bilateral conventions with European countries for the employment of students are also enforced – for example with Germany (1992), Switzerland (1995), Luxemburg (2002) and Belgium (2003) (National Report 2004). The National Labour Agency ﬁgures for participants involved in diﬀerent programmes and measures are not very high. This leads to the importance of regular evaluation of the eﬀectiveness of the programmes implemented. Targeting Reforms in the social sphere are directed from the universal towards selective and targeted systems, responding to speciﬁc needs. Critical questions related to solidarity in society 73

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are: ‘Who receives services?’ plus ‘What criteria have been applied?’ Further important issues concern the amount of the support, as well as its capacity to motivate people to return to active life and work after a certain period of time. The target groups, who receive social services are old people, especially those living alone, children, and disabled people. Critics point out that a problem of social policy targeted at the disabled is its focus on medical issues rather than on active involvement and integration of disabled people into the labour market and the community (Ivkov 2006). The amount of social payments is very low. This corresponds to the low minimum wage serving as a basis for calculating social payments. The minimum wage in Bulgaria is the lowest in the EU despite its positive dynamic.15 For the period 1999–2008 the minimum wage has increased three times. This also led to the increase in payments for housing, family contributions and social investments. There are special schemes for speciﬁc population groups – for example older and disabled people. Critics stress several arguments against the scheme for deﬁning the minimum wage (Draganov 2007): there are no standards for the actualization of the minimum wage and it depends on budget restrictions. Social security beneﬁts lose their purchasing power, they do not signiﬁcantly change the ﬁnancial status of their receivers, and the trust in the adequacy of social security system is undermined. The complicated system of diﬀerentiated coeﬃcients is applied to groups at risk however without a clear principle of distinction. This system is more complicated than in other EU countries and is a challenge from an administrative point of view. It is also rather diﬃcult to evaluate its eﬃciency. Among the groups living in poverty, a disproportionally high number are older people and ethnic Roma. Poverty among the Roma population has yet to be overcome and is transferred over generations. Their social status is associated with much deprivation, such as long-term unemployment or employment for short periods and in seasonal jobs only, being dependent for too long on social security beneﬁts, and living in permanent marginalization and isolation. Giddens (2001: 297) describes all these characteristics as associated with the underclass. Referring to the class concept seems reasonable and reﬂects the extreme polarization within society. Social integration of the most vulnerable ethnic groups is addressed in the National Plan to Combat Poverty and Social Isolation (2004). Allocation Changes in social service legislation introduced a new social policy concerning the actors responsible for social care provision as well as the balance between payment of beneﬁts and provision of services, between services delivered in institutions and in the community.16 Up to 2003 social policy focused on social security beneﬁts. The aim of the changes in 2003 was the prioritization of the delivery of social services.17 The main dimensions of the change were decentralization, deinstitutionalization (Shabani and Dimitrova 2001) and individualization (Jeliazkova et al. 2004). A shift from institutionalized services to services provided to individuals living in the community and in the family was carried out. The objectives were to decrease the number of people who were provided with services in institutions, to decrease the number of the institutions and to improve the quality of services. The institutions in the critical focus of Bulgarian and European public opinion are child care facilities – for children without adequate parental care as well as for children with disabilities. The process of decentralization allowed the delegation of rights for social service delivery to third parties. This allowed non-governmental actors the opportunity to participate in these activities – private ﬁrms, families, and NGOs. 74

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Through diﬀerent programmes and legislative changes the state aims at supporting mothers, or rather families, in caring for small children. Changes in legislation were directed towards prolonged paid motherhood, as well as the period before and after the birth of the child. From 1 January 2007 this has been extended from 135 days to 315 (including both periods before and after the birth of the child), which represents more than a twofold increase (2.3 times). Within these 315 days the allowance depends on the income and the insurance level of the mother. This is one of the reasons non-contractual work is less frequent among women than among men (Stoilova and Haralampiev 2008). Up to the child’s second year mothers have the right to receive an allowance that is equal to the minimum wage. Better educated and paid women often decide not to exercise their social right because of the low level of this payment. Since 2007 the national programme ‘Support for motherhood’ has aimed at a better work–life balance for women, a smooth transition from motherhood to employment and the creation of jobs. Of a similar nature is the establishment of family centres for children, where unemployed women can take care of children. The number of private ﬁrms which pay child care fees or support child care facilities for their employees is insignificant. This type of activity is reported only from a very low proportion of respondents (0.6%) (GGS 2004). The prevailing belief among employees and employers is that the state and municipalities have to support families in the area of child care. An important initiative of the state policy towards older people is the national programme Retirement Aid.18 It was introduced in 2002 and deﬁned as an intervention in the pension schemes ‘limiting work disincentives and increasing choice in work–retirement decisions: legislative interventions on work–retirement schemes’ (Ketsetzopolou 2007). Nowadays new measures have been introduced stimulating work after retirement age, which is steadily shifting to a later age, as well as schemes to ensure that pensions better reﬂect income from employment. Financing The shift in ﬁnancing in favour of security payments rather than payments gathered through taxes has been very pronounced during the reform of social protection. The proportion is two to one – 61.7 per cent for social security payments and 36.1 per cent for payments obtained through taxes (Eurostat 2005). Taxes ﬁnance the minimum wage and active measures on the labour market. The change in the ratio between passive and active measures follows two lines: the ﬁrst is the reform in the sphere of social assistance and the reduction in the number of people receiving social aid from the Qualiﬁcation and Unemployment Fund, which is ﬁnanced through the contributions of employed people. The second refers to extending the scope of the active measures to support the unemployed. The start of pension reform in 2000 was initiated by the separation of the public security fund from the state budget. Signiﬁcant progress in the ﬁnancial stabilization of the State and Public Insurance Fund was achieved later – in 2005.19 Contributions from the GDP has decreased from 73.6 per cent in 2000 to 32 per cent in 2005 (National Report 2007). Financial eﬃciency of pension reform was achieved, but the results were not satisfactory in stratiﬁcation terms since most of the pensioners are positioned in low pension groups.20 This situation requires additional intervention from the state budget – for example for ﬁnancing the payment of heating for old people living in poverty. There are several criticisms regarding pension reform: there is not enough incentive for the economic and tax policies, which systematically generate poverty and exclusion (Jeliazkova 2007: 161–62). 75

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The greater part of the social security burden is paid by the employer, and the smaller part by the insured person. Employers in Bulgaria carry a greater burden of security payments than the EU average (4 per cent). The ﬁnancial burdens of the reforms have been moved from the state to individuals and employers without guaranteeing eﬀective public control over the administration or public–private partnership. This negative tendency is most apparent in health care reform. The share of social insurance in public health expenses shifted from 9.9 per cent (1999) to 76.1 per cent (2005).21 An achievement of health reform was that the system shifted from predominantly budget ﬁnancing to insurance ﬁnancing. Health insurance contributions are obligatory and are paid on a payroll basis with the larger share paid by the employer. In 2006 this amounted to 6 per cent on insurance income, shared between the employer and the employee in the ratio of 65:35. Private health expenditure is in the range of 2–3 per cent of GDP and is mainly individual payments by patients. Additional private pre-paid schemes have an insignificant share of the health insurance market. Critics point out the low compliance by both customers (contributors) and service providers (contractors with the National Health Insurance Fund), which leads to excessive regulation and control, and the exclusion of the private sector. The outcome is a system that is increasingly driven by administrative controls at the expense of market incentives. Hospital ﬁnancing is still far from optimal, with National Health Insurance Fund (NHIF) refunds reﬂecting supply potential rather than actual demand and cost of services. The private sector is still kept away from the health services market. This implies that management attaches higher priority to the patient rather than the NHIF. ‘For the NHIF, the state is still the more important client for the hospitals in Bulgaria than the patients that pay for their insurance.’ (Pashev 2006: 34). Distribution The main problems nowadays are related to the big diﬀerences in the living standards of older people and the rest of the population and the high level of inequality among pensioners. Diﬀerences in the income level of pensioners and the earnings of the employed people remain high despite the greater pension increase in 2006 – about 13 per cent in nominal terms and 5.3 per cent in real terms – than in 2005. The Brut coeﬃcient of replacement has been also increasing (from 39.8 per cent in 2000 to 40.6 per cent in 2005, and 42.9 per cent in 2006) but is still low. The lack of debate from the perspective of social rights, the well-being of citizens, and the social cohesion concerning the provision of services from common interest (water, electricity, gas) could be identiﬁed as a welfare gap in Bulgaria contributing to the situation of poverty of older people. Processes of liberalization and of privatization in this sphere are under way. Prices are steadily increasing. In addition, eﬀective control over monopolies, such as central heating, electricity and water suppliers, is still lacking. Additional ﬁnancial support for the poorest families for the payment of heating and electricity is foreseen. However for the middle strata the chances to overcome the challenge of increasing prices are limited. The high prices of water, electricity and central heating suppress the value of the low-minimal and middle-income levels and bring them very close to the poverty level. In regional terms the distribution of poverty is unequal. Poverty is higher in villages than in towns and cities (Bulgaria 2003). The same tendency towards a high discrepancy between rural and urban populations could be observed concerning the higher unemployment rate and the limited access to services, including health care, in rural environments. 76

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Political actors The state is still the main actor in public policy regarding the groups at risk of poverty and marginalization. The new actors are the trade unions (reformed and newly established) and the (re-established) non-governmental sector. In the process of social transformation after 2000 several achievements stemmed from the dialogue between trade unions and the state. In the labour market, a positive achievement worth mentioning is the creation of a legal mechanism, adopted in 2002, obliging employers to register each labour contract at the National Insurance Institute (NOI). This measure led to a decrease in the informal economy in Bulgaria. A similar eﬀect came about through the introduction of minimum thresholds for social security payments in 2002, which inﬂuenced the wage negotiations between social partners. Their level is determined by collective bargaining at sector level. Another important change in the legislation on which has achieved consensus between social partners was the abolishment of the full transferability of the additional payment for length of service (2007). The amount of the additional payment, which accounts for professional experience and length in the same or similar profession/position has to be deﬁned on a consensus basis. On the one hand, a positive impact of this legislation on the professional mobility of older employees could be expected (Demireva). On the other hand, this change in legislation is accepted by many employees as a loss of achieved social right. Social partners take part in the Supervisory Board of the National Insurance Institute and other important institutions (National Agency for Professional Education and Training), having equal quotas with the key institutions in the ﬁeld of education – Ministry of Education and Sciences and Ministry of Labour and Social Policy. This agency is responsible for the licensing of the centres for professional education, for the creation of professional standards and for ensuring the quality of teaching. Besides the positive contribution of the trade unions to social reforms, some doubts have been expressed by researchers: Does their [the unions] participation in advisory boards have a strong inﬂuence on policies concerning the labour market, social security, health care and other ﬁelds of social and labour policy? … How useful is this participation on the one hand, and the degree to which unions should share responsibility with the government on various reforms, on the other? (Kirov 2005: 147) Having this inconsistency in mind, the conclusion is drawn that participation in the tripartite institutions is not always eﬀective. In the period 1999–2007 NGOs played an active role in social reforms. They were however restricted by the project approach, which does not ensure consistency of initiatives and tasks as well as by the non-existence of NGO branches in the smaller towns. The contribution of the international state and NGOs to the reforms and the provision of social services is essential and goes through the national NGOs.22 United States Agency for International Development (USAID) as a bilateral donor contributed to reform Bulgaria’s crippled pension system, providing approximately $10 million to help establish the ‘three-pillar’ pension system.23 The World Bank initiated, ﬁnanced and managed pension reform as well. The Swiss Agency for Development and Collaboration ﬁnanced several projects in the social sphere and ecology (Kirov and Prince 2007). Other important foreign donors are the United Nations Development Programme, the UK 77

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Know How Fund; Democratic Network; the Development of the Civil Society Foundation; United Foundations of Holland; EU PHARE Programme; Bulgarian–German Educational Centre; Open Society Foundation. After Bulgaria’s accession to the EU, a process of withdrawal of the foreign donors started, which had contributed signiﬁcantly to the civil sector after 1989. At the same time new functions were assigned to the NGOs. In the process of decentralization of social services the more active inclusion of private organizations is foreseen. More active involvement of the third sector and private actors in providing social services nowadays faces new challenges, which have been deﬁned but still not solved: the low purchasing capacity of the possible users; the need for subsidizing activities; and the ﬁnancing of services through municipal budgets. The civil sector suggested the establishment of a guarantee fund for co-ﬁnancing NGOs which obtained funding from EU funds for activities within the country. These problems need political will to be solved, and transparency in the relations between governmental and non-governmental actors. In a nutshell, the Bulgarian state can be characterized as shifting in ensuring welfare for citizens from one central government-led way to another more transparent and participative way that also allows greater individual choice. However, the result is not exactly the same as was initially intended. The main reason for that is the still incomplete character of the reforms – the legal framework has been completed but it has not been implemented. There is not enough political will for the continuation of the reform of the health care system. Reforms have to go on – in education and science, pension system, de-institutionalization of the social services and improvement in their quality, because the postponement of the reforms increases the burdens over the individuals at risk and their families. All this requires solidarity among society and political will on the part of the government.

Problems and perspectives The whole period after 1989 has been marked by reforms – in poverty and exclusion, unemployment, old age, family and children, and health care. If in the ﬁrst decade the main problem was the weak political consensus and the need for public support for the reforms, in the second decade the creation of the institutional and legal framework of the reform became of crucial importance. With Bulgaria’s EU accession the third period of reforms started and new problems emerged. One of them is the need for permanent, independent public policy evaluation and monitoring within the country. The monitoring from the EU institutions focuses mainly on the eﬀective spending of EU funds as well as issues like corruption and conﬂict of interests. The monitoring of the eﬀectiveness of public policies in terms of the achieved social goals like cohesion, both in social and in regional terms, minimization of the inequalities and the bridging of the main social cleavages, gaining solidarity in society is almost missing. At present the development is rather post-totalitarian – the legislative framework has been changed. However, the restricted resources of civil society to be an equal partner and to exert control over the functioning of the administration are still limited. The civil sector needs support in order to be able to participate in de-centralization in the sphere of services and to exert eﬀective control over the distribution and operation of public funds. The present overview of the reforms of the welfare state follows the winner–loser perspective that focuses on inequality and assesses the cumulative eﬀects of deprivation. 78

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The aim of the liberalization and the introduction of market principles was that the state redistributes a smaller part of income than in the totalitarian past, thus leading to an increase in economic growth and the individual motivation for work. However, the liberalization, seen as providing greater chances for making choices, is limited by wage constrains. A welfare gap could be identiﬁed in the spheres where a private–public mix with strong and widespread private elements exists. This could be observed in the health care system as well as in the education sector. The instruments of tax policy have been underestimated through the whole period. Thus, the middle classes, who pay taxes but also pay for private education and private health care, remain extremely weak with restricted resources for success and stability. The middle class has not been the focus of public policies and is not able to contribute suﬃciently to societal stability. In contrast, polarization has increased through the transition period, and insecurity and intolerance towards groups at risk have also been growing. The access to resources and the removal of barriers to eﬀective use of resources are essential for people to succeed at being active and to improve their living conditions through systematic eﬀorts in the ﬁeld of education and labour. Of crucial importance for the future development of social policy is the decrease in the informal economy, and a more eﬀective provision of services for children without appropriate parental assistance, and for older and disabled people. A better balance between avoiding and covering risks is essential for solidarity in society, on the one hand, and the opening up of opportunities, on the other.

Notes 1 The contributions of self-employed and self-securing people represent 3.6 per cent in 1997, and 4.4 per cent in 2007 from the Budget of the Fund ‘Public Security’. State gazette, 55, 1997 and 77, 2007. 2 Law on Health (2004), Law on Health Insurance (1998), Law on Healthcare Entities (1999), Law on Human Medicines and Pharmacy (1995), Law on Narcotic Drugs and Precursors (1999), Food Safety Law (1999), Law on Healthy and Safe Conditions of Labor (1997), Law on the Professional Organizations of Medical and Dental Doctors (1998), Law on the Professional Organizations of Nurses (2005), Law on Transplantation of organs, tissues and cells (2003), Law on Blood and Blood Transfusion (2003). 3 www.olderworkers.eu/pages/en/project.php. 4 In 2002 the pension age was deﬁned as 61 years for men and 56 for women. In 2006 the age for men increased to 63, and for women to 59. The further increase in the pension age is intended to come into force by 2009 and the pension age for women is to increase to 60 years. 5 Jeliazko Hristov, Konfederation of the Independent Trade Unions in Bulgaria, 2007, www.knsb-bg. org/bg/news/articles/302.html. 6 In the age group 0–64 the share of men (14 per cent) and women (13 per cent) living in poverty is equal; in the age group 65+ the share of men in poverty decreases (9 per cent) and of women increases (23 per cent); in the next group the increase is higher for women (31 per cent) and lower for men (12 per cent) (National Statistic Institute, 2007, Level of poverty in gender and age groups for 2005). 7 Adopted on 22 August 2006 from the Council of Ministers. 8 Social investments are deﬁned as an alternative, not monetary form (in kind) for supporting families with children. This form includes paying the fees for child care facilities, school meals, notebooks and other school-related materials. The programme ﬁrst started in seven pilot municipalities. In 2006 over 1,752 cases for social investment had been registered. For 2007 the number of families with school children who receive support in the form of social investment to the amount of 80 Lv (about 40 euro) is higher 33,995 (MLSP). 9 The monthly child care beneﬁt is 18 Lv. for the ﬁrst child and 20 Lv. for the second and next-born child. This amount represents 1/20 of the minimum wage, which is the lowest in the EU.

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10 The increase in active measures expenditures in the period 2004–5 was from 11.93 to 14.36 (million euro). The decrease in the amounts for passive measures was from 51.81 to 46.66 (million euro). Source: MLSP. 11 Financial stimuli are provided regardind the following: labour remuneration and additional remuneration on the minimum amounts set forth in the Labour Code and the acts of its application; contribution payable at the expense of the employers into social insurance funds; funds for training and acquisition of professional qualiﬁcations (and related expenses – scholarships, daily allowances, travelling allowances); motivation training and literacy training. 12 The respective ﬁgures are as follows: for the forms of subsidized employment – 447.5 million Lv; for starting own business – 43.2 (million Lv); and for programmes for short-term employment – 17.6 (million Lv) 13 The National programme From Social Beneﬁts to Employment has been created as a reply to the high number of long-term unemployed people who lose motivation in their job search and are permanently dependent on social payments as well, in accordance to the EU policy ‘Employment for Social Integration’ and its duration is from 2003 to the end of 2008. 14 Information packs for 357 professions, videos, leaﬂets. 15 92.0 euro per month (Eurostat 2005). 16 On 1 January 2003 the amendments of the Social Assistance Act and the amendments of the Regulation for the Implementation of the Social Assistance Act entered into force some months later in the same year (State gazette No. 120, 29 December 2002, State gazette No. 40, 29 April 29 2003). 17 Social services delivered in the community are personal assistance, social assistance, assistance at home, social home patronage, day centres, centres for social rehabilitation and integration, centres for temporary settlement, crisis centres, protected housing, etc. 18 Employers can employ experienced unemployed individuals until they obtain the right to a pension. In the period 2003–6 there was an increase (13 times) in the number of people working within the programme. 19 The model of the pension security system in Bulgaria until 1989 was expenditure covering. Everybody received a pension, there was no separation of the contributions towards specialized risks and funds, the management of ﬁnances was directly driven from the state budget. The three-pillar system has been adopted, which includes additional and optional pension insurance. Bulgaria was the third East European country to introduce the three-pillar pension system (Ignatova 2002:43). 20 In 2004 almost half of pensioners (48.3 per cent) with personal pensions for secured length of service and age received a pension of 100 Lv (about 50 Euro). To guarantee the most vulnerable among the pensioners, a system of minimal allowances for quite a wide range of individual risks is implemented. These minimal social pensions are received by 22.3 per cent of the pensioners in the State public insurance. 21 9.9 per cent (1999), 13 per cent (2000), 35.8 per cent (2001), 40.6 per cent (2002), 51.6 per cent (2003), 63.2 per cent (2004), 76.1 per cent (2005); National Statistical Institute. 22 Researchers estimate the contribution of foreign donors to NGOs working in the ﬁeld of social services in Bulgaria for 2002 as follows: Phare ACESS could be placed ﬁrst with 2,369,313 BGL directed towards social services, integration, access to employment, and protection of vulnerable groups; European Initiative for Democracy and Human Rights estimated on 583,451 BGL invested into activities for human rights; Bulgarian Charity Aids Foundation invested in social services and integration in the total amount of 127,588 BGL; Rehabilitation and Social Integration Fund ﬁnancing social services – 23,500 BGL (Jeliazkova et al. 2004: 174). 23 USAID transferred some $3.5 million to the US Department of Labor, which supported the Ministry of Labor and Social Welfare from 1992 to 1997 to improve employment and welfare services in Bulgaria –U.S. Agency for International Development (USAID), Bulgaria, 2007.

Bibliography Aiginger, K. (2004) ‘The economic agenda: a view from Europe’, Review of International Economics, Vol. 12, Issue 2 (Special Issue: Economic Agenda for the 21st Century). Demireva, T. (2007) Older people on the labour market in Bulgaria, MLSP, (unpublished analysis). Draganov, D. (2007) Ministry of Labour and Social Policy, unpublished paper. Esping-Andersen, C. (1990) The Three Worlds of Welfare Capitalism, Princeton.

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—— (ed.) (1993) ‘Changing Classes. Stratiﬁcation and Mobility’ in Post-industrial Societies, SAGE Studies in International Sociology 45. —— (2002) Why we need a New Welfare State, Oxford: Oxford University Press. Eurobarometer (2002) Fertility and Family issues in an enlarged Europe 2004, European Foundation for the Improvement of Living and Working Conditions, Dublin: Eurobarometer. Giddens, A. (1996) ‘Risiko, Vertrauen und Reﬂexivität’, in U. Beck, A. Giddens, S. Lash. Reﬂexive Modernisierung. Eine Kontroverse, Frankfurt: Suhrkamp. —— (2001) Sociology, Fourth Edition, Cambridge: Polity Press. Ignatova, E. (2002) Darzavni strategii za upravlenie na socialni riskove (Governmental strategies for social risks management), Soﬁa: Institute of Sociology. Ivkov,B. (2006) Modeli I koncepcii ya invalidnostta (Models and Conceptions on Disability), Varna: Slavena. Jeliazkova, M. (2007) ‘Problemite pred razvitieto v Balgaria (Problems of the development in Bulgaria)’. in D. Minev and M. Zeliazkova (ed. of the Bulgarian Volume), Strategia za upravlenie na vazrastta (Age Management Strategy), Greece: European Proﬁles S.A. Jeliazkova, M., G. Georgiev and R. Abadjieva (2004) ‘Bulgaria: National Report on Social Services’, in E. Fultz, and M. Tracy (ed.) Good Practices in Social Services Delivery in South Eastern Europe, Geneva: International Labour Oﬃce. Ketsetzopolou, M. (2007) Age Management Strategy, Greek National Centre for Social Research. Greece: European Proﬁles S.A. Kirov, V. (2005) ‘Facing EU Accession: Bulgarian Trade Unions at the Crossroads’ in D. Dimitrova and J. Vilrokx (ed.) ‘Trade Union Strategies in Central and Eastern Europe: Towards Decent Work.’ Budapest: ILO. Kirov, V. and J-Cl. Prince (2007) Promotion of Social Dialogue. Soﬁa: Swiss Agency for development and Cooperation (SDC). Minev, D. (2000) Promeniastite se lica na demokraciata – ikonomicheska, industrialna i politicheska (The changing faces of democracy – economical, industrial, political), Soﬁa: Foundation Perspektiva. Minev, D., and M. Jeliazkova (eds) (2004) Traektorii za namaliavane na bednostta I socialnoto izkljuchvane v Balgaria: ot socialni pomosti kam zaetost, (Trajectories for poverty decrease and for social inclusion), Soﬁa: Informacionen centar – NPO srestu bednostta. Mitreva, Hr., Z. Slavova, A. Gancheva, T. Kmetova, T. Dimova and M. Delinesheva (2006), Gender dimensions in the pension reform in Bulgaria, Working Papers, Sodia: National Insurance Institute, 6. National Report for the Employment of Young People in Republic Bulgaria (2004) Soﬁa, MLSP. National Report on the Strategies for Social Protection and Social Inclusion of Republic Bulgaria for the Period 2006–8 (2007) Soﬁa, MLSP. National Statistical Institute (NSI) (2003) Bulgaria: The Challenges of the Poverty Regional Analysis of Data gathered through a Multipurpose Household Monitoring. Soﬁa: NSI. —— (2005) Structure of the total households’ income – mean per person. Soﬁa: NSI. Nonchev, A., P. Mondon, M. Donkova, V. Milenkova, L. Strakova and R. Russeva (2006) Reasons for the School Drop Out in Bulgaria, Soﬁa: Ministry of Education and Science. Pashev, K. (2006) Healthcare Reforms in Bulgaria: Towards Diagnosis and Prescription, WP 0605, Soﬁa: Center for the Study of Democracy. Petkova, S. (2007) ‘Sastoianie na po-vazrastnite hora na pazara na truda (Situation of older people on the labour market’ in D. Minev and M. Zeliazkova (ed. of the Bulgarian Volume), Strategia za upravlenie na vazrastta (Age Management Strategy), Greece: European Proﬁles S.A. Sterbling, A. (2001) Intellektuelle, Eliten, Institutionenwandel: Untersuchungen zu Rumänien und Südosteuropa, Hamburg: Krämer. Stoilova, R. (2000) ‘Self-employment: An Alternative for the Individual, the Group and the Society during the Post-totalitarian Transition in Bulgaria’, in F. Grucza (ed.) Europas Arbeitswelt von morgen, Wiener Zentrum der Polnischen Akademie der Wissenschaften, Band 3. —— (2001) Neravenstva i obstnostna integrazia (Inequalities and Community Integration). Soﬁa: LIK. —— (2007) ‘Impact of Gender on the Occupational Group of Programmers in Bulgaria’ in R. Stoilova and V. Kirov (eds) Changes of work and the Knowledge–based society – the realities in South-Eastern Europe, Sociological Problems, Special Issue, Soﬁa, Institute of Sociology, Bulgarian Sociological Association.

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Stoilova, R., and K. Haralampiev (2008) Stratiﬁcation in Bulgaria. Measuring the Impact of Origin, Age, Gender and Ethnicity on Educational Attainment and Labour Market Placement, Soﬁa, Godishnik na Soﬁjskia Universitet, Filosofski fakultet, Kniga Sociologia, tom 101 (Yearbook of Soﬁa University, Department ‘Philosophy’, Book ‘Sociology’, Volume 101) (submitted for print). Shabani, N., Dimitrova, M. (2001) Analiz na pravnia regim na socialnite uslugi v Balgaria (Analysis of the legislative regime of social services in Bulgaria), Soﬁa, Balgarski zentar za nestopansko pravo. Szelenyi, I. (ed.) (2002) Poverty under postcommunism, New Haven: Yale University Press. Vikat, A, Z. Spéder, G. Beets, F.C. Billari, C. Bühler, et al. (2007) ‘Generations and Gender Survey (GGS): Towards a Better Understanding of Relationships and Processes’, Demographic Research, Vol 17: 389–440. Zahariev, A. (2003) ‘Tax Avoidance in Bulgaria: The Human Capital Approach’ in B. Belev (ed.) The Informal Economy in the EU Accession Countries. Size, Scope, Trends and Challenges to the Process of EU Enlargement, Soﬁa, Center for the Study of Democracy. Zlatanov, S. (2003) Bulgarien: Die Folgen des Alterungsprozesses – Ost-West Gegeninformationen. Austria, Center for the Study of Balkan Societies and Cultures, Univeristät Graz, Nr. 4, 40–45.

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Chapter 4

cy Welfare adaptation in a divided state The Cypriot welfare system Anthos I. Shekeris, Christina C. Ioannou and Christos Panayiotopoulos

Contemporary global trends have induced renewed attention in the study of welfare state systems. Some countries have chosen to respond to increased and more intense competition by ‘racing to the bottom’ as far as welfare provisions are concerned, in an attempt to overcome the demands imposed by budgetary constraints. Even though a popular response to global competition forces, the free market ideology is by no means a hegemonic model. On the contrary, other countries have not abandoned their social obligations, and they have in fact set economic and social prosperity as their twin objectives. Within the boundaries of this latter category enter the examples of many welfare state models. Nonetheless, this chapter will focus on one upon which not a lot of ink has yet been shed: the example of the Cypriot welfare state system. It ought to be underlined from the outset that Cyprus is a divided island and, consequently, all information refers to the non-occupied part of the country, upon which the Government of the Republic exercises eﬀective control.1 Moreover, it has to be pointed out that research speciﬁcally with respect to the welfare system of Cyprus is limited, and hence literature pertaining to this is particularly narrow.2 This is further compounded by the extremely limited public policy debate, which is dominated by the political problems of the country. Whereas the unresolved division of the island remains a central point of discussion, other issues become generally subordinated. Recent policy debates – such as those relating to the national health system – do exist, but these are raised in a relatively ad hoc and piecemeal manner. In any overview pertaining to Cyprus, what has to be borne in mind is the issue of size; size in terms of territory and population3 has throughout history dictated much of the fate of the island. Furthermore, its geographical position gives it a strategic signiﬁcance that makes it a vulnerable target. So, to a signiﬁcant extent, its history has been determined by external factors, as past conquerors have left their marks upon the country’s culture, politics and demographic structure (Wilson 1993: 3). It is within this intricate context of the island’s size and history that its welfare system has developed, clearly quite distinct from that of other European states. Since 1988, the Republic has been oﬃcially ranked among the high-income economies of the world. Despite the limited development undertaken under British colonial 83

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rule, in 1960 the newly formed Republic4 inherited an economy with systems of underdevelopment (Kouloumou 2003: 592). The economy was heavily dependent upon agriculture, which accounted, at the time, for over 45 per cent of labour market activity and for over 16 per cent of the gross domestic product (GDP) (Statistical Service 2003). The church played a central role in the provision of social services to the people.5 For the social needs of the people, provisions were made by the community as well as by the extended family, which had a supportive role (Social Welfare Services 1969). The colonial heritage of the ‘infant’ Republic consisted of a basic (albeit limited) social welfare system, similar to that of its colonial ruler. In the early 1960s, there existed a probation service, as well as a child care programme made up of foster care and children’s homes, coupled with a ‘Public Assistance Scheme’ for the relief of poverty, which was administered by the District Commissioners. This, as Pashardes (2003: 18) claims, ‘ … was rooted in the Beverage principles of ﬂat contributions and beneﬁts.’ From the birth of the Republic to the present day, all social welfare services have been incorporated under the Department of Social Welfare Services, which is under the competency of the Ministry of Labour and Social Insurance. Of importance is that the colonial era left behind it a foundational basis to build upon the welfare state of today. Therefore, with independence, improvements in terms of development were achieved, but within an already established framework. Furthermore, the basic principles of indicative planning were adopted, which clearly embodied both the development strategy and the economic policy of the government. The years between 1960 and early 1974 were characteristic of sustained economic growth and development (Statistical Service 2003) that led to important social and related demographic changes. A gradual limitation of the agricultural sector occurred, with the development of both industry and services. This translated into high rates of urbanization, a shift to the nuclear family form, as well as the formal participation of increasing numbers of women in the labour market. Invariably this led to a deﬁnition of various sorts of social needs, which came in the form of low level policies that were meant to provide security to people who were living under conditions of extreme poverty (Triseliotis 1977; Attalides 1981). Eﬀorts were undertaken by the government to raise the level of health, social security, education and general welfare. By 1967, it was becoming increasingly evident that the Cyprus government was putting more emphasis on its social policy, as it committed itself by stating that, ‘it recognizes that health, education and other social considerations aﬀect and interdependent on a vast complex of variables which determine both the social and economic welfare of the island’ (Astarita 2004: 2). Overall though, public assistance was minimal, given the full employment and comparatively high living standards (Cyprus Government Oﬃcial website). This period of relative aﬄuence was however interrupted with the 1974 Turkish invasion of Cyprus.6 Over one-third of Greek Cypriots were displaced from their homes, while unemployment rose sharply and led to mass emigration. Moreover, around 70 per cent of the natural resources and economic potential of the island were lost, particularly with regard to agriculture. Tourism, which had begun picking up, also slumped, whereas major important infrastructural projects, such as the National Airport and the Famagusta Port, were lost, along with several hospitals and school buildings. All these created severe and unprecedented economic and social problems, reversing the socio-economic development of the previous years. Under the conditions created, it was deemed appropriate to adopt measures to reactivate the economy (Planning Bureau 2000: 9). In terms of social welfare, government spending focused, immediately after the invasion, on meeting the very basic survival 84

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requirements of the displaced and other dependent groups (Astarita 2004: 4), with foreign aid used eﬀectively. According to Zetter (1993: 15), ‘ … despite the rural-agrarian origins of the majority of the refugees, they were incorporated into an urban wageeconomy through labour intensive policies structured around an urban industrial base’. The very serious economic and social problems created by the invasion were tackled successfully, and during the period 1975–78 the Cyprus economy exhibited rapid reactivation, which was described as an ‘economic miracle’ (Christodoulou 1992). The economy of Cyprus underwent a signiﬁcant transformation over the years. Even though today the primary and secondary sectors are of signiﬁcance, the service sector has acquired an ever-growing importance (Republic of Cyprus 1994a: 4–5). Government welfare has continued moving towards the provision of long-term housing, health care services, free secondary education, a wage-related social insurance scheme, scholarships and loans for needy students to study abroad, infrastructural projects (new schools and hospitals), and other welfare institutions, such as children and youth homes, hostels and daycare centres (Republic of Cyprus 1994b: 159). By 1981 Cyprus clearly deﬁned its social policy with the following three basic objectives (Republic of Cyprus 1994b: 159): & &

&

to secure a minimum acceptable standard of living for all citizens; to attain a more equitable distribution of the national income and the tax burden, both between diﬀerent income groups as well as regions; special emphasis being attached on improving the income position of the displaced; to implement as well as improve existing social programmes by preparing the introduction of new institutions.

Additionally, the 1994–98 Strategic Development Plan was designed under guidelines that emphasized the convergence of the Republic’s policies in the socio-economic sector with those of the European Union (EU) (Republic of Cyprus 1994b: 6). In fact, accession to the EU in May 20047 meant a process of harmonization with the acquis communautaire, during which a signiﬁcant bulk of EU directives were transposed to the Cypriot legal system with relation to Chapter 13 of the community acquis: Employment and Social Policy. Following entry, the major objective of the Strategic Development Plan 2004–6 was the successful harmonization of the Republic with the general EU targets as per primarily the Lisbon Strategy (Republic of Cyprus 2004: 6). The aim was twofold, as it involved both social and economic development, as follows (Republic of Cyprus 2004: 6): Rapid adaptation to the fast changing international economic conditions through the adjustment and modernisation of structures and the promotion of the human factor as the main competitive advantage. Selection of a growth process which does not place dilemmas between development and social inclusion. Indeed the social protection beneﬁts in percentage amplify this (Table 4.1). It can be argued that ﬂexibility and adaptation to challenges constitutes, in fact, a key leitmotif in the history of the Cypriot state in general and in the development of the Cypriot welfare system in particular. Throughout its recent history it can be seen that the country has had to adapt to changing environments and conditions created: British rule, independence, Turkish invasion, EU entry. All of these put diﬀerent demands upon the welfare system of Cyprus, and successive governments have had to continuously incorporate these in their welfare strategies. 85

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Table 4.1 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

cy

eu27

eu15

100.0p 98.3p 11.6p 5.7p 2.2p 4.4p 28.5p 45.8p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

The Cypriot welfare state A current snapshot Cyprus is characterized by a somewhat highly centralized and bureaucratic public administration (Pashardes 2003: 18), as the structure that currently makes up the welfare system also highlights. To some extent, this reﬂects on the administration and implementation of the priorities, as set out by the government in the National Action Plan for Social Inclusion 2004–6 (NAP/Incl.): & & & & & & & & & &

extent of the risk of poverty; improvement of the position of persons at risk of poverty; risk of poverty among children; social protection expenditure; physical access for persons with disabilities; integration of persons with disabilities; education and social inclusion; children and family; integration of vulnerable groups in the labour market; mobilization of civil society.

The overall responsibility on the part of the state for the development and maintenance of social protection on the island lies with the Council of Ministers of the Republic. The Council exercises and implements its authority through the Ministry of Labour and Social Insurance, the Ministry of Health and the Ministry of Finance. Other key players from within the private sector are also intertwined in the formal welfare system and form an integral part of it. Depicted in Figure 4.1 is the organizational structure of the administration of social protection as it operates in Cyprus today. According to Figure 4.1, each of the three ministries enmeshed in the actual implementation of policies is ‘ … independently responsible for the supervision of [its] own departments’ (Pashardes 2003: 22). The Council of Ministers supervises, but also coordinates, 86

Figure 4.1 Organizational structure of the administration of social protection in Cyprus.

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this system. Hence, the Ministry of Labour and Social Insurance, as per its remit, deals with the implementation of government policy in relation to employment, industrial relations, social insurance and social welfare, whereas the objective of promoting and protecting people’s health is central to the mission of the Ministry of Health. The latter is responsible for both the organization and the provision of health care in Cyprus. Change to the whole system is however imminent, with the potential adoption of the pending National Health Plan. The dominant role, however, of the private sector, must also be underlined, as it accounts for approximately 70 per cent of the total health expenditure. The Ministry of Finance administers various funds. Of critical importance, however, as depicted in Figure 4.1, is the fact that, even today, ‘the family and informal support networks have always oﬀered, and continue to oﬀer, the core care and support in the Cypriot society’. (Republic of Cyprus 2004: 40; Pashardes 2003: 68). Speciﬁcally, it can be seen in Figure 4.1 that the Ministry of Labour and Social Insurance is sub-divided into departments, as well as manpower development institutes, each dealing with speciﬁc areas (Ministry of Labour and Social Insurance). Thus, the Department of Social Insurance is responsible for the Social Insurance Scheme, the Social Pension Scheme, child beneﬁts, mother’s allowance and compensation for victims of violent crimes. The Department of Social Welfare Services is the oﬃcial agency to promote social welfare services. The Family and Child Services, the Community Work Programme and the Public Assistance and Services for the Elderly and Disabled fall under its competencies. The Department also administers the Public Assistance and Services Law, the Homes for the Elderly and Disabled Law and the Children Law, as well as the Centres for the Protection and Recreation of Children Law, which further highlight the policy of the Republic with regard to social welfare. The Department of Labour is responsible for the Service for the Care and Rehabilitation of the Disabled Persons, the Severe Motor Disability Allowance, the Special Financial Assistance to the Disabled Persons and the Financial Assistance Scheme for the Purchase of Wheelchairs for the Disabled (Pashardes 2003: 19–20). Occupational schemes that provide certain beneﬁts – other than those of the Statutory Social Insurance Scheme – exist for employees in the private as well as in the public sector. Predominantly, these take the form of provident funds or occupational pension schemes. The former provide beneﬁts in terms of lump sum money payable often on termination of employment, invalidity, retirement, or death. Provident funds from within the private sector are created voluntarily, but these funds have to be registered and then operated in line with the Provident Fund Legislation (Pashardes 2003: 21). In order to fulﬁl its current pledge to promote and protect people’s health, the Ministry of Health is sub-divided into ﬁve departments which provide a rather wide range of services (as depicted in Figure 4.1). It must also be noted that special health care schemes are provided by trade unions for their members, which are predominantly within the area of primary health care. These services primarily use private sector health facilities. Other employer-sponsored arrangements also exist, which tend to provide medical care through the health facilities of both the private as well as the public sector (Pashardes 2003: 20–21). As far as education is concerned, responsibility lies with the Ministry of Education and Culture. It must be underlined that the state oﬀers free pre-primary, primary, secondary, and tertiary education. Private education is also oﬀered for all levels whereby the state deﬁnes and sets the quality standards but beneﬁciaries pay for the services oﬀered. Another important issue for the government, especially in the aftermath of the 1974 events, is that of housing. The main issue, at the time, was the provision of accommodation 88

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to the Greek Cypriots who had been displaced from their homes. By the 1980s, as the problem was alleviated, the government began to provide for the housing needs of the population, and especially for the lower income groups. For the displaced, the government also established the Special Service for the Care and Rehabilitation of Displaced Persons, and put forward various schemes and programmes. These mainly involved: & & & &

the construction of low-cost housing estates; self-help housing schemes through the provision of free building plots, and grantsin-aid to cover part of the construction; the provision of grants-in-aid, and low long-term interests to build on land of their own or to purchase a house or ﬂat; rent subsidies to those displaced persons deemed eligible and, for displaced civil servants, their own housing schemes made up of long-term, low interest loans.

Today the government of the Republic also provides for the low- and middle-income population in general, through the Cyprus Land Development Corporation (CLDC) and the Housing Finance Corporation (HFC) (Republic of Cyprus 1994b: 161–65) Other informal networks are made up of local authorities (represented in Cyprus by municipalities and communities under their relevant representatives). Local authorities in Cyprus are by law responsible ‘ … for the social welfare and well-being of the people in their municipality or community’ (Pashardes 2005: 2). However, it has been highlighted on multiple occasions by these local authorities that they have pre-determined limited responsibilities in the ﬁeld of social policy, and they are also exceptionally under-funded and understaﬀed (Pashardes 2005: 2). Owing to these limited resources and various other limitations stemming from the current legal framework ‘they cannot be considered as major providers of social welfare’ (Pancyprian Welfare Council 2004: 7). In order for the social eﬀort in Cyprus to be further enhanced, the Pancyprian Welfare Council (PWC) was developed in order to take up ‘ … a leading role in the activation and eﬀective integration of the voluntary sector and NGOs [non-govenmental organizations] (Pancyprian Welfare Council 2004: 3). In essence, the PWC is the supreme coordinating body of voluntary social welfare in Cyprus that works on a geographical basis in order to have full coverage. The district and community levels of the PWC work in accordance with objectives set at the central level. It must be highlighted though that, in general, ‘organized social groups, voluntary social welfare organizations and religious associations … play … a major role in … ’ (Pancyprian Welfare Council 2004: 6) the social sphere, and are recognized as major providers in almost every ﬁeld of social welfare in Cyprus. As already stipulated, the church also plays a critical role, together with other philanthropic and civic bodies, although not directly included in the formal channels of the social welfare system. Nonetheless, it has assisted in developing a rather good basis for the further development of philanthropy, at an individual, family and community level (Pancyprian Welfare Council 2004: 9). Moreover, the Church of Cyprus currently provides ﬁnancial assistance for the implementation of social welfare programmes, and also provides social and ﬁnancial assistance to individuals or groups in need. The continuous presence of the Church in the general welfare system of the island can also be seen in the ﬁnancial support given to vulnerable groups, such as older people and young children. Other key organizational actors complete the informal network of the social welfare system. These are speciﬁcally, the social partners (trade unions and employers’ organizations) that form collectively the vehicles for adopted policies and objectives, various 89

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associations (or NGOs who are not part of the PWC) and the various tertiary education institutions. Political parties also play a very distinct role within the welfare framework, not only with regard to their role within the mainstream political system of Cyprus, but indirectly also as providers. This is often ad hoc and indirect, and targeted at their openly aﬃliated party members in the form of predominantly non-monetary assistance.8 Family – and society in general – can also be considered as informal support mechanisms. The community can, to a large extent, achieve a mobilization of its members to address social needs and, despite steady changes within the structure of the family (Pashardes 2003: 75) it provides (informal) support for vulnerable dependent members. Families overall tend to be receptive to the idea of assisting individuals in the community who may face social problems. Moreover, social ties are relatively strong. As substantiated by Pashardes (2003: 68, 75), Cypriot society is ‘ … a society with strong bonds among relatives resulting in extended families that secure ﬁnancial support to those in need.’ Description: an overview of welfare allowances and beneﬁts Health A characteristic of the welfare system in Cyprus is that each of its component parts varies in terms of the ﬁnancing source. In this section we provide a basic overview of the speciﬁc formal provisions, illustrating the ﬁnancing and coverage of each of these. Cyprus has not as yet introduced a comprehensive National Health Insurance Scheme (NHIS). Despite this, health provision receives a substantial share of public expenditure (Republic of Cyprus oﬃcial website), and the standard of health of the general population can be regarded as quite high (Astarita 2004: 6). The medical needs of the population are met through public health provision, private health provision and a number of schemes covering speciﬁc sections of the population: & & &

funds for medical care by employers and trade unions; the scheme for sponsored patients abroad; private health insurance schemes.

Government provision of health care is funded out of general taxation, and health care is provided free, through government facilities, to those who are eligible (see Pashardes 2003: 84). There also exist a number of health schemes subsidized by employers and trade unions. Cypriots in need of medical care that is not provided in the Republic are sent abroad at government expense.9 As far as the private health sector is concerned, this is open to all those who can aﬀord to pay for their treatment. A wide range of outpatient services is oﬀered, and even though there is a more limited scope for services than in the public sector, various clinics have developed speciﬁc specialized facilities, which are often used by the government to treat eligible patients (Pashardes: 2003: 21f.). In addition to these, a number of special schemes cover speciﬁc sections of the population. These include medical services provided by the trade unions to employees and their dependents. These services provide mostly primary health care. The above schemes use both the government and the private sector whenever secondary or tertiary care services are needed, through a partial reimbursement of medical expenses. Furthermore, there are a number of employer-sponsored arrangements, all of which provide free medical care mainly through public health facilities. Apart from the curative services oﬀered by 90

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the public and private sectors, the public services – in cooperation with other ministries and the municipal authorities – deal with the provision of preventative health services.10 As far as statutory beneﬁts are concerned, these are funded through general taxation and are means tested.11 The provision of these services is governed by the Government Medical Institutions and Services General Regulations of 2000 (Pashardes 2003: 83). Social insurance The Social Insurance Scheme covers every person gainfully employed in Cyprus, either employed or self-employed. People working abroad in the service of Cypriot employers, and people who interrupt their compulsory insurance, are allowed, under certain conditions, to be insured voluntarily. The insured persons are classiﬁed as employed persons, self-employed, and voluntary contributors. The ﬁrst law with regard to social insurance was passed in 1975, and since then the law has gone even further in granting to every Cypriot citizen the right to a minimum income, in order to satisfy basic or special needs (Konis 1993: 99). As a ﬁrst instance, it actually focused upon the displaced, but with the gradual improvement of the economy in 1980, the government established a new social insurance scheme, whereby contributions to, as well as beneﬁts from, the scheme, became earnings related. Today the law covers all employed people, as well as the self-employed (Shekeris 1992: 120). The scheme is ﬁnanced by contributions payable by employers, insured people and the state12 and is ﬁnanced by earnings-related contributions. Every person who is employed in the service of an employer – such as workers, employees in the private sector, public employees, semi-public employees, and apprentices – fall under the category of employed persons. All those who are employed in their own business, or who perform any activities for their own account, fall under the category of the self-employed. Every compulsorily insured person – such as an employed contributor or a self-employed person whose employment is terminated – has the right to continue to be insured under the Cyprus Social Insurance Scheme on a voluntary basis.13 The employer is liable to pay contributions to funds (social insurance, annual holidays with pay, redundancy, human resource development and social cohesion) for each of their employees whose remuneration is not less than £1 per week, or not less than £4 per month if they are a salaried employee. For apprentices, the employer is liable to pay contributions to the social insurance fund even if the apprentice does not receive any remuneration. Social protection also includes the Termination of Employment Scheme and the Protection of Employees Rights in case of Insolvency of Employer scheme, which incorporates the development of a redundancy fund in order to protect employees should the employer fall into insolvency issues. Pensions The pension system in Cyprus is almost entirely public. Various private companies have recently promoted pension contracts targeting occupational groups, but very little can actually be said with regard to a public–private mix of pensions at this stage of development (Pashardes 2003: 30). The ﬁnancing of the system is based on a tripartite system made up of the employer, the insured person, and the state (the contribution of the last one is in many respects utilized for the subsidization of the low-paid insured persons) (Pashardes 2003: 42). 91

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The system of pensions in Cyprus is based upon two pillars: The Social Pensions Scheme, which typically secures an old age pension to everyone not entitled to a pension through any other sources and is over the age of 65, and the Social Insurance Scheme, which is speciﬁcally designed to cover the working population. The Social Insurance Scheme covers, besides old age, invalidity, widow’s and orphan’s pension, as well as a wide range of other beneﬁts and allowances, not always directly related to the ‘classical’ old age pension: disablement pensions, maternity allowances, sickness beneﬁts, unemployment beneﬁts, marriage grants or beneﬁts for employment and occupational diseases; these are only the most important ones. The old age pension is payable to all insured persons, irrespective of category of insurance. The conditions for the payment of old age pension are: & &

the insured person has reached the pension age (65 years old); the claimant has been insured for at least three years and their insurable earnings fulﬁl certain requirements based on the level of earnings.

Under certain conditions, the eligibility for old age pension is at the age of 63. Invalidity pension is payable to insured employed people, self-employed people, and voluntary insured people working abroad in the service of a Cypriot employer who have not reached the age of 65. The conditions for the payment of invalidity pension are that the insured person has been incapable of work for at least 156 days and is expected to remain permanently incapable of earning from work more than one-third of their usual earnings. In general, the eligibility criteria stipulate that the person must have paid contributions at least over the last three years, and has an income in the lower insurable earnings division.14 The widow’s pension is payable to an insured woman, irrespective of category of insurance, who was living with her husband before his death, or was maintained by him, and to the widower of an insured woman who is permanently incapable of self-support and was permanently maintained by his wife before her death (details see Pashardes 2003: 32). As far as orphans’ beneﬁts are concerned, these are payable to minors (under 18 years of age) basically when both parents have died or the parent by whom the orphan was mainly maintained has died (in the case where the parents were not living together). As with regard to disablement pension, this consists of both the basic pension and the supplementary pension. The weekly basic disablement pension for 100 per cent disability is 60 per cent of the weekly amount of the basic insurable earnings, and is increased for dependents. Sickness beneﬁt is payable to employed persons, self-employed persons and voluntary contributors working abroad in the service of Cypriot employers. Insured persons under the age of 16 or over the age of 63 (65 if the insured person is not entitled to old age pension) are not entitled to sickness beneﬁts (for details see Pashardes 2003: 25). Beneﬁts for industrial accidents and industrial diseases also exist. The ‘temporary incapacity (injury) beneﬁt’ is payable to employed persons who are incapable of work because of an industrial accident or occupational disease.15 Finally, the death beneﬁt is paid to the survivors of any employed person who died as a result of an occupational injury. Unemployment Of signiﬁcance regarding the issue of unemployment is that Cyprus with regards to its EU counterparts (Table 4.2) has a very low unemployment rate. 92

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Table 4.2 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

cy

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eu15

– – – – – 4.9 3.8 3.6 4.1 4.7 5.3 4.6 3.9

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

The state however does cover for unemployment. Speciﬁcally unemployment beneﬁt is payable to involuntarily unemployed people between 16 and 63 years of age. Insured persons not falling within these age limits are not entitled to unemployment beneﬁt (for details see Pashardes 2003: 27). However, unemployment beneﬁt is also payable to employed people and to people who contribute voluntarily while working abroad in the service of a Cypriot employer. The beneﬁt is payable for 156 days in each period of interruption of employment, and is composed of the basic and the supplementary beneﬁt.16 In general the social insurance scheme also provides cash beneﬁts for marriage, maternity, sickness, unemployment, widowhood, invalidity, orphan-hood, old age, death and employment injury. The scheme also provides free medical treatment to people receiving invalidity pension and to employed people who sustain injuries as a result of an employment accident or an occupational disease. Education As clariﬁed earlier, the Ministry of Education and Culture of the Republic covers education from pre-school until university. So public schools/universities are state-funded and oﬀer free pre-primary, primary, secondary, and tertiary education. Private institutions also exist from the pre-school to tertiary education level. These private institutions tend to raise their income from tuition fees and various state subsidies. Overall public secondary education is given at either lyceums, which oﬀer elective subjects, or at technical/vocational schools. Furthermore, special schools are run by the state for children with special needs. With independence, the government established the Cyprus Productivity Centre (CPC) to help the private and the public sectors to use their human and capital resources to increase productivity (Republic of Cyprus 1994b: 177–81). Additionally, the Higher Technical Institute (HTI), the Higher Hotel Institute Cyprus (HHIC), the Forestry College and the School of Nursing and Midwifery were also created. All tertiary education programmes are oﬀered free of charge to Cypriot nationals. What should also be pointed out is that the University of Cyprus started its operations in 1992. Furthermore, in realizing targets set for higher education, the government has created two more state-owned 93

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universities and has only recently passed the law for the establishment of private universities, hence assessing and institutionalizing three new private universities. It must be underlined, however, that the students of tertiary institutions both in Cyprus and abroad receive an annual grant from the government. Scholarships are also oﬀered to study abroad. It must be noted however that there is a high incidence of educational qualiﬁcations among Cypriots in general; therefore, issues such as education being the cause of poverty and social exclusion are relatively small. Indeed the educational attainment of the Cypriot population has been rising steadily since the last quarter of the twentieth century (Pashardes 2003: 65–66). In order to counter and reduce youth unemployment as well as social exclusion the Apprenticeship Scheme is oﬀered, among other funding schemes targeting adult continuing education, through the Human Resource Development Authority (HRDA). The Apprenticeship Scheme training programmes are on oﬀer by the HRDA alongside other public institutions covering adult/continuing education possibilities such as evening secondary and technical schools, as well as state institutes of further education and adult education that oﬀer programmes with a broad range such as music and dance, etc. (Pashardes 2003: 68). Family The strong bonds that exist in Cypriot families have been touched upon brieﬂy previously. What has to be highlighted is that these bonds are to a large extent being challenged today as an increase in family violence, separation and divorce are becoming more and more evident. To combat this the Department of Social Welfare Services has developed mechanisms to provide counselling and other services for the support of family members in their roles and responsibilities but also to prevent as well as treat family violence and delinquent behaviour, etc. In addition to these services, programmes exist providing services for helping older people and people with disabilities. Furthermore, the department oﬀers preventive and child protective services, including adoption, foster care and residential care for children and juvenile delinquents (Pashardes 2003: 70). In terms of allowances the state has a number of grants for the assistance of families. The marriage grant is equally divided between the two spouses, payable irrespective of category of insurance, with the issue of two cheques. The conditions for the payment of a marriage grant are the same as for sickness beneﬁt. Furthermore, the maternity grant is payable to a woman giving birth. It is either payable on her insurance, or on her husband’s insurance, irrespective of her category of insurance (i.e. employed persons, self-employed persons, or voluntary contributors). Child beneﬁt exists for parents with at least one dependent child as well as a mother’s allowance subject to various conditions. Poverty and social exclusion It must be highlighted that poverty and social exclusion are not considered as major issues in Cyprus by both public opinion and policy makers. What is characteristic though is that women are still considered to be at a higher risk of poverty and exclusion as shown in (Table 4.3). Brief statistical analysis, however, portrays no evidence of persistent income poverty nor is there support for widespread exclusion. These aspects, it can be argued, may not be 94

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Table 4.3 At-risk-of-poverty rates by gender

cy

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – – – – 15 – 16b 16

– – – – – – – – 14 – 15b 14

– – – – – – – – 17 – 18b 18

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

promoted on the island because it is small, it is a homogeneous society to a large extent, and has rather low levels of illiteracy and above all unemployment. Furthermore, the strong family bonds that exist and the ‘informal’ support provided by extended family and others in terms of ﬁnancial support to those in need may also account for this. What may also account for this is that there is no direct statistical evidence to substantiate a claim of whether social exclusion or poverty as broken down by the EU exist. Evidence and research have indicated that these issues are starting to evolve outside families, speciﬁcally among immigrants and above all illegal immigrants. No direct statistical evidence as of yet highlights such information, for issues pertaining to these stem predominantly from academical research conducted only over the past 2–3 years. Analysis and résumé The evolution of the Cypriot welfare system is inextricably linked to the country’s recent turbulent history. Independence in 1960 signiﬁed the birth of the Republic, but this was a state whose legitimacy, in the eyes of many citizens, was frequently challenged. Further to this, the very integrity of the state was fundamentally challenged by the 1974 invasion. Given these destabilizing conditions, the evolution of welfare provisions proceeded in a piecemeal way within a polity dominated by the country’s political problem and the division of the island. Characteristic of this is the social protection expenditure of the island. Even though increasing, the expenditure of its EU counterparts as shown in Table 4.4 is far greater. Cyprus, in contrast to its counterpart EU states, was a latecomer in the development of its welfare system, and has particularities stemming from within the context that it developed. In countries such as the United Kingdom, the golden age of the welfare system can be traced and identiﬁed as a ‘by-product’ of the Second World War, whereby: 95

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Table 4.4 Social protection expenditure

cy

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – – 1490.3 1613.0 1812.3 2166.3 2266.2 2481.2p

– – – – – 2147.4 2299.2 2551.3 2997.3 3063.3 3274.3p

– – – – – 14.8 14.9 16.2 18.4 17.8 18.2p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

… welfare states tended to emerge in societies in which capitalism and the nation state were both already well established and these pre-existing economic and state formations have themselves prescribed the limits of subsequent welfare state development. (Pierson 1995: 102–3) In addition to this, it can also be seen that, in fact, the increasing trend to industrialization prompted states to adopt welfare policy. In relation to Cyprus, however, it was not until 1980 that a comprehensive social insurance scheme was introduced and the Cypriot Government could be seen to be moving towards a general public welfare policy. Furthermore, at that speciﬁc time, although still relatively small, in contrast to many countries of the EU, social expenditure in Cyprus had moved above 3 per cent of the GNP mark, which is taken by Pierson as the ‘ … notional indicator of the origins of the welfare state’ (Pierson 1995: 107). Various major events in the recent history of Cyprus account for the late introduction of an extensive welfare policy. Cyprus, to a large extent, did not feel the full repercussions of the Second World War as many of its European counterparts did, even though it was under British rule at the time. Only in the late 1940s did Britain begin to implement major (in contrast to the previous 60 years) development plans, providing a future base for the Republic to later build upon. However, in the period 1955–60, the British faced an armed insurrection and thus abruptly halted all signiﬁcant social and economic development. With independence in 1960, the Cypriot Government would face deep political divisions and ethnic strife, which would culminate in 1974.The invasion, does in fact clarify, to a large extent, the main reason for the delay in the deployment of more extensive policies for the development of the country’s welfare system (see Attalides 1979; Katsiaounis 1993). The period from 1974 onwards is characterized by the rapid eﬀorts of the state to deal with the extraordinary circumstances that ensued in the post-invasion period. The important, 96

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and perhaps critical, role of the private sector during this period must also be highlighted, as in areas such as health it managed to ﬁll many gaps. To some extent, this period can generally be seen as the ‘Golden Age’ of the welfare state, as suggested by Pierson (1995: 125–40). The major diﬀerence with Cyprus though, is that industrialization was not a prominent feature of the overall context within which this occurred. From 1974 onwards, the introduction of welfare policy in Cyprus evolved rapidly with the improvement of the economy (Pierson 1995: 140). It can be asserted that, other political factors, such as the mobilization of labour movements, or the growing capacity of interest groups to mobilize in favour of sectoral interests, also played an active role (Pierson 1995: 140). In retrospect, however, in the immediate aftermath of the invasion, the Cyprus government provided whatever was immediately possible for its citizens. What has to be pointed out is the eﬀectiveness of the government in terms of actually implementing the 5-year emergency plans covering primarily the economy. Indeed the government did regulate its market economy and in a short time managed to sustain a high and stable level of employment. Undoubtedly, the government, with the guidance it oﬀered to the private sector, and its interventions (where the latter failed) brought about ‘miraculous’ achievements within a relatively short time in the economic sphere (Christodoulou 1992: xxiii–x1ii). In essence it fell back on the remnants of colonial rule. Speciﬁcally, from the 1980s, welfare provisions were, to some extent, put back on track, whereby the state in essence tried to universalize them, extend their coverage, and develop further the ‘safety net’ of the welfare system. Characteristic of this though – despite the plans set – was the piecemeal reform and extension. It can be asserted that political debate and research, speciﬁcally around the actual progress and further comprehensive establishment of the welfare system, are scant. In fact, it was by the late 1970s that the government began directing policy towards the public as a whole, providing a wider range of social services – most eminent among them being free education, income security, medical care, housing and various diﬀerent personal social services – which were, to a very large extent, aimed at meeting the basic needs of all its citizens, in particular the displaced. In the 1980s, and as the economy improved, the government began to universalize its social services, setting out the very important principle that state services are actually meant for all citizens and not merely for those with a low income. Furthermore, the welfare state services provided by the government of the Republic encompassed a ‘safety net’ based on a test of income and speciﬁc arrangements to satisfy rather exceptional cases of need, such as the displaced. In eﬀect, the government has played an active ongoing role of intervention in order ‘ … to keep inequalities in check’ (Christodoulou, 1992: 19). However, despite this extended welfare policy, it has to be pointed out that, in general, social expenditure in Cyprus is lower than the EU15 but is increasing: in 1985 this amounted to only 10 per cent of the GDP whereas by 2001 it amounted to 17.4 per cent (EU15, 28.5 per cent). Accession to the EU has brought about an altogether new magnitude to the Cypriot welfare system, as it seems to have put a new diverse pressure on it. It has added, to some extent, relatively new requirements and perspectives. In a nutshell, the welfare system of Cyprus can be characterized as quite advanced, albeit its ‘shaky’ state. Despite the fact that welfare statism in Cyprus is still at a relatively ‘infant’ stage in comparison to other countries that have a long history of welfare provisions, it managed to advance and mature relatively fast. This owed predominantly to the many challenges that presented themselves over the recent past, which put pressure upon the government to react and respond to the social problems that emerged. 97

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Future outlook Commenting on the election outcomes of February 2008, Morgan (2008) noted that: A new era in the political history of Cyprus has begun with the victory of leftwinger Demetris Christoﬁas in presidential elections. It was the ﬁrst time that a leader of the Greek Cypriot communist party (AKEL) had entered the presidential race.17 The focus was, and still is, the Cyprus problem. The dire need for a solution at this speciﬁc moment seems to dominate forums of discussion at all levels. Nonetheless, President Christoﬁas’ policies seem to also be concerned with welfare changes. The electoral agenda set out by Mr Christoﬁas, guaranteed to build on social sensitivities and highlighted the pledge to modernize society with the aim of widening and deepening the rights of all citizens. To this extent, he put forward concrete and speciﬁc suggestions that aimed at bettering social policy by extending the coverage of the welfare system. Building on this agenda, Mr Christoﬁas has so far tried to tackle the issue of the dramatic increase in the cost of living. Other actions include dealing with the housing complexities of refugees and non-refugees, as well as young people, and also providing incentives to tackle the problems unfolding due to urbanization. In addition to these developments it must be underlined that renewed optimism surrounds the burning issue of a settlement to the Cyprus Problem. Currently the leaders of the two communities are logged into a process of direct talks. What ought to be underlined is that any type of potential settlement will have repercussions on the future evolution of the welfare system on the island. Its structure can be envisioned as diverging down diﬀerent paths in accordance to the type of settlement, whereas its overall coverage will invariably, and by default, expand in order to accommodate the needs to be delineated by any potential outcome. Aside from the current ongoing process, and stemming from the de facto state of aﬀairs, issues directly aﬀecting citizens do exist. For example, the lack of a National Health Insurance Scheme (NHIS) and the current health system that is somewhat ineﬃcient and expensive, are issues that do surface (Pashardes 2003: 101). Furthermore, reforms are in many cases urgently required, such as those concerning the Social Insurance Scheme (Pashardes 2003: 52). At the same time, new social concerns, such as poverty and social exclusion, are also setting in. Indeed, together with immigrants, other new groups within the society are also beginning to have a strong voice, such as single parents, divorced women and old people. Hence the Republic of Cyprus is called upon to care for the needs of this rather rapidly changing society in an era when the cost of living is becoming daunting. It can be argued, in conclusion, that accession to the EU has provided an arena for the Republic of Cyprus where in retrospect, as a state, it stands as an equal among others. The Cyprus Problem, however, remains unresolved looming above it and – understandably so – it is a very important issue. Invariably, discussions, both at a political and a social level, relating speciﬁcally to the welfare system, do fall secondary. While the EU-induced welfare ‘safety net’ cannot be taken for granted, a holistic view stemming from internal political and social debate is critical. The latter, however, invariably has to be grounded in further scholarly research into the Cyprus welfare system, in order for it to have a pragmatic and substantial impact. 98

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Acknowledgements The authors wish to thank Dr David Oﬃcer, Assistant Professor, Social Sciences, School of Humanities, Social Sciences and Law and Dr Nicos Peristianis, Sociologist, President of the Council for their invaluable contribution.

Notes 1 In 1974 the Turkish invasion of Cyprus led to the occupation of more than a third of the northern-most part of the island’s territory. Even though Turkey maintains de facto control of the occupied part of the island, the Republic of Cyprus is internationally recognized as the sole legitimate state on the island with sovereignty over its entire territory. At the time of writing, changes are already under way following the presidential elections of February 2008. The new ruling party, AKEL, has proceeded with changes regarding various issues incorporated within its social agenda. 2 As put forward also by Pashardes (2003: 79), there is also an urgent need on the part of the government for setting up systematic data collection and monitoring procedures to improve the provision of social services. 3 Cyprus has a surface area of only 9,851 square kilometres (3,572 square miles), and its population today amounts to just over 790,000. 4 The British, who colonially occupied Cyprus between 1878 and 1960, had in 1946 initiated a TenYear Development Plan, which injected planned change in the infrastructure, advanced the training of cadres and advanced the development of agriculture and water resources (Hunt 1990: 294). 5 Muslim institutions provided a similar service to Turkish Cypriots, together with other philanthropic and civic bodies. 6 This marked the escalation of the inter-communal clashes between Greek and Turkish Cypriots, which began in 1963. These also resulted in the withdrawal of the Turkish-Cypriot community from (mainstream) government, beginning the set-up of its own administration (complemented by its health and social welfare services). 7 This followed the Association Agreement of 1972, the Customs Union Agreement of 1987 and the Membership Application of 1990. 8 Interview held with Mr Nicos Peristianis, Sociologist (April 2006). 9 For non-citizens, health care services – except emergency treatment – are charged at full cost during the ﬁrst 6 months of residence. 10 These are in the form of health education, inoculations, control of epidemics and infectious diseases, the disposal of sewage, and the control of the quality of drinking water and food, among others. 11 This does not apply, however, for government employees, families with three or more children, those in need of emergency treatment, and certain categories of chronically ill people. 12 A total of 11.6 per cent is payable by the self-employed person and 4 per cent by the state on their insurable earnings. 13 In order to be eligible to become a voluntary contributor, one must have paid contributions on insurable earnings not lower than the yearly amount of basic insurable earnings. 14 When the loss of earnings capacity is full, the actual invalidity pension is 60 per cent of the weekly average of credited insurable earnings, with the addition of increments for dependents, and is reduced accordingly when the loss of earnings is partial. 15 This beneﬁt is payable up to 12 months from the date of the accident. The ‘disablement beneﬁt’ is payable to an employed person who, due to an employment injury, has suﬀered loss of physical or mental faculty of a degree not less than 10 per cent. 16 The weekly rate of the basic beneﬁt is equal to 60 per cent of the weekly average of the basic insurable earnings of the beneﬁciary in the previous year and it is increased according to the number of dependents. For more information see Pashardes 2003: 27–28. 17 It ought to be noted that, although the philosophy of AKEL is grounded in communism, the party is not re-directing the country away from its vibrant market economy.

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Bibliography Astarita, G. (2004) Welfare in the Mediterranean Countries: Republic of Cyprus, C.A.I.MED – Centre for Administrative Innovation in the Euro-Mediterranean Region. Attalides, M. A. (1979) Cyprus: Nationalism and International Politics (Edinburgh: Q Press). —— (1981) Social Change and Urbanization in Cyprus (Nicosia: Cyprus). Christodoulou, D. (1992) Inside the Cyprus Miracle: Labours of an Embattled Mini-Economy (University of Minneapolis: Modern Greek Studies). Cyprus Government Oﬃcial Website. www.cyprus.gov.cy/cyhome/govhome.nsf/0/65E78C2D007A54 D9C2256A7100399744?OpenDocument per centlanguageNo=1 (accessed 9 May 2008). Hunt, D. (1990) Footprints in Cyprus: An illustrated History (London: Trigraph Limited West Africa House). Katsiaounis, R. (1993) Society and Politics During British Rule, Conference of the Cyprus Research Center, Nicosia and the Institute of Commonwealth Studies, University of London, 20–21 September, 1993. Konis, T. (1993) The Progress of Social Welfare Services. J. Charalambous and G. Georghallides (eds) Focus on Cyprus (London: University of North London). Kouloumou, T. (2003) Children’s Welfare and Everyday Life in Cyprus: A Family Aﬀair with Intergenerational Implications, COST: Action A19. Ministry of Labour and Social Insurance oﬃcial website. www.mlsi.gov.cy/mlsi/mlsi.nsf/dmlindex_gr/ dmlindex_gr?OpenDocument (accessed 9 May 2008). Morgan, T. (2008) Can Christoﬁas heal the Cyprus divide? BBC News, Sunday, 24 February 2008. Pancyprian Welfare Council. (2004) National Report on Homelessness & Housing Exclusion in Cyprus, Prepared for FEANTSA. Pashardes, P. (2003) Study on the Social Protection Systems in the 13 Applicant Countries: Cyprus, Study ﬁnanced by the European Commission – Employment and Social Aﬀairs DG. —— (2005) Local Implementation Of The NAP/Inc In Cyprus, Community Action Programme to Combat Social Exclusion. Pierson, C. (1995) Beyond the Welfare State? (Oxford: Blackwell Publishers Ltd). Planning Bureau. (2000) Strategic Development Plan 1999–2003 (Nicosia: Cyprus). Republic of Cyprus oﬃcial website. www.cyprus.gov.cy/cyphome/govhome.nsf/0/36037CA698754C7A C2256B8300340FD0? OpenDocument&languageNo=1.10http://www.un.org/esa/agenda21/natlinfo/ countr/cyprus/social.htm (accessed 9 May 2008). Republic of Cyprus (1994a) Address by the Minister of Finance before the House of Representatives on the Occasion of the Debate on the Budget for 1995, Minister of Finance Mr. Chr. Christodoulou, Nicosia, 22nd December, 1994. —— (1994b) Cyprus (Nicosia: Press and Information Oﬃce). —— (2004) National Action Plan for Social Inclusion: 2004–2006 (Nicosia: Ministry of Labour and Social Insurance). Shekeris, A. (1992) The Cypriot Welfare State: Contradiction and Crisis? The Cyprus Review (Nicosia: Intercollege Press). Social Welfare Services (1969) Planning, Organization and Administration of Social Welfare Services in Cyprus, Nicosia: Ministry of Labour and Social Insurance. Statistical Service (2003) Statistical Abstract 2001 (Nicosia: Republic of Cyprus). Triseliotis, J. (1977) Social Welfare in Cyprus (London: Zeno). Wilson, R. (1993) The External Relations of the Republic of Cyprus, Conference of the Cyprus Research Center Nicosia and the Institute of Commonwealth Studies, University of London, 20–21 September 1993. Zetter, R. (1993) The Greek-Cypriot Displaced After Two Decades: Perceptions of Return, Conference of the Cyprus Research Centre, Nicosia, and the Institute of Commonwealth Studies, University of London, 20–21 September 1993.

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Chapter 5

cz The Czech welfare system Vojteˇ ch Ripka and Miroslav Mareš

Until recently, social policy has been overshadowed by other political issues and it has only come to full public prominence during the last three years. The Czech population is thus beginning to include social policy into its explicit and pronounced political stances. Egalitarian ethos and limited space for political consensus suggest that the past inertness will not be replaced by radical change. Therefore even recalibrations may begin a decisive shift. That makes today’s Czech social policy outstanding.

Historical overview History of social policy to 1948 The ﬁrst state social issues were realized on Czech territory (as a part of the Habsburg monarchy) at the turn of the eighteenth and nineteenth centuries. In concrete terms, since 1785 it had been the duty of the manorial nobility to care for the poor; in 1868 it became a matter of public administration (Tröster 2005: 27). Under the inﬂuence of Bismarck’s Germany the ‘Taaﬀe reform’ – named after Eduard Taaﬀe, prime minister of the Austrian half of the Habsburg monarchy (Cisleithanian) – was adopted in 1888–89. It included accident health insurance, health insurance for workers and labour protection (Grandner 1994: 6–7, Tröster 2005: 29–30). All schemes of the Cisleithanian part of the Austro–Hungarian Empire followed a strict principle of occupational classiﬁcation with diﬀerent conditions, and in fact were separate. Universal ambitions were absent and, as with the Bismarckian reforms, the primary goal was to appease radicalizing masses and lure away potential supporters of the social democratic movement. Some features of the basic occupation-related insurance schemes prevailed throughout the Czechoslovak Republic established in 1918. The inter-war democratic Czechoslovakia was by 1925 one of the few European states with complex social policies (Kárník 2003: 522). After introducing the 8-hour working day in 1918, the reform carried on with the enactment of the ‘Ghent system’, which imposed the responsibility for unemployment beneﬁts on both the trade unions and the 101

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government. The separation of sector-related social policy systems prevailed, but the social insurance system has been relatively comprehensive, and from 1926 onwards it included old age pensions, disability pensions and sickness beneﬁts, beginning from the third day of illness-related incapacity (CSSZ 2004). The leitmotif of reforms was ‘serious social reforms instead of social revolution’ and the character of the regime was socially progressive, while social insurance proceeded along Bismarckian lines. The interim period of the totalitarian regime under Nazi occupation used the method of incentives for the loyal ‘regime pillars’, such as workers in the armaments industry, while its potential (and actual) opponents were abridged of any social rights. After the Second World War, the Czechoslovak government followed the pre-war legislation and in 1948 it adopted a new law on social insurance, a Beveridge-style shift from the existing tradition (Arnoldová 2004: 81). The seizure of power by the Communists in 1948 altered these early attempts to signiﬁcantly change the Bismarckian scheme. Social policy under the Czechoslovak communist regime The basic feature of the communist social security system was its conformance with the goals of maintaining the paternalist and closed order. Social security was thus used as both a ‘clogging’ device and a tool of repression. The centralized system with only limited private property and no space for the private sector in the economy was a successful tool for deterring the dissenting voices. Guaranteed full security was in eﬀect aimed at the working class, farmers in cooperatives and the ‘socialist intelligentsia’ (Vecˇ erník 2006: 68). The concept of full employment meant not just some extreme ineﬃciencies, but also means of oppression against ‘non-adaptable elements’, a label for any non-conformists, including members of the opposition or dissent movements. Employment and wages were determined by central plans – of the work force and wage directives (Tomeš 2001: 202). All social security was ﬁnanced from the state budget. A considerable part of the social security solutions was transferred to the system of price regulation with heavy subsidies of some of the basic goods, in particular food products. Short-term consumerism was the widespread ‘survival strategy’. Uprooting of the natural long-term security planning has been reﬂected at the personal and governmental levels ever since, most notably by postponing the reform of pensions. Enormous stress on the role of state in social services was capped by making all the services institutional. Czech Welfare reforms after 1989 The reasons for the collapse of the communist system in Czechoslovakia in 1989 have been subject to countless debates. Explanations based on economic grounds show that the drive for consumerism could not be met by the rigid system of centralized ‘planned economy’ and thus the role of government had to be limited in all sectors. The construction of the new system has however not been shaped just by a radical drive to retrenchment of the government, because the mechanisms of the late communist administration had the eﬀect of making citizens accustomed to the beneﬁts. The transformation of the communist system has focused on economic development. That does not imply a lack of concern with social security policies, but that major changes were expected in the economy. Social security was, quite contrarily, expected to reduce new risks, even at the cost of limiting the potential of economic change. 102

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The ﬁrst phase from 1990 to 1992 set the foundations of the new system: a social insurance principle with high levels of solidarity, state social support and state assistance as a safety net and supplementary source for low-income families with a minimum living standard as its core mechanism and oﬃcial poverty line. The system was open to private initiatives, which primarily meant non-governmental organizations, churches and the private sector. The theory of the three-pillar system, as further described in the section on fundaments of the current system and discussed in the analytical section, became more pronounced and the system claimed not to include a large number of types of beneﬁts. Both conservative–liberal governments of Prime Minister Václav Klaus introduced reforms of the social system during 1992–98. Despite the neoliberal rhetoric of Václav Klaus and his party, the actual governmental social policy was moderate. The government under the dominance of the Civic Democratic Party nevertheless adopted an important reform of social policy in 1995. Processes of ‘social democratization’ and Europeanization (in the context of the accession of the Czech Republic to the EU) were typical during the era of governments under the leadership of social democracy (1998–2006). The leitmotif of the welfare system The leitmotif of the welfare system has deﬁnitely not been explicit and it has to be interpolated by analysing policies. Extensive security, no poverty and equality guaranteed fully by the state could have been the motto of the system until about 2004. The state plays the supreme role in all dimensions of the welfare state. The paradigm of the welfare state in the Czech Republic has been shifted towards the introduction of more diversiﬁed choices within the system and more stress is put on the active role of potential clients. This process was begun even under the coalition led by social democrats, where new social codes have enabled the clients of complex social services to be given a choice using a voucher-like system. These developments were recently followed by relatively non-controversial measures towards ‘multi-speed’ paternal beneﬁts. The stress on the active role of clients can be seen in the shift from direct beneﬁts to tax allowances. The sustainability of public ﬁnances and workfare may replace the paternalist egalitarian legacies of communism.

Status quo: analysis and political dimensions Services and beneﬁts The programme to be followed by the government, made up of three relatively diverse parties – Civic Democratic Party (conservative/liberal), Christian Democratic Party, the Greens (centre) – set its key principle as social and ecological responsibility (Government 2006). The key issues and groups are identiﬁed as unemployment, old people and families. The logic of these priorities is, however, clearly subordinated to the sustainable ﬁscal strategy of the government, while social expenditures are identiﬁed as the main target of cuts. Pensions should be reformed based on a previous settlement agreed by all major political parties. Since old age pensions are to be maintained at their real value, other social expenditure must be cut by changing the valorization scheme and the structure of the beneﬁts. This agrees with its own rule of not introducing any legal norms that may increase mandatory expenditure, with the exception of pensions. The 103

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government even sets its target to 50 per cent of public budget expenditure by the end of its mandate, i.e. by 2010 (Table 5.1). Social expenditure peaked in 2002 and 2003, but the ensuing decline may not be as steep as the rise was until the mid-1990s. Unemployment is seen as both a social and an economic obstacle on the way to an eﬀective and prosperous society. It is also, as the text further states, a result of deﬁcient ﬂexibility in the labour market. Social dialogue, in other words the institutionalized consultation process called tripartite, is pledged to be involved in the reform process and any reforms should consider maintaining social peace (Government 2006). Fundaments of the social security system and their functions The Czech social security system is based on three relatively separate structures, usually called pillars: social insurance, state social support and social assistance. The pillars diﬀer in their functions as well as the modes of ﬁnancing, and furthermore they are not completely self-consistent. While the social insurance scheme is contributory and is aimed at covering predictable adverse situations, state social support and social assistance are noncontributory, both ﬁnanced from the budget by general taxes and both are targeted at extraordinary social situations. As we shall show in sections on unemployment and pensions, the Bismarckian ideal of status maintenance has not been fulﬁlled but the social contributions still play a major role in the system. State social support is generally constructed to deal with social situations, mainly family ones, such as birth or death, which are seen as deserving support, but are not covered by social insurance. State social support will be addressed in the section on the family. Social assistance presents a policy subsystem for ‘material and/or social deprivation, which

Table 5.1 Social protection expenditure

cz

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

7382.0 8597.6 9368.0 10268.2 10845.0 12001.6 13433.7 16154.7 16366.9 17063.2 19190.8p

714.8 833.5 909.2 997.5 1054.6 1168.3 1312.3 1583.0 1603.4 1670.2 1874.9p

17.5 17.6 18.6 18.5 19.2 19.5 19.5 20.2 20.2 19.3 19.1p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

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citizens are not able to cope with by themselves or with the help of the family’ (Krebs et al. 2007: 155). Social assistance should be closely connected to the social work system and has to serve as a support scheme. There are two principal tiers of social assistance: the beneﬁt scheme and social services. Beneﬁts of the social assistance scheme are dealt with in the section on poverty, since it is the main goal of this subsystem. Social services have their own separate section analysing their shape and their ﬁnancing, including the respective beneﬁt arrangements. Health care is provided on the basis of general health care contributions and will be treated in a separate section (Table 5.2). As we shall show in the respective sections, the relative social protection beneﬁt rates demonstrate some particularities. The unemployment and housing domains are markedly lower than the EU mean, while social exclusion and sickness and disability domains are well above the EU mean. Financing the services Financing welfare services and beneﬁts is diversiﬁed according to the respective pillar of the social security system. We have already stated the contributory character of the social insurance scheme and non-contributory feature of the state social security and social assistance schemes, so the logical source of the last two pillars is the state budget, or in other words taxes. Insurance contributions are deducted separately from income, but then also become part of the state budget, even though the legal system in principle presupposes its separation. The social insurance levy consists of health insurance, pension contributions and contributions to the governmental employment policy. These contributions are obligatory and are paid by the employer and employee. The composite rate is, even by European standards, high (41 per cent of employed labour income, compared with 37 per cent EU25 mean in 2006; Eurostat 2008a). Apart from the obligatory scheme, there are other additional non-obligatory tools of social insurance, namely the state-guaranteed ‘additional pension insurance’ and ‘construction saving scheme’. These programmes are supported by the government in the form of tax allowances and direct subsidization. The construction saving scheme is discussed Table 5.2 Social protection beneﬁts as a percentage* (2005)

cz Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 96.6p 7.3p 3.5p 0.4p 2.6p 41.7p 41.2p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

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in the section on housing, and it is a relatively separate, though monetarily minor domain of social policy. Additional insurance is a logical part of pension issues and is discussed in the section on pensions. Description of policy domains Unemployment Aggregate unemployment in the Czech Republic has been dynamic and it has, for many reasons, not followed the overall EU trends until recently. Because of postponed restructuring of industry in the late 1990s, the unemployment rate topped nearly 9 per cent in 2000 in a reverse trend to the EU15, even outdoing the average. Since then, unemployment has steadily decreased with renewed economic growth. The current level of 5.3 per cent is well below the average of both EU15 and EU25 (Eurostat 2008b) (Table 5.3). However, as we have noted in the section on national priorities, unemployment is one of steady and prioritized issues on the governmental agenda. This unaltered devotion by all governments to ‘ﬁght’ unemployment is in compliance with the expansion of expenditure in this sector – double in relative terms from 1995 to 2005 (Eurostat 2008b). The main reason is psychological and copies the reasons for postponing restructuring of industry: the stories of the communist regime as guarantor of full employment and tales about the social uncertainties of the present system together with the exceptional average length of employment with one employer have been psychological threats to a considerable part of society, and thus voters. The employment policy uses diﬀerent tools for dealing with short- and long-term unemployment. Unemployment insurance is the ﬁnancial basis of the short-term unemployment policy scheme. Funding is not separate from the general budget and it has to create a reserve for higher unemployment rates. Each person, who has been contributing to the pension scheme for at least 12 months in the last three years through his/her registered employment, is eligible for the beneﬁt. The beneﬁciaries of old age pensions, sickness beneﬁts, and the recipients of the retraining support and imprisoned people are ineligible.

Table 5.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

cz

eu27

eu15

– – – 6.4 8.6 8.7 8.0 7.3 7.8 8.3 7.9 7.2 5.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

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The support period varies according to age: unemployed persons under 50 years are supported for up to six months. Older people can receive unemployment beneﬁts for up to 12 months, depending on age and duration of contributions to the pension scheme. The amount of material support is derived from the average monthly wage from the last employment, and declines from 50 per cent to 45 per cent after three months. Participants of retraining schemes receive 60 per cent of their former wage. The ceiling for the amount of beneﬁt is 2.5 times the minimum living standard (for instance a single person gets a maximum of about €310). The recent reforms have not targeted the basic structure of the unemployment beneﬁts, but have introduced some restrictions concerning eligibility. The beneﬁts are no longer available to employees dismissed for serious breaches of working duties. Unemployment beneﬁts are administered together with a system of job oﬀers by Labour Services, a regional network of agencies of the Ministry of Work and Social Aﬀairs (MISSOC 2007). Long-term unemployment is a matter of social support and social assistance schemes, and this issue is treated in the section on poverty. The employment scheme mainly consists of passive measures, i.e. the system of unemployment beneﬁts – about 60 per cent of expenditure in 2002–6 (MPSV 2007). The system is relatively less expensive than in the EU, it amounts to less than 1 per cent of gross domestic product (GDP) (the EU15 mean is more than twice as high) (Eurostat 2008a). The Czech social security system has implemented some measures to promote activation policies towards the unemployed. The activation policy scheme is centralized, but relies on local labour oﬃces. The activation policy has been called ‘soft’ (Sirovátka 2007: 22), especially compared with the more radical activation policy introduced in 2004 in Slovakia. The retraining scheme has gradually become the key tool of employment policy, doubling the absolute number of participants in the last seven years, while total unemployment decreased by more than one-third. This may be chieﬂy ascribed to the incentives (higher beneﬁts), but also to the improvement of the quality of retraining programmes (MPSV 2007). The level of long-term unemployment steadily became a major problem in the sector. It peaked in 2007 with about 55 per cent of the unemployed being out of the labour market for more than 12 months (Eurostat 2008b). This rise from 30 per cent in 1998 may be explained not only by restructuring the economy, but also by an ineﬀective social safety net, as shown in the section on poverty. The activation policy has made few steps towards workfare, but still lags behind expectations and the dependency of the long-term unemployed is the main obstacle in its further advancement. Poverty The phenomenon of poverty is relatively new to the Czech population. Until 1989, poverty was not ‘admitted’ by the government because of ideological reasons. The socialist character of society allegedly prevented poverty once and for all. This in practice meant that poverty has not been covered by the state social security as welfare, unlike illness, maternity, age and death. The transformation process has brought an increase in the risk of poverty. This fact, together with the formal recognition of poverty, has made solving this problem one of the chief goals of social security system (Table 5.4). There are two major benchmarks for poverty: minimum living standard and supplementary subsistence. An existential minimum was introduced in 2006 to diﬀerentiate the 107

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Table 5.4 At-risk-of-poverty rates by gender

cz

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – – 8 – – – 10b 10

– – – – – – 7 – – – 10b 9

– – – – – – 8 – – – 11b 11

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

priorities of social security. The minimum living standard is deﬁned as a socially agreed minimum level of income to provide nurture and other basic needs. Subsistence is deﬁned as the minimum level of monetary income to provide nurture and other personal basic needs on a level that allows survival. Subsistence cannot be applied in the case of a dependent child, full invalidity, receivers of old age pensions and people over 65 years. The existential minimum is the beneﬁt line for the unemployed who breach the rules for registration at the Labour oﬃce. This is predominantly targeted at people who have declined a suitable job oﬀer at the Labour oﬃce. Part-time working is encouraged by the new legislation: only 70 per cent of the income from work is included within the mechanism to determine beneﬁts. The unit for measuring the minimum living standard is the household, while there are diﬀerent rates for each member according to his/her age and dependence. The level of the minimum living standard decreased in 2007 by 30 per cent. The change has been in force since 2008. The current levels vary from €125 for an individual to €180 for one parent with one child to, for example, €390 for two parents with two children. The evaluation of the minimum living standard and subsistence was also changed in 2007. The former indexing according to the increase in the consumer price index has been replaced by the government only having to indicate the possible moment of a change without having any imperative obligation. The minimum living standard is the key benchmark in the following schemes: & & &

material poverty beneﬁt; state social support (i.e. child beneﬁt and social supplement); determination of alimental obligations in court.

In general, the level of poverty is relatively low. A closer look at the structure of poverty group reveals a high incidence of unemployed people, lone mothers and large families with 108

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many children. Access to social assistance is easy, but it has created conditions for long periods of dependency. Even if the recent recalibration of the system has seemed to reduce the scale of dependency, there is not enough evidence yet to support it by analysing its impact. The Eurostat data support the shared notion of an eﬀective reduction in the risk of poverty, assigning more than a twofold decrease in the at-risk-of-poverty rate to social transfers (Eurostat 2008a). The distribution of poverty does not notably vary with gender, but at least one group of beneﬁciaries points to the importance of gender within the monetary sector. Lone mothers are one of the groups most dependent on social assistance. Sirovátka (2004) calls their situation the ‘unemployment trap’. The misuse of beneﬁts is presumed to be relatively high among lone mothers because of ‘refused partnership’, a situation that would have an impact on the subsistence level. Generally, the risk of poverty is greatly reduced by the beneﬁts, that is the short-term eﬀectiveness of the system as opposed to the production of longer term dependency. Since 2006, subsistence level and part-time job incentives have been introduced and hence the system has refocused on rewards for activity and penalties for inactivity. These improvements may cause reconsideration of the classiﬁcation, but as with the other recent changes, empirical evidence is needed to assess its importance. Housing Tax allowances on mortgages and on credits to the construction saving schemes are two major indirect tools. The obviously limited ﬁnancial resources – with the relative share within the social beneﬁts more than four times lower than the EU27 mean – devoted to housing in the welfare system stem from several facts (see Table 5.2). About one-sixth of housing is eﬀectively out of the market because of regulated rents. Redistribution towards this group of tenants is usually not needed. This situation may change as constant calls for deregulation may succeed because of the collective lawsuit in the European courts brought by house-owners against the Czech state. There are also serious consequences of the rigidity of the housing sector. Low mobility results in regional misallocation within the labour market. Housing beneﬁts are linked to regional housing prices, which also leads to the misallocation of resources, i.e. to a relative elimination of any market forces in the sense of mobility of low-income households. Pensions The pension system in the Czech Republic is based on the principles of solidarity and merit and uses social insurance as the basis of funding. Social contributions are compulsory for employees and employers. Contributions give a person a legal right to a pension. The pension scheme does not concern just the older age group, but also partial or full disability, widow(er)s and orphans allowances. It is dominantly pay as you go with smaller individual funds. Contributions amount to 28 per cent of the wage. Since 1996, there has been a fund gathering pension contributions separately from the general budget. This fund has had a deﬁcit in covering the pensions since the late 1990s, so contributions had to be increased in 2004 by 2 per cent, removing that amount from the employment policy contribution. The system is overseen by the Ministry of Labour and Social Aﬀairs; day-to day operations are run by the Regional Social Security Administration, a network of agencies under the ministry. 109

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The pension itself is calculated on the basis of the insurance period and achieved earnings. Each pension consists of a ﬂat rate component and a component depending on the level of earnings and number of insured years. The redistributive formula for the latter part consists of two independent factors. The ﬁrst one tells how much of the ‘reduced salary’ will make the pension and is only based on the number of insured years, how many working days were actually spent working, and whether the retiree begins to draw the pension before or after the legal age. This percentage lies within a limited range of 65 to about 75 per cent and is independent of the salary. A very strong egalitarian feature exists in the way the ‘reduced salary’ Ir is calculated. The input – ﬂat salary I – is determined as the mean of the indexed monthly income for the deﬁned number of the last work years. The reduction has two diﬀerent levels, deﬁned by two ﬁxed values I1 and I2 , which are adjusted with time; the current year I2 is about the average salary and I1 slightly less than half this value. For ﬂat incomes I I1 Ir ¼ I, for incomes I1 I I2 Ir ¼ I1 þ 0:3ðI I1 Þ ¼ 0:3I þ 0:7I1 , and for incomes I > I2 Ir ¼ I1 þ 0:3ðI2 I1 Þ þ 0:1ðI I2 Þ ¼ 0:1I þ 0:7I1 þ 0:2I2 . Thus there is no reduction for the lowest wages, 70 per cent reduction above half the average salary and 90 per cent reduction for the part above the average salary. This high redistribution contrasts with Germany, which still sticks to its status-maintaining tradition, the net pensions for the same earning categories as above vary only between 50 and 60 per cent with a reverse trend (OECD 2008). High earners in the Czech Republic thus get relatively lower pensions than in most Organisation for Economic Co-operation and Development (OECD) countries, the average replacement rate being two-ﬁfths higher (Hemmings and Whitehouse 2006) (Figure 5.1). The retirement age is part of a transition scheme and should conclude in 2013 with a retrial age of 63 years for men and 60–63 years for women, according to the number of children raised. The evaluation system leaves much room for governmental interpretation and decisions. Compulsory yearly change has to be based at least on 100 per cent of the rise in consumer prices and 33 per cent in the rise of real wages. The change usually exceeds these limits. The second pillar (or in the World Bank system the third one) consists of additional pension insurance. The programme is voluntary and it is conducted through private funds. Contributions are moderately supported by the state in the form of direct support and also by tax allowances. Private funds, which provide ‘additional pension insurance’, are regulated by the government and the overall contributions (total funds totalled 4.4 per cent of GDP in 1996) and the ratio of participants (3.6 million in 2006) do not comply with the initial aspirations of the ‘third pillar of the pension system’ (MPSV 2007). The challenge of an ageing population is an evergreen one among the social issues in Europe, still its eminence in the Czech Republic makes it one of the EU countries most 110

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Figure 5.1 International comparison of relative pension levels (gross). Source: Hemmings 2006.

vulnerable to the collapse of the pension system. The need for the reform of the pension system has become a consensual issue in 2003. The common eﬀort resulted in the establishment of a ‘Team of Experts’ from the relevant political parties moderated by an expert from the Czech Central Bank. The results showed ﬁve diﬀerent approaches by the respective political parties to the reform. The multi-party format of the Czech political system with coalition governments naturally means that none of the reform proposals may be implemented. Signals from June 2008 have indicated that we can expect only slow and predominantly parametric changes in the upcoming years, beginning with the relatively least controversial postponement of the retirement age to 65. Family Policies relating to families in the Czech Republic are a prime example of variations in the mixture of social conservative (Bismarckian) and social democratic systems. The communist era had a great impact on families and their public conception. The social role of the family has systematically been undermined by the excessive powers and responsibilities of maternity care and the schooling system. Building on the model imported from the USSR, ‘public fostering’ guided by scientiﬁc principles and theoretical emancipation of women, communist Czechoslovakia did not go as far as the Soviet example did, but did, however, cause some serious damage (Dudová 2007). Among the EU countries only the Baltic States have higher divorce rates. The number of abortions peaked in 1988 with the abortion index at more than 90 (number of abortions per 100 births). Family beneﬁts are characterized by a long period of possible paternal allowance, the limited role of means-tested beneﬁts and a recent shift from direct to indirect modes of support. The evolutionary character of the changes has been displaced by an increasing 111

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dynamic from 2007 onwards, despite a period of the above-mentioned ‘explosion’ of expenditure, mostly within the family policy sector. Maternity care beneﬁt is the only scheme covered by social insurance, in particular sickness insurance. The level of the beneﬁt is thus based on previous income and lasts 28 weeks. Employers are obliged to re-employ the mother not only after the 28 weeks’ maternity leave, but up to the child’s third birthday. From 2008, the paternal allowance is a three-speed scheme, with diﬀerent funding for the ﬁrst 24 (fast), 36 (standard) and 48 (slow) months of the life of a child. The paternal allowance is theoretically gender blind; however, cultural and other administrative reasons means that men account for only 1.35 per cent of parents at home. The paternal allowance is not compatible with an extensive use of child care facilities, but the former ban on performing paid work has been lifted. The paternal allowance has served as a strong incentive to leave the labour market, especially for the low-income group (Vecˇ erník 2004). The diversiﬁcation of the beneﬁt is intended to work against this trend. Low-income families are supported by beneﬁts called the social supplement and child beneﬁt. The eligibility criteria for these beneﬁts are derivatives of the minimum living standard and minimum wage, respectively. The birth grant, a general non-tested beneﬁt, has been subjected to serious variations. From 2006 till 2007, the funding mechanism has been doubled and the costs have doubled too (MPSV 2008). Legislative changes in 2008 released the beneﬁt from the minimum living standard evaluation scheme and lowered the beneﬁt by one-third. The general character of the beneﬁt remained. Child care institutions are divided according to the age of the children. Children up to three years are subject to medical care centres – nurseries. The number and thus the importance of nurseries steeply decreased from 1990 with over 1,000 facilities to current 52, according to Ministry of Health statistics (MZCR 2007). For children from three years of age to the beginning of the compulsory schooling at the age of 6, child care facilities are part of the pre-school education system supervised by the Ministry of Education, Youth and Sports. The number of facilities did not substantially fall during the 1990s, despite the relative decline in the birth rate. The educational system oﬀers mostly free public education, which may also be seen as part of family support measures. Numerous surveys show growing demand in the child care sector. Health care The Czech health care system consists of a mix of the UK’s National Health Service-like public insurance system with some free-market elements. Standard health care is declared to be a universal public good guaranteed by the state. This basic service should be supplemented by extra care above the standard not covered by insurance or guaranteed by the state. The constitution states a ‘right to free health care’. Public insurance is compulsory for all permanent residents and employees of companies based in the Czech Republic. Individual contributions are deducted from salaries by employers (9 per cent) and employees (additional 4 per cent), 13 per cent is paid by the self-employed. Contributions for children and students are paid by the government. The relative level of contributions has remained the same from the early 1990s. There is a plurality in the legal forms of the health care providers, which includes a few state facilities, decentralized regional and municipal facilities and private facilities. The ratio among the legal forms is rapidly changing with a lot of regional and municipal facilities being privatized, but this process may be reversed (see below). 112

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There are nine insurance companies, all non-proﬁt ones, with the state-controlled General Insurance Company sharing 63 per cent of the insured. The insurance companies operate in a quasi-market. The free movement of clients and the contractual basis of their relations with health care providers oﬀer some limited competition, but all other dimensions of the market are regulated. The system of contractual payments is performance based. Insuﬃcient control mechanisms could not prevent extreme wastage of medicines, and also the abuse of medical care. From 2008, a new ‘regulatory’ system of payments for each medicine, visit to the doctor, emergency care and hospital stay has been introduced. Payments range from €1.5 to €3.5, with a yearly ceiling of €200 for each insured person. As with social contributions, health insurance is based on high redistributive solidarity. The ceiling for the payments was only introduced in 2008. It is deﬁned as 48 times the mean income, which still results in a high level of solidarity. The sickness policy may also be described as part of health care, even if it comes under the Ministry of Labour and Social Aﬀairs. The basic principle of sickness insurance is in compliance with the rest of the insurance scheme; however, the level of redistribution even exceeds pensions. Unlike the pensions contribution and the employment policy, despite the fact that there is some positive correlation between earnings and sickness beneﬁt, the very low ceiling makes it relevant only for low-wage employees. Health care policy has become one of the most contested areas of political debate. The most controversial issues are the legal status of health care facilities, insurance companies, and the consequences of the constitutionally declared free access to health care and entitlements from sickness insurance. The year 2008 has seen two major Constitutional Court rulings on health care. The above-mentioned ‘regulatory fees’ have been contested for their incompatibility with the constitutional provision on free health care. The fees have been supported, but a ‘new’ actor has thus entered the social policy arena. The second dispute has been over sickness beneﬁts, which have been partially shifted from the state, the receiver of the sickness contributions, to the employer. Moreover, the ﬁrst three days of illness is no longer covered. The court ordered that these changes should be abandoned, but the situation in July 2008 is still unclear. Social services The stress put on the formal institutionalization of social services during communist times, namely on residential institutions, has been covered in the section on the history of the social security system. Path dependency has been unexpectedly strong in this domain, but the Czech Republic is in this sense no exception from the former ‘socialist camp’. It was not until 2006 that the chief responsibility and the logically associated ﬁnancial entitlements were transferred from the provider of the service to the client. This form of empowerment is, besides evolutionary substitution of residential institutions with diﬀerential treatment and with the preference of social (re-)inclusion into full social life, the most fundamental alteration in the sector. Clients are deﬁned as citizens who need the service because of their state of health or age, and who are not able, without the assistance of society, to overcome their adverse social situation or unfavourable circumstance (Socialní 2008). Citizens in this respect are not just the citizens of the Czech Republic, but, according to EU legislation, also the citizens and family members of EU member countries, asylum 113

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seekers and also foreigners with long-stay permits who have held the permit for at least three months. The provision of social services has been devolved to regions and municipalities, the government keeping just ﬁve institutions for the mentally ill. Despite the rapid formal opening up of the system in the early 1990s, non-governmental organizations (NGOs) still form a minority of the service providers. The government remains the supreme supervisor of the system, though regions have been granted devolved supervision powers to control and register providers of social services. In terms of expense, the regions themselves hold about 55 per cent of services and municipalities about 30 per cent. The remaining 15 per cent of services are provided by various NGOs and churches (MPSV 2007). Provision of services follows the principle of sovereignty of the client guaranteed by a contract. The contract is part of the civil law, which means that it is enforceable. The provider is obliged to have a contractual arrangement with the client eligible for the service oﬀered.

Analysis The Czech welfare mix is based on a pronounced conception of fairness, which greatly values social cohesion. The high levels of redistribution naturally lead to two disadvantages – excessive encumbrance of the budget and high taxation (or insurance), with highly disproportionate beneﬁts leading to dependency. Both the strain on the budget and the redistributive measures followed by dependency have an economic as well as ideological (or moral) dimension, as Scharpf (2001) notes. The public debate has not been mature enough to cover these dimensions, so neither of them is comprehensible to the public (Dalsgaard 2008). Dependency is also mirrored in social policy by the relatively low density of proﬁled actors, especially when the political parties are left out of consideration (Vecˇ erník 2008). Corporatist actors The labour market is co-formed by corporative actors, namely Workers’ and Employers’ Unions. Their relative strength is subject to many disputes. Even if their role is institutionalized in the ‘Tripartite’, their possible strength lies in pre-emptive informal consultations. The gap between the radical neo-liberal rhetoric of the ‘transformation government’ in the 1990s and social conservatism may be better understood if one acknowledges the enormously high value with which peace in labour force has been credited. The trade unions have accordingly been paciﬁed. This settlement seems to have been reached in the late 2000s because the number of trade unionists decreased, as in most of the EU countries. The trade unions adopted other means for advancement of their goals by ‘intergrowth’ with the social democratic party (the normal state of aﬀairs in Western Europe, but newly established ties in the Czech Republic). Their role today – independent from the social democratic party – is limited, but the trade unions still present the most powerful left-wing think tank. Political parties The role of political parties in the Czech Republic is traditionally strong and they also have support in the Constitution. There are ﬁve relevant political parties and the mechanical 114

C Z E CH R E PU B L I C

need to form coalition governments results in moderation (or paralysis) of the policies of individual parties. The politics of the Civic Democratic Party (ODS) could be summarized as a restrictive attitude to state social issues. The politics of the small coalition parties – ˇ SL) the Christian and Democratic Union Party, Czechoslovak Peoples’ Party (KDU-C and the Green Party (SZ) – is characterized by support for retrenchment in various ﬁelds. ˇ SSD) supports limited reforms in the The opposition Czech Social Democratic Party (C ˇ M) strongly social politics. The opposition Communist Party of Bohemia and Moravia (KSC supports the role of the state in social welfare. Mode of beneﬁts and their effectiveness The relatively high coverage rate has historically been a result of consensus. This consensus may be in a process of dismantling, since most of the recent government measures mean either creating space for retrenchment or retrenchment itself. One of the signs of change may be illustrated by the mode of the beneﬁts. The mode of beneﬁts is one of the most of dynamic features of the current reform of the social security system. In 2005, means-tested beneﬁts accounted for only 5 per cent of the total social beneﬁts, which constituted about half the level of the EU mean. However, they were near the top of the ex-communist countries in the EU, except for Poland with 6 per cent (Eurostat 2008b). In some cases the introduction and in others an increase in the level of ‘strictness’ of the criteria has meant this principle has advanced even more. The eﬀectiveness of the system is deﬁnitely not satisfactory if we look at its costs. Means-tested beneﬁts are the most expensive ones, but their number in the Czech Republic is still very limited. Why then does the Czech Republic surpass the EU average share of costs on social spending? A clue lies in the composition of social expenditure: the administration of private sources and private providers may well be less costly than the monolithic spending of the Czech state. The structure of the system incentives may also be of concern. The Czech welfare system is a disincentive for about one-third of households (Pavel and Galuscák 2007). Releasing indexation from legal constraints, as already mentioned, reduces the political risk built into indexation, as has been documented in other countries (Dušek 2007). Insider–outsider The distinction between insiders and outsiders of the welfare system has several dimensions. First, there is a substantial divide between the socially insured, mainly participants in the labour market, and the uninsured. Pensions and unemployment beneﬁts are beyond the reach of the long-term unemployed. Without any clear evidence, there is also a cultural or informational divide according to the capacity to receive beneﬁts to which a person is entitled and to those actually administered. Sirovátka (2004) estimates about 13 per cent of people above the minimum living standards to be outside the system. Another distinctive group of outsiders are the non-registered foreign workers and the endogenous informal market participants. Estimates of the number of illegal workers, mainly from the Ukraine, who are completely without any entitlement to Czech social security beneﬁts vary at around 100,000 (Drbohlav 2003). Compulsory health care should guarantee universal coverage. This provision means that the long-term unemployed, especially socially excluded groups, are vulnerable health care insurance debts. 115

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Roma communities About 200,000 Roma live in the Czech Republic. A great part of this ethnic minority live in diﬃcult social and economic situations, mostly in about 400 socially excluded communities in Czech towns (so-called Roma ghettos). According to a Czech governmental report their situation is characterized by high unemployment (most often 90–100 per cent), dependency on social assistance beneﬁts and state social support beneﬁts, a worsening housing situation, unsatisfactory state of health and distance barriers (Agency for Social Inclusion 2007: 6–10). There are two principal stances towards the Roma community within the policy community – one culture centred and one focused on social exclusion. The recently gained dominance of the latter provided the basis for more eﬀective policies. The Czech government established the Council of the Government of the Czech Republic for Roma Community Aﬀairs as a permanent advisory body, and in February 2008 the Governmental Agency for Social Inclusion in socially excluded Roma localities started operating. The policy network is still in the early stages, since fundamental knowledge on Roma communities is only now being gathered. Support for Roma communities is one of the areas of social policy where a signiﬁcant role is played by NGOs. Insiders do not see the exclusion of Roma communities as a long-term threat, mainly because, at least until the turn of the century, they believed in the power of the formal social security institutions, analogically to their own self-perceptions. Welfare mix résumé The vast majority of social security expenditure is covered by social contributions, a classical attribute of the Bismarckian continental model. There are three key features of the social insurance system: contributions based on risks, coverage according to the contributions and discrete funds according to the type of insurance. The Czech social insurance system only consists of the contribution part, the principles of coverage and separate funding are not observed. The insurance is more of a tax and the most Bismarckian feature is the traditional name of the social security pillar. The insurance-based beneﬁts do not follow the logic of maintenance of status, sometimes called horizontal redistribution (Kaufman 2007: 299), but rather the redistributive horizontal goals that moderate the inequalities in a social democratic manner. The Anglo-Saxon liberal features have been promoted within the recent reform scheme, especially among the state social support beneﬁt schemes. Looking solely at the level of inequality would result in classifying the Czech welfare system as a social democratic one. The Czech score on the Gini index (26), comparable to Scandinavian countries (ranging from 23 to 26) according to Eurostat (2008), is not exclusively due to the extreme egalitarianism under the communists, but also the very moderate evolution of post-1989 social policy and, as noted above, a high level of redistribution. If one speciﬁc group should be named as favoured, it would be families with children, in particular low- and lower-intermediate income families. The Czech welfare mix does not include much of a private sector component. The providers of social services are among subsystems that are generally expected to recruit in greater numbers from outside the structures of the state. Social services with their 11 per cent of ﬁnancial resources directed to NGOs (MPSV 2007) may be a good start. The trends nevertheless indicate stagnation in this sense. 116

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Outlook Problems of the Czech welfare state overlap to a certain extent with the common problems of European countries. It also shares a lot of diﬃculties with its fellow European ex-communist countries, even if they are mostly scaled down. However, the political domain remains one of the areas where we may point to Czech exceptionalism. Vecˇ erník’s account of key problematic issues include the ageing of the ‘European’ population, an untenable pension scheme, the rise of structural unemployment in poor areas and the rise of long-term unemployment within certain groups (people without qualiﬁcations, older people) (Vecˇ erník 2005). He also emphasizes the propensity of the contemporary welfare system to create dependency and not to prevent waste, especially within the health care services and state social support. Unlike these shared problems the immigration-related problems have not yet been in the political and public spotlight, but we may assume that the entitlements of the welfare schemes would soon be under pressure to set new restrictive limits, because the current rise in immigration may accelerate in the near future. The communist legacy, generally shared with ex-soviet satellites, still sets limits to reforms. The legitimacy of the Czech communist regime has been based on principles that are completely incompatible with recent attempts at changes resembling the ﬂexicurity or workfare concepts (Wilthagen and Tross 2004: 21). As we have shown, these limits diﬀer substantially from the legacy of the welfare state among the ‘old’ EU countries and thus the lines of conﬂict (Ferrera et al. 2001). Social exclusion, for example, most notably manifest among the Roma communities, became (or is still to become) genuinely targeted only after its recognition and thorough analysis. Another example of shared legacies is excessive public administration with very limited eﬀectiveness and lowquality working standards. This leaves some clients exposed to the arbitrariness of the administrative workers (Ombudsman 2007). The political scene has recently witnessed enormous political campaigns concerning the welfare state reforms. Lack of consensus and the contentious character of policy processes within the social policy domain result in a very wide variety of alternatives of future trends; however, a shift from calibrative measures to deeper changes and composition of a new consensus, which would include more of the prevailing retrenchment ethos, seems probable.

Bibliography Agency for Social Inclusion in Socially Excluded Roma Localities (2007) (www.vlada.cz/assets/cs/rvk/rzrk/ Agentura/AGENCY_FOR_SOCIAL_INCLUSION_IN_SOCIALLY_EXCLUDED_ROMA_LOC ALITIES.pdf ) (Accessed 10 July 2008). Arnoldová, A. (2004) Vybrané kapitoly ze sociálního zabezpecˇení. I. ˇcást, Praha: Univerzita Karlova v Praze – Nakladatelství Karolinum. Bonoli, G. and Palier, B. (2001) ‘How do welfare states change? Institutions and their impact on the politics of welfare state reform in Western Europe’. in S. Liebfried (ed.) Welfare state futures, Cambridge: Cambridge University Press. CSSZ (2004) 80 Years of Social Insurance. Praha: CSSZ. (www.socialni.cz/NR/rdonlyres/4A1C1E3E2A27-49F6-A9BD-F863C843731A/0/publikace_80letSP_aj.pdf ) (accessed 10 July 2008). Dalasgaard, T. (2008) Tax and Welfare Reforms in the Czech Republic: Structural Implications and Challenges. Washington: IMF Working Papers. (http://ssrn.com/abstract=1112154) (accessed 10 July 2008).

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Drbohlav, D. (2003) ‘Immigration and the Czech Republic (with a Special Focus on the Foreign Labour Force)’, International Migration Review, 37:194–224. Dudová, R. (ed.) (2007) Souvislosti promeˇn pracovního trhu a soukromého rodinného a partnerského života, Praha: Sociologický ústav. Dušek, L. (2007) Political Risk of Social Security: the Case of the Indexation of Beneﬁts in the Czech Republic. Prague: CERGE-EI (Working paper series). Eurostat (2008a) Europe in Figures – Eurostat Statistical Yearbook 2008.: (http://epp.eurostat.ec.europa.eu/ cache/ITY_OFFPUB/KS-CD-07-001/EN/KS-CD-07-001-EN.PDF ) (accessed 10 July 2008). —— (2008b) Eurostat Database 2008. (http://epp.eurostat.ec.europa.eu) (accessed 10 July 2008). Ferrera, M., Hemerijc, A. and Rhodes, M. (2001) ‘Recasting European Welfare States for the 21st Century’, in S. Liebfried (ed.) Welfare State Futures, Cambridge: Cambridge University Press. ˇ R, Praha: Vláda Ćeské Government of the Czech Republic (2006) Programové prohlášení vlády C republiky. (www.vlada.cz/scripts/detail.php?id=20840) (accessed 10 July 2008). Grandner, M. (1994) Conservative Social Politics in Austria, 1880–1890. Center for Austrian Studies, University of Minnesota. (www.cas.umn.edu/pdf/wp942.pdf ) (accessed 10 July 2008). Hemmings, P. and Whitehouse, E. (2006) Assessing the 2005 Czech Proposals for Pension Reform, Paris: OECD Economics Department Working Papers No. 496. (www.sourceoecd.org/10.1787/887367463834) (accessed 10 July 2008). ˇ eské zemeˇ v érˇe první republiky. Praha: Libri. Kárník, Z. (2003) C Kaufman, R. R. (2007) ‘Market Reform and Social Protection: Lessons from the Czech Republic, Hungary, and Poland’, East European Politics & Societies, 21:111–25. Kiefer, P. (2008) Sociální a pracovneˇprávní prˇedpisy Praha: Kiefer. Krebs, V. et al. (2007) Sociální politika, 4th edition, Praha: ASPI. MISSOC (2007) Social Protection in the Member States of the European Union, of the European Economic Area and in Switzerland. (http://ec.europa.eu/employment_social/missoc2001/index_en.htm ) (accessed 10 July 2008). MPSV (2008) Social Reforms. Online. Avalilable HTTP: (www.mpsv.cz/cs/4074) (accessed 10 July 2008). —— (2007) Statistická rocˇenka z oblasti práce a sociálních veˇci. Praha: MPSV. (www.mpsv.cz/cs/3869) (accessed 10 July 2008). MZCR (2007) Registr zdravotnických zarˇízení – Prˇehledy. (www.uzis.cz/uzis/rzz/rzz.htm) (accessed 10 July 2008). OECD (2008) Pensions at a Glance – Public Policies across OECD Countries: 2007 Edition.Paris: OECD. (www.oecd.org/els/social/ageing/PAG) (accessed 10 July 2008). Ombudsman – Public defender of rights (2007) Problems in the Pension Insurance Persists. (www. ochrance.cz/dokumenty/dokument.php?doc=1290) (accessed 10 July 2008). Pavel, J. and Galušcˇ ák, K. (2007) ‘Unemployment and Inactivity Traps in the Czech Republic: Incentive Eﬀects of Policies’, Czech National Bank Working paper series, 9:1–65. Scharpf, F.W. (2001) ‘Viability of Advanced Welfare States in the International Economy. Vulnerabilities and Options’, in S. Liebfried (ed.) Welfare State Futures, Cambridge: Cambridge University Press. Sirovátka, T. ‘Policy of Activation in the Czech Republic: What Eﬀects on Social Citizenship?’, Paper presented at the CINEFOGO conference Paris, June 2007. (http://cinefogo.cuni.cz/getﬁle.php? &id_ﬁle=519) (accessed 10 July 2008). ˇ eské republice po roce 2000’, In T.Sirovátka (ed.) —— (2004) ‘Prˇíjmová chudoba a sociální pomoc v C Sociální exkuze a sociální inkluze menšin a marginalizovaných skupin, Brno: Masarykova univerzita a Nakladatelství Georgetown. Tomeš, I. (2001) Sociální politika: teorie a mezinárodní zkušenost, Praha: Socioklub. Tröster, P. (2005) Právo sociálního zabezpecení, 3rd edition. Praha: C. H. Beck. Vecˇ erník, J. (2004) Structural Tensions in the Interface between the Labour Market and Social Policy in the ˇ R. Czech Republic, Praha: Sociologický ústav AV C —— (2005) ‘Promeˇ ny a problémy cˇ eské sociální politiky’ Sociologický ˇcasopis/Czech Sociological Review, 41:863–80.

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—— (2006) ‘Vývoj sociální politiky’, In R.Nešpor and J.Vecˇ erník (eds) Socioekonomické hodnoty, politiky ˇ eské republiky do Evropské unie, Praha: Sociologický ústav AV C ˇ R. a instituce v období vstupu C —— (2008) Social Policy in the Czech Republic. East European Politics & Societies, 22: 496–517. Wilthagen, T. and Tross, F.H. (2004) ‘The Concept of Flexicurity: A New Approach to Regulating Employment and Labour Markets Transfer’, European Review of Labour and Research, 10:1–24. (http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1133932) (accessed 10 July 2008).

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Chapter 6

de Conﬂict, negotiation, social peace The German welfare system Simon Hegelich and Hendrik Meyer

Since the gradual establishment of welfare state structures, Germany has experienced a series of regime changes, social upheaval, severe economic crises as well as two world wars. And yet the German welfare system is often seen in the light of a fundamental continuity since its origins under the chancellor Otto von Bismarck. However, the Bismarckian social insurance system is overall of more signiﬁcance for the historical development of welfare states than for understanding the German welfare system today. Owing to the large extent of structural changes and national political discontinuity, it makes sense, in portraying the development of the German welfare state, to concentrate on two particular phases: reconstruction and development (1945–1974/75), and modiﬁcation or rather restructuring (1975/76 until the present day), (Christen et al. 2003: 12f.; Butterwegge 2005: 37; Hegelich 2006: 57; for the historical development, see Schmidt et al 2007). The following historical perspective will present the most important stages of development and turning points of the German welfare state. In view of the inherited fundamental problems, the historical legacy of the Bismarck era will also be touched on. The current situation of welfare political development will then be analysed on the basis of ﬁve categories: services provided by the German welfare state, recipients, provision, funding and allocation. The results will subsequently be summarized with regard to a possible characterization of the German welfare system.

Historical perspective Historical foundation of the German welfare system The imperial dispatch of 1881 – often referred to as the ‘Magna Carta of German social insurance’ – is generally accepted as the ‘birth certiﬁcate’ of German social policy. It gave industrial workers the prospect of tangible security if they were unable to work due to illness, invalidity or age. German social policy has in fact two ‘birth certiﬁcates’: The other was the ‘law concerning the attempts of social democracy dangerous to public safety’ (of 1878). This was the more important, since without the ‘Socialist 120

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law’ which wanted to break up the growing labour movement, there probably would not have been the ‘socio-political message’ which promised the workers benefaction. (Hentschel 1983: 9) It also becomes clear that the establishment of welfare state structures in Germany is not only connected to the unsolved ‘labour question’, but that the formation phase of the German welfare state is dominated by the debate on the labour question (Kaufmann 2003: 272). State social policy was thus never an end in itself, but fulﬁlled the role of ensuring authority and consolidating society (Metzler 2003: 9; Frevel and Dietz 2004: 21; Butterwegge 2005: 40). The focus on the employed and the requirement that social policy should contribute to stable political relations is a recurrent theme in the further development of the German welfare system, as for example in the case of ‘Burgfrieden’, which was able to mobilize all social powers, including the oppositional workers’ movement, for the war aims of the Hohenzollern monarchy (Preller 1978: 85; Butterwegge 2005: 47; Reidegeld 1996: 289). The systems of social security, which were extended under Bismarck and then in the Weimar Republic, and which continued to exist under Fascism, even though they were subsumed under the war policy of the National Socialist state, can at most be regarded as a formal basis for the new development of the German welfare state. The actual form the institutions of the Federal Republic of Germany (FRG) took, such as the pension scheme, was not inﬂuenced by this legacy (Hegelich 2006: 56). Period of reconstruction and development 1945–74/75 The use of social insurance reserves for rearmament and ﬁnancing the war, as well as the consequences of the Second World War, ruined the ﬁnancial basis of the social insurance system, so that after the founding of the Federal Republic in 1949, a process was employed that restructured the social insurance system. On the one hand, this tied in with existing socio-political traditions. On the other hand, totally new ways of ﬁnancing had to be found. One can thus talk of a ‘zero hour’ of the German social insurance system. As a result of this reorientation, the German welfare state experienced its heyday (Christen et al. 2003: 18). The characterization of the FRG as a ‘democratic and social federal state’ (Art. 20 Para. 1 GG) and in particular the decision in favour of the social market economy was a determining factor for the development of the social system, especially because the main parties, CDU and SPD, had originally striven for a more socialist direction. The modernization of the welfare state quickly took place parallel to the economic development, so that in the course of the so-called ‘economic miracle’, the system of social insurance could be developed early on. The pension reform of 1957 introduced two innovations, which set the trend for the extension of the welfare system as a whole. First, pensions were automatically adapted to the general wages and salary developments. Second, the social security pensions were raised to a level so as to ‘guarantee the standard of living in old-age for employed wage earners of many years and their spouses’ (Neumann and Schaper 1998: 33–34). It was not until the pension reforms of 1957 that the German pension scheme ‘was founded in its present form with its dynamic, wage-oriented, allocating pension depending on contributions, and was further developed until 1972’ (Hegelich 2006: 64). A further legislative apex was the Gesetz zur Verbesserung der wirtschaftlichen Sicherung der Arbeiter im Krankheitsfalle, dating from the same year. This law 121

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committed the employers to pay an additional sum to the common sickness allowance, so as to guarantee the employees a beneﬁt of 90 per cent of their net wage for up to six weeks. The equalization of workers and employees in this regard, however, could not be reached until 1969 (Hentschel 1983: 184). The rivalry between East and West Germany played a central role with regard to the groundbreaking social reforms of the 1950s and 1960s:1 ‘The existence of a diﬀerent social system virtually forced the Federal Government to form a more social proﬁle than it would have done without this line-up’ (Döhring 2004: 34). The West German social policy at that time rested upon a fundamental political consensus, whose guidelines were arranged around concepts like ‘Rhineland Capitalism’ or ‘Social Market Economy’. Societal and political players, who did not share this consensus, were systematically marginalized and segregated. The huge harmony of the CDU’s and SPD’s 1966 grand coalition on the ﬁeld of social policy can also be explained by this rivalry between East and West. The Konzertierte Aktion (1967–76)2 – a process of well-regulated consultation between representatives of the state, the trade associations and the labour unions – also voiced an increased trust in Neo-Keynesian governance, by which economic and social policy should be coordinated more eﬀectively (Butterwegge 2005: 70). Period of modiﬁcation and retrenchment (1975/76 until present day) In spite of certain social political diﬀerences among the various governing coalitions, the time between 1949 and 1974 can overall be considered a period of strong construction and extension of the welfare state. In the middle of the 1970s, Germany – like many other Western industrial countries – met its social political turning point. This was by no means the end of the welfare state, but a zenith in its evolution. The autumn 1973 oil crisis and the subsequent worldwide economic crisis in 1974/75 led to a fundamental change in welfare policy. Beneﬁt cuts and a gradual increase in the assessment basis were implemented to consolidate public ﬁnances. The Gesetz zur Verbesserung der Haushaltsstruktur from 1975 marks a historical break as it brought decades of welfare state expansion to an end and initiated a period of stagnation and even one of retrenchment. The policy of welfare state transformation pursued the target of maintaining Germany’s status as an important business location (Butterwegge 2005: 115–17). Furthermore, the advance of monetary stability to a variable of social policy is signiﬁcant in this period (Manow 1997: 18). The reuniﬁcation of Germany brought about new challenges to social policy. The FRG’s and German Democratic Republic’s treaty of 1990, which was concerned with forming a monetary, economic and social union, also determined the shared welfare system. In all the relevant structural patterns, it led to the transfer of West Germany’s labour legislation and social security system to the new federal states (Hegelich 2004: 96; Neumann and Schaper 1998: 38). Against the background of social and demographic changes, which turned the need for care from an individual fate into a common problem of older people, nursing care insurance was introduced in 1994. Following an intense political dispute, this ﬁfth and so far ﬁnal pillar of the social insurance system was constructed, among other things to reduce the ﬁnancial burden of social security beneﬁt (Ziegelmayer 2001: 83). Welfare policy not only had to respond to economic crises, the reuniﬁcation and a changing social structure. On a supranational level it was particularly the process of Europeanization that inﬂuenced the shaping of Germany’s social policy (Meyer and Schubert 122

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2007). The convergence criteria of the EU’s Stability and Growth Pact, which was developed in connection with the European Economic and Monetary Union, served to legitimatize cuts in social services. The funding problems resulting from Germany’s deadlocked, structural unemployment and its economic weakness, in addition to reuniﬁcation and Europeanization, are traced back to globalization. This is especially the case for its extensive impacts on national government and the scope of national welfare policy (critical comment by Manow and Seils 2000: 265). Basically, Germany is still a sovereign state which determines its own social policy. During the 1990s, ongoing funding problems emerged in all welfare areas, shown, for example, by the adjustment of pensions to net wages (Nullmeier and Rüb 1993: 187) or by the permanent juggling between social institutions like the Federal Employment Oﬃce and the social insurances (Hegelich 2006: 196). In 2005, the merger of unemployment beneﬁts and social beneﬁts was yet another incisive measure of social policy. It was part of the four laws that emanated from the commission Moderne Dienstleistung am Arbeitsmarkt, called Hartz Laws after the commission’s chairman. These laws entailed extensive reforms on the labour market. Of particular importance in this context was Agenda 2010, introduced by the red–green coalition under Chancellor Gerhard Schroeder in 2003. It was designed to deal with Germany’s structural economic crisis and thereby the high unemployment rate. The line adopted by the Agenda 2010, which clings to the pay-as-you-go ﬁnancing in spite of the aim to ‘remodel the welfare state’ (Federal Press Oﬃce 2003: 12), is supported by most of the political parties and also by the grand coalition under Chancellor Angela Merkel. In her own words, she is determined to energetically continue with this policy. Among the latest, most important social political reforms is the health care reform of 2007, which seeks to strengthen competition among the statutory health insurances. Among other things the law is meant to separate health care costs from labour costs and to contribute to more transparency and eﬃciency of statutory insurances.

Status quo: analysis and evaluation Welfare policy may be divided into several sub-categories. When considering the welfare systems as the entirety of beneﬁts protecting against social risks and facilitating social opportunities, which are institutionalized through the speciﬁc welfare regime, it becomes clear that the welfare state is only one part of the whole system. From the historical overview we have already learned that social insurances play an important role within the German welfare state. Sometimes the system is even put on a par with its institutions: pension insurance, unemployment insurance, social insurance, health care system and, since 1994, compulsory long-term care insurance. This clearly shows that the ‘labour question’ still proves to be a guiding theme of social welfare in Germany. In general, the welfare state is characterized by its institutions which provide for vicissitudes in employees’ working lives, i.e. the event of loss of salary due to illness, unemployment or old age. The area of facilitating social opportunity, e.g. through educational policy, as well as non-governmental regimes, is traditionally neglected in this examination. For the purposes of its citizens, the state’s job primarily is to arrange the relationship between the economy and the working population in such a way as to get advantages for both sides. This is the leitmotif of the social market economy and the German welfare system complies with it by granting employers’ and employees’ organizations a decisive role and by the principle of workers’ participation 123

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in the social security institutions. This focus does not mean, however, that welfare services are limited to these areas. Furthermore, extensive reforms have been carried out in recent years that partly call basic principles of the German welfare state into question. Beneﬁts of the German welfare state Social security beneﬁts in Germany make up about one third of the gross domestic product (GDP). They have risen considerably during the last years and decades. In 1960, social security beneﬁts amounted to 32.6 billion euros. In 1980, they already amounted to 230 billion euros. After German reuniﬁcation, social security beneﬁts rose to 427 billion euros and had risen up to 700 billion euros by 2005. The quota of social contributions has risen from 21.1 per cent in 1960 up to around 30 per cent (Eurostat and Table 6.1). The highest expenditures within the social budget are required to ﬁnance the pension scheme – they constitute 42 per cent of the social budget, followed by expenditure on health care with 33.9 per cent, for family and children with 10.8 per cent and unemployment with 7.1 per cent (Table 6.2). These numbers, however, cannot oﬀer more than a rough outline, as social security institutions in Germany are to some extent closely interconnected. About one-third of the beneﬁts from pension insurance can be called extraneous insurance beneﬁts, since these services cover rehabilitation measures for instance. In addition, there are institutional peculiarities like health insurance for pensioners (KVdR), which is ﬁnanced out of social pension insurance funds (GRV). Another such peculiarity is compulsory long-term care insurance, a provision lying somewhere between health insurance and old age insurance. This ﬁrst glance conﬁrms that the German welfare state has its vital elements in the coverage of risks like unemployment, illness/need of care and old age. An exception here

Table 6.1 Social protection expenditure

de

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per % inhab.** GDP

total*

per % inhab.** GDP

total*

per % inhab.** GDP

544012.1 563886.5 551132.5 562928.2 586998.4 603356.7 620419.7 642319.8 655712.2 655058.1 659868.1p

6660.4 6883.8 6718.3 6861.0 7149.8 7339.1 7533.9 7786.8 7944.7 7938.5 8001.4p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

28.2 29.3 28.9 28.8 29.2 29.3 29.4 30.0 30.3 29.6 29.4p

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

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Table 6.2 Social protection beneﬁts as a percentage* (2005)

de Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 96.6p 10.8p 7.1p 2.1p 0.7p 33.9p 42.0p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

is welfare assistance, which is granted to any citizen on the basis of a means-test. Even welfare assistance, however, as a rudimentary and basic supplementary beneﬁt, has established a substantial relation to gainful employment, for it can only be demanded if the applicant has no other income and is considered as unemployable. The expenditures for education play a special role. On the one hand, they are on a par with the beneﬁts measured. On the other hand, they are not within the framework of the welfare state deﬁnition, because they are aimed more at creating opportunities than at protecting against risks. (For the exceptional position of education in the welfare state see Klemm 2000; Allmendinger and Leibfried 2004). The prevalent German vocabulary for characterizing the welfare state like ‘social net’, ‘social security’ or ‘social partnership’ is just not suitable.3 Furthermore, the authority for educational policy lies with the federal states, while in other welfare areas federalism only plays a minor part. Other ﬁelds show the equation of ‘protection’ and ‘welfare state’ as well. Active employment policy in Germany is comparatively vague. Support of women and families predominantly takes the form of fractional compensation of ﬁnancial charges, by paying child beneﬁts and accounting times of parenting for social insurances. In other respects, the state primarily acts by passing bills designed to prevent discrimination. Since 1996 every child has the right to a place in a kindergarten (Federal Constitutional Court’s judgement on Art. 218 StGB). Even if kindergartens oﬀer parents a more ﬂexible management of their working lives, this judgement unveils the basic idea to prevent discrimination. Addressees and target groups The major addressees of the German welfare state are those in paid employment. Nonetheless categories like ‘citizenship’ and ‘family’ are to be found as justiﬁcations of welfare services as well. Their role is a supplementary one, though. The coexistence of diﬀerent justifying categories can also be shown by the fact that in real cases there is often a mixture of social beneﬁts, e.g. child beneﬁts and supplementary beneﬁts. In the following, the major target groups of social services will be presented. The predominant part of social services in Germany is linked to working life, or more precisely to paid employment as a wage-earner or employee. Family dependents like 125

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children and spouses gain derived rights through the employee. Social services in the normal case must be earned through former contributions. Subject to contributions are those forms of employment which provide earnings of more than 400 euros a month. Self-employed people remain exempt from compulsory insurance (unless they wish to apply). For social insurances this results in a social pension fund paying out pensions according to the contributions which have been made during the particular working lives. Maintaining the standard of living (i.e. about 70 per cent of the average wage) can therefore only be guaranteed to those who have been engaged in a normal employment contract for 45 years. The same holds true for the so-called second and third pillars of the pension scheme: the company pension and the private pension. Here the payments are also distributed according to ﬁnancial contributions, which as a general rule can only be accomplished by regular employment. And company pensions are almost exclusively available to long-standing employees of large companies. Also in the case of statutory health insurance, regular employment is the precondition for insurance cover. All the workers and employees are compulsorily insured if their gross income is above the level of low-income earners but below the limit for compulsory social insurance. Private health insurance companies (PKV) are responsible for recipients of higher incomes as well as self-employed persons (Bandelow 1998: 20). For pension and health insurance there are also derived rights. These are the widow’s and orphan’s pensions in the old age insurance, and in the area of health insurance protection for family members who do not have relevant earnings of their own. By this extension of beneﬁt entitlements, social insurance reaches a considerably higher coverage. In compulsory health insurance, for example, about 90 per cent of the population are either insured or co-insured. Yet the derived type of rights shows that actually the employee is the addressee of social services, not the citizen as such. In the case of unemployment insurance, this principle crops up in its purest form. Only those people qualify for beneﬁts who at some time have been in a regular employer–employee relationship. It is the aim of unemployment beneﬁt to ﬁnance jobless people temporarily until they have found a new position. It is therefore limited in time. Formerly, unemployment beneﬁt was addressed to people who had so far accumulated claims by paying contributions during their working life. Unemployment Beneﬁt II, which replaced the former unemployment beneﬁt during the Hartz reforms (2002–4), modiﬁed the group of addressees. People eligible for beneﬁts are no longer only those who have already paid contributions, but every citizen who is ﬁt for work and does not possess other earnings and properties or who is not provided for by someone (family, partner). This means that people are now entering the group of addressees who previously did not qualify for unemployment beneﬁts because they lacked the required contribution periods. On the other hand, people are disqualiﬁed from unemployment beneﬁts, if they themselves or their spouse and partner have independent means as they no longer meet the criterion of neediness. Although the major group of addressees is determined by the connection to gainful employment, services geared to categories such as ‘citizen’ and ‘family’ can be found in the German welfare system as well. The ﬁrst category includes services like social beneﬁts or housing allowances, oriented towards need. Neediness here is limited, though. Only citizens and persons with the right of residence are eligible for beneﬁts. Within the group of ‘non-citizens’ who are still entitled to beneﬁts, asylum seekers hold a speciﬁc, underprivileged status. (For the nexus of migration and welfare state see Kleinert 2000; Köppe 2004.) 126

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In addition, there are a number of public measures available to all citizens who do not meet particular ﬁnancial prerequisites. Traditionally these measures are not assigned to the welfare state. Among them are tax incentives like mileage allowances, tax concessions for house building/buying (reduced drastically after 2006) or governmental aids for private old age insurances (Riester insurance). A great deal of social services is directed towards families. The German welfare system does not regulate this sector by incorporation into the labour market. German forms of assistance for women or rather parents, designed to reach a compatibility of parenting and gainful occupation, are only marginal ones. Social services such as child beneﬁts aim more for the protection of ‘the family’ as an institution. These ﬁnancial services are accomplished by a legal securing of the family status, e.g. by parental leave and protected maternity rights. Thus the services for families also show that the German welfare state is oriented towards the ‘male breadwinner’. It must however be mentioned that during the last years a certain level of legal equality between parents has been achieved. There is now such a thing as long-term paternity leave. Thus the still predominate roles of the parenting mother and working father cannot singularly be traced back to the way the welfare state deals with families. Allocation When asking the question who is responsible for the allocation of social services in Germany, one will quickly discover that the German welfare state is based on the inclusion of societal forces. This inclusion into statutory tasks like the administration of social services is a decisive factor in inﬂuencing political reform projects (Nullmeier and Rüb 1993: 289). When discussing the inﬂuence of labour unions and trade associations for example, the main aspect is primarily the logjam of welfare reforms. However, it is often forgotten that due to the integration of associations, a social reform in Germany has never been toppled by societal pressure. Regarding the allocation of social services it may be reasonable ﬁrst to diﬀer between transfer beneﬁts and ﬁnancial aid on the one hand and non-cash and service beneﬁts on the other. Self-administration is a crucial German peculiarity with regard to transfer beneﬁts. The statutory pension insurance scheme as well as the Federal Employment Oﬃce are public corporations whose management positions are equally ﬁlled by employee and employer representatives. The statutory health insurance companies (GKV) and the Association of CHI Physicians, the latter regulating health care transfers, are both organized on principles of self-administration, which in this case refers to doctors and insurances. The statutory pension scheme was traditionally characterized by a plurality of responsible bodies: the Federal Insurance Institution for Employees, the 22 Insurance Institutions of the federal states (LVA), the Seamen’s Accident Prevention and Insurance Association, the Social Miners’ and Mine Employees’ Insurance, as well as the Railway Insurance Institution (BVA). In 2005 all pension insurance organizations were merged into the ‘German Federal Pension Insurance’ and the ‘Pension Insurance Miner–Seamen– Railway’ respectively. The German Federal Pension Insurance is also responsible for basic and cross-sectional tasks and the common aﬀairs of all bodies of pension insurance. This reform was conducted against the background of assimilating the beneﬁts for workers and employees. This new form of organization has been introduced almost unnoticed and without any conﬂicts. This clearly shows that regarding pension insurance there is no (longer) such a highly fragmented system of insurances as is often assumed (Hegelich 127

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2006: 261). Management positions in pension insurance organizations are equally ﬁlled by employee and employer representatives. Self-administration is subject to strict legal requirements (among others the Code of Social Law). Transfer beneﬁts in the health system are mainly generated by the GKV. Selfadministration here means that insurants and (usually) employers decide on an administrative board. ‘In addition to the statutory health insurance companies, the national and federal associations of the funds also cover tasks of self-administration’ (Bandelow 1998: 22). The Federal Employment Oﬃce, with around 100,000 employees, is a self-administrating body with representatives of employees and employers and public representatives, too. The Oﬃce is responsible for the allocation of Unemployment Beneﬁts I and II. Until 2005, the unemployment beneﬁts were paid by the Federal Employment Oﬃce, while social assistance was ﬁnanced and administered by the local authorities (Gerhardt 2006: 154). The merger of unemployment beneﬁts and social assistance was not only carried out to provide a sharp distinction between welfare recipients and employable recipients of Unemployment Beneﬁt II, but also to do away with the multiple responsibilities of the federal states. This goal has only partly been reached, because the federal states governed by the CDU/CSU enforced an agreement in the conciliation committee. This agreement granted the municipalities an optional model initially for six years’ duration. ‘Up to now 49 of 439 cities and counties have gone for this option and supervise the long-term unemployed themselves’ (Gerhardt 2006: 158). It would be too easy to ascribe the conﬂict regarding the responsibility for the unemployment beneﬁts solely to party diﬀerences, since the assumption of these responsibilities by the Federal Employment Oﬃce can be seen as an intervention into a basic principle of the German welfare system: the principle of subsidiarity. With regard to non-cash and service beneﬁts in the area of social security, we will ﬁrst consider the health system. In Germany there is a huge private sector including registered doctors, chemists, the pharmaceutical industry and the private home care sector. Hospitals usually are subject to municipal sponsorship, but private institutions are increasingly appearing as well. Providers of health services are represented by associations, such as CHI Physicians, which adopts mandatory tasks within the framework of self-administration, e.g. caring for the insured, independent of economic cost calculations (Sicherstellungsauftrag). A further characteristic of the German welfare state is the strong position of the noncommercial charities. Organizations like the Arbeiterwohlfahrt and Caritas are responsible bodies for homes for older people and provide a good part of the services ﬁnanced by nursing care insurance.4 Furthermore, charities at most times are represented in the social insurances boards by their self-administration. Their function thus largely exceeds the conventional German understanding of ‘welfare’, which is limited to benevolence towards ‘the poor’ (Winter 1997: 94). With regard to services in the educational sector it is important to keep in mind that educational policy in Germany is created at federal state level. This also includes the funding of appointees, though local authorities here are assigned with the establishment, maintenance and endowment of school buildings. Funding The basic principles of social security funding are pay-as-you-go ﬁnancing, solidarity, equivalence and parity contributions. The funding of the German welfare state primarily rests upon contributions to social insurances. Statutory social insurance ensures extensive revenue from wages and salaries, which is used to ﬁnance expenditure of the social 128

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insurances. Since the bodies responsible for social insurances are public corporations, their budget is separate from the national budget. All social insurances follow the principle that current costs are ﬁnanced by current revenue. Thus no capital stocks are accumulated. The solidarity principle determines that all insurants are collectively held responsible for all insurance cases. Alternatively those who become ill, unemployed or unable to work, can bank on social insurances independent of their own contributions. Actually, the equivalence principle contradicts the solidarity principle. It states that the individual contributions and received services have to some relation. The solidarity principle is deepseated in pension insurance, where the pension level is closely linked to one’s own contributions. Unemployment insurance partially exhibits the equivalence principle, since the level of Unemployment Beneﬁt I adapts to the individual’s last income level. Former contributions, however, are not taken into consideration. Both health insurance and nursing care insurance do not feature the principle. A German peculiarity is the parity ﬁnancing of social security contributions. In the case of employment liable to insurance deductions, both the employer and employee pay an equal percentage of the gross wage to social insurances. Currently the rates of contribution are 4.2 per cent for unemployment insurance, 19.9 per cent for pension insurance, 14.8 per cent for the health insurance5 and 1.7 per cent for long-term care insurance. These rates are equally shared between employer and employee. Additional accident insurance is paid by employers only. It is this very method of funding that creates the high non-wage labour costs that are regularly discussed as being the central problem of the German welfare state. An employer hiring an employee not only has to allow for the gross wage, but also for the social insurance contributions. This has two consequences: on the one hand, parity ﬁnancing is an institution with a decisive political role. Since social insurance contributions are percentages of agreed wages, their rise or fall forces businesses to estimate corresponding labour costs. Furthermore, a rise or fall in agreed wages also leads to a rise or fall in social security taxes and thus of the sum of salaries. Hence a paradox of the German social security system: as long as there is high employment and many people receive wages, fewer social beneﬁts are required and the coﬀers are full. However, when unemployment rises, more and more people are reliant on social beneﬁts and funding shrinks. Structural unemployment that has taken hold in Germany over the last years is therefore the serious problem of the German welfare state. On the other hand, parity ﬁnancing is an illusion, since employers are not paying social securities, but estimating the wages in such a way as to achieve proﬁtable labour costs. Social contributions are paid from wages, not from corporate proﬁts. During the last years, reforms have been undertaken to reduce social beneﬁts and modify parity ﬁnancing in favour of employers. This was not simply done because of funding problems, but due to a rise in employment. The average pension level has been reduced and pensions now are bound to net instead of gross wages. Furthermore, a ‘sustainability factor’ has been introduced. It reduces the pension level, if the ratio of contributors and pensioners worsens. It also involves private and occupational pensions in the calculation of the aspired pension level. The latter is particularly important because private and occupational pensions are not parity ﬁnanced, but paid by employers following the funding principle. (For a more detailed description see Hegelich and Schubert 2006.) Since the 1980s, reforms in the health care system at large have been limited to a reduction in expenditure. This has been reached by a predetermined budget for the statutory health insurance. Also, additional payments were increasingly imposed on insurants and ﬁnally the Praxisgebühr. The latter is a ﬂat-rate of 10 euros, which are payable at the 129

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ﬁrst consultation in a quarter. This Praxisgebühr detruncates parity ﬁnancing. Current plans for reform aim at further relief for employers – either by a Bürgerversicherung, including all incomes into the statutory health insurance, or by a Kopfpauschale, with everyone paying a standard contribution for basic needs. Since both concepts are controversially debated between the SPD and CDU/CSU, there is now a ‘small solution’ in sight. It retains the old system, but freezes employer’s contributions. From the start, long-term care insurance was designed to ease the burden on employers via the non-wage labour costs of the costs of the health system. In order to help ﬁnance long-term care insurance Penance Day was abolished as a public holiday. Only the state of Saxony kept the holiday and modiﬁed the parity ﬁnancing instead. Employees pay 1.35 per cent instead of 0.85 per cent of their gross wage there. Regarding unemployment insurance, there were the Hartz reforms, which along with reorganizational restructuring introduced Unemployment Beneﬁt II. There have been drastic incisions for the recipients, who now have to undergo a means-test and are obliged to accept work oﬀers. This has to be valued as a transformation from welfare to workfare (see, among others, Sinn 2003; Heinze 2004). All this clearly shows that contributions make up the largest part of the German welfare state’s funding. They are the main starting point for reforms and deservedly so. Nonetheless it would be a mistake to limit the German welfare system to this kind of funding. A considerable part of social beneﬁts is ﬁnanced from tax portions, e.g. 27 per cent of pension insurance is paid from taxes. Extraneous insurance beneﬁts are traditionally ﬁnanced from additional payments by the state. Since 1998, income from other sources (Eco tax) have been systematically used to avoid a rise in pension insurance contributions. Additionally, there are governmental subsidies for private retirement arrangements (Riester pension). The Hartz reforms also intensiﬁed the trend that taxes play a more important role alongside contributions. Catchwords for this development are ‘reduction of bureaucracy’ or ‘cutback of subsidies’. This has been realized in the reform of the Federal Employment Oﬃce, the abolishment of mileage allowances and of tax concessions for house building/buying. Welfare markets do exist in Germany as well (see Pierson 2001 and Nullmeier 2006). Traditionally these social contributions by private enterprises were only of supplementary character, especially for high-income earners. In the meantime much eﬀort is made to make welfare markets an inherent part of the welfare system. This process is furthest advanced for the pension scheme. The pension reform of 2001 arranged for an additional private or occupational pension. In the future, private insurance will have to be taken out for the health system, because more and more services like dental prosthesis are not covered by statutory health insurance. These reforms aim at disburdening the social insurance systems ﬁnanced by contributions. Another aim is the extension of welfare markets to an integral part of social policy. Particularly in the case of pensions, it is a priority objective to make the German capital market more attractive by better conditions for annuity funds and insurance companies (Young and Hegelich 2001: 91). Rate of distribution The German welfare state traditionally is praised for its extensive service system. Relevant statistics, however, show that over the years it has assimilated to the EU average (Table 6.3). Because of the German welfare state’s focus on gainful occupation, unemployment not only reduces the income of jobless persons, but also aﬀects social security services (Table 6.4). 130

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Unemployment for those aﬀected also means that their claims for future social services are getting smaller, particularly for future pension claims. Since they are dependent on contributions, an increase in unemployment leads to a decrease in the general funds for social services. This process is intensiﬁed by welfare state reforms, which want to compensate ﬁnancial gaps with a cutback in services. At the same time an increase in the risk of poverty rate must not be mistaken for a general decrease in prosperity. It is not only the funding from contributions that inﬂuences the relationship of rich and poor in times of rising unemployment. In particular, women are negatively aﬀected by contribution ﬁnancing, because the German labour market exhibits gender barriers (see Gerhard 2003; Dingeldey 2004). On average, women earn at least 23 per cent less

Table 6.3 At-risk-of-poverty rates by gender

de

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

15 14 12 11 11 10 11 – – – 12b 13

13 12 11 10 10 10 – – – – 11b 12

16 16 13 12 12 11 – – – – 13b 13

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s eurostat estimate

Table 6.4 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

de

eu27

eu15

8.0 8.7 9.4 9.1 8.2 7.5 7.6 8.4 9.3 9.8 10.7 9.8 8.4

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

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per hour than men. This has two impacts on the welfare system. On the one hand, inequalities on the labour market are not counter-balanced by welfare services, e.g. by an active employment policy for women or better support facilities. On the other hand, the ﬁnancing from contributions has a negative eﬀect on the services that women can expect from social insurances. Thus the inequality on the labour market is intensiﬁed by the welfare regime.

Evaluation What we have seen so far is that the German welfare system is based upon a special understanding of the relation between capital, labour and the state. This understanding could be called ‘Bismarck’s legacy’. Its basic assumption is that capital and labour can both proﬁt from good general conditions the state provides. Employees perceive themselves as gainfully employed, employers perceive themselves as part of the economy. That is to say, they perceive themselves as parts of a collective, not as individually economizing persons. These collectives are bound to the ‘common welfare’ and therefore do not represent competitors or enemies, but ‘social partners’. As long as both cling to this view in times of conﬂict situations, any awkward individual state is justiﬁed by that. And with the same perception, the social partners judge the state. Should they against all intents and purposes not reach a settlement on the ﬁeld of employment or economic growth, it must be the state which has not performed its task. In spite of the social insurances’ strong link to gainful employment, the state not being responsible for its citizens’ welfare would be a wrong perception. Quite the contrary, politics are confronted with high expectations: To organize the basic conditions and designs of the welfare state in such a way as to actually reach its supposed supplementary function. Judged from this position, it seems only natural ﬁrst to include employers’ and labour representatives in decision-making processes, but second to reduce the inﬂuence of particular interests. This picture of a ‘social market economy’ basically means that employers and employees organize themselves in associations to represent speciﬁc views on advisable policies before the state. Reciprocally, politicians involved in social policy naturally turn to these associations during the implementation of welfare policies. That is not to say that this ideal of a social policy resting on societal consensus is actually realized. History has shown that there are sometimes arrangements and institutions that may well be called corporatist – like the Konzertierte Aktion at the end of the 1960s.6 At the same time the question has always been disputed as to which policy can achieve the ‘public good’. This is why conﬂicts have always been a part of social policy and institutions designed to seek a consensus have failed, e.g. the Bündnis für Arbeit in 2003. The state’s relation to labour and capital of superior authority provides a further peculiarity of the German welfare state: civil servants are traditionally excluded from the welfare system. They are not wageworkers, but state employees with a privileged status. They receive a salary meant to bestow them the independence of gainful occupation. This is done in order to ensure their loyalty towards the state. Civil servants have security of tenure and thus do not need unemployment insurance. Their pension is calculated from the last salary and health insurance for them is not compulsory. Instead they have private health insurance (PKV), which is subsidized by government aid. This duty of loyalty may be traced back to the Prussian tradition, but it is still achieved nonetheless. At the same time this aspect is becoming less and less important. An annulment of the 132

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civil servant status has been discussed for years now and this discussion clearly has eﬀects on the number of new civil servants, e.g. in the system of education. With a view particularly to the continual ﬁnancial problems of the social insurances, because of high unemployment politicians have discussed a modiﬁcation of the status of civil servants. If civil servants were included in compulsory insurances, this would provide a new ﬁnancial source largely independent of the development of unemployment. This leads us back to the main problem of social policy in Germany: the paradox that the ﬁnancial problems of the social insurances arise just when they are needed the most because of their dependence on gainful employment. Right now two remedies are being tested, but both are unable to change this contrariness. The ﬁrst tries to improve the circumstances for employment by reducing the rates of contribution. The trouble is that a reduction of premium rates intensiﬁes ﬁnancial problems, which again raises the pressure to cut social services. Additionally, a reduction of the rates of contribution leads to reduced incomes from existing employment. So even if reduced contributions lead to employment – and there is no causality here – this employment eﬀect would have to overcompensate the reduced revenue. Therefore a reduction from 40 per cent to 35 per cent would only be a relief for the social insurances if employment registered an increase of more than 12.5 per cent. Admittedly, there would also be a decrease in expenditure, because new jobholders no longer receive unemployment beneﬁts. This eﬀect, however, only occurs if jobless people actually ﬁnd jobs. And even then it is limited to the ﬁeld of social insurances, because services for the cases of old age or sickness are still necessary. The second remedy of current social reforms looks at ﬁnding new ﬁnancial sources. Basically this is about the marketization of certain aspects of welfare markets, for example the private pension schemes. It is a central problem that the wages are still burdened not collectively, but individually. A reduction of labour costs therefore worsens the situation for paid employees to privately insure against risks. Characterization of the national welfare system The comments so far can be summed up in three pivotal terms that characterize the German welfare system: selectivity, compensation and institutionalization. Selectivity refers to the welfare system’s content. Its central theme is the regulation of paid employment and social situations resulting from that. Other areas are less distinguished or, as with education, excluded from the ﬁeld of welfare. What welfare regulation of paid employment wants to reach is compensation. Social plight and risks are attenuated by solidarity. Social contributions are thus exceptions, which are not to be considered as alternatives to paid employment. Hence the German index for decommodiﬁcation is low. What compensation implies, is that the relation of labour and capital by nature guarantees social protection. It is the collective responsibility of contributors to step in in cases of hardship, which necessarily occur. Social contributions thus are not benevolences (‘welfare’ in the narrower sense of the word), but a right one has to earn ﬁrst. Welfare regulations of the labour and capital relation exhibit a high grade of institutionalization. This institutionalization is the reason for the simultaneous existence of autonomy of the welfare state and the obvious statism. On the one hand, institutions of social security are independent, which is shown by self-administration or the inclusion of interest groups. On the other hand, social security clearly falls into the sphere of governmental competence. The German welfare system primarily is a welfare state. This is why even the marketization of welfare areas in Germany bears a high degree of governance 133

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(Nullmeier 2006). It is because of this antagonism that institutions of social security are not simply instruments of implementing welfare guidelines, but at the same time topics of political dispute. Not only explicitly political forces are integrated into this dispute, but the social partners as well.

Future prospects Paradoxically, the discussion about the German welfare state diverges from the empirical developments of the last years. While there is still talk of ‘the backlog of reforms’, never before since the German welfare state’s establishment has there been a decade with so many drastic social reforms as have been seen in the past years. After the Hartz reforms and introduction of the Riester pension, one may well speak of a system change in the areas of labour market and pension policies – at least if the policy output is put on the scale (see Hinrichs and Kangas 2003). In the health system there have been serious changes as well, and further reforms are on the political agenda. There are two factors which give the impression of reform blockades. First, there was never a master plan for reforms. Existing institutions, and therefore to a certain extent their inﬂuence, have been accepted as fundamental to the changes. Reform processes never went in a straight line. They have always been inﬂuenced by political debates and discussions. Admittedly, another course of action can hardly be imagined for such a highly institutionalized arrangement like the German one. Still the reform process may be regarded as sedate. The second aspect which supports the picture of reform blockades is formed by the drifting apart of propagated goals and actual eﬀects of reforms. Reforms in recent years have been politically justiﬁed as being the only way to ﬁght unemployment. Yet so far there haven’t been noticeable eﬀects on the labour market, which is why people are still waiting for the real reform to come. This benchmark could turn out to be destructive for the future development of the welfare state. When it comes down to it, reforms don’t provide new jobs. Employment occurs because and as long as the use of labour serves proﬁt calculation. The reduction of only one element of costs within this calculation at best alters the conditions. If and how those conditions are used is yet another question. To argue that social beneﬁts are a cost factor without which a new job may be created is a neverending story – whatever level social security had already been reduced to. At the same time, the eﬀectiveness of social security is disavowed by that. The increasing number of conﬂicts on the ﬁeld of social policy is a logical consequence of the reform agenda. Furthermore, the German welfare system has to adapt to drastically changing preconditions. European integration and demographic change surely are the most important challenges. The fact that the focus is almost solely on the eﬀects that welfare reforms could have on the labour market is blocking the way to properly deal with the challenge. In view of the discussed problems, the solution can’t be to simply reactivate previous welfare arrangements. It is more about developing new forms of social security to adequately deal with present and future challenges of the German welfare state.

Notes 1 For the social system of the GDR, compare, for example, Rausch, H, and Stammen, T. (eds) (1978) DDR – Das politische, wirtschaftliche und soziale System, München; Hübner, P. (1995) Konsens, Konﬂikt,

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2

3

4 5 6

Kompromiß, Soziale Arbeiterinteressen und Sozialpolitik in der SBZ/DDR 1945–70; Bovier, B. (2002) Die DDR – Ein Sozialstaat? Sozialpolitik in der Ära Honecker, Bonn. The Konzertierte Aktion was designed to put the formation of tariﬀs and prices on the ﬁrm footing of voluntary, concerted action. When the employers’ association ﬁled an action against the social-liberal coalition’s (1969–82) new right of co-determination, this led to the Konzertiere Aktion’s failure. Thereupon the labour unions abandoned the negotiations (Klein and Bazant 2005: 99–100). One could speak of such a ‘social partnership’ in the ﬁeld of Germany’s dual educational system, which provides for an apprenticeship in a company. The disputes about a so-called ‘Educational Pact’, committing employers to participate actively in the educational ﬁeld, are rather typical of the German welfare state since they centre on the ‘labour question’. The diﬃculties resulting from such an attempted commitment clearly show that education does not ﬁt to the traditional welfare state. Private organizations are increasingly operating in the nursing care sector as well. This is the average rate of contribution for health insurance, as the rate can very slightly. The Konzertierte Aktion took place in the health system and tried to reach a consensus about the increase of costs between the state, health insurances and provider associations. Except for some interruptions, this was the most consistent such arrangement in Germany (1978–94). Its corporatist structure can be regarded as the reason ‘why previous attempts to reform have never reached fundamental changes in the organisation of the German health system’ (Holzinger 2005: 304).

Bibliography Allmendinger, J. and Leibfried, S. (2004) ‘Bildungspolitik als Sozialpolitik’, in F.-W. Steinmeier (ed) Made in Germany: Innovationen für eine gerechte Zukunft, Hamburg: Hoﬀmann und Campe. Bandelow, N. (1998) Gesundheitspolitik. Der Staat in der Hand einzelner Interessengruppen? Opladen: Leske + Budrich. Butterwegge, C. (2005) Krise und Zukunft des Sozialstaates, Wiesbaden: VS Verlag. Christen, C., Michel, T. and Rätz, W. (2003) Sozialstaat. Wie die Sicherungssysteme funktionieren und wer von den Reformen proﬁtiert, Hamburg: VSA-Verlag. Dingeldey, I. (2004) ‘Koordination zwischen Staat, Markt und Familie?’, in S. Lütz and R. Czada (eds) Wohlfahrtsstaat – Transformation und Perspektiven, Wiesbaden: VS-Verlag. Döhring, D. (2004) Sozialstaat, Frankfurt am Main: Fischer. Eichener, V. (2005) ‘Wohlfahrtsstaat’, in K. Schubert (ed) Handwörterbuch des ökonomischen Systems der Bundesrepublik Deutschland, Wiesbaden: VS-Verlag. Federal Press Oﬃce (Presse- und Informationsamt der Bundesregierung) (ed.) (2003) Agenda 2010: Deutschland bewegt sich, Antworten zur Agenda 2010, Berlin. Frerich, J. and Frey, M. (1996) Handbuch der Geschichte der Sozialpolitik in Deutschland, Band 1: Von der vorindustriellen Zeit bis zum Ende des Dritten Reiches, München: Oldenbourg Wissenschaftsverlag. Frevel, B. and Dietz, B. (2004) Sozialpolitik kompakt, Wiesbaden: VS-Verlag. Gerhard, U. (2003) ‘Geschlecht: Frauen im Wohlfahrtsstaat’, in S. Lessenich (ed) Wohlfahrtsstaatliche Grundbegriﬀe: historische und aktuelle Diskurse. Frankfurt am Main: Campus. Gerhardt, K.-U. (2006) Hartz plus, Lohnsubventionen und Mindesteinkommen im Niedriglohnsektor, Wiesbaden: VS-Verlag. Hegelich, S. (2004) ‘Can Welfare Expansion Result in Disintegration? The Integration of East Germany into the German Pension System’, German Politics, 13(1), 81–105. —— (2006) Reformkorridore des deutschen Rentensystems, Wiesbaden: VS-Verlag. Hegelich, S. and Schubert, K. (2006) ‘Politics of Pension Policies’, German Policy Studies, 3(3) Special Issue. Hentschel, V. (1983) Geschichte der deutschen Sozialpolitik 1880–1980, Frankfurt am Main: Suhrkamp. Heinze, R. G. (2004) ‘Sozialpolitik versus Zukunftspolitik?’ in F.-W. Steinmeier (ed) Made in Germany: Innovationen für eine gerechte Zukunft, Hamburg: Hoﬀmann und Campe. Hinrichs, K. and Kangas, O. (2003) ‘When is a Change Big Enough to be a System Shift?’ Social policy & administration, 37(6), 573–91. Holzinger, Katharina (2005) ‘Gesundheitspolitik’, in D. Nohlen and R.-O. Schultze (eds) Lexikon der Politikwissenschaft. Band 1. München: C.H. Beck.

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Kaufmann, F.-X. (2003) Varianten des Wohlfahrtsstaates, Frankfurt am Main: Suhrkamp. Klein, M. and Bazant, U. (2005) ‘Bündnis für Arbeit’, in K. Schubert (ed) Handwörterbuch des ökonomischen Systems der Bundesrepublik Deutschland, Wiesbaden: VS-Verlag. Kleinert, C. (2000) ‘Migration’, in J. Allmendinger and W. Ludwig-Mayerhofer (eds) Soziologie des Sozialstaats. Gesellschaftliche Grundlagen, historische Zusammenhänge und aktuelle Entwicklungstendenzen. Weinheim: Juventa. Klemm, K. (2000) ‘Bildung’, in J. Allmendinger and W. Ludwig-Mayerhofer (eds) Soziologie des Sozialstaats. Gesellschaftliche Grundlagen, historische Zusammenhänge und aktuelle Entwicklungstendenzen. Weinheim: Juventa. Köppe, O. (2004) ‘Der Leviathan des Wettbewerbs: Migration zwischen nationalem Wettbewerbsstaat und europäischer Integration’, in S. Lütz and R. Czada (eds) Wohlfahrtsstaat – Transformation und Perspektiven. Wiesbaden: VS-Verlag. Manow, P. (1997) ‘Social Insurance and the German Political Economy’, MPIfG Discussion Paper 2/97, Max-Planck-Institut für Gesellschaftsforschung, Köln. Manow, P. and Seils, E. (2000) ‘Adjusting badly: The German welfare state, structural change, and the open economy’, in Fritz W. Scharpf and Vivien A. Schmidt (eds) Welfare and Work in the open Economy. Vol. II: diverse responses to common challenges, Oxford: Oxford University Press. Metzler, G. (2003) Der deutsche Sozialstaat. Vom bismarckschen Erfolgsmodell zum Pﬂegefall, Stuttgart: Deutsche Verlags-Anstalt. Meyer, H. and Schubert, K. (2007) ‘Vom nationalen Wohlfahrtsstaat zum europäischen Sozialmodell?’ in N. C. Bandelow and W. Bleek (eds) Einzelinteressen und kollektives Handeln in modernen Demokratien. Festschrift für Ulrich Widmaier. Wiesbaden: VS-Verlag. Mommsen, H. (1981) ‘Die Gewerkschaften und die Durchsetzung des Sozialstaates in Deutschland’, Gewerkschaftliche Monatshefte 2: 76–86. Neumann, L. F. and Schaper, K. (1998) Die Sozialordnung der Bundesrepublik Deutschland, Frankfurt am Main: Campus. Nullmeier, F. (2006) ‘Personal responsibility and its contradictions in terms’, in S. Hegelich and K. Schubert (eds) Politics of Pension Policies, German Policy Studies, Special Issue 2006. Nullmeier, F. and Rüb, F. (1993) Die Transformation der Sozialpolitik: Vom Sozialstaat zum Sicherungsstaat, Frankfurt am Main: Campus. Pierson, P. (ed) (2001) The New Politics of the Welfare State, Oxford: Oxford University Press. Preller, L. (1978) Sozialpolitik in der Weimarer Republik, Düsseldorf: Droste Verlag. Presse-und Informationsamt der Bundesregierung (ed) (2003) Agenda 2010, Berlin. Reidegeld, E. (1996) Staatliche Sozialpolitik in Deutschland. Historische Entwicklung und theoretische Analyse von den Ursprüngen bis 1918, Opladen: Westdeutscher Verlag. Schmidt, M. G. (1998) Sozialpolitik in Deutschland, Opladen: Leske + Budrich. Schmidt, M. G., Ostheim, T., Siegel, N. A. and Zohlnhöfer, R. (eds) (2007) Der Wohlfahrtsstaat. Eine Einführung in den historischen und internationalen Vergleich, Wiesbaden: VS-Verlag. Sinn, H.-W. (2003) Welfare to Work in GERMANY: a proposal on how to promote employment and growth. München: Center for Economic Studies & Ifo Institute for Economic Research. Winter, T. von (1997) Sozialpolitische Interessen. Konstituierung, politische Repräsentation und Beteiligung an Entscheidungsprozessen, Baden-Baden: Nomos. Young, B. and Hegelich, S. (2001) ‘Die spekulative Erwartung exorbitanter Umsätze’, Frankfurter Rundschau, Dokumentation, 09.08.01. Zacher, H. F. (2000) ‘Der deutsche Sozialstaat am Ende des Jahrhunderts’, in S. Leibfried and Wagschal, U. (eds) Der deutsche Sozialstaat. Bilanzen – Reformen – Perspektiven, Frankfurt am Main: Campus. Ziegelmayer, V. (2001) ‘Sozialstaat in Deutschland: Ein Systemwechsel?’ in K. Kraus and T. Geisen (eds) Sozialstaat in Europa. Geschichte, Entwicklung, Perspektiven, Wiesbaden: VS-Verlag.

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Chapter 7

dk Between economic constraints and popular entrenchment The development of the Danish welfare state 1982–2005 Christoffer Green-Pedersen and Michael Baggesen Klitgaard

Introduction The year of 1982 was in many ways a path-breaking year for the Danish welfare state. The problems of the Danish economy, which had been mounting since the ﬁrst oil crisis, had turned into a severe economic crisis with high unemployment, high inﬂation, a government budget deﬁcit and a huge current account deﬁcit. Denmark was at the brink of the economic abyss (Nannestad and Green-Pedersen 2008). In September, a centreright government replaced the social democratic government and came into oﬃce with a strong determination to get the Danish economy back on track and implement the necessary measures, including cutbacks in the welfare state. The year of 1982 is therefore a natural starting point for assessing the development of the Danish welfare state. As is the case for most welfare states, the Danish one forfeits simple conclusion in terms of its development. A number of reforms and retrenchment have taken place since 1982, but their signiﬁcance depends very much on the analytical perspective from which they are evaluated. Still, it is hard to argue that the Danish welfare state in general has experienced a major roll-back since 1982, as the welfare state also has been further expanded during the last 20 years. The Danish case is very much in line with Paul Pierson’s (1994, 1996) view of welfare state retrenchment as the politics of blame avoidance. As we will show below, the Danish welfare state enjoys strong support from the electorate – it is highly politically entrenched – and suggestions of retrenchments with no further justiﬁcations than an ideological protest against the universal welfare state and its high tax levels are among the least politically viable policy initiatives in Denmark. However, the economic problems that existed in 1982 and continued a long way into the 1990s provided, as we will show in the following, opportunities to justify reforms and retrenchment. Controlling public expenditures have moreover been an important preoccupation of Danish governments, which also aﬀected welfare state schemes – especially when it provided possibilities of retrenchment ‘by stealth’. This has been the case with for instance welfare state services because of their decentralized governance structure. 137

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In 1982, the Danish welfare state consisted of a range of universal, tax-ﬁnanced cash beneﬁts such as the public pension scheme, unemployment beneﬁts, early retirement beneﬁts, and sickness insurance and highly developed, public, tax-ﬁnanced and universal welfare services within health care, child care and care of older people. Especially child care and care of older people have facilitated high levels of female labour market participation in Denmark – one of the hallmarks of the universal welfare states in Scandinavia. But there have also been deviations from the idea of a universal welfare state (see Esping-Andersen, 1990). One deviation was the existence of means-testing in the public pension system and means-testing for the child allowance, but more important was the fact that some cash beneﬁt schemes, especially the public pension system, were not generous enough to crowd out private alternatives. The fact that Denmark had not introduced a second-tier pension system like the Swedish ATP is the main reason for Korpi and Palme’s (1998) classiﬁcation of Denmark as a basic security system like the UK and not as an encompassing welfare state as the other Scandinavian countries. In this chapter we discuss the ﬁnal settlement of the Danish pension system and some of its likely future consequences for the character of the welfare state. Another aspect of the Danish welfare state in 1982 worth noticing was the passive character of labour market policy. High levels of persistent and long-term unemployment are a serious threat to the ﬁnancial viability of welfare states in general and the political legitimacy of universal welfare states in particular (Klitgaard, 2007). This explains why Scandinavian countries traditionally spend a relatively large proportion of labour market policy expenditures on active measures and why active labour market policy is also seen as part of the Scandinavian model (Esping-Andersen and Korpi 1986), though seeing it as an example of ‘decommodiﬁcation’ is diﬃcult. In Denmark active labour market policies in the early 1980s were limited and oriented at securing the eligibility of unemployed people to receive unemployment beneﬁts, rather than bringing people back to regular jobs. During the 1990s Denmark transformed labour market policy towards active measures and more employment-oriented policies, which are also discussed in this chapter. Hence, whether or not Denmark was a universal welfare state in 1982 depends on which aspects of the welfare state one focuses on and whether or not active labour market policies are seen as part of the universal welfare model. Further, focusing only on the changes made directly to public welfare state schemes can conceal important developments, which in the longer run may have important consequences for public schemes. This is a central point made in power resources theory (Korpi and Palme 2003) with its focus on the ability of public schemes to crowd out private alternatives, and a point Hacker (2002) recently has shown to be crucial in understanding the development of the American welfare state. In connection with the Danish case, it is especially central in relation to the pension scheme. Thus, the picture of welfare state continuity is only part of a story that also includes genuine institutional changes with long-term consequences. In this chapter we develop these points further. We begin by taking a brief look at the origin of the Danish welfare state, and continue by presenting the state of the Danish welfare state in 1982 and the development of the dilemma between economic constraints and popular entrenchment in the period. We then present an aggregate picture of the developments since 1982 before going into detail of the most notable policy changes during the entire period, namely the changes executed in the pension system and in labour market policy broadly understood. We close the chapter by oﬀering a general explanation for the strong, although varying, reform capacity of the Danish welfare state 138

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since 1982, and with some reﬂections over the present political and institutional dynamics in the Danish welfare state and its likely future.

Analysis and political dimensions Few would deny the Social democratic party a key role in the development of the Danish welfare state, yet other political parties such as the liberals, social liberals and conservatives have played crucial roles as well (Baldwin, 1990). Basic features such as universalism, principles of funding and administrative structures were established years before the Social democratic party became a signiﬁcant political actor. The modern Danish welfare state has in fact bourgeois roots in core areas such as old age pensions (established in 1891), sickness insurance (1892) and unemployment insurance schemes (1907) (Nørgaard, 2000). Also, the expansionist social reforms from the late 1950s through the 1960s were executed with parliamentary support from the right-wing parties, but as a result of political compromises rather than consensus (Baldwin, 1990). However, rather than drawing a picture of a Social Democratic party being just one of several ‘fathers’ of the welfare state, it can be seen as an illustration of social democratic agenda-setting power. The welfare state project, as articulated in various Social Democratic party programmes in the post war period was popular with the electorate, diﬃcult to oppose and hence accepted by the right-wing parties (Petersen, 1998: 53–75). As already mentioned the centre-right government that came into power in 1982 faced dire economic straits. The economic situation was characterized by public deﬁcits (9.1 per cent of gross domestic product (GDP), current account deﬁcit (3.9 per cent of GDP), high inﬂation (10.1 per cent) and high unemployment (8.4 per cent) (GreenPedersen 2003, Table 7.1). When the last of a series of bourgeois governments resigned in 1993, it had coped with most of these economic challenges. The current account now showed a surplus (3.3 per cent), and inﬂation rate had decreased (1.3 per cent). Unemployment rates had however increased to 10.7 per cent – the main reason for continuing deﬁcits on the ﬁnancial balances – although on a lower scale than the early 1980s (2.9 per cent of GDP) (Green-Pedersen 2003). Unemployment problems and public deﬁcits were however handled by a booming economy under a series of Social Democratic-led governments from 1993 to 2001, and from the late 1990s onwards a picture of an economic ‘miracle’ emerged (see Schwartz 2001; Green-Pedersen 2003). In 2004, there was a surplus on the current account and the ﬁnancial balances, inﬂation was low (OECD 2006) and most importantly for the ‘miracle’ description, the unemployment rate had decreased to 5.5 per cent considerably below the EU average as can be seen from Table 7.1. However, it is important to notice that despite the miracle label and declining oﬃcial unemployment, the Danish welfare state has a signiﬁcant ‘welfare without work problem’ (Esping-Andersen 1996). If one looks at broad unemployment, that is people between 18 and 66 years receiving some kind of transfer beneﬁt, though not student allowance, this ﬁgure was 21 per cent in 1984, 25 per cent in 1993 and 24 per cent in 2004.1 In other words, there is a considerable element of hidden unemployment, and the ‘economic miracle’ has not brought this back to the level of 1984. To understand the diﬃculties the new government in 1982 had in pursuing a row of harsh economic policy measures, it is important to be aware that the political room for manoeuvre was constrained by a stable and comprehensive electoral support towards the welfare state. The landslide election of 1973 is the only election in recent times that can 139

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Table 7.1 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

dk

eu27

eu15

6.7 6.3 5.2 4.9 5.2 4.3 4.5 4.6 5.4 5.5 4.8 3.9 3.8

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

be interpreted as a protest against the high taxes and expanded public sector. Political support since the early 1980s has been at a very high level, especially for universal schemes such as health care, education and public pensions and less so for means-tested programmes as for example social assistance and housing assistance (Goul Andersen 2003). Strong support should however not be misunderstood as uncritical support. The question of economic viability has constantly caused popular scepticism and oﬀered a potential way of justifying retrenchments (Goul Andersen 2005, Green-Pedersen 2002a). General welfare state developments, 1982–2004 A way to get a ﬁrst overview of the development of the Danish welfare state is to look at the development of social expenditure as a percentage of GDP.2 The Danish welfare state grew slightly between the early 1980s and 2003 from 28 per cent of GDP to almost 31 per cent of GDP. However, such general ﬁgures can be misleading, for instance, due to the eﬀect of the level of unemployment on spending. Breaking down expenditure on services and transfers is therefore useful. Spending on services, which are only aﬀected by the level of unemployment to a limited extent, grew in the period from 12 to 13 per cent of GDP, a growth that has mainly occurred from 1996 on (Figure 7.1). Spending on services as a percentage of GDP actually decreased in the mid-1980s, and this spending control or retrenchment was politically possible because of the decentralized governance structure of Danish welfare services. Welfare services such as health care, child care and care of older people are governed by local governments in Denmark, but they operate within a national economic framework negotiated between central and local government (Blom-Hansen and Pallesen 2001). This means that the central government to some extent can push on the problem of controlling public ﬁnances to local governments, which have to make hard choices between spending on diﬀerent programmes. Possibly related to these cost control measures, public dissatisfaction with the health care system mounted in the late 1980s, particularly relating to waiting lists. As a consequence, the social democratic-led governments from 1993 to 2001 and their bourgeois successor started to deliberately put more money into the health care system (Pallesen and Pedersen forthcoming). The same development, though on a smaller scale, has taken 140

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Figure 7.1 Welfare spending in Denmark.

place with regard to care of older people, just as child care has been expanded because of a ‘care guarantee’ issued in the late 1990s (Blom-Hansen 1998). In terms of the organization of public services, this has been characterized by stability. Thus, though there at times have been heated discussions about for instance contracting out of social services, little has happened so far (Green-Pedersen 2002b). Spending on transfers is more diﬃcult to interpret as directly related to policy decisions, as they are inﬂuenced by other factors, especially the business cycle and to a lesser extent demography. Denmark experienced a rapid improvement in its economy in the years following the takeover of the ﬁrst bourgeois government in 1982, causing a decline in spending on transfers. But the bourgeois government also implemented cutbacks in, for example, unemployment beneﬁts and early-retirement beneﬁts which also helped to bring down transfer spending. From 1987, the economy turned around with rising unemployment, which caused a signiﬁcant increase in transfer spending from 14 per cent of GDP in 1986 to 20 per cent in 1994. However, also here policy decisions played a role. The economic crisis in the early 1980s had made it possible for the bourgeois government to justify retrenchments, which were accepted by the electorate as necessary to save the economy, and thus the welfare state (Green-Pedersen 2002a, 111–24). However, when the economy improved, the government came under political pressure to improve the welfare state, and, from 1985 onwards, it responded partly by rolling back earlier retrenchments and also by implementing expansions of welfare programmes. In connection with a tax reform in 1985, a universal and generous child allowance was thus reintroduced, and the public pension was also improved several times, as will be described below. Already in 1984, maternity leave had been extended and a new and generous disability pension scheme had been introduced. In the remaining period of bourgeois rule further expansions of transfer programmes happened, which in eﬀect withdrew the unemployed from the labour market. The consequence was rising transfer costs but also a signiﬁcant rise in broad unemployment. 141

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The social democratic-led government that took over in 1993 started out by continuing the strategy of withdrawing people from the labour force, but then made a signiﬁcant policy shift, implying a number of signiﬁcant retrenchments of transfer schemes related to the labour market. Decreasing unemployment and cutbacks in various transfer schemes helped to bring down spending on social transfers to around 16 per cent of GDP in 2000. The new right-wing government that came to power in 2001 has so far only made minor changes to transfer programmes, except for a signiﬁcant expansion of maternity leave from 6 to 12 months. The development of the Danish welfare state follows the ‘growth to the limits’ ﬁnding of many studies of social spending (e.g. Kittel and Obinger 2003). Underlying this development is the fairly diﬀerent development of diﬀerent parts of the welfare state. Services were kept under tight ﬁscal control during the 1980s, but were then allowed to grow during the latter part of the 1990s. Transfers relating to the labour market have seen a number of retrenchments, which will be discussed below. Transfer schemes less related to the labour market have generally seen either expansion as is the case with the child allowance and maternity leave or a fairly balanced mixture of retrenchments and expansion as is the case with the national pension. The major part of the policy changes conducted during the period has been incremental and can be characterized as quantitative changes in the economic ﬂow to the welfare programmes with consequences for generosity and replacement rates. Most reforms have, to a much lesser extent, involved institutional principles with possible long-term consequences for the Danish welfare model (see Hacker 2002). This should come as no surprise as it follows the conclusions about Western welfare states being rather diﬃcult to change (Pierson 1994; 2001). However, even if institutional changes are rare they do occur, and have actually occurred in such central Danish welfare policies as the public pension system and labour market policy. Institutional reforms in pension and labour market policy constitute the most signiﬁcant changes in the Danish welfare state since the early 1980s and are thus given extra attention in this depiction of the Danish welfare state. The ﬁnal settlement of the Danish pension system As in most other EU countries the pension system has in Denmark been a central theme on the policy agenda. The main reason is that Denmark, as mentioned, has not introduced a second tier earnings-related pension scheme as many other countries, including the other Scandinavian countries, did in the late 1950s and 1960s. The Danish pension system that existed in 1982 was consequently characterized by ﬁrst of all a duality between people having only the national pension and people having in addition either a labour market pension – especially well-educated public employees like doctors, teachers etc. – or a private pension (Vesterø-Jensen 1985). Second, the pension system was still open in the sense that most blue-collar workers had only the private pension they had established on a purely individual basis besides the national pension and for especially high-earning groups like metal workers, this did not provide acceptable replacement rates. Danish pension politics in the 1980s and onwards has thus been a question of ﬁnally settling the pension issue, i.e. what second-tier pension scheme should be established for the groups not already covered by occupational pensions. It is, however, crucial to be aware that the choices available were quite few in the 1980s. Especially, the introduction of a large public pay-as-you-go second-tier pension scheme as found in many westEuropean countries was completely out of the question for two reasons. First, it was 142

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politically impossible to introduce the additional taxes or social contributions that could ﬁnance such a scheme. Second, the fact that large groups in the labour market had already established funded occupational pension schemes made any other pension solution very diﬃcult (Green-Pedersen and Lindbom 2006). Thus, the pension debate in the 1980s was in reality centred on the question of how exactly to organize occupational pensions for the groups not already covered, and this debate also spilled over into the changes made to the national pension. The solution that came about was occupational pensions introduced through collective agreements and with diﬀerent pension funds for diﬀerent occupational groups following the lines of collective agreements. Further, no legislation has been passed providing groups not covered by collective agreements with a second-tier pension. The development of the national pension was inﬂuenced by the development of occupational pensions, but also by the fact that the national pension has traditionally been among the most popular welfare schemes in Denmark. The national pension consists of a basic amount with no means-testing and a means-tested pension supplement. When the pension supplement was eased in the mid-1980s, the scheme thus became more universal, but it also facilitated the introduction of occupational pensions. The means-testing implies that part of the savings made through the occupational pension will be wasted as part of or the entire pension supplement is lost. Less means-testing, therefore, means more incentive to save, i.e. introduce occupational pensions. Denmark today has a three-pillar pension system, which the World Bank in many ways would love (Green-Pedersen 2007). There is an extensive second pillar of funded, deﬁned contribution occupational pensions to which people can add a third pillar of private pensions. The ﬁrst pillar, consisting of the pay-as-you-go based national pension, is however probably too generous from a World Bank perspective. One of the economic advantages of this system is how it handles for instance rising costs due to rising life expectancy. As occupational pensions are funded, deﬁned contribution schemes, the result of rising life expectancy is lower pensions, but it is not easily noticed as the pension funds only guarantee a fairly low minimum pension, which will not be aﬀected by increases in life expectancy unless they are dramatic. The pressure on pension systems, which in many other countries is ‘high politics’, thus only becomes political in Denmark with regard to the national pension. The transformation of labour market policy in the 1990s The right-wing government inherited in 1982 an economy in deep recession from its Social Democratic predecessor, and unemployment was indeed a major element of the problem. To combat unemployment the right-wing government relied mainly on a policy strategy aimed at restructuring the Danish economy: anti-inﬂationary policy, priority to the balance of payment and policies to improve the competitiveness of the Danish economy. The currency was linked to the German Mark and ﬁxed budgets for the public sector caused zero growth or even a decline in public employment (Nannestad and Green-Pedersen 2008). During the period 1982–93 there were also several political conﬂicts between the government and the Social Democratic opposition, especially over unemployment beneﬁts. The government tried on several occasions to execute retrenchment policies in unemployment beneﬁts and other social security schemes, and had some initial success as the level of unemployment, sickness and early-retirement beneﬁts was frozen between 1982 and 1985. This was due to a political compromise with the social 143

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liberal party and met with sharp criticism from the Social Democrats and trade unions. In 1984, the government also tried to bring an end to the right to job oﬀers which in reality made unemployment beneﬁts unending, but had to give up after ﬁerce criticism from the Social Democrats (Green-Pedersen 2002b: 114–15). This was the end of the government’s ability to capitalize on the crisis awareness of the population to retrench unemployment beneﬁts and other schemes. As already mentioned the government was then forced into giving up earlier retrenchments and expanding several schemes. With regard to the schemes related to the labour market such as unemployment beneﬁts and early retirement beneﬁts, freezing of the beneﬁts was partly compensated by increases in beneﬁts. Further, a number of possibilities of withdrawing people from the labour market were introduced in the late 1980s, for instance a transitional allowance for those aged 50 to 59 (Green-Pedersen 2002b: 114–15). When Social Democrats came back to power as the leading party of a majority coalition in 1993, it faced one signiﬁcant macro-economic problem, namely unemployment. After a minor decrease between 1983 and 1987, unemployment rates had again become double digit. This provided the incentive for a transformation of Danish labour market policy initiated with a labour market reform in 1993. This reform introduced various leave schemes in order to ‘break the curve’ of unemployment before the Social Democratic government would meet the electorate in the autumn of 1994. The reform also put an end to the durability of unemployment beneﬁts, which in practice was endless, as the unemployed could requalify for new periods of beneﬁts by fulﬁlling a demand for employment in 26 weeks through subsidized work or participating in certain labour market programmes (Rosdahl, 2003). With the 1993 reform the durability became restricted to seven years and beneﬁciaries of unemployment beneﬁts were obliged to participate in active labour market programmes for the last three years. If unemployed people did not enter into real jobs after activation, they were left to the much less generous social assistance scheme. The durability of unemployment beneﬁts was further reduced to ﬁve years in 1995, as a result of a compromise over the public budget between the Social Democratic government and the Conservative party. Other notable elements of this compromise were the fact that eligibility criterias for beneﬁts was increased from 26 to 52 weeks of regular employment, while beneﬁts to people younger than 25 years were cut by 50 per cent. Also, in 1995, just one year after the election, the government began to phase out the sabbatical leave scheme introduced in 1993, as well as the possibility of participating in educational programmes while receiving unemployment beneﬁts (Klitgaard, 2002). The ﬁnal step was taken in connection with the negotiations over the public budget in 1998 and based on a political agreement between the government and the conservative and liberal party. The period for receiving unemployment beneﬁts was now restricted to a maximum of four years in which the unemployed were obliged to participate in labour market programmes for the last three years. In this connection, the early retirement scheme was also retrenched by increasing the number of years people should have been members of an unemployment fund to becomes eligible for early-retirement beneﬁts with ﬁve years, introduction of an individual early-retirement contribution and a reduction of the compensation rate for those exploiting the scheme before they turn 62 years old (Larsen and Andersen, 2004: 241). Other transfer programmes than unemployment beneﬁts and the early-retirement scheme were also exposed to employment-stimulating policy measures during the 1990s. The inﬂux of 50–59 year olds to transitional allowances and extended rights to unemployment 144

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beneﬁts for 50–54 year olds were abolished in 1995 and 1998. Regarding social assistance, in 1993 municipalities became obliged to use a wider range of active measures in order to bring social assistance recipients back to the labour market, and the idea of an ‘active social policy’ was settled in 1998 with a new law. With this, the general principle of social assistance became that to be eligible for beneﬁts a ‘fair’ oﬀer of work, activation, re-education or job-training should be accepted (Larsen and Andersen, 2003: 90). Furthermore, the political responsibility of awarding disability pensions was gradually delegated to the municipalities during the 1990s, which also became more responsible for its funding and were obliged to assess the work ability of potential recipients before pensions were awarded. This reform has caused a decline in the number of awarded pensions (Green-Pedersen 2002b, 77–80). As in the case of social services, delegation of unpopular political choices to local governments has thus increased the cost control capacity of the system. Altogether, during the 1990s the Social Democratic-led government managed to transform the passive character of labour market policy into a more genuine active policy, which also included retrenchment of unemployment beneﬁts and other labour marketrelated cash beneﬁts. Although there were some protests, especially from the unskilled workers union, Danish labour market reforms and retrenchment policies were implemented without any sharp resistance in the 1990s. But there were limits to the Social Democratic reform capacity. When the government in 1998 – as part of a deal with the right-wing parties – retrenched the early-retirement scheme, the Social Democratic party experienced a decline in the opinion polls from approximately 30 per cent to just above 20. To a large extent, this was due to a promise, not forgotten by the electorate, from the prime minister in the electoral campaign in the spring of 1998 not to retrench this scheme; the electorate simply felt betrayed (Green-Pedersen, 2002b: 129). The political eﬀects of this reform have been quite visible in the attempts of the new right-wing government after 2001 to undertake new labour market and welfare state reforms. The government has managed to downsize expenditures on active labour market policy and implement another labour market reform, which is in good keeping with the reforms undertaken in the 1990s. This new reform introduced a ceiling in social assistance in order to increase recipients’ job incentives and to ensure that social assistance was always less attractive than employment and unemployment beneﬁts. It also reduced the generosity of social assistance for the under 25s, and made it comparable to the level of student allowances, strengthened the control of whether unemployed people were at the disposal of the labour market, and aimed at facilitating a stronger degree of contracting out of public employment services (Beskæftigelsesministeriet, 2002). From the brink of the abyss to miracle country: the Danish welfare state in 2006 Economic restructuring during the 1980s and labour market reforms in the 1990s have caused Denmark to be portrayed in a growing amount of literature as one of the so-called miracle countries, that is countries which have managed to combat unemployment without sacriﬁcing a generous welfare state and thus a high level of economic equality (see Schwartz, 2001). The Danish welfare state at present is thus in relatively good economic shape and far from the deep crisis of the early 1980s. As can be seen from Table 7.3, Denmark spends more on welfare than the average EU country, but the diﬀerences are not dramatic and the distinctiveness of the Danish welfare 145

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state is much clearer when expenditure is broken down into diﬀerent purposes, as done in Table 7.2. Despite the many reforms Denmark has accomplished during more than 20 years, the Danish welfare state continues to render a number of fairly diverse cash beneﬁts and welfare services. The basic amount of the national pension continues to be paid to everyone from the age of 65 regardless of income from other pension schemes or from personal assets. Pensioners with no other signiﬁcant income, for example from an occupational pension, receive an income-tested pension supplement as well. This is the reason why Denmark spends less than the EU average on old age as shown in Table 7.3. Denmark spends more on family-related policies as for example child allowances. This scheme became a true universal scheme in the 1980s and is given to all families without income tests, although the level of this beneﬁt depends on the age of the child. Labour market reforms in the 1990s did not include changes in the administrative structure of unemployment insurance schemes. Eligibility to unemployment beneﬁts requires membership of an unemployment fund, which is voluntary and about 77 per cent are members. Members pay a fee, but the lion’s share of expenses is paid by the government which also carries the marginal risk as fees are ﬁxed. Unemployment funds are administered by the trade unions, though formally independent. This ‘Ghent-system’ of unemployment insurance leads to a high level of unionization though membership of a trade union is not required to be member of an unemployment fund (see Rothstein, 1992). Neither did the labour market reforms include changes in the maximum replacement rate which was equal to 90 per cent of the former wage. A ceiling determines however that the real replacement rates for even low-income groups is about 70 per cent. For average income groups it is only around 43 per cent. The introduction of active labour market measures is the reason why Denmark despite the ‘economic miracle’ spends more than the EU average on unemployment policies.

Table 7.2 Social protection expenditure

dk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

44374.6 45334.2 45337.5 46579.2 48679.7 50108.5 52382.2 54858.6 58216.4 60533.5 62703.7

8479.2 8613.6 8578.5 8781.5 9147.2 9384.3 9775.0 10204.5 10799.7 11200.5 11570.2

31.9 31.2 30.1 30.0 29.8 28.9 29.2 29.7 30.9 30.9 30.1

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3 27.4

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

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Table 7.3 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

dk

eu27

eu15

100.0 97.2 12.6 8.3 2.3 3.3 34.2 36.5

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

Today, there are two ways to early retirement in Denmark. The ﬁrst one is the above mentioned early retirement scheme, which is administered in the same way as unemployment beneﬁts. Recipients must have been enrolled as members of the unemployment fund for 25 years to be eligible for beneﬁts which are obtainable from the age of 60 to 65. After the 1998 reform the generosity depends on the age at which recipients enter the scheme. If you enter at the age of 60, beneﬁts are 91 per cent of the maximum unemployment beneﬁt whereas it is 100 per cent if you enter at the age 62 (Larsen and Goul Andersen, 2004). The other early-retirement scheme is the disability pension now administered by local government. After the cost-cutting decentralization in the 1990s, a new scheme was introduced in 2002, where beneﬁts in principle are equal to the maximum level of unemployment beneﬁts but are means-tested based on both the income of the recipient and spouse. They can be given at any age and last until the age of 65. Other cash beneﬁts such as sickness beneﬁts and maternity beneﬁts are government run and tax ﬁnanced and oﬀer beneﬁts along the same principles as found in the unemployment beneﬁt scheme. However, many employees have the right to pay during sickness and maternity leave as part of their contracts. Maternity leave has recently been extended to one year. With regard to welfare services, health care is citizenship based and generally for free, provided and administered by the regions. Local governments have also the responsibility of making contracts with family doctors and specialists operating on a private basis. Care of older people – residential home, sheltered housing, cleaning assistance, etc. – is oﬀered for free by the municipalities to all pensioners in need. The rate of coverage for care of older people aged 80+ was around 60 per cent in Denmark in 2000, which was signiﬁcantly higher than in any other Scandinavian country (Rauch, 2005). Denmark’s generosity in terms of spending on family-related policies as shown in Table 7.3 is also reﬂected by the coverage rates in a three-tiered child care system including kindergartens, crèches and child minders. In the case of the ﬁrst two, pedagogues dominate the staﬀ and the institutions have only limited elements of pre-schooling. In 2003 about 87 per cent of all one to ﬁve year olds were cared for by this public system, which means that as in care of older people, child care in Denmark is the most extensive of the Scandinavian welfare states (Rauch, 2005). In a nutshell, the Danish welfare state still has many ‘Scandinavian features’ such as the universality of the basic amount of the national pension, child allowances and not least 147

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Table 7.4 At-risk-of-poverty rates by gender

dk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

10 – 10 – 10 – 10 – 12b 11 12 12

– – – – – – – – 11b 11 12 11

– – – – – – – – 12b 11 12 12

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

the highly expanded social services. But it has also signiﬁcant ‘non-Scandinavian’ elements such as means-testing of the national pension and the disability pension scheme, and the fairly low replacements rates for employees with average or higher incomes.

Outlook – new political and institutional dynamics: a prospect for the future Twenty-ﬁve years of reform developments have in some ways adapted the Danish welfare state further to the universal ideal or Scandinavian type of welfare state. This is mainly the case in relation to labour market policy and the introduction of active labour market policies in the 1990s. It may be seen as a paradox that this accommodation implied signiﬁcant retrenchments in unemployment beneﬁts, early retirement, social assistance and disability pensions. And it has been argued that the labour market reforms break with the idea of a universal welfare state (Loftager, 2004: 95–102). It is on the other hand indisputable that universal welfare states traditionally have been oriented at full employment – partly by an extensive use of active labour market policy – and that the Danish welfare state in the beginning of the 1990s was seen as unsustainable in economic and not least political terms due to a long-lasting unemployment problem. Prior to the reforms, Danish unemployment beneﬁts were extremely generous and probably as close to a genuine ‘citizen-wage’ as any Western democracy has ever been, which was recognized as a fundamental threat to the strategic solidarity and thus political legitimacy of the universal welfare state (Klitgaard, 2007). One signiﬁcant ﬁnding in contemporary comparative welfare state research is that Denmark enjoys a rather strong capacity to implement welfare state reforms. But political systems capable of eﬃciently transforming policy proposals into real policies also face the risk of implementing policies with long-term and perhaps unintended consequences. 148

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That is probably what we are witnessing in relation to the new Danish pension system, where the undertaken changes may have established political dynamics towards lesser universalism in the future. Although the World Bank probably would approve of the three-pillar pension system in Denmark (Green-Pedersen 2007), it is, evaluated from a welfare model and power resource perspective, quite problematic. Even though occupational pensions under the control of trade unions are a central element, it is in essence what Korpi and Palme (1998; 2003) describe as a basic security scheme. The main task for the national pension is to provide beneﬁts for those not being able to save for their pension through occupational pensions, such as people witnessing long-term unemployment, or people that are dependent on disability pension. Power resource theorists would argue that such basic security schemes come under political pressure since large groups are not attached to them, and some signs of this are already visible. Public support for the public pension scheme has experienced a decline during the 1990s (Goul Andersen, 2005), which is the period where occupational pensions have expanded, just as there has been limited political interest in securing pension savings for those not covered by occupational pensions. Hence, the big issue of the future is whether the national pensions will continue to enjoy enough public support to be politically impossible, or at least dangerous, to retrench. As Hacker (2002) has pointed out, welfare state developments also need to be evaluated in relation to the development of societal context. Here it is worth noticing that poverty rates and economic inequality were comparatively low and quite stable in the 1980s and 1990s (Goul Andersen 2003), while recent years have been characterized by growing economic inequality (Arbejderbevægelsens Erhvervsråd 2006). This is mainly due to the very unequal distribution of capital gains from stock markets and not least a booming housing market, and as demonstrated in Table 7.4, the gap between Denmark and other EU countries has been reduced during the last decade. Such developments raise the question of whether the universal welfare state will also in the future be able to secure low economic inequality. Regarding social services, Denmark has not experienced signiﬁcant market-oriented reforms or retrenchments during the period (Christiansen, 1998; Green-Pedersen, 2002b). In areas such as health care and child care we have in fact witnessed a further expansion of the Danish service welfare state. Social service institutions in a Scandinavian welfare state are the work place for well-organized, professional and resourceful groups such as doctors, nurses and care personnel. This is why this dimension of the welfare state is entrenched by concentrated interests which have strong incentives to preserve the system. If we add to this that the degree of public support towards social services as health care and care facilities for children and older people is attained with a higher degree of electoral support than various schemes for social protection, we do have at least one likely explanation for why – despite the blame avoidance opportunities provided by the decentralized governance structure – the social services have faired well during the last decades and have escaped radical cutbacks. It is reasonable to suggest that social services are protected against drastic retrenchment also in the future. Not least because public support towards these schemes is likely to be strong also in the future, as all households practically depend on care facilities for children and older people. Without the provision of such services the extremely high labour market participation rate especially for Scandinavian women would be unattainable. On the other hand, it is not impossible that recently institutionalized policy dynamics on the welfare state service dimension means that private entrepreneurs will get a stronger foothold and become more responsible for service provision in the future. When the government in 2002 decided to put more money into the health care system in order to 149

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combat waiting lists for operations in public hospitals, people who had waited more than two months for an operation were given the right to make use of a public ﬁnanced but private alternative. The number of people operated in private hospitals has thus seen more than a threefold increase since 2002, though from a very low starting point (Indenrigs-og Sundhedsministeriet, 2006: 37). The government enacted furthermore upon a major structural reform of the public sector in 2004, which is to be fully implemented by the end of 2006 (Christiansen and Klitgaard, 2008). One of the motivations for this reform was that provision of public services should be more exposed to competition from private service producers. It was for example argued that large municipalities are a more attractive market for private entrepreneurs, the reason the reform also is believed to facilitate a stronger degree of contracting-out. This belief has proven diﬃcult to substantiate in empirical research (Pallesen, 2004), but it cannot be foreclosed that private entrepreneurs become more involved in service provision. It is at least a spelled-out intention of the current government to facilitate a stronger mix of private and public in relation to social service provision. Reform measures such as freedom of choice and contracting out have diﬀerent eﬀects across diﬀerent service areas and constitute in some cases, but not in others, a problem for the universal welfare states ideal of equal treatment of all citizens. Freedom of choice in areas where the contact between users of welfare services and the welfare institutions lasts a long time as for example in kindergartens and schools seems to be a problem. The main reason is that the social composition of users aﬀects the quality of the services delivered. If the contact between users and the institution is ad hoc, irregular and does not involve contact between users, as for example in hospitals and in relation to homebased care of older people, the conﬂict between freedom of choice and securing universal and uniform high quality services is less problematic (Christensen, 2004). Hence, recent developments in the public sector may lead to a universal welfare state in Denmark that is able to handle a situation where citizens have diﬀerentiated demands of high-quality services. But also a welfare state, again considering the developments in the pension scheme, that on the other hand has stronger diﬃculties in achieving the almost sacred goal of the model: equal treatment of all citizens.

Notes 1 This includes people aged 18–66 receiving unemployment beneﬁts, social assistance and rehabilitation, disability pension, early-retirement beneﬁts and transitional allowances, leave allowances, and people taking part in active labour market measures as a percentage of the broad labour force, i.e. employed people plus broad unemployment. The ﬁgures for 1993 and 2004 are based on Danmarks Statistik, Statistisk tiårsoversigt 1999, 2000 and 2005. The ﬁgures for 1984 have been provided by Danmarks Statistik, see also (Green-Pedersen 2003). 2 Social expenditure includes public spending on transfers such as old pensions, unemployment beneﬁts, early-retirement beneﬁts child allowance, etc., and social services such as health care, elder care and child care. Spending on education is not included and the same is the case with spending on social housing due to a lack of consistent time series on expenditure. Data are taken from the national account statistics, functional distribution of public expenditures, Statistisk Tiårsoversigt, various years.

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Larsen, Christian Albrekt and Jørgen Goul Andersen (2004) Magten på borgen. En analyse af beslutningsprocesser i større politiske reformer, Aarhus: Aarhus Universitetsforlag. Loftager, Jørn (2004) Politisk oﬀentlighed og demokrati I Danmark. Aarhus: Aarhus Universitetsforlag. Nannestad, Peter and Christoﬀer Green-Pedersen (2008) ‘Keep the Bumblebee Flying: Economic Policy in the Welfare State of Denmark, 1973–99’ in Erik Albæk et al. (eds.), Managing the Danish Welfare State under Pressure: Towards a Theory of the Dilemmas of the Welfare State, Aarhus: Aarhus University Press. Nørgaard, Asbjørn Sonne (2000) ‘Party Politics and the Organization of the Danish Welfare State, 1890–1920: The Bourgeois Roots of the Modern Welfare State’, Scandinavian Political Studies 23, 3, pp. 183–215. OECD (2006) Economic Outlook, Paris: OECD Pallesen, Thomas (2004) ‘A Political Perspective on Contracting Out: The Politics of Good Times. Experiences from Danish Local Governments’, Governance 17, 4, pp. 573–87. Petersen, Klaus (1998) Legitimität und Krise. Die politische Geschichte des dänischen Wohlfartsstaates 1945–1973. Berlin: Berlin Verlag. Pierson, Paul (1994) Dismantling the Welfare State? Reagan, Thatcher, and the Politics of Retrenchment, Cambridge: Cambridge University Press. —— (1995) ‘Fragmented Welfare States: Federal Institutions and the Development of Social Policy’, Governance 8, 4, pp. 449–78. —— (1996) ‘The New Politics of the Welfare State’, World Politics 48, 2, pp. 143–79. Rauch, Dietmar (2005) Institutional Fragmentation and Social Service Variation. A Scandinavian Comparison. Department of Sociology: Umeå University. Rosdahl, Anders (2003) ‘Lediges understøttelsesperiode’, in Per Kongshøj Madsen and Lisbeth Pedersen (ed.), Drivkræfter bag arbejdsmarkedspolitikken. København: Socialforskningsinstituttet, pp. 100–135. Rothstein, Bo (1992) ‘Labour market institutions and Working class strength’, in Sven Steinmo, Kathleen Thelen and Frank Longstreth, eds., Structuring Politics. Historical Institutionalism in Comparative Analysis. Cambridge University Press: Cambridge. Schwartz, Herman (2001) ‘The Danish ‘Miracle’: Luck, Pluck or Stuck?’, Comparative Political Studies 34, 2, pp. 131–55. Vesterø-Jensen, Carsten (1985) Det tvedelte pensionssystem, Roskilde: Forlaget Samfundsøkonomi.

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Chapter 8

ee The welfare system of Estonia Past, present and future Avo Trumm and Mare Ainsaar

This chapter provides a short overview on the general social protection system in Estonia and on main factors that have shaped social policy decisions since 1992, when Estonia gained its independence from the Soviet Union. The chapter analyses brieﬂy the main political actors who were active in the policy processes and policy environment, and gives an overview on the outcomes of the policy.

The historical and socio-economic context of the Estonian welfare state Historical development of the Estonian welfare state The history of Estonian social policy goes back to the mid-nineteenth century when the ﬁrst legal basis for community-centred social assistance was created. According to the Rural Law (1857), the rural community was responsible for providing social assistance on their territory for the needy – for orphans, disabled and older people in the case of absence of their own income, property or relatives able to ﬁnancially support them (Kotka 1996). However, the modern social protection system in Estonia was founded only in the 1920s after the formation of the independent Republic of Estonia in 1918. Between 1918 and 1949, the state succeeded in creating pension, health care, labour protection, social assistance and tenancy systems, which were organized and ﬁnanced by the state and local municipalities (Kõre 1998). After incorporation of Estonia into the Soviet Union in 1940, all Estonian laws were abolished and the Soviet law system with Soviet social policy was enforced instead. The social protection system under the socialist regime was funded mainly by contributions from employers to the state budget. There was comprehensive social protection based on full employment, and additional targeted services often at the enterprise level. The former state-socialist systems provided old age pensions, relatively generous social care, subsidies for housing and basic goods. There was a limited emphasis on cash transfers and a greater emphasis on services such as free medical care and free education for everybody. 153

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Starting from 1992, Estonia transferred its social policy ideology from Soviet Union uniﬁed labour-based ideology into a new welfare mix. Current social policy in Estonia has impacts from several sources: legacy of the past, prevailing right-wing governance from the 1990s, lessons learned from the Nordic welfare traditions, guidelines from the European Union, as well as the presence of other international agencies. The legacy of the ‘state-socialist welfare traditions’ has made a remarkable imprint on the current social policy system. Elements from the previous system – e.g. prevalence of employers’ contributions in social policy funding, relatively developed system of child care – remain characteristics of Estonia’s present social protection system as well. The historical legacy also shaped the principal conception about the equality of all people and the role of government in securing the subsistence of all people. Prevailing right-wing governance and trust towards free-market economic policy shaped the general policy environment of Estonia in the1990s. The establishment of a ‘free-market economy’ has been a strong priority of the ruling right-wing government coalition, proceeding from the understanding that the obligation of the state is to ensure equal opportunities for everybody to develop their individual capacities and at the same time realization of those opportunities provided by the state is a responsibility of individuals themselves. A proportional tax system, removal of subsidies and considerable decline of universal schemes and the introduction of means-tested ones are the main outcomes of the implementation of a liberal ideology as a result. However, despite the general liberal policy image of Estonia, the analyses show essential diversity in the different ﬁelds of social policy. At the time when equality was the prevailing public value in the formation process of most social policy areas, educational policy and health care were driven mainly by arguments of eﬀectiveness and quality (Ainsaar 2002). Other analyses show that, at the time when most people believed in general self-responsibility, strong expectation for state intervention also existed (Kandla et al. 2000). Although equality occupied a rather low position among individual values in Estonia, its popularity has been continuously increasing during the 1990s (Kalmus et al. 2004). The fact that little value is attached to equality and yet much importance is paid to individual freedom can partly be explained as the opposition reaction to the previous ‘all-equal Soviet Union’ policy. Regional neighbours and frequent contact with Scandinavian countries were essential factors in setting up the social policy system after the decline of the Soviet set-up. As the expertise, knowledge, and experience with social protection inputs and outcomes were practically non-existent in Estonia, consultants and the experience of Nordic neighbours were frequently drawn upon. Therefore, Nordic welfare traditions were employed in the several legislative regulations in the ﬁeld of social policy. Nordic traditions can be found for example in the case of the Social Welfare Act (1995) and Social Beneﬁts for Disabled Persons Act (2002), which included direct copies of paragraphs from welfare laws of Denmark, Sweden and Finland. EU policy guidelines form a set of principles which have inﬂuenced today’s Estonian social policy system the most (Leppik 2005, 2006) and the questions of social development have received more attention in the process of EU accession. The EU Employment Strategy and the Joint Inclusion Memorandum form a strong framework for Estonia’s social policy developments today. As an additional factor, reshaping the policy environment for social policy in Estonia as well as in other countries of Central and Eastern Europe, the impact of supranational agencies (like the International Monetary Fund, World Bank, etc.) can be mentioned. 154

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The inﬂuence of these agencies on pension systems and targeted social assistance schemes has been widely discussed in social policy literature (see, for example, Deacon 1995, Ferge 1997, Kapstein and Milanovic 2001). Although the guidelines from the supranational agencies were discussed on a government level and were publicly disputed, they hardly had any direct inﬂuence on policy process in Estonia (Leppik 2006). Socio-economic context of the Estonian welfare state The macro-economic environment is an essential factor reshaping social policy values and needs. Three clearly distinguished stages can be revealed in the economic development of Estonia after 1990: 1 collapse of the socialist economic system in the late eighties resulting in economic decline at the beginning of the nineties – approximately the years 1989–93; 2 recovery from economic recession and stabilization of the situation – 1994–96; 3 intensive growth since 1997, except the years of the so-called ‘Russian crisis’ in 1998–99, when average annual gross domestic product (GDP) growth was much higher than the EU average. These changes are also related to turning points in the development of the social protection system in Estonia (Trumm 2002). The main indicators of the economic performance of the latest period are presented in Table 8.1. The developments in the economic sphere are also reﬂected in changes in the labour market situation. During ﬁve years, severe economic breakdown reduced the employment rate from about 75 per cent in 1989 to 60 per cent in 1994. After the stabilization of the economy in the mid-nineties, the decrease in employability slowed down and in 2000, for the ﬁrst time since the restoration of independence, the number of employed people increased. A similar pattern can be revealed in the case of unemployment – the permanent increase in the unemployment rate peaked in 2000 at the level of 12.8 per cent, during the last seven years the unemployment rate has decreased by 7 per cent Table 8.1 Economic performance of Estonia in 1997–2007

Year

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GDP per capita (PPS, eu27=100)

41.9 42.4 42.4 44.7 46.2 50.0 54.5 56.9 62.8 68.3 72.1

Real GDP growth rate (percentage change on previous year) ee

eu27

11.1 5.4 –0.1 9.6 7.7 8.0 7.2 8.3 10.2 11.2 7.1

2.7 2.9 3.0 3.9 2.0 1.2 1.3 2.5 1.9 3.1 2.9

Source: Eurostat, ec.europa.eu/eurostat

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reaching the level of 5 per cent by the year 2007. In 2007, the unemployment rate in Estonia was lower than the European Union average (Table 8.2). The economic performance of the country to a large extent determines the opportunities, needs and the constraints of social protection – in terms of supply as well as demand. The period of 1990–96 reﬂects the situation of limited resources and high demand for protection because of economic decline and rapidly expanding unemployment and poverty. As a reaction to the emerged needs, a system of unemployment beneﬁts (in 1991) and means-tested subsistence beneﬁts (in 1993) was launched in order to provide relief to unemployment and poverty. Developments on the labour market have had considerable impact on social policy changes. Ever since 1997, Estonia has pursued an active labour market policy. It was considered that beneﬁt and training systems should ensure that they actively support employability, and provide clear incentives for the unemployed to seek and take up work or gain opportunities. In order to support the entrepreneurship culture, an entrepreneurship subsidy – a measure to start one’s own business – was introduced in 1998. The ongoing reforms were mostly related to labour quality and supply improvement in order to reduce corporate costs on training and retraining and sustain a free labour market. Full implementation of the unemployment insurance scheme from January 2003, which has increased the expenditure on the social protection of the unemployed to approximately 0.7 per cent of GDP, was a principal change in the social protection of the unemployed. The demographic development of Estonia can be described by decreasing and ageing population. The population of Estonia has been steadily decreasing from 1991 because of both components of population change – natural increase and net migration have been negative. The absolute number of population in 1991 – 1,566 million – has declined to 1,342 million residents in 2007, which makes about 1 per cent of absolute population decline per year. The percentage of people over 65 has increased from 11.4 per cent in 1989 to 16.2 per cent in 2007. The age dependency rate (proportion of inhabitants aged 15–64 compared with those aged 65 and older) in 1989 was 5.80, the same ﬁgure for 2007 was 3.99. These demographic pressures have signiﬁcantly inﬂuenced the development of pensions and family policy in Estonia (Leppik and Kruuda 2003).

Table 8.2 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ee

eu27

eu15

– – 9.6 9.2 11.3 12.8 12.4 10.3 10.0 9.7 7.9 5.9 4.7

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

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To conclude, the contemporary social protection system of Estonia is based on the former universalistic socialist type of welfare state and has been reformed in the turmoil of rapid changes, due to new emerging social problems, demographic, ideological and political changes and economic constraints. The process outcome has been inﬂuenced by the experience of neighbouring Scandinavian countries, contradicting liberal and social attitudes simultaneously and the trade-oﬀ between needs and resources.

General overview of the social protection system in Estonia The structure and administration of social protection in Estonia The current social protection system of Estonia can be divided into social security and social assistance. The state social security system comprises seven schemes: (1) health insurance, (2) unemployment insurance, (3) pension insurance, (4) state unemployment allowances, (5) state family beneﬁts, (6) social beneﬁts for disabled people and (7) funeral beneﬁts. Social assistance includes subsistence beneﬁts and social services (housing services, day care and services for the disabled). Although these last measures are granted legally on state level, they are implemented by local governments. Education policy is considered as an independent policy and is not linked to social insurance or social assistance. In accordance with the State Government Act, the ﬁeld of social protection is within the authority of the Ministry of Social Aﬀairs. In addition, there is a special minister of population aﬀairs, who coordinates the population policy in Estonia. Child day care is the responsibility of the Ministry of Education and Science. The Ministry of Internal Aﬀairs is responsible for keeping a register of child day care providers. Within the area of administration of the Ministry of Social Aﬀairs, two governmental agencies – the Social Insurance Board and the Labour Market Board – and two legal bodies – the Health Insurance Fund and the Unemployment Insurance Board – are responsible for the administration of diﬀerent branches of social protection. The Social Insurance Board administers the schemes of pension insurance, family beneﬁts, social beneﬁts for disabled persons and funeral grants. The Board maintains a State Pension Insurance Registry, which includes data on all insured persons and the social taxes paid on their behalf, as well as data on beneﬁciaries. The Labour Market Board administers the schemes of state unemployment allowances. The Board also keeps a register of unemployed persons and labour market services. The Estonian Unemployment Insurance Fund is in charge of the scheme of unemployment insurance. The health insurance fund runs health insurance schemes. Social expenditure The level of a state’s social protection in general is characterized by the relative importance given to social protection in the GDP. In the EU25 countries, social expenditure in 2005 amounted to on average 27.4 per cent of GDP (Table 8.3), ranging from around 13 per cent in Estonia, Latvia and Lithuania to 33.5 per cent in the case of Sweden. The lowest percentage of social expenditures from GDP in Estonia determines to a large extent the opportunities of the population of Estonia to beneﬁt from the social protection system. Because of the considerably low GDP per capita (48.2 per cent from EU25 average in 2003), the total social expenditure per individual is also the lowest in the EU25. 157

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Following the change in the percentage of social expenditure of the GDP within the period 2000–5, a declining trend becomes evident for Estonia. The share of the social expenditure has dropped from 14 per cent in 2000 to 12.5 per cent in 2005 (Table 8.3). Despite the declined percentage of social expenditure of the GDP, the total spending has increased from 623.4 million euro in 2000 to 1043 million euro in 2005. Such a ‘controversy’ demonstrates the eﬀect of positive economic growth for the social protection system when the decline of the percentage of social expenditure of the GDP may not necessarily mean a reduction of the welfare state. Nevertheless, the absolute social expenditure per capita in Estonia still forms about 25 per cent of the EU25 average (Table 8.3).

Table 8.3 Social protection expenditure

ee

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – – 853.8 906.0 984.5 1093.4 1258.6 1404.0

– – – – – 623.4 664.2 724.6 807.8 932.8 1043.0

– – – – – 14.0 13.1 12.7 12.6 13.1 12.5

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 8.4 Social protection beneﬁts as a percentage* (2005)

ee Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

100.0 98.5 12.0 1.3 0.2 1.0 40.7 43.3

eu27

eu15

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

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Similar to most EU countries, Estonia spends the highest share of its social protection resources on old age pensions and sickness/health care (Table 8.4). Their combined share is about three-quarters of total spending on beneﬁts. The share of beneﬁts for health, families with children and sickness and disability from the total beneﬁts in Estonia is higher than the EU average, while beneﬁts for the unemployed, housing and social exclusion constitute a lower percentage than the EU average. The most signiﬁcant diﬀerence in the Estonian social protection expenditure is the lowest proportion spent on unemployment beneﬁts among all 27 member states of the EU (1.3 per cent in Estonia compared with the EU27 average of 5.8 per cent), especially considering that the unemployment rate in Estonia (8 per cent in 2005) is comparable with the EU average. On the other hand, the percentage of beneﬁts delivered to families and children from all social expenditures (more than 10 per cent) in Estonia, is similar to the Nordic welfare standard (Denmark 12.9 per cent, Finland 11.6 per cent, Sweden 9.8 per cent) and is much higher than the respective ﬁgures in southern European countries (Spain 5.6 per cent, Italy 4.4 per cent). However, the amount of the family beneﬁt per head of population (expressed in purchasing power standards – PPS) in Estonia in 2005, remains closer to the southern European standard (260 PPS in Spain. 321 PPS in Greece, 264 PPS in Italy, etc.) than to the Nordic welfare model (1068 PPS in Denmark, 767 PPS in Finland, etc.). Financing of social protection Estonia inherited its beneﬁt systems from the Soviet Union, where the pension system had several Bismarckian features (for example entitlements were based on work, and beneﬁts were linked to the former wage). The Bismarckian traditions are characteristic also for the current social protection system of Estonia. The contributory beneﬁts (including pension, health and unemployment insurance) form together about 80 per cent of all beneﬁts, which is the highest percentage among all countries of the European Union (e.g. the percentage of contributory merits from all beneﬁts in 2003 were in the Czech Republic 76.4 per cent, Latvia 71.1 per cent, Slovakia 69.1 per cent, etc.). The non-contributory beneﬁts in Estonia are beneﬁts for disabled people, families and children, unemployment allowances, funeral beneﬁts, as well as beneﬁts for social assistance, constituting about 20 per cent from all social expenditures. The non-contributory beneﬁts have a mainly universal character being provided to all citizens belonging to the respective category (Table 8.5). The contributions to the social protection system can be paid by employers, individuals themselves or by the government. As an average for the European Union the social protection system is almost equally ﬁnanced by employers and the government (both

Table 8.5 Social protection receipts by type: Estonia and EU25 in comparison (2000–5, per cent of total)

2000

Employers Individuals Government Other

2001

2002

2003

2004

2005

ee

eu

ee

ee

eu

ee

eu

eu

ee

eu

ee

eu

79.2 0 20.6 0.2

38.7 22.3 35.5 3.5

77.1 0 22.7 0.2

77.6 0 22.2 0.2

39.0 20.7 37.2 3.1

79.2 0.6 20.1 0.1

38.9 21.0 37.0 3.0

38.9 21.7 36.0 3.4

78.0 0.6 21.2 0.1

38.2 20.9 37.6 3.2

79.0 0.4 20.4 0.1

38.2 20.8 37.7 3.3

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about 40 per cent) and the individual contributions form about 20 per cent of the total resources for social protection. Estonia presents a diﬀerent example where the social protection system is almost exclusively ﬁnanced by employers and by the central and local government structures (Table 8.5). Individuals in Estonia contribute only to the unemployment insurance scheme (0.6–1.0 per cent of gross wage) introduced in 2003. Overview of main welfare schemes Old age pensions and care for older people The pension system of Estonia consists of the traditional three-pillar system: I pillar – state pension; II pillar – compulsory insurance; III pillar – voluntary insurance. The aim of the ﬁrst pillar – state pension – is to ensure minimum protection against poverty in old age. The ﬁnancing of the pillar is built upon the principle of cohort and income solidarity. There are ﬁve diﬀerent target groups under the ﬁrst pillar of the pension system. Accordingly the state pension provides protection not only against poverty in old age, but also against the risk of loss of the main income provider and disability. The ﬁrst-pillar pension scheme is ﬁxed in the state budget and is ﬁnanced primarily from social tax. According to the Social Tax Act, social tax is a ﬁnancial obligation, paid by the taxpayer to obtain necessary revenues for state pension and health insurance. The rate of social tax is 33 per cent of the total tax base. For pension insurance 20 percentage points and for health insurance 13 percentage points are allocated. However, ﬁnancing of state pension insurance is not exclusively conﬁned to social tax. National pensions as well as diﬀerent kinds of pension supplements and administrative costs are ﬁnanced from general state revenues. Nevertheless, the earmarked nature of social tax entails that revenues from social tax are kept strictly separate from other state revenues. A state pension can be received as a basic old age pension or as a social security contribution in case of incapacity to work or loss of a provider. State pensions are granted to permanent residents of Estonia and aliens residing in Estonia on the basis of temporary residence permits. The most common among state pension schemes is an old age pension (76 per cent), followed by work incapacity pensions (17 per cent), survivor pensions (3 per cent) and national pensions. Persons who have attained 63 years of age and have completed at least 15 years of pensionable service or whose accumulation period was acquired in Estonia have the right to receive an old age pension. Pension entitlement is not means tested and early-retirement pensions cannot be received before the age of 60. The Pension Act also describes some groups who have the right to receive old age pension under favourable conditions. The ﬁrst pillar of old age pension covers about 55 per cent of the average net wage and about 125 per cent of the calculated subsistence minimum. Such rates are rather low in a European context. The permanent (but still modest) increase in pension payments is ensured via indexation, started in 2002. The index is an arithmetic average of the annual increase in the consumer price index and the increase in social tax revenues. Indexation entails that the increase in pensions will keep pace with inﬂation. The right to receive the national pension begins from the age of 63 for people permanently incapacitated for work and who do not have the right to receive a pension and who do not receive a pension from other countries. The second and third pillars are based on individual insurance contributions. The second pillar is compulsory for all inhabitants born in 1983 and later. Those born earlier than 160

E S T ON I A

1983 can join the second pillar on a voluntary basis. The second pillar was designed to ensure the income level in old age. Although the pillar works on the basis of individual freedom to make contracts with diﬀerent insurance providers, it is considered as part of a government system because of its mandatory character and state ﬁnancial contribution to this system. The second pillar for pensions is ﬁnanced partly from additional contributions by employees and partly from the reallocation of a share of the pension insurance part of social tax. If a person pays 2 per cent of gross income to compulsory old age insurance, the state will contribute another 4 per cent. The third pension pillar is voluntary, and contributions are made by the employees themselves. However, the voluntary contributions to the third pillar are exempt from income tax to the extent of 15 per cent of the payer’s income in a given taxation period. Care for older people and respective social services are the responsibility of local governments. Local municipalities and service recipients pay for the services, which are provided by the local municipalities or by private ﬁrms. There is no means testing or other oﬃcial requirements for selectivity for services. However, in practice many local municipalities give priority on the waiting list to older people who do not have any close family members, since the Family Act sets that adult children are required to maintain their parents who need assistance. Health care and sickness beneﬁts The Sickness Foundation uses resources collected from the social tax to ﬁnance the scheme for health insurance. Health insurance covers all residents whose social tax is paid by employers, self-employed people or by the state. The state covers the insurance costs of children up to 19 years of age, students up to 24 years of age in daily studies, recipients of state pensions, pregnant women from the twelfth week of pregnancy and dependent spouses of insured persons who are within ﬁve years of pensionable age (Leppik and Kruuda 2003). Health insurance covers the costs of medical examinations, medical treatment, prescription pharmaceuticals at discounted prices, and the preservation of health of the insured person. However, patients participate in cost sharing through fees for appointment and a daily bed fee for in-patient treatment. Sickness cash beneﬁt is paid to an insured person in case of temporary incapacity to work based on a medical certiﬁcate. The rate of sickness beneﬁt is 80 per cent of the average daily income in the case of in-patient or out-patient treatment and 100 per cent in the case of work injury or occupational disease. The beneﬁt is paid from the day after the initial medical certiﬁcate is issued. In general, sickness cash beneﬁt is paid until the end of sick leave, but for not more than 182 consecutive calendar days for each case of illness (except in cases of tuberculosis – up to 240 days). Disability The purpose of social protection for disabled people is to support disabled people to cope independently, to integrate socially and to have equal opportunities through partial compensation for the additional expenses caused by the disability. Social protection for disabled people consists of work incapacity pensions, social beneﬁts for disabled people, and social services for disabled people. According to the State Pension Insurance Act, those entitled to a work incapacity pension are residents of Estonia between the ages of 16 and retirement age with permanent work 161

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incapacity to the extent of at least 40 per cent. The pension is payable for a total disability (100 per cent loss of earning capacity) or partial disability (10 per cent to 99 per cent loss of earning capacity), and the pension is payable according to the assessed degree of disability (for six months, one, two or ﬁve years or until retirement age). A medical commission assesses the degree of disability. The amount of the work incapacity pension is the percentage corresponding to the loss of capacity for work on the basis of the calculation, but not less than the national pension rate, which is annually adjusted according to the changes in the consumer price index and the annual increase in social tax contributions received. The work incapacity pensions are ﬁnanced from the Social Insurance Fund. Recipients of work incapacity pension formed 4.9 per cent from the total population (17.2 per cent from all pension recipients) at the beginning of 2007. The number as well as the percentage of work incapacity pensioners has permanently increased since 2001, mainly because of changes in determining the degree of disability by the medical commissions (Kreitzberg 2008). Social assistance functions of disability protection are addressed by social beneﬁts for disabled persons and are regulated by the Social Beneﬁts for Disabled Persons Act. Those entitled to social beneﬁts for disabled people are residents of Estonia who have been determined as profoundly, severely or moderately disabled by a commission of experts subordinated to the Social Insurance Board. A general condition for the entitlement is that the moderate, severe or profound disability has caused additional expense (Leppik and Kruuda 2003). There are nine classes of social beneﬁts for disabled people, which are categorized by the target group (e.g. disabled children, parents, caregivers, retired) and supported life domain (employment, studies, medical rehabilitation, etc.), which are calculated on the basis of the rate of social beneﬁt. The rate of social beneﬁt is established by Parliament in the state budget for each budgetary year. At the beginning of 2007, 8.6 per cent of the total population of Estonia were entitled to social beneﬁts for disabled persons. Of those entitled, more than 60 per cent were people of retirement age, 35 per cent were between the ages of 16 and 62, and 5 per cent were children under 16 years of age. Expenditures for social beneﬁt for disabled people formed 0.28 per cent of GDP in 2006 (Kreitzberg 2008). Provision of social services for disabled people proceeds from the speciﬁc needs of physically or mentally disabled people, including home care and institutional care, day care centres, housing services, support person service, counselling, provision of orthopaedic appliances, etc. Services are ﬁnanced from the state and municipal budgets and provided by the local municipalities. Survivors According to the State Pension Insurance Act, two kinds of pensions address the risk of survivorship: the survivor pension and the national pension on the basis of survivorship. The right to receive a survivor pension occurs upon the death of a provider. A survivor pension is granted to dependent family members who were supported by the deceased insured person, who had by the date of death a pensionable service of at least 15 years. In other cases survivors have the right to receive the national pension on the basis of survivorship. The calculation of survivor pensions proceeds from actual accumulated pensionable service and the pension insurance coeﬃcient, being similar to the calculation of work incapacity pension. The survivor pension amounts to 100 per cent of the calculated pension in the case of three or more dependent family members, or to 40 per cent in the case of one dependent family member. 162

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Family policy and child care The family policy system can be divided into three subsystems: family beneﬁts, parental leave and leave beneﬁts, and day care. Family beneﬁts in Estonia include a birth grant, school grant for schoolchildren once a year, life entrance grant for those children who graduate from institutions and start to live independently, child allowance, single parent allowance, family allowance for families with seven or more children, child allowance for a family of someone in temporary military service, child allowance for a child in custody care. As with other social protection schemes, all residents of Estonia are entitled to family beneﬁts and child care services. However, maternity leave allowance is granted only for mothers who have paid social tax in Estonia because it is a health insurance-based measure. Family beneﬁts are ﬁnanced from the general state budget. Depending on municipality, 0–30 per cent of the total costs of children’s day care services are ﬁnanced by local municipalities from local revenues (Ainsaar and Soo 2008). Maternity leave belongs to the health insurance system and is ﬁnanced therefore from health insurance contributions. The replacement rate is 100 per cent from an average salary for 140 days (70 days before the estimated birth and 70 days after birth). The universal child allowance is paid until the child reaches the age of 16. If the child is engaged in full-time studies, the payment is extended up to the age of 19. There is no means testing for child allowances by age, but the system is more generous towards higher parity children. Only the period 2004–6 was an exception, when all children were entitled to equal beneﬁts. In 2008 children with third and higher parity are entitled to three times as high child allowance as children with second and ﬁrst parity. Child beneﬁts for a ﬁrst child has the lowest replacement rate among all social beneﬁts in Estonia, constituting about 10 per cent of the minimum wage or subsistence beneﬁt. The allowance for the ﬁrst child in the family (18 euros per month) doubled in 2004, but the beneﬁt to the total income of the household is almost negligible – forming about seven per cent of the average net wage. According to the law, one parent of a child can maintain a job and enjoy diﬀerent parental leave schemes until the child is three years old. However, there are essential differences in parental leave that ﬁnance schemes from birth until the age of three. Until the child is 70 days old only the mother is entitled to the leave. The leave allowance for this period is 100 per cent of the previous salary without any limitations. For the ages of 70 days until the child is 1.5 years old, the father, but only one parent at a time, can also take leave. The leave allowance is 100 per cent of the previous salary with an upper ceiling for the highest earners and lower ceiling for parents without previous taxable income. Between the ages of 1.5 and three years old, one of the parents or some other person can take leave with a very low ﬁxed allowance. This allowance is ﬁxed at 38 euros per month per child. Starting from 2008, fathers are entitled to paternal leave for 10 days before or after the birth of a child with a leave allowance equal to their average salary. There are several additional measures to protect parents against possible discrimination on the labour market. Parents of children are also entitled to an additional three-day paid leave and 14-day non-paid leave from their jobs. Parents with children under 17 years have an additional personal tax relief, to the amount of the basic tax exempt income per child. Tax relief, maternal leave and parental leave for parents of children from birth to one and a half years are the only income-related measures in Estonian family policy. 163

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In addition to state family beneﬁts, the majority of local municipalities allocate local family beneﬁts. The most popular are local birth grants and school year start grants. They are paid in more than 80 per cent of local municipalities. The generosity of local family beneﬁts depends on the one hand on the resources of local government and on the other hand local needs, namely the wealthier municipalities tend to be more child friendly. However, municipalities with greater poverty also tend to allocate more additional beneﬁts for families (Ainsaar and Soo 2008). Provision of education-related child care for every child between the ages of one and seven is the responsibility of local municipalities. However, the latest survey reveals (Ainsaar and Soo 2008) that only 60 per cent of local governments can fulﬁl the requirement without delay. The other municipalities have waiting lists for places. About 70 per cent of one to six year olds were enrolled in day care facilities in Estonia in 2007. The maximum cost of a child day care service is ﬁxed by law and is 20 per cent of the minimum salary, excluding the price for meals. Child day care provision is ﬁnanced mainly from the resources of the local municipalities (70–100 per cent of total costs) and contributions by parents. In 2008, the Estonian government allocated a special programme for municipalities in order to renovate and build additional day care places. Part of the programme resources go directly to local governments in order to raise the salary of day care teachers and raise the quality of the day care environment. Housing There is no special support scheme for housing policy at the state level. The only policy measure where the housing costs are taken into account is subsistence beneﬁt. Generally, the responsibility of housing is delegated to local governments, who are in charge of providing appropriate living conditions and helping their inhabitants. In the 1990s, almost 95 per cent of housing stock was privatized. A mere 5 per cent remained in the hands of local governments. There is also no rent regulation currently in Estonia. The Estonian housing policy is therefore very limited (Kährik et al. 2004). Housing costs, ﬁxed by local governments, are taken into account in the provision of subsistence beneﬁt. Labour market The general aims of Estonian labour market policy are (1) increased employment, (2) qualitative work environment and (3) more balanced labour relations. Labour market policy in Estonia includes (1) unemployment insurance beneﬁts, (2) unemployment allowance, (3) labour market services (e.g. employment trainings and stipends, employment subsidies and community placement) and (4) means-tested social assistance as a last resort measure. The unemployment insurance scheme was only introduced in 2003 and it is ﬁnanced from compulsory unemployment insurance contributions paid by employees and employers to the Unemployment Insurance Fund. The objective of unemployment insurance is to provide insured persons, upon losing employment, compensation for the lost income, which helps them cope while looking for suitable work. Estonian unemployment insurance covers the risks of becoming unemployed, collective redundancy and employer’s insolvency. Estonian unemployment insurance is compulsory and is based on the principle of solidarity – an obligation to pay unemployment insurance premiums and the rate of the premiums does not depend on whether employees have been unemployed before or 164

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on the risk of becoming unemployed. Unemployment insurance is payable to permanent residents of Estonia from 16 years to retirement age (except in cases of early retirement) who are registered as unemployed with the employment service. Jobseekers have access to beneﬁts eight days after registering at the employment oﬃces, on condition that they have worked for a period of 12 months in the previous two years. Beneﬁts can last up to six to 12 months depending on the period of service. The amount is equal to 50 per cent of the average remuneration of the insured person for the ﬁrst 100 days, and 40 per cent for the remaining period. The beneﬁt is suspended if the person does not attend the local employment oﬃce at least once every 30 calendar days or refuses a suitable job oﬀer. In 2006, 57 per cent of registered unemployed were entitled to unemployment insurance beneﬁt. Unemployment allowance is a ﬂat-rate beneﬁt, which is ﬁnanced from the state budget. Those eligible for unemployment allowance are all residents of Estonia who have worked (or have been engaged in equalized activities) at least 180 days over the last 12 months preceding registration as unemployed. The state unemployment allowance is income tested and only unemployed people with an income below the unemployment allowance rate are entitled to the beneﬁt. The allowance is paid for nine months (270 working days). In certain cases, the period may be extended. The Labour Market Services and Beneﬁts Act (2006) introduced several principles to be used while assisting the unemployed to enter the labour market together with solving diﬀerent related problems and regulating labour market services. The act introduces an individual approach and case management system providing an opportunity to consider individual cases to be solved by a network of diﬀerent agencies. Individual case management results in the elaboration of the individual action plan, which serves as a basis for providing the most suitable activities necessary to help the unemployed person enter the labour market. In order to receive services and beneﬁts, an unemployed person must actively look for a job and have regular contact with the local employment oﬃce. The main services provided for the registered unemployed are related to the provision of information about the labour market situation, job mediation and career guidance, labour market training and retraining, subsidies for starting a business, community placement, etc. Minimum subsistence Minimum incomes in Estonia are guaranteed under the subsistence beneﬁt scheme. The beneﬁt is paid to households/individuals residing in Estonia whose income after payment of ﬁxed housing expenses (corresponding to the standard living space) is below the subsistence level established by parliament. Subsistence beneﬁt is granted for one month at a time. Each month a new means test is carried out. From 2002, local governments have a right to refuse to pay subsistence beneﬁt to non-working or non-studying people who have repeatedly refused oﬀers of suitable work or to take part in relevant social rehabilitation programmes organized by the municipality. The percentage of subsistence beneﬁt recipients has been declining since 1997: in 1998, it formed 7.8 per cent of the total population, the ﬁgure for 2003 was 4.6 per cent and in 2004 3.2 per cent. The decrease in subsistence beneﬁt coverage can be explained by the increased living standards (fewer people have income lower than the beneﬁt threshold – 500 EEK after payment of ﬁxed housing expenses, which has not changed since 1997). The number of recipients has also decreased because of the introduction of 165

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the political recommendation about replacement of cash assistance beneﬁt with necessary social services. Selectivity and entitlement The social protection system in Estonia in general is not selective or targeted in terms of conditionality. Most of the beneﬁts are provided without any restriction to the responding category of individuals and the system is rather universalistic. All beneﬁts are exclusively provided to permanent residents of Estonia or those of equal status to residents. The insurance-based beneﬁts by deﬁnition require speciﬁc contribution (e.g. 15 of pensionable service for old age, survivor and disability pensions). Entitlement to beneﬁts from the health insurance system requires social tax paid by the employer, by the state or individuals themselves. The means test is applied only for subsistence beneﬁts and for unemployment beneﬁt lines, taking into account household income (not for assets or property). Social protection systems diﬀer from each other not only in their ﬁnancing principle or universal or marginal coverage, but also in the general generosity of the system. Some welfare states provide beneﬁts for a longer period and with higher replacements rates (e.g. the north European countries, contrasting to the poor beneﬁts of limited duration in other cases of the Anglo-American model). The duration of unemployment beneﬁts is quite short in all Baltic countries compared with other European countries (Kangas 1999, Aidukaite 2004). The duration of child allowance is comparable with the European average, but parental and maternity leave are typical for eastern Europe, but comparably longer than in western European countries (Ainsaar and Riisalu 2005). The general level of generosity of the social protection system of Estonia is low. The highest replacement rates can be revealed in the case of old age pension, the lowest in the case of child allowance. Outcomes and efﬁciency The outcomes and eﬃciency of the social protection system can be estimated by its impact on poverty and income inequality. The relative poverty level in a particular country is closely related to the extent and character of the welfare state. Generally, the higher the level of universality and generosity of the social protection system, the lower the population living in poverty (Trumm 2006). Estonia is among the countries with rather high levels of income inequality in the European Union (Trumm 2005, Toomse 2007). However, the income inequality level in Estonia has slightly declined in recent years – the Gini coeﬃcient in 1998 was 0.38; the same indicator for 2005 was 0.34. The high level of income inequality in Estonia can be interpreted in two ways. On the one hand, high income inequality per se is one of the main determinants of social policy tasks (i.e. high inequality challenges the system for more intensive vertical redistribution of resources). On the other hand, the current level of inequality indicates particular ineﬃciency of the system concerning redistribution of resources and provision of equal opportunities. Either way, a high level of income inequality entails a high risk of poverty for society. The at-risk-of-poverty-rate (deﬁned according to Eurostat methodology as 60 per cent of median equivalent disposable income) in Estonia in 1998 was 19.4 per cent. The atrisk-of-poverty-rate has been relatively stable during the period of 1998–2006 and exceeds the European average (Table 8.6). 166

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Table 8.6 At-risk-of-poverty rates by gender

ee

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – 18 18 18 18 20b 18 18

– – – – – 17 17 17 17 19b 17 16

– – – – – 19 19 19 20 21b 19 20

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

Analysis of poverty in Estonia (Trumm 2005) revealed a rather traditional structure of poverty – single parents, young and retired living alone, and households with one or more children carry the highest risk of poverty. Among them, young people living alone are at the highest risk of poverty. The situation where about 40 per cent of single young people are living in poverty refers to the malfunctioning of labour and social policies. A comparison of the poverty trends of single-person households of diﬀerent ages shows that the poverty among young and working-age single people is increasing, while among retired people a slight decrease is evident. The situation can be explained by the permanent slight increase in pensions. The labour market perspectives for the young have not improved signiﬁcantly. Young people enter into the labour market at a later age, because of the increase in the duration of studies (about 60 per cent of secondary school graduates continue their studies in high schools). At the same time, the level of allowances for students, scholarship, social assistance. etc., is below the poverty threshold. Families with children are traditionally vulnerable to poverty. At the highest risk are the households with three or more children. However, the poverty rate for households with three or more children has decreased relatively more than households with one or two children and the diﬀerences between the poverty rates of households with diﬀerent numbers of children is tending to decline. In Estonia, the diﬀerence between the poverty rates for the employed and unemployed is greater than the average in most EU countries. The poverty rate among the unemployed has hardly changed and about half of all unemployed people continue to live in poverty. It means that the social and labour policy measures (i.e. unemployment beneﬁt and respective services as well as social assistance) are manifestly inadequate for ensuring at least the subsistence minimum for a person who has failed in the labour market. Social transfers form a strong mechanism for relieving and preventing poverty. In this respect, it is important to assess the role of social transfers (e.g. pensions, child and unemployment beneﬁts, etc.) in lifting people out of the poverty risk. A comparison between 167

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the standard at-risk-of-poverty rate and the hypothetical situation where social transfers are absent shows that such transfers have an important redistributive eﬀect (Dennis and Guio 2003). The role of social transfers in poverty reduction is obviously important. In the absence of all social transfers, the poverty risk would be over 40 per cent in Estonia, instead of the actual 18 per cent after all social transfers (Trumm 2006). It means that more than one-ﬁfth of the Estonian population are lifted out of poverty by social transfers. Most of the social transfers are targeted at particular social groups (children, disabled, unemployed. etc.). As a result, some groups beneﬁt more from social transfers and are thereby more protected from the risks of poverty. Pension payments carry the main burden in the prevention of poverty. If the pension was taken as a primary source of income for senior citizens rather than social transfers, the poverty rate without other social transfers would be about 25 per cent, which means that child and family beneﬁts, unemployment payments, social assistance, and other transfers have relatively little eﬀect on the disposable income of households.

Conclusions and outlook The social protection system of Estonia has undergone a rapid and troublesome period of social transformation during the last 20 years. The main changes in the social protection system in Estonia took place in the early nineties. The main changes in the sphere of social protection are related to the gradual transformation from universal ‘status-based’ beneﬁt schemes towards ‘reward-based’ insurance schemes. The health insurance and unemployment insurance systems adopted during the 1990s in Estonia were completely new insurance systems. The second major structural shift concerns attempts to increase the proportion of active socio-political measures among all means of social protection. Active employment policy measures (e.g. training and retraining programmes) and activation centres for the unemployed are only a few achievements in this process. A decreasing role of the state in the provision of social security, increasing responsibilities of individuals and families as well as widened third-sector responsibilities form an additional peculiarity of the development of the social protection system in Estonia. The economic performance of Estonia during the last 10 years has been impressive, which has positively aﬀected the social policy of the country – in terms of supply as well as demand, allowing more ﬂexibility and sustainability to the system. However, Estonia still has a great number of people who are poor and are living in need – for some people the situation today may be even worse than it was before. The problems of vulnerable groups are becoming more complex, with inter-related economic, social and psychological risks, which often result in the accumulation of social deﬁcits (low income, poor education, unemployment, insuﬃcient social networks, etc.). The major challenge to what the Estonian social protection system will probably be exposed to in future is ﬁrst related to socially excluded people with long-term welfare dependency. In particular, the organization of suﬃcient social protection for non-insured people, their participation in work incentive measures, training programmes, and creating/preserving the work motivation of low-income groups could be the possible solution to that problem. Guaranteeing adequate ﬁnancing for health care and old age security is one of the main problems in the developed world with regard to the ageing population. In the 168

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Estonian case, considering that income tax and compulsory social security contributions already place a relatively high burden on labour, possibilities to increase the contribution rate are clearly limited. Thereby, the discussions about increasing retirement age and ﬁnding the ways to increase individual contributions are becoming more signiﬁcant in the policymaking process. However, the realization of both initiatives is highly problematic because of the strong opposition of the population.

Bibliography Aidukaite. J. (2004) The Emergence of the Post-Socialist Welfare State – The Case of the Baltic States: Estonia. Latvia and Lithuania, Södertön Doctoral Dissertation no 1, Södertöns: Södertöns University College. Ainsaar. M. (2002) ‘Eesti rahvastikupoliitika avalikud väärtused 1997–2001’, Riigikogu Toimetised, 5: 127–31. Ainsaar, M. and Riisalu, H. (2005),Vanemapuhkus ja lastetoetused kuni 3-aastaste lastega peredele Euroopa riikides 3’, Sotsiaaltöö, 6: 40–43. Ainsaar, M. and Soo, K. (2008) Kohalike omavalitsuste toetus lastega peredele Eestis 2007, Tallinn: Oﬃce of Minister of Population Aﬀaires. www.rahvastikuminister.ee/public/ARUANNE_2007_30.pdf (accessed 6 August 2008). Deacon. B. (1995) ‘Global agencies and the shaping of post-communist social policy: The case of Lithuania in comparative context’, in J. Simpura (ed.) Social Policy in Transition Societies. Experience from the Baltic countries and Russia, Helsinki: The Finnish ICSW Committee. The Finnish Federation for Social Welfare: 114–219. Dennis, I. and Guio, A.C. (2003) Monetary poverty in EU Acceding and Candidate Countries, Statistics in Focus, Population and Social Conditions, Theme 3 – 21/2003, eurostat. Ferge, Z. (1997) ‘The Changed Welfare Paradigm – The Individualization of the Social’, Social Policy and Administration, 31: 20–44. Kalmus. V., Lauristin. M. and Puurmann-Vengerfeldt, P. (2004) Eesti elavik 21.sajandi algul. Ülevaade uurimuse ‘Mina. Maailma. Meedia‘ tulemustest, Tartu: Tartu Ülikooli Kirjastus. Käärik, E., Tiit, E.M., Vähi, M. and Valtin. A. (2001) Lastega perede majanduslik toimetulek 1999–2000, Tallinn: Ministry of Population Aﬀaires in Estonia. Kährik, A., Lux, M., Kõre, J., Hendrikson, M. and Allsaar, I (2004) Eluasemepoliitika üleminekuriikides, Tallinn: Praxis. Kandla, K., Ainsaar, M. and Oras, K. (2000) ‘Mida ootab noor pere riigi perepoliitikalt’, in M. Ainsaar (ed.) Laste-ja perepoliitika Eestis ka Euroopas, Tallinn: Oﬃce of Minister of Population Aﬀaires: 134–52. Kangas, O. (1999) Social Policy in Settled and Transitional Countries: A Comparison of Institutions and their Consequences. Social Policy in Tandem with the Labour Market in the European Union, Helsinki: Ministry of Social Aﬀairs and Health Publications 10: 11–42. Kapstein, E.B. and Milanovic, B. (2001) ‘Responding to Globalization: Social Policy in Emerging Market Economies’, Global Social Policy, 1: 191–212. Kõre, J. (1998) ‘Development of Estonian Social Protection System’, Social Protection in Estonia: Handbook and Dictionary, Copenhagen: Vester Kopi: 73–97. Kotka, J. (1996) ‘Ilmalik sotsiaalkaitse Eestis 18.sajandi lõpust I maailmasõjani’, unpublished thesis, Tartu University. Kreitzberg, M. (2008) ‘Puuetega inimeste sotsiaaltoetused’, Sotsiaalvaldkonna arengud 2000–2006, Tallinn: Ministry of Social Aﬀaires: 45–50. Leppik, L. (2005) ‘Impact of the EU Social Policy on a New Member State – Reﬂections on the Estonian Case’, in E. Palola, and A. Savio (eds) Reﬁning the Social Dimension in an Enlarged EU, Helsinki: Stakes, Ministry of Social Aﬀaires: 203–108. —— (2006) Transformation of the Estonian Pension System: Policy Choices and Policy Outcomes, Tallinn: Tallinn University Dissertations on Social Sciences 21.

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Leppik, L. and Kruuda, R. (2003) Estonia Country Study. Study on the Social Protection Systems in the 13 Applicant Countries. European Commission. http://europa.eu.int/comin/emplovment social/soc-prot/ social/estonia ﬁnal.pdf (12 March 2004). Toomse, M. (ed.) (2007) Social Inequality, Tallinn: Statistics Estonia. Trumm, A. (2002) Structural shifts in providing social assistance: Response to changing living conditions in Estonia, Fafo-paper 2002:1, Oslo: Fafo. ——(2005) Poverty in Estonia. Overview of main trends and patterns of poverty in the years 1996–2002, Faforeport 497, Oslo: Fafo. ——(2006) Recent developments of Estonia’s social protection system. Background Paper Prepared for the EU8 Social Inclusion Study, World Bank. http://siteresources.worldbank.org/INTECONEVAL/Resources/ EstoniaSocialPolicyReview.pdf (14 August 2008).

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Chapter 9

es The welfare state in Spain Unﬁnished business Paloma Villota Gil-Escoin and Susana Vázquez

Introduction: a historical perspective of the welfare state in Spain Although the liberals of the Constitution of Cadiz (1812) designed a system of social beneﬁts, by means of an extension of education and health programmes, through local institutions, social welfare can be said to have its origins in the social conﬂicts at the end of the nineteenth century, during a time of historic conciliation which would be manifested, at the beginning of the twentieth century, in the Social Reform Commission, the Institute of Social Reforms and the National Institute of Welfare. Nevertheless, this attempt at conciliation was a failure, because the working class and the urban middle class were immature and the existing oligarchy and political bosses were weak and against it (Palacio, 1988). Plans to create a voluntary system of beneﬁts to cover sickness, unemployment, maternity and retirement were also frustrated by the Primo de Rivera dictatorship (1923–29), though the charity system continued to play an important role. When the Second Republic was proclaimed (1931) many of the previous reforms were renewed and adapted to a similar line to the one prevailing in most western European countries, particularly the German and Italian model. But the Civil War (1936–39) and the subsequent Franco dictatorship (1939–75) put an end to revolutionary dreams, and the ‘rickety’ nature of the public sector would remain till the last third of the twentieth century. General Franco’s dictatorship, characterized by the regulating role of the state (Alonso and Conde-Ruiz, 2007), established the Compulsory Old Age and Invalidity Beneﬁt (SOVI), in 1939, as well as Sickness Beneﬁt (1942) and the ﬁrst Unemployment Beneﬁt (1958). It also introduced the Basic SociaI Security Law (1963), which provided free health care services and was reformed, 10 years later, with beneﬁts extended to sickness and the pension system. This latter regulation must be placed in the period of the so-called economic ‘development’ achieved in the wake of the drastic changes of the Stabilization Plan (1957–58), which saw the end of economic self-suﬃciency of the previous period and gave rise to a period of economic growth in the sixties. This economic expansion, to a great extent, came on the back of remittances sent by Spanish emigrant workers who found work in diﬀerent European countries such as France, Germany, 171

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Belgium or Switzerland. This incoming ﬂow, reinforced by revenue from the tourist sector, helped to eliminate the trade deﬁcit in our foreign trade balance. During this historic period and according to Moreno and Sarasa (1993) the Francoist model of beneﬁts could be characterized by: (1) insuﬃcient social expenditure; (2) direct ﬁnancing of the beneﬁt system by employers and workers; (3) establishment of social beneﬁts with regard to the principle of ‘income maintenance’; (4) insuﬃcient vertical levelling out of beneﬁts; (5) non-existence of a universal minimum income for unprotected citizens; (6) low level of ‘demercantilization’; (7) inadequate development of the social services; (8) generalization of beneﬁts to the public sector; (9) reduced coverage of unemployed; and (10) social security as a corrective savings system. In fact, a conclusion can be drawn by stating that during the Franco period we can talk of the development of certain social classes but never of a welfare state, since it is contradictory to talk of ‘welfare’ when basic freedoms and the fundamental political rights inherent in a democratic system are absent. Indeed the Public Order Law and other methods of repression were still in force until the dictator’s death in 1975 (Heine, 1983). Therefore, it must be taken into consideration that truly it was not till 1978, with the implementation of the democratic Constitution, after almost 40 years of the Franco dictatorship that the welfare state began to be constructed in Spain, with the recognition of social rights. It is at that moment, in the opinion of Rodríguez-Cabrero (2004), that there was a coming together of the interests of Spanish Fordian capitalism and the growing demands of the working classes which led to the imposition of the social reform that had been unsuccessfully proposed during the Second Republic. When the Spanish Workers’ Socialist Party (PSOE) assumed power in 1982, and after the serious recession suﬀered by the Spanish economy in the wake of the crisis caused by the huge rise in the oil price imposed by the oil producers in 1973, the socialist government had as a central aim of its programme to achieve a more equal income distribution, reduce inﬂation, liberalize the economic system and develop a social welfare programme. The money allotted to providing pensions and unemployment beneﬁt transfers showed the highest rise of all during the 1980s, though it is necessary to highlight the creation in 1986 of a universal health system that would guarantee everyone the right to health care, and the creation, in 1990, of a retirement pension with support for those who lacked suﬃcient economic means in their old age. This was means-tested, that is, it was not a universal old age pension. It must likewise be stressed that during this period the movement towards making social rights universal, in accordance with social-democratic ideology, only extended as far as health and education. However, in the ﬁeld of education it only provided free education up to the age of 16, and there was a continuation of private education under the inﬂuence of the Catholic Church. Given that at this time there were adverse anti-welfare state winds blowing ﬁercely in Europe and the United States, taking this into consideration may serve as extenuating circumstances, while not relieving them of all responsibility in the case of the PSOE for their not having made more progress in the construction of the welfare state during the years in which they were in power (1983–95). A Latin social protection model? Despite the historical diﬀerences, Spain could be said to form part of the group of welfare states in southern Europe, a group which includes Portugal, Greece and Italy. Without losing sight of the fact that this type of classiﬁcation can lead to simpliﬁcations, 172

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according to Ferrera (1996), among the characteristics of these countries’ welfare states the existence of a fragmented pension system can be highlighted (e.g. with greater privileges for public servants); a state deﬁcit in welfare provision and a conﬂict between public and private institutions; cronyism in beneﬁt distribution, a highly bureaucratic administration; and diﬃculties in reaching interparty consensus. Rodríguez-Cabrero (2004) for his part considers Spain as a particular case of the Latin social protection model, in accordance with Leibfried’s classiﬁcation (1992), which added a fourth residual model to the traditional typology (liberal, conservative and social democrat) of EspingAndersen (1990). This has characteristic traits in its social reform process which in some cases is shared with rest of the southern European countries, namely, late industrialization, the importance of the family and privatist statism in the sense that it aims to ﬁnd minimum social cohesion and allows the private sector fundamental importance in providing services. Whereas some European countries strengthened their welfare states in the post-war period (for example, by means of the Beveridge Plan in Britain), Sweden built its own system up by various eﬀorts throughout the twentieth century, including the gender viewpoint as already seen in the 1930s, when several conciliatory social measures were taken to avoid women leaving the labour market as a result of motherhood or marriage. This was particularly the case during the 1970s when an attempt was made to involve the father in child care both by giving periods of leave (‘Daddy’s month’), which could not be used by mothers, and via ﬁscal policy with compulsory individual income tax returns which, undoubtedly, deterred men from extending their working day in the labour market as a result of the existing highly progressive tax rates. At the same time an attempt was made to encourage women to stay in work by charging them at a lower marginal tax rate since they were earning less than men (Sainsbury, 1997; Villota, 2005; Villota and Ferrari, 2000). As stated above, the Welfare State in Spain is a recently created one (Esping-Andersen, 1992, 1996). After a period when the state ﬁscal crisis was felt heavily (O’Connor, 1973), due to the end of the seventies period of economic growth and the end of full employment, with the appearance of structural unemployment, already a permanent feature in many Organisation for Economic Co-operation and Development (OECD) countries, a new stage began which heralded the slow abandoning of an economic policy based exclusively on aggregate demand (by means of contra-cyclical ﬁscal policy) and the growing hegemony of neoliberal currents which gathered strength after the 1973 oil price rise and required economic policy to move towards the supply side. With this change in direction, an attempt was made to favour the free-market economy by means of a steady reduction in regulation, including labour legislation, while trying to reduce the size of the public sector and lessen the tax burden. It could be asserted that since the transition to democracy, a basic leitmotiv of Spanish public policy has been the attempt to mirror the European social and democratic model. Nonetheless, as the new century dawned, in some quarters there existed a reﬂex scepticism about the welfare state. This was clearly shown in the words of the Vice President for Economics of the ruling People’s Party (PP), Rodrigo Rato, who later, until 2007, would be the managing director of the International Monetary Fund (IMF): ‘The best social policy is employment policy’.

The present-day welfare state in Spain The welfare state includes public intervention ranging from social transfers (e.g. old age and widow/widower pensions, ﬁnanced by social security contributions and means-tested old 173

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age pensions ﬁnanced by taxes) and services [e.g. universal health and compulsory education up to the age of 16 provided by the Autonomous Communities (CCAAs) with transfers from the state to balance the economic health deﬁcit] to interventions to encourage work creation and, as a result, to have a fundamental inﬂuence upon citizens’ quality of life. In fact, it can be said that welfare state policies take material form in six areas: health, education, unemployment, pensions and, on a much lower scale, housing and family. In Spain public expenditure per head on social protection is, along with Portugal, the lowest in the Europe15, according to the latest ﬁgures from the European Union Statistical Agency (EU). In 2005 per capita gross domestic product (GDP) was almost 86 per cent of the average for EU15 countries, whereas expenditure on social protection (including among others pensions, housing, help to families or health) only accounted for 62.5 per cent (Eurostat, 2008c). Thus, since there is a clear diﬀerence between the level of economic development reached and public expenditure, in general and on social aﬀairs, one of the ﬁrst characteristics of a welfare state, it could be claimed that this is due to the limited intervention by the government in welfare spending compared with other European countries, the citizens’ demands and needs, and, consequently, its low level of development. Even though we have universal health care, the deﬁcit expenditure on this sector is greater than in other EU countries. Not only that, there is also the important item of public health expenditure on medicine as well as the poor development of the obsolete infrastructures of public health services (Navarro, 2005). The education service is characterized by a free system of primary and secondary education, though despite the advances of recent decades, the system of scholarships and grants (linked to family income and academic marks) is still very restricted. However, probably the greatest challenge for the welfare state in Spain is to implement active and eﬀective employment policies which enable the costs of unemployment beneﬁts to be reduced. To achieve this there is a need for a reorganization of the economy (through control of inﬂation and budgetary balance), investment in human capital, elimination of job insecurity, etc. Social transfers, and speciﬁcally pensions, are on average, according to the Eurostat ﬁgures, the lowest in Europe (Eurostat, 2005). Nonetheless, owing fundamentally to the inversion of the population pyramid, as a consequence of the falling fertility rate and increase in life expectancy, not only are the amounts devoted to pension Table 9.1 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

es

eu27

eu15

100.0p 97.6p 5.5p 12.1p 0.8p 0.9p 37.9p 40.4p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

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Table 9.2 Social protection expenditure

es

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

98668.1 105325.2 105158.3 108427.1 114689.9 127812.4 136129.4 147834.1 159748.0 173558.1p 189311.8p

2505.1 2667.9 2656.7 2729.7 2872.5 3174.4 3343.0 3578.3 3803.1 4065.4p 4362.2p

21.6 21.5 20.8 20.2 19.8 20.3 20.0 20.3 20.4 20.6p 20.8p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

payments increasing, amounts which must be borne by a smaller number of adults (though this problem is being lessened by the ﬂow of immigrants and their high fertility rate), there is also a rise in the amount devoted to health care. It has to be recognized that in the area of family policy the state has always provided symbolic help to families. However, this was always in accordance with a ‘model’ of traditional family (breadwinner) as deﬁned by the state (e.g. during the period of Franco, especially families with a large number of children). For Navarro (2005) the welfare state in Spain could be described metaphorically as a ‘three-legged stool’ (health, education and pensions), needing a fourth leg to be completed. This would be provided by increasing family beneﬁts (the scarce number of crèches, home helps for senior citizens and vulnerable social groups), which undoubtedly would lead to transformations not only in the fertility rate, which till very recently (with the recent entry of immigrant women) was the lowest in the world, but also in the number of working women. The ‘four’ pillars of the welfare state In this section we will make a brief analysis, for reasons of space, of some of these basic pillars which make up the welfare state. Health The consideration of health as a citizen’s right was encapsulated in the 1978 constitution and subsequently developed in the General Health Law (1986), which transformed the previous health model, based on participation in the labour market and ﬁnanced by social security. It was also based on the human right to health, as identiﬁed in Beveridge’s proposal after the war or the health system which had existed for several decades in Nordic countries. 175

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In accordance with data provided by Temes and Gil (1997), it is possible to follow its implementation over time by means of the steady extension of coverage for the population with protection by the public health sector. This went from aﬀecting 53 per cent of the population in 1966 (wage earners and self-employed and their families, the latter via the mechanism of derived social rights), to 82 per cent in 1980, when health cover was extended to practically the whole of the population, namely 98.5 per cent in 1995. This new universal health model involved public tax-based ﬁnancing, though this aim was only achieved right at the end of the century. By consulting just a small amount of data it is also feasible to follow the course of this process of change in the funding of health costs in Spain since it merely needs us to recall that in 1980 75.2 per cent of its cost was met by social security contributions paid in by workers and employers, and that 15 years later the latter only accounted for 20.4 per cent of total health spending. This disappeared completely in 1999 (Aracil et al., 1996). However, it is necessary to bear in mind that during the 1990s there was a convergence of two totally diﬀerentiated processes diﬃcult to reconcile. The ﬁrst was the tendency towards the universalizing of the right to health and the second was the need to tackle the impositions of a budget restriction as a result of a persistently high structural deﬁcit. With the aim of combining both processes the 1990 ‘Medicine Law’ was passed, attempting to put a brake on and rationalize expenditure on medicine (by excluding the free dispensing of certain medicines, encouraging the use of generic medicines and reaching agreements with ﬁrms to limit proﬁt margins), and this was to be complemented a little later with the Royal Decree 83/1993 by which 699 medical products were excluded from the National Health Service. With a similar aim, an attempt was made to promote the restructuring of the public sector by consolidating private health care and implementing alternative management formulas (Pérez-Gómez, 2000). It is also necessary to take into consideration that when evaluating these attempts to contain public expenditure in one way or another, during the nineties the macroeconomic imperatives imposed by the Maastricht Treaty ﬁxing convergence criteria, made strict demands on the limiting of the public spending deﬁcit to 3 per cent of gross national product (GNP). This restrictive policy undoubtedly was inﬂuential in diﬀerent EU countries, particularly in restructuring spending budgets and probably in the health sector, which possibly was negatively aﬀected. Indeed, and in accordance with guidelines determined in the April Report (1991), Spain opted for a more rational use of human and material resources and to this end made use of the progressive separation between the functions of management and provision of public health services, and even, on certain occasions, the contracting of private sector services (Le Grand, 1991). After the electoral victory of the PP in 1995 The General Health Law was passed and this would maintain in general terms the previous trend towards universalization and ﬁnancing through taxation, though it was to markedly strengthen the steady implementation within the public sector of private management formulas. Moreover, it continued the mercantilization in the pharmaceutical sector with the passing of Royal Decree 1662/ 1998, which withdrew another 834 medicines from the public health system. Another factor to be considered when studying the Spanish health sector is the decentralization process. It involves the ever-increasing prominence of the CCAAs, particularly in the provision of public health services. The phenomenon has to be seen within the evolution which has taken place in Spain since the transition to democracy following the dictatorship of General Franco. It is indisputable that, since the ﬁrst democratic elections, which took place in 1977, there has been a spectacular change in the share of functions 176

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within the health sectors, as in many others such as education, employment, etc. It has to be remembered that since the constitution recognized the possibility of establishing different Autonomous Communities, 17 were created, and the way to ﬁnance them was settled in the Organic Law for Financing Autonomous Communities (1980) and Law 21/2001. Regarding the public health sector, the latest agreement in this area was reached in 2005, in the Council of Fiscal and Financial Policy, which increased the amount of expenditure to be transferred to the regional level to achieve a homogeneous level of quality in public health services throughout the Spanish state, regardless of the level of income of each region. To this purpose some years ago the Health Cohesion Fund was created, to which a signiﬁcant amount of economic resources had to be transferred. The economic magnitude and evolution of this process since 1988 is shown in Figure 9.1. In a comparative analysis with our neighbouring countries it seems legitimate to question the amount of health expenditure within the requirements of the European Union. In this sense Navarro (2005) considers it as logical that Spain should spend less on health since it is a poorer country than the European average. However, having 86.5 per cent of the income level cannot be an excuse for public health expenditure being 67 per cent of the EU average public health expenditure per head. What is more, he considers that inadequate expenditure on health is giving rise to social polarization, so that between 30 and 35 per cent of the higher income Spanish population uses private health services, a percentage which has been increasing in the CCAAs such as Catalonia, Madrid and the Basque country. In view of the challenge faced by Spain in the next few decades with regard to health, one of the greatest successes for which Spanish democracy can claim credit is, without

Figure 9.1 Consolidated public health expenditure. Source: based on information from the Ministerio de Sanidad 2005.

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doubt, the implementation of a publicly ﬁnanced health system with universal coverage. This achievement has been marred however by the appearance of a series of problems of a demographic nature due to the ageing population and the attempt to balance the universal right to health with the economic interests of the private sector, which has increased in recent years the mercantilization of help and a decline in services and quality of attention. This in the end has given rise to the ﬂight of the middle classes to private health care and the risk of a double categorization of citizens with regard to health care, that is, between ‘those who choose and those who have no choice’ (Pérez-Gómez, 2000). Education During the Franco period the education system was a clear reﬂection of great social inequalities. But the reforms begun at the beginning of the 1980s by successive socialist administrations meant the creation of a system of primary and secondary education which was universal, free and compulsory up to the age of 16. From the beginning of the 1990s we can talk of stagnation in public spending on education, a fact that not only delayed the process of transferring competences from the Ministry of Education to the CCAAs but also, alongside educational policies which did not oﬀset social inequalities, has had consequences in the ﬁeld of educational equality. (Calero and Bonal, 2004). After the competence transfer process was completed throughout the 1990s, although the central government exercised general control and supervision and there is a diﬀerence between the funding models (basically due to the presence of the private sector) between diﬀerent regions, the CCAAs took a majority share in allocating expenditure (almost 85 per cent of the total public education expenditure). The modest public ﬁnance eﬀort has been fundamentally concentrated at the primary and secondary education levels. In fact, Spain, along with Greece and Ireland, is one of the EU countries which devote the least amount of public resources to education (OECD, 2008). What is more, because of limited public sector intervention in covering indirect education costs, the existence of private schools and the fact that they do not meet the condition of free basic tuition, in Spain expenditure is particularly high in the case of registration and textbooks, this expenditure has a direct eﬀect on all homes (Calero and Bonal, 2004). However, in recent years the CCAAs have followed their own criteria in awarding monetary transfers and tax breaks (Calero and Bonal, 2004). Regarding higher education, although along with Sweden and the United Kingdom, Spain has a unitary system, in which all types of institutions (public and private) are incorporated into just one system (Calvo and Michavila, 2000; Bricall, 2000), the model is adapted to the decentralized territorial model, installed during the 1980s and 1990s. The increase in spending on higher education in recent years situates Spain among the average for OECD countries. However, ﬁnancing the university sector is still the object of criticism in the framework of a dismantled European public sector. Spanish universities are still in the majority of cases publicly funded (76 per cent comes from central and autonomous administrations) and the registration fees paid by students (around 500 euros, a sum which if not a token is at least modest) (Mora, 1999; Bricall, 2000). Nevertheless, and along with the fact that from the 1990s onwards there has been a decline in the Catholic–private monopoly of previous decades through the important process of democratization and Europeanization, plus a growing marketization of higher 178

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education, the role of private resources has increased with the new legislative changes introduced by the PP. This was done by means of the Organic University Law (2001), which gave the universities greater economic and ﬁnancial autonomy under the supervision of the CCAAs, with the aim of enabling them to increase their economic resources in accordance with their own strategies. Although, as pointed out by Carabaña (2005), classism did not signiﬁcantly decrease at university (the overcrowding of the 1970s and 1980s was due primarily to the entry of higher numbers of women students), a person born in 1951 had a probability of ﬁnishing university studies three times greater than a person born in 1916. For people born after 1951, this trend came to a halt. A diminished, but still considerable, classism persists in higher education. Employment policies As stated above, from the beginning of the political transition Spain had to tackle a grave economic crisis, generated partly by the rise in the oil price. In this crisis, inﬂation, the rise in unemployment and economic stagnation (stagﬂation) would make their presence felt very strongly. Consequently, and in order to deal with the critical situation, after the ﬁrst democratic elections (1977) the government and most of the political parties represented in Parliament (including the Communist Party) signed a fundamental agreement to lead the democratization process to a happy end. This agreement known as the Pact of Moncloa and containing a set of measures and commitments of an economic and social character (Cuadrado Roura, 1986) included a tough wage limit to attempt to tackle the unstoppable inﬂationary spiral and turn round growing unemployment.1 The Labour Relations Law of the ﬁrst government of the monarchy during the beginning of the democratic transition made the labour market very rigid though it would be a point of reference for many years for the Spanish Federation of Business Organizations (CEOE), which demanded greater ﬂexibility – free hiring and ﬁring – and the setting of wages on the basis of productivity. Paradoxically the workers’ unions attempted a stout defence of this labour legislation (Pedreño, 1990). Despite the social consensus achieved and manifested once more in the National Employment Agreement, signed some months after Tejero’s failed attempt at a coup d’état on 23 February 1981, there was commitment to creating 350,000 new jobs. Unemployment persisted on an alarmingly upward course, as in other EU countries, rising from 4.4 per cent in 1975 to 22.6 per cent in 1986, and falling to 16.2 per cent in 1990 before rising again to 24.1 per cent in 1994. (It must be borne in mind that female unemployment was double the male level during almost the whole of the nineties and at that time was 31.4 per cent; though temporary employment, around 33 per cent, was above EU levels, it has dropped to single ﬁgures in recent years to be around 9.4 per cent (Table 9.3).) As a result of the high proportion of those out of work, unemployment costs rose alarmingly during those years and its reduction has not increased the number of unemployed covered or encouraged active employment policies, such as work training, etc. To be entitled to contributory beneﬁts in Spain one must have a certain length of time in employment or have made at least 12 months’ contributions in the six years prior to legal unemployment. The time during which beneﬁt is paid follows the general rule of two months’ beneﬁt for each six months of contributions and varies between a fourmonth minimum and maximum of 24. The amount depends upon the average of the 179

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Table 9.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

es

eu27

eu15

18.4 17.8 16.7 15.0 12.5 11.1 10.3 11.1 11.1 10.6 9.2 8.5 8.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

basic contribution previously paid to social security, though there are minimum [about 100 of the Intraprofessional Minimum Wage (SMI) for unemployed with family dependents] and maximum levels (about 220 per cent of the SMI). Circumstances exist in which it is possible to draw the one-oﬀ capitalized payment of eligible beneﬁts (for example, when one has what is considered as a viable project to form a cooperative or worker-owned ﬁrm). In cases where there is a temporary lay-oﬀ or shorter working day the salary may be complemented by unemployment beneﬁts. Similarly, those receiving such beneﬁts on taking a part-time job may combine this job with the payment of such beneﬁts. Unemployment beneﬁt for the workless can be claimed for a certain period of time after contribution-based beneﬁt (when no oﬀer of work has been turned down nor has there been a refusal to take part, except for a justiﬁed reason, in activities concerning professional promotion, training or retraining) has been exhausted, when there is insufﬁcient income (75 per cent of SMI). It may also be paid when there are family responsibilities; after a certain age (45 or 52, according to each case), regardless of family responsibilities; and when workers are legally dismissed without having contributed for the minimum period for entitlement to a contributory beneﬁt. Protection help consists of an economic beneﬁt and the payment of the corresponding social security health care, family protection, and, where relevant, pensions. In recent years Spain has experienced a major reduction in its harmonized unemployment rate (from 18.4 in 1995 to 8.3 in 2007) (Eurostat, 2008a). However, unemployment beneﬁts are low, compared with other European countries, and cannot be said to oﬀer full protection for the problems most recipients face. As a general rule, the amount is set at 75 per cent of the Minimum Intraprofessional Wage except when the beneﬁciary has family under his/her charge. If this is so, up to 125 per cent may be paid. The comment can be made that, unlike what happens with unemployment beneﬁt, there are a greater number of women receiving this beneﬁt.2 The rate of coverage is one of the most acute problems facing Spain as far as this matter is concerned. The fact that merely 63.7 per cent of the unemployed have state unemployment beneﬁt means there exists more than 35 per cent of the population without work, wanting and able to work, who receive no beneﬁt at all. Though this 180

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problem seems to have been lessening in recent years it continues to be one of the lowest rates of coverage in Europe, mainly due to: Some of the conditions required to get the beneﬁt and certain characteristics of employment itself. In Spain you have to work for a year to get unemployment pay, compared to France which requires six months, the same as Greece; Ireland and Belgium have ten months, Holland six months, the same as Sweden. There are other countries where that period is similar to Spain, such as Denmark, Italy, Germany, Austria or Portugal. But the employment conditions in those latter countries are diﬀerent to Spain, where the highly temporary and short-term nature of contracts (high rotation) means that a long time elapses before workers, principally young ones, manage to get the required 12 months.3 Pensions The pension system is the main target of public policies and debate (centred on questions such as the ageing population or job creation) in Spain. According to Rodríguez-Cabrero et al. (2003), over a period of time several types of reforms regarding pensions can be mentioned: (1) reforms of ﬁnancial adjustment (Law 26/1985 of the Rationalization of the Structure and Measures to protect Social Security); (2) strategic reforms in this area; the great reform has been the Toledo Pact (1995), which represented an historic agreement of all political parties and unions over the reform of the public pay-as-you-go pension systems (old age and widow/er pensions). By means of this pact it was agreed not to use pensions for political purposes and also to guarantee the continuity of the pay-as-you-go system, while progressively introducing improvements to make it more supportive and fair. For this purpose a contributory model was designed based on compulsory public contributions from workers and employers. In addition to a system of beneﬁts (means tested) which were to be ﬁnanced from general taxation, geared to people in need, and a private complementary system, (with an incentive scheme of tax expenditures), not to be a substitute for the public one (3) adaptive or pre-emptive reforms (from 1985 to 1995, they are those which take on board the whole of the Toledo Pact up to the present day), and (4) reforms developing the Toledo Pact up to the present time (Ley 24/1997 of Consolidation and Rationalization of the Social Security System). As laid down in Article 160 of the General Social Security Law (LGSS): economic beneﬁts for retirement, in its contributory form will be unique to each beneﬁciary and will consist of a life pension to be recognised, in the conditions, amount and form as determined by regulation, when having reached the stipulated age, he leaves or has left his/her employment. To be eligible for this right certain legal conditions are required, in accordance with article 161.1, such as having reached the age of 65 and having contributed for a minimum 15-year period, of which at least two must be included in the 15 years immediately prior to the moment when this right is claimed. The amount is calculated from the regulatory base, depending upon the basic contribution rate to social security, where a scale is applied with 50 per cent after 15 years, and increases by 3 per cent each extra year between the sixteenth and twenty-ﬁfth year and 2 per cent after the twenty-sixth till it reaches 100 per cent at 35 years. 181

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The welfare payment for older people with insuﬃcient or no income can be requested by people at or after the age of 65 who are resident in Spain. To receive this it is necessary to prove income of less than €4,221.70 annually (though if living with members of the family the maximum is modiﬁed). While contributory retirement pensions are received largely by men (practically two-thirds of them), and they get 60 per cent more, welfare pensions are more commonly given to women. Thus, of a total (281,154), more than 84 per cent are received by women (236,314) and the rest (44,825) by men (MTAS, 2004). Finally, widows’ pensions, like the others, are not universal either, and are granted on the basis of marital status, only to married women and men who have lost a spouse. At the present time, a reform is under way to allow de facto couples to claim this pension. Families The 1990 law, which modiﬁes the previous 1975 family help law, considered economic support more as a measure for ﬁghting poverty among family units with inadequate incomes rather than a universal beneﬁt compensating for the cost of care except in the case of the handicapped (Table 9.4). Moreover, the Basic Law for the General Regulation of the Education System (1990) considered that the ﬁrst educational period ranged from birth until the age of three, albeit of a voluntary nature, but the Ministry of Education left the running of it to local corporations and the market. In reality the provision of places for infant education has centred since 1995 on those older than three, whereas the previous infant group had one of the lowest coverage in the EU, both in the public and in the private sectors (Villota, 2006). It is interesting to point out that in the nineties and during the past years, ﬁscal policy became more intense with an increase in family deductions for family reasons (ancestors or descendants) from the income tax declaration. This measure will contribute to the reduction of ﬁscal pressure, backed by the neoliberal economic currents prevalent until now. Table 9.4 At-risk-of-poverty rates by gender

es total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

19 18 20 18 19 18 19 19b 19 20b 20 20

eu25 males 19 18 20 18 18 17 17 18b 18 19b 19 18

eu15

females

total

males

females

19 18 21 18 19 19 20 21b 20 21b 21 21

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

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In contrast, direct expenditure by means of universal beneﬁts or public provision of services has continued at the lowest levels hitherto in the EU. Even though an important increase took place in 2000 (from 0.5 per cent of GDP to 1 per cent), beneﬁts still can be considered inadequate in comparison with other European countries, as seen in the Figure 9.2. Until 1991 the only ﬁscal expenditure in favour of children consisted of a deduction on taxable income, but that same year there was the introduction for the ﬁrst time in our country of another token deduction, around €150.25 annually for each descendant below the age of three, as long as the mother worked outside the family home. Also, the 1988 reform of personal income taxation opted strongly for ﬁscal deductions, following the increase in the amounts allotted to child care. These were transformed into reductions on the tax base principally to beneﬁt higher-income taxpayers. In 2003, a new tax base deduction (called ‘maternity’) was created to the advantage of mothers with children below the age of three, and this can be claimed in advance when mothers worked outside the home. In the new reform carried out by the PSOE, which was in power again from 2004, and which came into force in 2007, the deduction for children is maintained though it will be applied to the tax liability. Even though the use of ﬁscal expenditure as a complement or palliative of social policy has been endorsed and given incentives by various international bodies, such as the International Labour Organization (ILO), in Agreement number 156 adopted in 1981 and in the associate Recommendation number 165, the social nature of the problems of workers with family responsibilities and which should be reﬂected in public policies is underlined: ‘it should be possible to give workers with family responsibilities when necessary, social security beneﬁts, ﬁscal deductions or other appropriate measures compatible with national policy’. It must be taken into account, in the ﬁrst place, that the ﬁscal instruments employed mostly reductions and deductions, are used as merely token gestures, since they do not solve the problem in its true dimension and, second, they are only applicable to those citizens or family groups with enough economic capacity to pay tax. That is, a dividing line is placed between taxpayers and non-taxpayers for the beneﬁt of the former

Figure 9.2 Social beneﬁts for the function family/children (as % GDP) 2005. Source: based on information from (Eurostat, 2008c).

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and to the detriment of the latter, who lack economic capacity. What is more, the reduction in public revenue caused by ﬁscal deductions or reductions may be an obstacle to the adequate provision of social security crèches. The provision of these social services is indispensable for those with scarce economic resources who ﬁnd it very diﬃcult to combine child care tasks and employment, which is the prime goal of equal opportunity policies and the harmonization of professional and family life among men and women. Before ﬁnishing this session on child care and child allowances, it has to be mentioned that the ﬁrst Spanish law for reconciliation of family and professional work was only passed in 1999, the last year of the last century. Social services and social exclusion The very limited growth in social protection is due, to a large extent, to the blunted sensibilities during the Franco period. With the advent of democracy, and especially later during the Socialist governments from the early 1980s to the middle of the 1990s, expenditure on social protection grew signiﬁcantly. Since 2004, after eight years of conservative ‘standstill’, in addition to consolidating the pillars of the welfare state (educational, health care and pension systems), an attempt has been made to construct a fourth pillar: social services. To provide protection and coverage to socially excluded groups, or ones which are in danger of suﬀering exclusion, the budgetary thrust is oriented towards developing the National Plans of Action for Social Inclusion, the National Strategy for Social Protection and Inclusion, and, among other eﬀorts, the Law of Personal Autonomy and Dependence, 2007. However, the Law of Dependence, presented as a true revolution by creating a new right for citizens (the law gives older people and the handicapped people the right to receive care and attention through services and economic beneﬁts), has not lived up to expectations. As soon as the law went into eﬀect, it was seen that the programme suﬀered from severe budgetary underfunding. Finally, work is being done on various fronts to make housing, a right recognized in the Spanish Constitution, the ﬁfth pillar of national social protection. The Housing Plan (2005–8) triples investment in housing policies. The Land Law combats speculation through the Public Corporation for Rental Housing and by making government owned land available to city governments to build subsidized housing. Nevertheless, the current situation is quite complicated – the housing policy at the end of the twentieth century was built on extremely weak foundations – with the private rent sector in decline and public expenditure insuﬃcient (e.g., while in Holland and the United Kingdom expenditure on housing exceeds 3 per cent of the GDP, in Spain, in 1999, it only reached 0.5 per cent) (Trilla, 2004). In sum, a perennial lack of political interest in housing led to a ‘crisis of accessibility’ for young people that coincided with a real estate ‘boom time’ of prohibitive home prices. Now that the housing bonanza seems to have gone bust, with the well-publicized bankruptcies of major construction ﬁrms (Martinsa-Fedesa), the seriousness of this lack of support for aﬀordable housing is obvious. Indeed, housing policy based on access to publicly subsidized rental or owner-occupied properties is as yet undeﬁned, and public expenditure (measured as a percentage of GDP) for the construction of government-subsidized housing is inferior to 1970s levels (Julio Rodríguez López, 2008). 184

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Immigrants During the 1970s, Spain was a country of emigrants; today Spain is the world’s second leading destination country for immigration (Díez, 2008). Immigrants, including illegal aliens, have the right to health care and educational services. If they are in possession of a residence permit, immigrants have access to unemployment insurance and can apply for a pension and publicly subsidized housing. Thus, one might ask: Is the system of public services sustainable in the face of current migratory trends? The Economic Oﬃce of the Moncloa points out that immigrants contribute to the welfare state more than they receive. The 1,316,000 who at the end of 2007 were aﬃliated to the social security system made 7.4 per cent of the contributions and only absorbed 5.4 per cent of public expenditure (4.6 per cent in health care, 6.6 per cent in education and 0.5 per cent in pensions). Moreover, their socio-demographic proﬁle suggests that they have very little likelihood to want to live oﬀ subsidies, even when levels of social protection are raised, as they must send money to their countries of origin at the same time they are making a future for themselves here. The view that immigrants are taking the lion’s share of social services has to do with the way the activities of the autonomous communities are ﬁnanced, i.e. responsibility for social services have been taken on (with full authority) by the CCAAs. Where immigrant populations are concentrated, Madrid and Catalonia, followed by Andalusia, immigration has caused major increases in public expenditure. However, the CCAAs’ revenues have stayed the same. In the future, ﬁnancing will have to be increased in order to avoid the degradation of aﬀected areas and hostility to immigration among the native population. Increased ﬁnancing ultimately should encourage integration. Last year the Ministry of Labour and Immigration authorized and actively encouraged the contracting of hundreds of thousands of foreigner workers. Just recently, the ministry have recognized that the current population of immigrants requires a welfare state customized to their needs. The ministry propose to allocate more money and oﬀer incentives to repatriate one million immigrants. The Plan for Voluntary Return, proposed in June, is an invitation to unemployed immigrants to return to their countries (with the possibility to take their unemployment beneﬁts in two instalments, on the condition they give up their residence and work permits and pledge not to return in the next three years). The nature of the plan, a response to current circumstances, and the announcement of the toughening of the Law on Family Reuniﬁcation denote a change in immigration policies (a consequence of the economic slowdown, rising unemployment and the end of the real estate boom), no doubt inﬂuenced by the conservative policies holding sway in Europe.

Some comments regarding the future of the welfare state in Spain During the democratic transition process it is necessary to stress that, despite the severe economic crisis, with rates of unemployment as high as nearly 25 per cent, a pact containing political and social agreement was achieved which joined together all the political forces, and laid the foundations for the still unﬁnished present-day welfare state. The expansion of the Spanish welfare state began in the 1980s, with the universal provision of health care, education and pensions, at a time when neighbouring countries began to speak of a crisis in their systems. Later, the system in Spain became consolidated, and in spite of its limitations, the culmination of the system’s growth now appears within 185

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reach if current eﬀorts to develop new pillars of social protection (social services and housing) come to fruition. However, social expenditure is low and is primarily devoted to pensions. While it is true a great volume of legislation has been enacted to protect workers (similar to other southern European countries), the labour market is very rigid and is characterized by low levels of social beneﬁts and a low tax burden. Exacerbating these debilitating factors are relatively high levels of corruption (Conde et al., 2007), low competitiveness and low levels of female employment. In keeping with the tradition of southern European countries, the family plays an important role in looking after the old. Nevertheless, an ever greater number of old people live on their own. Thus, the ageing of the Spanish population particularly in the case of women, linked to the need for universalizing family help services (for both women and men), have become major questions for the future welfare state. Immigration has facilitated the convergence with European partner countries in terms of per capita income (Ximénez, 2008), but Spain will also have to struggle, as has already occurred in other European countries, with problems related to the integration of important numbers of immigrants, stemming basically from Latin America, North Africa and Eastern Europe. Whereas their incorporation into the labour market seems likely to reduce the dramatic eﬀects of low birth rates and the increasing ageing of the population (fundamentally as regards pensions), the problems brought about by an increasingly more ﬂexible and precarious labour market will have to be resolved. It will also be necessary to ensure that those who have paid taxes and contributed to economic growth (immigrants and non-immigrants) receive reasonable amounts of assistance (unemployment beneﬁts and pensions, both fundamental pillars of the welfare state). Welfare politics should then be geared to developing services tailored for demographic and economic changes and, which, ultimately, will enable immigrants also to become fully-ﬂedged citizens. Immigration, an ever more global question, will require comprehensive, global answers, taking into account the consensus opinion of all concerned. Along with the necessary transformations in questions of health, education, employment and families, demographic changes as a consequence of the ageing population, the fall in the birth rate and recent waves of migrants, as well as the continuing problem of unemployment, aggravated by growing international competition as a result of the globalization process we are living through, and technological advances, will possibly be the aspects dominating the debate concerning the future of the welfare state in Spain.

Notes 1 The trade unions did not take part in the social pact process (income policy) till 1979 with the signing of the Interconfederate Guideline Agreement, which meant a return to democratic normality with the intervention of exclusively social agents (employers’ organizations and trade unions). 2 In this sense, diﬀerences also exist with respect to the percentages of women and men at-risk-ofpoverty after social transfers are 21 per cent and 18 per cent, respectively, in 2006, with ﬁgures that are 3 or 4 points higher than E15 data. For details see Eurostat (2008b). 3 For details see www.eiro.eurofound.eu.int/2002/11/word/es0211206fes.doc.

Bibliography Aracil, E., Banegas, J. and Bengoechea, R. (1996) Sistema gráﬁco de información sanitaria en España (Madrid: MSD-Artursa).

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Alonso, J. and Conde-Ruiz, J. (2007) Reforma de las pensiones: la experiencia internacional. Documento de trabajo 2007 18 June. www.fedea.es/pub/papers/2007/dt2007-18.pdf (accessed 27 January 2009). Bricall, J. M. (2000) Informe Universidad 2000. Barcelona, España. www.campus-oei.org/oeivirt/ bricall.htm. Calero, J. and Bonal, C. (2004) ‘La ﬁnanciación de la educación en España’ Seminario UIMP ‘El Estado de Bienestar en España’, in V. Navarro, El Estado de Bienestar en España. Edición de las ponencias presentadas en el Seminario ’El Estado de Bienestar en España’, UMP, Barcelona, 18 y 19 diciembre. Editorial Tecnos. Calvo, B. and Michavila, F. (2000) La universidad española hacia Europa (Madrid: Fundación Alfonso Martín Escudero). Carabaña, J. (2005) ‘Educación y Movilidad Social’ in V. Navarro (coord.) (2005) El Estado de Bienestar en España. Edición de las ponencias presentadas en el Seminario ‘El Estado de Bienestar en España’, UMP, Barcelona, 18 y 19 diciembre. www.vnavarro.org/publiclib.htm. Conde, Ocaña and Pérez-Quirós (2007) ‘Análisis cuantitativo del estado de bienestar en Europa: Modelos y resultados’, Working Paper 2007–03, FEDEA. www.fedea.es/pub/Papers/2007/dt2007–03.pdf. Cuadrado Roura, J. R. (1986) ‘Política de rentas y concertación social’, in L. Gámir et al. Política económica de España (Madrid: Alianza). Díez, J. C. (2008) ‘Los retos económicos de la inmigración’, Expansión.com, 23 junio. www.expansion. com/edicion/exp/opinion/llave_online/es/desarrollo/1128036.html Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism (Cambridge: Policy Press). —— (1992) Budgets and democracy: Towards a Welfare State in Spain and Portugal, 1960–86 (Firenze: European University). —— (1996) Welfare States in Transition (London: Sage Publications). Eurostat (2008a) Population and social conditions. Brussels, Eurostat. http://epp.eurostat.ec.europa.eu/ portal/page?_pageid=0,1136184,0_45572595&_dad=portal&_schema=PORTAL&_calledfrom=2 (accessed 27 January 2009). —— (2008b) At-risk-of-poverty rate. By sex. 2006. Brussels, Eurostat. www.idescat.cat/economia/inec? tc=3&id=8505&lang=en (accessed 27 January 2009). —— (2008c) Social Protection Expenditure and Receipts, 1997–2005. Brussels. Ferrera, M. (1996) ‘Southern Model of Welfare in Social Europe’, Journal of European Social Policy, 6/1:17–37. Heine, H. (1983) La oposición política al franquismo (Barcelona: Crítica). Le Grand, J. (1991) ‘Los cuasimercados y la Política social’, Economic Journal, 1001: 1256–67. Ley General de Seguridad Social (LGSS). www.seg-social.es/stpri00/groups/public/documents/normativa/ 095093.pdf (accessed 27 January 2009). Mora, J. G. (1999) ‘Two Decades of change in Spanish Higher Education’, International Higher Education, Fall 17. http://bc.edu/bc_org/avp/soe/cihe/newsletter/News17/text12.html. Moreno, L. and Sarasa, S. (1993) ‘Génesis y desarrollo del Estado del bienestar en España’, Revista Internacional de Sociología, 6: 27–69. Ministerio de Sanidad y Consumo (2005) Estadística del Gasto Sanitario Publico 2004. Madrid. MTAS (2004) Anuario de estadísticas 2004. www.mtas.es/estadisticas/anuario2004/PNC/index.htm. Navarro, V. (2004) Bienestar insuﬁciente, democracia incompleta. Sobre lo que no se habla en nuestro país (Barcelona: Anagrama). —— (coord.) (2005) El Estado de Bienestar en España. Edición de las ponencias presentadas en el Seminario ‘El Estado de Bienestar en España’, UMP, Barcelona, 18 y 19 diciembre. www.vnavarro. org/publviclib.htm. O’Connor, J. (1973) The Fiscal Crisis of the State (New York: St. Martin’s Press). OECD (2008) Education at a Glance (Paris: OECD Indicators), Palacio Morena, J. I. (1988) La institucionalización de la reforma social en España, 1883–1924 (Madrid: Ministerio de Trabajo y Seguridad Social). Pedreño Muñoz, A. (1990) ‘Desempleo, fuerza de trabajo y mercado laboral’, in J. L. García Delgado, Economía Española de la Transición a la Democracia (Madrid: CIS).

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Pérez-Gómez, R. (2000) ‘Políticas Sanitarias y Desigualdades en España’, in J. Adelantado (coord.) Cambios en el Estado del Bienestar (Barcelona: Icaria). Rodríguez-Cabrero, G. (2004) El Estado de Bienestar en España: debates, desarrollo y retos (Madrid: Editorial Fundamentos). Rodríguez-Cabrero, G. Arriba, A. and Marbán, V. (2003) Reformas del bienestar en España: Informe basado en mapas de políticas públicas. Unidad de Políticas Comparadas (CSIC), Documento de trabajo 03–11, Madrid, 31 Julio. www.iesam.csic.es/doctrab2/dt-0311.pdf#search=%22Reformas%20del%20bienestar% 20en%20Espa%C3%B1a%3A%22 Rodríguez López, J. (2008) ‘Gasto público y ﬁnanciación en la España democrática’, Cursos de Verano de El Escorial de la Universidad Complutense, 14–18 de julio. Sainsbury, D. (1997) Gender, Equality and Welfare States (Cambridge: Cambridge University Press). Temes, J. L. and Gil, J. (1997) Sistema Nacional de Salud (McGraw Hill-Interamericana de España). Trilla, C (2004) ‘La vivienda para los Jóvenes’, in Navarro, V. (coord.) (2005) El Estado de Bienestar en España. Edición de las ponencias presentadas en el Seminario ‘El Estado de Bienestar en España’, UMP, Barcelona, 18 y 19 diciembre. Villota, P. (2005) ‘Fiscal policies and women’s employment in the EU’ in M. Jerneck, M. Mörner, G. Tortella and S. Akerman (eds.): Diﬀerents Paths to Modernity: A Nordic and Spanish Perspective (Lund: Nordic Academic Press) pp. 318–53. —— (2006) ‘Birth Rate and Women’s Rights in Europe’, in W. Heather et al. Women’s Reproductive Rights (New York: Palgrave MacMillan). Villota, P. and Ferrari, I. (2000) The impact of the tax/beneﬁt system on women’s work European Commission, DGV. http://europa.eu.int/comm/employment_social/equ_opp/women_work.pdf Ximénez, P. (2008) ‘Los inmigrantes salvan el estado de bienestar’, El País, 16 junio, www.elpais.com/ articulo/sociedad/inmigrantes/salvan/Estado/bienestar/elpepisoc/20080616elpepisoc_1/Tes

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Chapter 10

ﬁ The welfare system of Finland Olli Kangas and Juho Saari

Introduction Chronologically speaking, Finland has been a latecomer in the ﬁeld of social policy, particularly in social insurance (Alber 1982; Alestalo et al. 1985). However, chronological tardiness was compensated by an extension of the reforms and Finland came to develop a universal model of social protection earlier than most other European countries (Kangas and Palme 2005). In Finland, the struggle over the welfare state was between the two main political forces, the Social Democrats (SDP) and the Agrarian Party (ML, and since 1966 the Centre). On the SDP agenda, adequate income loss compensation was given priority, and the strategy was concerned with insurance for workers and not particularly with the other socio-economic groups. On the ML agenda, universal ﬂat-rate beneﬁts were prioritized. National insurance covering the total population, including unpaid agricultural family workers and providing ﬂat-rate beneﬁts were more preferable for the rural population than income-graduated allowances. This political dualism is reﬂected in the institutional set up of the Finnish income transfer system. All major ‘basic security beneﬁts’ are administered by the public authorities, mainly by the Social Insurance Institution (Kela), while all employment-related – with the exception of sickness insurance which is under Kela – beneﬁts are organized via the labour market. Up to the late 1950s the Agrarians had an upper hand in Finnish politics and the precedence of social policy reﬂected that situation. From the late 1950s onwards, the emphasis shifted towards industrial workers’ interests. In 1959 unemployment insurance was reformed to be more income-related, in 1961 the employment-related pensions system was established and universal sickness insurance was implemented in 1963. Since the 1970s the state and municipalities have invested heavily in facilities for child care and care of older people. The controversies between the bourgeois, vis-à-vis SDP, orientations played a role here as well. In contrast to many other countries, the need for child day care bifurcated on the one hand into municipal day care centres – which the political left demanded – and on the other hand into home care allowances – which was the bourgeois preference – a kind of cash compensation for the families that do not use public day care. 189

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One important aspect of the Finnish welfare state design is the division of labour between the central government and the municipalities. The state is responsible for the governance and partial ﬁnancing of general income transfer schemes – it covers about one-quarter of all social costs. Social, health and educational services are carried by municipalities, which have the right to collect revenues through municipal taxation that comprise approximately one-ﬁfth of all ﬁnancial sources. The aim of this chapter is to study and describe the development, present state and future challenges of the Finnish welfare state. The Finnish case oﬀers fruitful material to study both the development of the ‘Nordic model’ and theories on the underlying causes and mechanisms that produced the Nordic universal social policy model. Furthermore, owing to the deep recession of the 1990s, the Finnish case presents possibilities to assess current debates on the ‘new politics’ versus the old politics of the welfare state (Pierson 1994). The development of the Finnish welfare state The common assessment of the development of the Finnish welfare state is to emphasize the late start and sudden enlargement of welfare programmes in Finland. The lateness thesis is true in part and false in part. This laggardness has often been explained with reference to late industrialization and to the sheer size of the agrarian population. This verdict is partially true for pensions (implemented in 1939) and sickness beneﬁts (1963), but it cannot explain the relatively early emergence of work accident (1894) and unemployment (1917) schemes or universal child allowance (1948). In order to understand this phenomenon, one has to look at the socio-political priorities of political actors. For the agrarian population, work accidents and unemployment were not important issues. When early discussions on these insurance forms began, the ML was not interested in expanding coverage to the rural population. Therefore, the early implementation of work accident and unemployment insurance schemes could take the classical form of worker’s insurance with limited coverage to wage earners only. Work accident insurance was to be mandatory; however, each employer could choose the insurance carrier from private insurance companies. Premiums have always been paid solely by the employer, and they are diﬀerentiated according to the risk exposure of the branch. The basic structure of the insurance has been maintained up to now.1 Early forms of unemployment insurance in Finland were based on voluntary funds administered by the trade unions. In order to expand the coverage of the scheme the SDP and the trade unions conceded in 1959 to the employers’ and Conservatives’ initiative of a voluntary scheme ﬁnanced chieﬂy by employer contributions but administered by trade unions. As in the case of work accident, the basic structure of unemployment insurance is still very much the same as it was 50 years ago. In contrast to the two aforementioned social risks, the prevalence of old age, sickness and pregnancy also caused problems for the rural population. When the SDP put forward initiatives on worker’s insurance, the central issue for the ML was to extend coverage to the rural population, and, in fact, the ML, with its strategic coalitions with the Conservatives and Communists, managed to torpedo every initiative that did not cover the rural population. As such totally universal programmes were expensive to realize, the implementation of pensions and sickness insurance was postponed until the economic prerequisites were in place. This inevitably meant that Finland came to lag far behind other countries that started up schemes with more limited coverage. 190

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The ﬁrst National Pension Act in Finland came into eﬀect in 1939. Owing to the turmoil of the Second World War, this fully funded system lost its signiﬁcance and was totally reformed in 1956. The pension was divided into two separate parts: (1) a universal basic amount paid on the basis of ﬁve years residency; (2) an income-tested supplementary amount. The principle of income testing was applied until 1985; since then, the national pension has only been tested against income from other legislated pensions. The last major pension reform was carried out in 1996 when the whole basic amount was abolished, and the national pension became tested against other pensions. In order to guarantee income security, the trade unions, supported by the SDP, insisted on legislated and compulsory schemes. The condition for employer’s acceptance of a legislated scheme was that it should be decentralized, with private pension insurance companies as insurance carriers and the administration should be in the hands of the labour market partners (Salminen 1993). In the parliament, the Agrarians and Communists were against the proposal, while the SDP, the Conservatives and other bourgeois parties backed it; the law was passed in 1961 and private sector employees got their pension scheme (TEL). The target pension level was 60 per cent of the ﬁnal wage without any ceilings. A separate scheme (LEL) was established for employees in shortterm employment contracts. Later on, in 1974, farmers and other self-employed persons got their own programmes (MYEL and YEL). In addition there, are minor schemes for smaller groups such as artists, seamen, church employees, etc. Thus, a certain degree of corporatism brands the Finnish pension design. Existing arrangements for public sector employees (one for the state and one for the municipal employees) were neither ﬁnancially nor administratively merged with TEL. Public sector schemes oﬀered 66 per cent of the ﬁnal salary after 30 years of employment, and the pension age was 63 compared with 65 years in TEL. The implementation of national health (sickness) insurance followed the traditional ‘Finnish’ pattern. Since the 1890s, in almost every decade there had been SDP-initiated attempts to implement a sickness act, but struggles between the SDP and ML delayed implementation until 1963 (Kangas 1990: 167). The reform established perhaps the most universal scheme in Europe. The whole population was insured and daily allowance was paid even to those who had no monetary income, for example home-makers, students, etc. In the beginning, the compensation level was 60 per cent of previous income. In 1982, all beneﬁt ceilings were abolished and income loss compensation came to be 80 per cent for all income groups. The daily allowance was payable after a rather long waiting period of seven days. However, a mandatory employer sick-pay system provides a full wage from the ﬁrst day of sickness for a period varying from one month to three months depending on the labour market agreement. Although the sickness insurance scheme came about fairly late in the day, municipalities were under obligation by the state to organize health care for their residents from 1869 (Mattila 2006: 21). However, only a handful of municipalities managed to follow the obligation, and to subsidize municipalities and provide compensatory services. The health service system was established from the top down such that at the ﬁrst stage key national hospitals and the institutions for mental health and tuberculosis were established from the 1930s onwards; regional hospitals from the 1950s onwards; and local hospitals from the mid-1960s onwards. In 1965 all state hospitals were transferred to municipalities or municipal co-organizations and the operative responsibility was given to the local authorities. As in many other countries, in Finland family policy issues popped up on the political agenda in the 1930s as a response to declining fertility rates. After the Second 191

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World War the population issue became more acute and in 1948 publicly ﬁnanced, universal child allowance payable to the mother for each child under 16 years of age was established. The organization of child care, aimed at reconciling work and family life, has been a contested issue and followed the left–right and urban–agrarian divide. On the left-wing agenda public day care institutions were at the fore, whereas the bourgeois parties demanded tax allowances and ‘home care’ allowance. In municipalities there was a serious shortage of day care places, and municipalities calculated that it was cheaper to pay ‘cash for care’ than to establish day care institutions (Hiilamo 2002). The SDP wanted to promote public day care and passed an Act on it in 1972. However, owing to strong bourgeois and municipal demands, a national child home care allowance system was established in 1985. An allowance was payable to all parents or to nurses of children who were not in municipal day care. Since then Finland has had a special combination of public day care, in which all children under school age have a subjective right to day care (full universalism) and universal home care allowance, i.e. cash for care (Anttonen 2005). The universal and obligatory people’s school was introduced in 1921. The school system was ‘parallel’ and after the ﬁrst four years a number of children chose the ‘middle’ school leading to high school (three years) and university studies. The parallel school system was reformed in 1970 when people’s schools and middle schools were merged to the 10-year ‘basic school’. The basic school reform ‘socialized’ basic education and the curriculum was sketched out by central government. Implementation is in the powers of municipalities but nationwide tests aim to guarantee equal opportunities for all, regardless of background or place of residence.

Status quo The very structure of the Finnish welfare state has been strongly path dependent and displays a high degree of institutional inertia. The lion’s share of social spending – by now 26 per cent of the gross domestic product (GDP) – goes on old age, health and disability (Table 10.1). The proportion of social spending devoted to old age is a bit lower than the EU averages, while Finland is proportionally spending more on families (due to transfers and child care services) and on unemployment. Also, social exclusion (due to labour market exclusion) gets more emphasis than in the most EU countries. Furthermore, the welfare state enjoys unanimous support. In the early 1990s, as much as 90 per cent of Finns were willing to pay more taxes than see cuts in social beneﬁts (Blomberg and Kroll 1999). The ‘basic beneﬁts’, i.e. national pensions, basic sickness and unemployment beneﬁts were particularly popular. Against this background, it is interesting to look at what happened during the economic crisis of the 1990s when GDP fell in three consecutive years, unemployment skyrocketed (less than 4 per cent in 1990 to 15 per cent in 1995) and social spending expanded from 25 per cent to 32 per cent of GDP. The public budget that used to be positive ran into deﬁcit, and the public debt accelerated from virtually zero in 1990 to 60 per cent of GDP in 1996 (Table 10.2). These dark economic prospects formed the background for subsequent social policy making. The cuts carried through are visible in per capita spending that decreased and 192

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worsening beneﬁts, but owing to the increase in the number of beneﬁciaries the GDP share expanded. The opposite is true for the development in the late 1990s. Social spending in absolute terms increased and improvements took place, whereas the share of social spending of the GDP fell. This pattern points out the problems of using the GDP share as the only indicator of the quality of social policy. Although the general plan to muddle through the crisis was to ‘plane’ a little from everything and to avoid bigger structural reforms, there were some path-breaking changes where the policies took new directions.

Table 10.1 Social protection beneﬁts as a percentage* (2005)

ﬁ Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27

eu15 e

100.0 96.9 11.2 9.0 1.0 1.9 37.6 36.1

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

Table 10.2 Social protection expenditure

ﬁ

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

31456.5 31792.2 31630.9 31414.1 32207.8 33143.4 34830.8 36909.2 38716.8 40572.3 41993.1

6158.5 6203.9 6154.1 6095.7 6235.2 6403.0 6713.7 7097.1 7426.9 7760.3 8004.6

31.5 31.4 29.1 27.0 26.2 25.1 24.9 25.6 26.5 26.6 26.7

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

193

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Pensions Initially, income-related pensions were totally ﬁnance by employer fees. The 1991 crisis income policy package included a partial transfer pension contribution from employers to employees. The centre-right cabinet prepared a bill on employee contributions corresponding to 3 per cent of their wage. The contribution was supposed to increase at a later date. A number of other incremental steps were taken. In 1992, the state’s pensions were cut to correspond to TEL beneﬁt. The ‘homogenization’ of municipal pensions was carried through a bit later. As a result of these reforms, the three biggest pension schemes, although occupationally segregated, came to oﬀer the same beneﬁts. These savings measures undermined the political support for the centre in the 1995 elections, whereas the opposition party, the SDP, achieved their best results (38 per cent of the seats) since the 1930s. In the two consecutive SDP-led ‘Lipponen-rainbow’ cabinets (1995–2003) the political axis was between the SDP and the Conservatives. Lipponen continued with gradual reforms. Previously, pensions were calculated on the basis of income for the four last years in employment, but in 1995 the government lengthened the calculation period to the last 10 years. Simultaneously to this proposal, a bill on the reformation of the national pension was sketched. Interestingly enough the ‘old politics’ lurk behind the new politics of retrenchment. The previous centre-led cabinet had argued in favour of basic security, whereas the Lipponen government declared that national pensions must be reformed and, consequently, the basic national pension was abolished and from 1996, became tested against other legislated pensions. In order to qualify for a full national pension the claimant must have lived in Finland for 40 years (instead of ﬁve years as required previously) – a reaction to membership of the EU.2 Thus, initial steps were taken to meet the future demographic challenges that were calculated to be more severe in Finland than in many other EU countries. However, many pension experts saw this as inadequate, and the labour market partners formed their own working group to prepare a plan for the reformation of private-sector pensions. All major trade unions and employer federations were represented. The social partners delivered their report to the politicians and central labour market organizations for approval. The ﬁnal agreement was made in 2002. The basic form of the pension structure was left intact, but within the ‘unchanged’ scheme, central elements were changed: the pension income is now calculated on the basis of the entire working career in the age bracket 18–69 years. The pension accrual rate is progressive to discourage early retirement: from 17 years up to the age of 52 the rate is 1.5 per cent; in the age bracket 53–62 years the rate is 1.9 per cent; and after the age of 63 it is 4.5 per cent. The target level of 60 per cent was abolished and a special formula adjusting pensions to the increased life expectancy was introduced. Precisely as in the preceding reforms, the private sector pensions paved the way and the public sector schemes were reformed in 2004. The reformation of the Finnish pension design is interesting from a governance point of view. It also adds interesting material to the discussions on new politics. First, only in the case of the national pension, did the parliament really have any inﬂuence, while in all instances, notably so in the big reforms of 2002 and 2004, political parties and pensioners’ organizations were totally out of the picture. On the one hand, this reﬂects the central role social partners play in Finnish politics, not least because of the administrative structure of the income-related pensions. Second, Finnish history is a history of ‘old 194

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Table 10.3 The distributional share of different pension programmes of the total pension spending 1950–2005

Year

National pensions

Private sector

State pensions

Municipal pensions

Voluntary additional

1950 1960 1970 1980 1990 2000 2005

28.6 65.7 54.2 40.5 31.2 19.7 16.0

0.0 0.0 10.9 27.9 37.7 46.5 49.5

69.0 25.6 21.3 17.7 16.3 17.4 17.2

0.0 2.9 7.9 8.3 9.6 12.7 14.0

2.4 5.0 4.7 4.3 3.9 2.7 2.3

Sources: KELA 2007, 40–41; KELA 1982, 26–27 Note: Since some minor schemes for special groups are missing, the numbers do not equal to 100 per cent.

politics’ where the traditional interest organizations in tripartite negotiations – usually led by senior pensions’ experts – agree on reforms that are then accepted by parliament with minor modiﬁcations. Third, all the schemes that the general population regarded as ‘holy’ were abolished or thoroughly reformed. Neither does the Finnish retrenchment policy lend any support for the thesis on the importance of client organizations in the ‘new politics’ of welfare. The story told above is reﬂected in pension spending ﬁgures too. As can be seen in Table 10.3, national pensions are losing out to private and public-sector income-related pensions. The share of voluntary occupational pensions is also shrinking. The reason for the latter trend is that in Finland, the existing occupational pensions were integrated into the legislated schemes and the coordination of second and third-tier pensions follows the ‘diﬀerence’ principle – that is, the amount of the occupational beneﬁt is determined as the diﬀerence between the targeted 60 per cent level and the actual TEL level. The closer the actual pension comes to the target level the less room there is for a diﬀerence. In many other countries occupational pensions follow a ‘ﬂoating’ principle: occupational pensions are paid on top of other pensions. As stated above, the Finnish pension design is a hybrid: it is decentralized, yet thoroughly legislated, and can therefore be classiﬁed either as totally private or totally public, depending on taste. Moreover, owing to its occupationally and sectorally fragmented character, it can be classiﬁed as a highly diverse corporatist system where labour market income diﬀerences are reproduced and maintained through the pension system. However, the empirical evidence is rather surprising. In the mid-1960s the incidence of poverty among older people was almost 20 per cent whereas in the early 2000s, poverty among Finnish older people is one of the lowest in the world (Kangas and Palme 2000: 340). In line with the decrease in poverty rates the income distribution of pensioners has become more equal. Thus, the Finnish example follows the so-called paradox of redistribution (Korpi and Palme 1998): if you want equality in outcome you might be obliged to accept inequality in means. Unemployment beneﬁts The sky-rocketing unemployment (Table 10.4) triggered uncontrolled cost expansion and set not only the unemployment protections system but also the totality of the 195

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Table 10.4 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ﬁ

eu27

eu15

15.4 14.6 12.7 11.4 10.2 9.8 9.1 9.1 9.0 8.8 8.4 7.7 6.9

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

Finnish welfare state in a survival test. The problem was how to try to balance the state budget without scarifying too much the basic functions of the welfare state. Unemployment protection went through some changes during the 1990s. The insurance part was left more or less intact but the ‘basic security’ part was reformed. Basic security in the case of unemployment is now provided via two channels. First basic allowance is paid for 500 days after a waiting period of seven days to jobseekers (between 17 to 64 years of age) who are resident in Finland. The maximum amount is €505 (in 2006) a month plus a child supplement of €181 maximum. A labour market subsidy is available after a ﬁve-day waiting period for unemployed people who do not qualify for other forms of unemployment protection. The subsidy is income-tested and the maximum amounts are the same as in the basic allowance. Unemployment fund members with a membership of at least 10 months and with a work record of 43 weeks qualify for earnings-related beneﬁts after seven waiting days. At the average income level, the beneﬁt corresponds to about 60 per cent of income, whereas in the lower income brackets it is higher (it must not exceed 90 per cent) and correspondingly lower for high-income earners. This beneﬁt can be paid for up to 500 working days. Basic security beneﬁts are paid from public funds; in principle, insurance premiums should cover costs for the income-related part. However, due to high levels of unemployment, the share of governmental ﬁnancing has increased to 40 per cent and the remainder comes from the employers’ (0.6 to 2.5 per cent of payroll depending on the size of the enterprise) and employees’ (0.25 per cent of wage) contributions. By the end of the 1980s, spending on unemployment was about 5 per cent of all social expenditure. In the mid-1990s, spending was as high as 15 per cent. By 2006 it was slightly less than 10 per cent. Sickness and health: public responsibility and corporatism Income loss compensation, in the case of sickness, was cut during the 1990s and currently 70 per cent of the income of middle-income groups is compensated for. The compensation is lower at the upper end of the income ladder. Entitlement criteria for 196

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beneﬁts are rather harsh by international standards: employment during the last three months and payable after nine waiting days. The beneﬁt period is 300 week days. The scheme is ﬁnanced by contributions form the insured (1.5 per cent of income) and from employers (1.6 per cent of pay-roll). According to labour market legislation, there is a mandatory employer sick-pay (100 per cent of income from the ﬁrst day of sickness) period that varies between one and three months depending on the branch. When it comes to the total costs of income transfers during illness, the employer-provided sick-pay corresponds to 57 per cent of all cash beneﬁts (NOSOSCO 2005: 113). Maternity beneﬁts are paid from the sickness insurance scheme at the rate of 70 per cent of income. The maternity beneﬁt period is 155 work days (31 weeks) where after a parental allowance is payable either to the mother or father for an extra 158 week days (26 weeks). For those who have no income prior to sickness, a means-tested sickness allowance is available after 55 waiting days. In the case of childbirth, the minimum allowance is €10 a day. After pensions (one-third of the total social spending), sickness and health comprises the next biggest spending item. It takes up a quarter of the social budget and corresponds to 6.6 per cent of GDP. Emphasis is clearly on services (81 per cent of all spending) and the lion’s share (76 per cent) is used on public health care. Correspondingly, about 70 per cent of costs are covered from public funds, employers pay 22 per cent and the remaining 8 per cent is collected by contributions from the insured or user fees (NOSOSCO 2005: 113). The picture is very much the same if we look at the distribution of costs between different producers of health services: 80 per cent of services are produced by public providers, 17 per cent by private enterprises and 3 per cent by non-governmental organizations (Kauppinen et al. 2005: 93). All in all, despite the fact that municipalities only have the responsibility to organize services – not to produce them – there is public bias in the service delivery. However, things are gradually changing. To combat long cues and waiting lists the government passed a law in 2005 on ‘care guarantee’. According to the law, the claimant has to have access to a medical doctor within three days and special treatment within three months (Mattila 2006: 203) and it is up to the municipality to decide whether to obtain services from the public or from private providers. One Finnish peculiarity of the provision of health services is occupational health care. The sickness insurance act stipulates that employers are entitled to a reimbursement of 60 per cent of costs for organizing health care and preventive action for their employees. The procedure covers about 82 per cent of all employees. Similar schemes are available for farmers and the self-employed, but the actual coverage is lower, 50 per cent and 10 per cent, respectively (Niemelä and Salminen 2006: 43). Thus, there is a strong bias towards occupational provisions in Finnish income maintenance and service delivery for the sick as well. This structure also results in inequalities in access to health care, as those with suﬃciently stable work contracts have privileged access to health care, while those outside the labour market must rely on public health care. Services for older people As stated above, the old in Finland are no longer poor, and the poor are no longer older people. The improved position of older people is also visible in the titles of the institutions providing services for the aged: there has been a shift from the pejorative municipal ‘poor house’ to ‘communal home’ and to ‘service house’. In addition in care of older people, 197

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the main responsibility lies on the shoulders of local authorities and the central government gives legislatives frames and guidance that municipalities must follow. Revenues are collected via municipal taxes. As many as 87 per cent of those over 75 years of age live in their own homes and a small minority lives in specially adjusted old age housing like old people’s homes (5.0 per cent), service houses (5.3 per cent) or homes for the long-term ill (2.9 per cent). About 20 per cent of older people aged 75 and above are getting regular home care/help (Vaarama et al. 2005: 44). The share of help for receivers increases rapidly with age and slightly more than one-third of those aged 80 and above get home help (NSOSCO 2005: 144). The share of private and non-governmental service providers varies depending on the form of care in question. A clear majority (89 per cent) of old people’s homes are municipal, while the role of none-governmental organizations (NGOs) (10 per cent) and private enterprises (1 per cent) is negligible. There is also clear public dominance in home services (78 per cent), while service houses are more or less evenly distributed between the NGOs (44 per cent) and municipalities (45 per cent) (Vaarama et al. 2005: 53). In parallel with child home care allowance, a special care allowance is payable for relatives who take care of their frail family members at home. However, the share has remained rather low (less than 5 per cent). In order to combat the increase in the need for services for older people in the near future, the intention is to fortify the role of home care (Vaarama et al. 2005: 42). Family beneﬁts: transfers and cash for care Alongside direct cash transfers via child allowance, there has been a plethora of tax allowances and credit. In 1993, all tax beneﬁts were abolished and the level of allowances rose considerably. Despite numerous changes, the Finnish transfers have maintained their pro-natal aspirations: the amount of beneﬁts increases according to the number of children. Currently, in 2006, the level of child allowance is €100 a month for the ﬁrst child, €110.50 for the second, €131.00 for the third, €151.50 for the fourth and €172.00 for each additional child. For a single parent an additional allowance of €36.60 per child is paid. Public day care is ﬁnanced with municipal taxes and user fees that are related to family income and can vary from zero to €200 per child. The amount of care allowance varies depending on the form of non-public care. For parents who take care of their children the amount is €294. If the carer is someone other than the parents, the amount is €84 for one child or €50 for each sibling. In addition to these amounts, an income-tested supplement of up to €168 a month and a municipal supplement are payable. In the case of the private carer, the care allowance is €137 plus an income-tested supplement of up to €135 a month. As a result of this ‘cash for care’ system, the proportion of children enrolled in day care is lower in Finland than in Denmark and Sweden, for example. In Finland about 50 per cent of children aged 0–6 years are in day care institutions, whereas the corresponding ﬁgures for Denmark and Sweden are close to 80 per cent (NOSOSCO 2005: 63). Consequently, the labour market participation of mothers of small children varies considerably between these countries, whereas there are virtually no diﬀerences in the employment rates of mothers with school age children (Haataja and Nyberg 2005: 205). This reﬂects the impact of home care allowance. 198

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Education Under the present-day Finnish school system, pupils can, after nine years of basic schooling, choose either to go on to vocational education (three years) or to continue with more theoretically oriented high school (lukio for three years). Currently, 82 per cent of each cohort completes one of these two options, although there is a clear preference (50 per cent vs 32 per cent) for lukio (Kivinen 2006: 210). In principle it is possible to enter polytechnic universities (all in all 29) or science universities (21) via either one of these education channels; approximately 50 per cent of pupils do. In the former, the course of study lasts 3.5 to 4.5 years. The university education is modelled on the Bologna principles. The basic principle in the educational system is to avoid dead-ends, and it is possible to enter into higher education whatever the choice pupils have made. All education is free, i.e. there are no fees. A number of ﬁnancial subsidies are available for those who continue their studies after the basic school. In 2006, a study allowance (paid by the state) for a student in the second-grade schools was €214 a month, plus a housing allowance of €202 a month. In addition, a study loan (€220 a month) is available, but the majority of students do not utilize this option. For university and polytechnic students the respective amounts are a higher (€259, €202 and €300; http: //www.kela.ﬁ). When it comes to the general aims of educational policy, achieving knowledge and safeguarding equal opportunities, the Finnish educational system performs very well in a comparative perspective. According to PISA results, Finnish pupils are top performers in all skills and family background plays a smaller role than in other countries (http://pisa2006. acer.edu.au/interactive.php). Housing Traditionally there has been a heavy agrarian–bourgeois bias towards owner occupation in Finnish housing policy. The present form of housing policy also subsidizing rental housing emerged during the late 1960s and the early 1970s as a direct consequence of industrialization and urbanization. During that period about 350,000 Finns emigrated to Sweden, and there was political pressure to attract the migration-prone families to stay in Finland. At this stage in housing policy, a general housing allowance scheme and separate systems for students and pensioners were also established. Initially, these three schemes were run by municipalities but since 1994 they have been administered and ﬁnanced by Kela. From 1995, house prices began to increase as the demand for private housing rose and the number of available rental ﬂats decreased. Furthermore, both high divorce rates and increasing migration further stepped up the demand, which in turn boosted rent. A rapid increase in housing prices took place simultaneously. The total cost of housing has increased remarkably among families with children, as the price increase has more often than not compensated for decreasing interests rates. The same applies to those who rent their apartments, as the increases in housing allowances have not fully compensated the increases in rents. In recent years, the Finnish housing policy has to some extent favoured those who are ﬁnancially better oﬀ, as the proportion of net housing costs is clearly larger among those who rent their apartments than those who own them, and the gap between these two groups is widening. In particular, single-parent families have suﬀered from this development 199

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(MSAH 2006a). All in all, one can argue that one of the biggest social policy failures in Finland has been housing policy. Social assistance The concept ‘the last resort social security’ is commonly used to refer to the forms of means-tested social policy targeted towards people in need. In Finland, this category comprises several beneﬁts, of which the most important is social assistance. Social assistance is granted on the basis of a calculation of the applicant’s expenses and the income and assets at their disposal. The beneﬁt is paid as a basic amount plus expenses that are taken separately into account. The beneﬁt is calculated against outlays that exceed the basic amount. It is paid on a monthly basis and must be applied for each month. In most cases, this beneﬁt is linked to housing allowance and labour market support, which together often form a ‘basic’ beneﬁt package for the most disadvantaged in Finland. Until the late 1980s, social assistance was a rather marginal beneﬁt claimed on a temporal basis to supplement other beneﬁts such as earnings-related unemployment beneﬁt. Furthermore, the amount paid out was signiﬁcantly increased in the 1980s to cover items other than that needed for basic consumption, including newspapers, TV licences etc. The beneﬁt structure favoured families with several children. At that time, there was virtually no debate on incentives or fraud that related to this beneﬁt. Much of this changed during the early 1990s as the number of annual claimants escalated rapidly from the traditional 300,000 to over 600,000 and beneﬁt periods were prolonged (Kuivalainen et al. 2005). On the political agenda two main problems were debated: ﬁrst, owing to cuts in unemployment beneﬁts, many unemployed supplemented their earnings-related beneﬁts with social assistance. This reﬂected the inadequacy of the level of other beneﬁts. Second, the incentive structures were considered

Table 10.5 At-risk-of-poverty rates by gender

ﬁ

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– 8 8 9 11 11 11b 11 11 11b 12 13

–

–

8 8 8 9 9 10b 11 11 10b 11 12

9 9 11 12 13 12b 12 12 11b 13 13

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15ss 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

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inappropriate. In many cases, there was a 100 per cent marginal tax rate in means-tested beneﬁts. Because of their relative generosity the net income of families often remain unaltered or even decreased when one member (or two) of a household got a full-time job. The solution to the problem came from a chieﬂy neo-institutional eﬃciency perspective: the level of social beneﬁts was to be constructed such that work pays. The social assistance scheme was revised by lowering beneﬁt levels for those who refused to accept oﬀers of work, lowering beneﬁts for large families and introducing reduced housing allowance for recipients of social assistance. As a consequence of gradual cuts and inadequacy of basic security, poverty rates have increased (Table 10.5). However, against the background of the severity of the crisis, the increase might be regarded surprisingly modest, but the severity of long-term impacts that are not yet visible and numbers in the table indicate that poverty has increased in the latter part of the 1990s after the recession, which indicates that basic social beneﬁts have been lacking behind the general rapid economic recovery. Spending and ﬁnancing Social spending levels (as a percentage of GDP) have been modest in Finland. During the crisis of the 1990s, spending exceeded 30 per cent of GDP. This was mainly due to an increase in spending on unemployment. The eﬀects of long-term unemployment are also visible in the noticeable increases in ‘other social protection’, which is mainly spending on social assistance. Owing to prolonged spells of unemployment, more and more unemployed people saw their income-related compensation terminate, and without employment many of them had to rely on social assistance (Table 10.6). Saving measures carried through in the 1990s together with rapid economic recovery have decreased the relative share of spending. It has been calculated that without these cuts, the spending levels would remain about ﬁve percentage points higher. The current spending level is slightly lower than the average for EU15. It has been argued that one important trademark for the Nordic welfare state is a high public share in the ﬁnancing of social spending. In the early 1960s about 70 per cent of revenues in Finland came from public sources. The introduction of income-related pensions changed the situation and the share from employers increased. To relieve the lot of employers, emphasis has shifted towards payments by the insured. The municipal burden

Table 10.6 Distribution of social spending according to target, per cent of GDP 1980–2006

Year

Sickness and health

Disability Family and old age and and survivors children

Unemployment Housing

Other social protection

Administration Total

1980 1985 1990 1995 2000 2005 2006

5.5 6.5 6.9 6.4 5.9 6.7 6.7

10.2 11.6 12.0 14.7 12.3 12.9 12.9

0.8 1.7 1.5 4.4 2.6 2.4 2.2

0.2 0.3 0.5 0.6 0.5 0.5 0.6

0.6 0.7 0.9 0.9 0.8 0.8 0.8

1.9 2.6 3.3 4.1 3.1 3.0 2.9

0.2 0.2 0.2 0.5 0.4 0.3 0.3

19.3 23.7 25.1 31.7 25.5 26.7 26.2

Source: www.stakes.ﬁ/tilastot/tilastotiedotteet/2008/liitetaulukot/Tt09_08liitetaulukot.xls (accessed 15 August 2008)

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Table 10.7 The ﬁnancing of social security in Finland 1980–2006 (percentile distribution)

Year

State

Local authorities

Employers

Insured

Other

Total

1980 1985 1990 1995 2000 2005 2006

24.1 26.7 25.0 29.1 24.1 24.8 25.1

12.6 15.3 15.6 16.7 19.1 19.2 18.8

49.7 42.1 44.1 33.7 37.7 38.5 38.3

7.7 8.8 8.0 13.7 12.1 11.4 11.8

5.8 7.2 7.3 6.9 7.1 6.0 6.0

100 100 100 100 100 100 100

Source: www.stakes.ﬁ/tilastot/tilastotiedotteet/2008/liitetaulukot/Tt09_08liitetaulukot.xls (accessed 15 August 2008)

has also increased and the representatives of the municipalities have complained that the state has solved its ﬁnancial crisis by imposing more and more tasks on municipalities without providing suﬃcient ﬁscal means. Consequently, municipalities have run into economic problems, and experience diﬃculties in oﬀering their residents all the services that the central government demands (Table 10.7). Outlook In the 1990s, the Finnish welfare state muddled through the survival test brought about by economic turbulence. The welfare state was a successful buﬀer in mitigating the harmful eﬀects of the crises and, surprisingly enough, poverty rates did not rise dramatically during the worst years of the crisis. Perhaps the impacts of the crisis are gradual and now, a decade later, income inequalities are expanding and are at the same level as they were in the early 1970s. Poverty levels are also higher than they have been for decades. The most important reason for this is long-term unemployment, which is linked to cuts in basic security beneﬁts. However, it would be an exaggeration to argue that the orientation of welfare policies has changed dramatically or even in its entirety. The Finnish welfare state is leaner and also somewhat meaner but it has maintained its basic elements: &

& & & & &

202

Close links to social risks: Social policy programmes are designed to respond to speciﬁc social risks, such as unemployment, old age, work disability, not to speciﬁcally respond to poverty or social exclusion. Individuality: Social insurance beneﬁts and taxation are based solely on the individual’s own work history, payments and income. Independence: Individuality also means that there are now dependencies between adult generations. Collectivism: In principle all citizens are covered by the very same (or same kind of) schemes. Coordination: Individuals can move from one municipality to another or from one workplace to another without losing their social rights. Legislated beneﬁts: Almost without exception, Finnish social security is based on laws and statutes, and the role of occupational or individual social protection is negligible, although it is expanding. The expansion of private services and insurance

FINLAND

&

&

markets has been rapid, but here the focus is also on beneﬁts that are regulated by laws. Residence-based beneﬁts and services: The ﬁrst criterion for receiving services and transfers is residence, not employment. Thus, the coverage of social insurance is wider than in many other EU-countries. Emphasis on income transfers and social services: With very few exceptions, assets have no impact upon rights to social transfers or services.

The Finnish story is one of old politics and modest changes. However, it is useful to bear in mind that small, piecemeal changes carried through may in the long run have important ramiﬁcations and gradually change the whole system (Hinrich and Kangas 2003).

The future of the Finnish welfare state Finland’s membership of the EU gave impetus to some structural changes in the national social policy system and the process may continue. Owing to the strange institutional structure, the Finnish welfare state does not ﬁt graciously in with the EU concept of social policy. The Finnish case exempliﬁes perfectly how the European Court of Justice (ECJ) safeguarding of the four freedoms and the free market principles in Europe, rules out national decision-making, and that market laws are subordinate to social laws. When joining in the European Economic Area (EEA) in 1992 and in 1995 the EU, a clearer demarcation between social insurance and non-contributory beneﬁts (including social and medical assistance of diﬀerent kinds, and some forms of social services) was accentuated. The former is governed by coordination regulation (R1408/17), which means that beneﬁts are also payable to those who live outside Finland, whereas the latter is left outside. Since the onset of EU membership, national pensions have been regarded as belonging to the realm of coordination regulation. To avoid anticipated problems, the entitlement rules were changed, as described above. Child allowance is also subject to R1408/71, as a consequence of the practices followed in many other member states (MS), whereby child allowance is paid to the father in the form of increased wages or salary. The ECJ decided that child home care allowance should also be included in R1408/71. The same happened with work accident insurance, and Finland (as well as Belgium) has opened work accident insurance for EUbased companies. When it comes to the free movement of capital and services, and legislation on competition, the Finnish semi-private earnings-related pensions do not easily ﬁt the three-pillar (public–occupational–private) typology the EU applies. When Finland applied for membership to the EU, a special clause against demands set by life insurance directives was successfully negotiated. It remains to be seen what the ECJ will decide about the Finnish TEL. In addition to direct impacts on social policy, there are indirect encroachments that in the long run may have important consequences for social policy. Alcohol policy (ALKO) and the monopoly of the Slot Machine Association (RAY) are two such cases. In the Nordic countries (with the exception of Denmark), alcohol policy has been under statutory monopoly. The state has collected substantial tax revenues through this monopoly and ﬁnanced social policy through these revenues. The big issue deals with the fate of the monopoly, whose position has not yet been challenged. 203

O . K A NG A S A ND J. S A A R I

In a similar way, the lottery and gambling have been state monopolies under the RAY. From its proﬁts, the RAY has subsidized various social policy organizations in the third sector, for example. So far, ECJ rulings have been positive for the monopoly. However, competition laws have prevented the RAY from further subsidizing many third sector organizations as these subsidies are seen to distort the conditions for competition among various service producers. The decision will have harmful consequences for the third sector non-proﬁt service producers, and this process will bifurcate into for-proﬁt and public providers. Finland does not diﬀer from other welfare states in terms of its challenges, such as ageing, globalization, post-industrialization and migration, etc. The country has also tried to ﬁnd solutions to those issues: pension schemes have been reformed (yet there is sentiment that the reform should have been more radical); care for older people is under way; work incentives have been abolished; fertility rates are comparatively high, etc. Furthermore, there is a broad national consensus on the future of the welfare state, and there are surprisingly high levels of trust between public administration and the public. The Ministry for Social Aﬀairs expresses the need for the welfare state thus: The system of social protection is a productive factor. It softens the process of adjusting to changes in the economic and social environment, brings stability in the midst of social change, encourages lifelong learning and active ageing, and reinforces social cohesion by providing security at the times in their lives when people are most vulnerable. In helping to reconcile the demands of a career with family life, social protection raises the general level of well-being in society. (MSAH 2006b) There are, however, some signiﬁcant risks that may turn these eloquent words into mere lip service. First, the synergy of the economic, labour, educational and social policies that have strongly promoted economic and social goals does not necessarily function properly in an increasingly open economic environment. The corporatist policy-making, and social policy based on that model, that worked well within a nation state does not necessarily function that well in an environment where national surroundings play an increasingly smaller role. Second, national social policy goals may be challenged in the future when competition law to an increasing extent is applied to social policy, particularly regarding health care and other public provisions. Finally, there is ample evidence that social divisions are deepening in Finnish society: the poor have to rely on diminishing ‘basic security’ beneﬁts, whereas wealthy Finns are seeking solutions that do not necessarily ﬁt into the collective system.

Notes 1 By 2005, the premiums varied from 0.4 per cent to 7.5 per cent of payroll (average 1 per cent). The total labour force is covered, and in short spells of incapacity the compensation is 100 per cent. Disability pension is 85 per cent of the former wage up to the age of 65 years whereafter the compensation is reduced to 70 per cent. 2 The size of the national pension depends on other income, family relation and cost-of-living classiﬁcations (two classes) of the municipality of residence. By 2006, the full national pension for a single person is €511 or €491 a month (plus housing allowances that depend on housing costs). For the married pensioner the beneﬁts are €450 and €432, respectively.

204

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Bibliography Alber, J. (1982) Von Armenhaus zum Wohlfahrtsstaat, Frankfurt am Main: Campus. Alestalo, M., Flora, P. and Uusitalo, H. (1985) ‘Structure and Politics in the Making of the Welfare State’, in R. Alapuro, M. Alestalo, E. Haavio-Mannila and R Väyrynen (eds.) Small States in Comparative Perspective, Oslo: Norwegian University Press. Anttonen, A. (2005) ‘Empowering Social Policy: The Role of Social Care Services in Modern Welfare States’, in O. Kangas and J. Palme (eds.) Social policy and Economic Development in the Nordic Countries, Houndsmills: Palgrave/Macmillan. Blomberg, H. and Kroll C. (1999) ‘Who Wants to Preserve the Scandinavian Service State?’, in S. Svallfors, S. and P. Taylor-Gooby (eds.), The End of the Welfare State? London: Routledge. Esping-Andersen, G. (1985). Politics Against Markets. Princenton: Princenton University Press. Haataja, A. and Nyberg, A. (2005) ‘Tvåförsörjarmodellen i Finland och Sverige’, Arbetsmarknad & Arbetsliv, 11: 199–216. Heikkilä, M. (1996). ‘Justiﬁcations for Cutbacks in the Area of Social Policy’, in M. Heikkilä, M. and H. Uusitalo (eds.), The Cost of Cuts, Helsinki: Stakes. Hiilamo, H. (2002) The Rise and Fall of Nordic Family Policy? Helsinki: Stakes. Hinrichs, K. and Kangas, O. (2003) ‘When a change is big enough to be a system shift: small systemshifting adjustments in pension policy in Finland and Germany’, Social Policy and Administration, 37(6): 573–91. Kangas, O. (1990) The Politics of Social Rights. Studies on the Dimension of Sickness Insurance in OECD Countries, Edsbruk: Akademitryck. Kangas, O and Palme, J. (2005). ‘Coming Late – Catching Up.’, in O. Kangas and J. Palme (eds.) Social policy and Economic Development in the Nordic Countries. Houndsmills: Palgrave/Macmillan. Kauppinen, S., Niskanen, T., Hämäläinen, H. and Nylander, O. (2005) ‘ Yksityissektori sosiaali-ja terveyspalveluissa’, in M. Heikkilä and M. Roos (eds.) Sosiaali-ja terveydenhuollon palvelukatsaus 2005, Helsinki: Stakes. Kela (1982) Statistical Yearbook of the Social Insurance Institution 1982, Finland. Helsinki: Kela. —— (2007) Statistical Yearbook of the Social Insurance Institution 2007, Finland. Helsinki: Kela. www.kela.ﬁ (accessed 28 September 2006). Kivinen, O. (2006) ‘Koulutuspolitiikka’, in J. Saari (ed.) Suomen malli. Helsinki: Yliopistopaino. Korpi, W. and Palme, J. (1998) ‘The Paradox of Redistribution and Strategies of Equality’, American Sociological Review, 63: 661–87. —— (2003) ‘New Politics and Class Politics in the Context of Austerity and Globalization: Welfare State Regress in 18 Countries, 1975–95’, American Political Science Review 90: 425–46. Kuivalainen, S., Airio, I., Hiilamo, H. and Niemelä, M. (2005) ‘Suomalainen köyhyyspolitiikka’, in J. Saari (ed.) Köyhyyspolitiikka. Helsinki: STKL. Mattila, Y. (2006) Suomen terveydenhuollon ja sairausvakuutuksen kehityslinjat ‘yhteisestä pohjasta eri poluille’, unpublished Licentiate thesis. University of Turku. MSAH (Ministry of Social Aﬀairs and Health) (2006a) Lapsiperheiden asumisen muutoksen 1995–2004. Helsinki: Sosiaali-ja terveysministeriö, selvityksiä 2006: 39. —— (2006b) Strategies for Social Protection 2015 – Towards a socially and economically sustainable society. Helsinki: Ministry of Social Aﬀairs and Health. www.stm.ﬁ/Resource.phx/publishing/store/2006/ 06/aa1151668927599/passthru.pdf. Niemelä, H. and Salminen, K. (2006) Social Security in Finland. Helsinki: Kela. (available at www.kela. ﬁ/in/internet/liite.nsf/NET/280606095303EK/$File/socialsecurity.PDF?OpenElement) NOSOSCO (2005) Social Protection in the Nordic Countries 2003. Nordic Social Statistical Committee: Albertslund. Pierson, P. (1994) Dismantling the Welfare State: Reagan, Thatcher, and the Politics of Retrenchment. Cambridge: Cambridge University Press. http://pisa2006.acer.edu.au/interactive.php (accessed 15 January 2009). Saari, J. (2001) Reforming Social Policy in Finland. Helsinki: Social Policy Association.

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—— (2006) Suomen malli. Helsinki: Helsinki University Press. Salminen, K. (1993) Pension Schemes in the Making: A Comparative Study of the Scandinavian Countries. Helsinki: Central Pension Security Institution. www.stakes.ﬁ/tilastot/tilastotiedotteet/2008/liitetaulukot/Tt09_08liitetaulukot.xls (accessed 15 August 2008). Vaarama, M., Voutilainen, P. and Kauppinen, S. (2005) ‘Ikääntyneiden hoivapalvelut’, in M. Heikkilä and M. Roos (eds.) Sosiaali-ja terveydenhuollon palvelukatsaus 2005. Helsinki: Stakes.

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Chapter 11

fr The French social protection system Current state and future prospects Camal Gallouj and Karim Gallouj

The French social protection system was established gradually from the end of the nineteenth century onwards. However, it was during the three decades of prosperity that followed the end of the Second World War that the modern welfare state truly came into being. During this period, and indeed beyond (at least until the 1990s), France put in place a highly developed, albeit extremely complex social security system. Today, this system is going through a period of considerable uncertainty, and is increasingly questionable. It has to face radical changes in its environment and the emergence of new risks which, taken overall, have reduced its eﬀectiveness and plunged it into a state of uncertainty or even fragility. Against this background, the questions of modernization and reform are simply impossible to avoid. This chapter is divided into three sections. The ﬁrst is given over to a historical survey. In the second section, the main characteristics of the current French social protection system are described. Against this background, the third and ﬁnal section focuses on the main issues at stake in the French social protection system and on the prospects for the future.

Social protection in France: a historical survey There are four major stages or periods in the establishment of the French social protection system. The ﬁrst encompasses the nineteenth century and the early twentieth century, up until the 1930s. It saw the passing of the ﬁrst ad hoc legislation and the gradual crystallization of the philosophy that was to underlie subsequent developments. Indeed, it was during the following period, between 1945 and 1975, that the national social protection system was actually put in place and made operational. The third period, between 1975 and 1990, saw the development of a number of cracks in the system and the gradual emergence of new concepts that marked a break with the Fordist compromise of the previous period. Finally, the current period, which began in the 1990s, seems to be characterized by a very marked trend towards liberalization of the system. 207

C . G A L L OU J A N D K . G A L L O U J

Origins and development The beginnings of the French debate on the major principles of equality, public assistance and collective responsibility can be traced back to the revolution of 1789. Nevertheless, it was not until the second half of the nineteenth century that the ﬁrst laws on work and employment were passed. According to Simon (2004: 64), the 1880s marked a real turning point: it was during this period that the contours of a new political and social philosophy became clearly deﬁned, one that gave primacy to the mechanisms of public assistance over charity and relief for the poor However, this new philosophy became established only gradually, which explains why the legislative situation in France at the beginning of the twentieth century was still lagging signiﬁcantly behind that in Germany or even Great Britain. At the end of the nineteenth century, in 1893, legislation was enacted on public assistance for speciﬁc groups (women, children and the sick) and for the poor in general (those who were unable to work). At the same time, the ﬁrst social insurance schemes, such as that enshrined in the 1898 act on accidents in the workplace, were being set up. Of course, this act (and others like it) was concerned with occupational risks and somewhat exceptional situations. It is nevertheless the case that such legislation reﬂected a radically new attitude, as Richez-Battesti (1998: 23) has rightly identiﬁed: during this period, social problems gradually came to be regarded as the consequences of risks that required redress rather than as the result of an original injustice, of a lack of foresight on the part of workers and their families or even as the worker’s fault. Insurance then became an instrument for providing compensation for social and technical risks, reﬂecting a certain solidarity within the workplace between employers and workers, and, more generally, in the wider society. From this point onwards, a very considerable amount of legislation was to be enacted in France. This took place in two major waves, the ﬁrst around the 1900s and the second around the 1930s. This later period also marked a turning point, since it saw the establishment of a compulsory insurance regime (sickness, disability and old age) for employees in industry and commerce. The period 1945–75: the establishment and development of the current system At the beginning of the 1940s, and with the frequently ignored exception of family policy, it can be said that the French system of social protection was still embryonic and relatively fragile in nature. At the end of the Second World War, the process of putting in place and developing the national system really began to gather pace. The promulgation of the decrees of October 1945, on the initiative of Pierre Laroque and the CNR,1 can be regarded as the act that founded the French system of social protection and, more particularly, of the social security system. These decrees deﬁned the functions of the social security system, its general principles and how it was to be organized. 208

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This founding act marked the beginning of a continuous period of development and modernization of the welfare state. The social security system that was put in place for permanent employees was quickly extended, in stages, to most other social groups, to the point where coverage was virtually universal. The period 1975–90: the ﬁrst cracks appear From the mid-1970s onwards, the social protection system was aﬀected by signiﬁcant changes in its economic and social environment. From 1974 onwards, the economic downturn had a lasting eﬀect on the ﬁnances of the social security system. As a result, the accounts of the general social security regime were to ﬂuctuate for more than 10 years (1974–86) between deﬁcits and positive balances. In the 1990s, the deﬁcits were to become permanent. Consequently, during this same period, successive governments were to alternate between attempts to revive the system and austerity plans. As far as the former were concerned, the failure of Keynesian-style policies, whether introduced by the right (Jacques Chirac in 1974) or the left (Pierre Mauroy in 1981), more or less marked the end of policies to expand the social protection system. Under these circumstances, and since the ﬁnancial problems of the social security system were becoming a central and recurrent concern for all governments, the recovery packages that were adopted sought essentially to balance the accounts, ﬁrst by increasing the available resources and then by cutting expenditure. Consequently, government action henceforth focused much more strongly on the drive to make savings and hence on reducing the level of social security beneﬁts. This shift in thinking marked a real break with the compromises that had guaranteed relative social harmony during the previous period. It opened the way for new (neo-liberal) paths in the period that followed. The years 1990–2000: structural changes and new trajectories? In contrast to the previous period, the 1990s marked the starting point of a signiﬁcantly more ambitious policy that sought to attack the very structures of the social protection system. This was particularly true of the 1995 Juppé Plan, which certainly seemed to be ‘a pivotal phase or moment in the changes in government intervention in the area of social protection’ (Palier, 2006: 13). Of course, the measures that were adopted did not radically transform the social protection system; nevertheless, they did introduce new practices and new principles which, taken as a whole, constituted a change of direction for the system, taking it on a new path. Thus the Juppé Plan can be said to have started the French health and social security system moving down the road towards profound change, even though the change has come about only gradually. Subsequently, in 2003 and 2004 respectively, François Fillon, in the case of pensions, and Philippe Douste Blazy, in the case of health, were to take advantage of the openings created by the Juppé Plan to introduce changes, this time at the sectoral level, that were to strengthen even further the trends towards individualization and privatization (Palier, 2002). Among the measures put in place (and/or developed), whether as part of the Juppé Plan or more broadly, the following can be cited: the increase in the universal social security contribution (Contribution Sociale Généralisée/CSG); the reform of the mode 209

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of governance with the introduction of an annual vote in parliament on the ﬁnancing of the social security system, which established the ‘capping’ principle; policies aimed at reducing social security contributions, particularly for low-paid workers; the development of social integration or inclusion policies, notably through the introduction of a guaranteed minimum income; reform of the hospital system; a tighter control over health expenditures. Finally, after a long period of seeking social harmony, and then another one focused on savings and reduction of social beneﬁts, the new leitmotifs of the French social system can be summarized as follows: in every domain, the balance of the system is precarious and many other reforms will be necessary in the future; the system must give sovereignty back to the consumer (freedom to choose).

The main characteristics of the French social protection system today The French social protection system is characterized by extreme complexity, which is due in particular to the vast numbers of laws and regulations that have gradually amassed to form what now resembles an enormous patchwork. In our concern to be instructive and in an attempt to present the complexities of the system as clearly as possible, we deal with the main characteristics of the French model by examining, in succession, the current beneﬁts system, the actors in social protection, the funding of the system and, ﬁnally its redistributive capacity. The beneﬁts system Broadly speaking, the French system belongs to the corporatist category of Esping Andersen’s typology. In corporatist systems, social protection, which covers workers and their families (the beneﬁciaries), is ﬁnanced by contributions levied on earned income and paid into specialist funds (family, retirement, unemployment, sickness). The beneﬁts in question, whether they be retirement pensions, family allowances, unemployment beneﬁt or daily allowances, are contributory in the sense that they depend on earnings (with the sole exception of family allowances, which are independent of earnings). Overall, there are very considerable sums at stake in the French beneﬁts system. In 2005, beneﬁts paid to households totalled more than 541.5 billion euros, or more than 31.5 per cent of gross domestic product (GDP), which places France above the average for EU member states (Table 11.1). The French social protection system can be broken down into the major risks for which it helps to provide cover, namely the traditional risks of old age, illness, family responsibilities and unemployment, to which must be added housing and poverty/social exclusion. Since the 1960s, the structure of beneﬁts by risk has changed very signiﬁcantly. These changes reﬂect not only shifts in priorities but also, and above all, the eﬀects of certain socio-economic phenomena (such as an ageing population and an increase in underemployment) and their corollaries, such as the emergence of new risks. Today, the risks of old age and health together account for three-quarters of total expenditure (see Table 11.2). Expenditure on them is rising constantly and this increase is responsible for most of the rise in overall beneﬁt payments. 210

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Table 11.1 Social protection expenditure

fr

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

364384.3 379396.6 382203.6 395342.3 409072.8 424657.3 442980.6 470180.9 493003.6 519523.6 541594.0p

6132.5 6363.1 6388.1 6583.9 6778.5 6990.1 7240.4 7630.9 7946.3 8319.7 8621.6p

30.3 30.6 30.4 30.1 29.9 29.5 29.6 30.4 30.9 31.3 31.5p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 11.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

fr

eu27

eu15

100.0p 94.0p 8.0p 7.1p 2.6p 1.5p 33.6p 41.3p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: * % of total social protection expenditure; e Estimated value; p Provisional value

The risk of old age and survivorship The risk of old age and survivorship is now the most signiﬁcant risk. It accounts for around 41.3 per cent of all beneﬁts compared with less than 34 per cent in 1960. Old age insurance is based on the principle of a life annuity that provides pensioners with a proportion of their previous income depending on the contributions they have paid during their working lives. These contributory retirement beneﬁts are supplemented by a non-contributory beneﬁt, known as the minimum retirement pension, which is paid to all French nationals over the age of 65, subject to a means test. In order to complete the picture, account should also be taken of the other beneﬁts available to older citizens. 211

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They include beneﬁts intended to help older people with their outgoings (administered by the conseils généraux – roughly the equivalent of English county councils – they aim, among other things, to alleviate the diﬃculties of day-to-day living and, in some cases, of working life as well, particularly for handicapped workers), social welfare beneﬁts for older people (60 per cent of the funding comes from the departments and they are intended to help old people pay for home help services and housing costs) and ﬁnally so-called survivor beneﬁts (which take the form of reversion pensions for the surviving spouse). Until the beginning of the 1980s, the demographic context and the non-maturity of the pension system meant that the old age insurance scheme enjoyed a relatively favourable situation. From the 1990s onwards, however, that situation began to change rapidly. The old age and survivorship risk came to dominate the social protection system. And this dominance is likely to become even more pronounced in the years to come, as the population ages (and the expected dependency rate explodes), as the number of retired people entitled to claim a full pension increases and, above all, as the new risk of dependency, located on the boundaries of old age and health, begins to impact on the system. Under these circumstances, the old age insurance system is beginning to ﬁnd itself in constant deﬁcit, which in turn gives rise to a real need for re-regulation. This new mode of regulation will be based on a variety of diﬀerent measures, including an increase in contributions, an increase in the number of years of contributions required to obtain a full pension and a change in the reference period for calculating pensions (possibly from the best 10 to the best 25 years). The health risk The health insurance scheme accounts for one third of all beneﬁts, which places it in second position among the various items of expenditure. Despite a certain slowing down since the 1970s, the rate of growth in health care expenditure is greater than that for GDP. Thus France is still in the leading group of European countries for this category of expenditure. Today, the health risk accounts for around 10 per cent of GDP (compared with 7.6 per cent 20 years ago). In accordance with the principle of induced demand, policy on the regulation of health care expenditure long targeted the supply side. The aim was twofold: ﬁrst, to ration production capacities and, second, to limit the volume of treatment provided. Since the 1980s, measures have been introduced (under the general heading of the patient’s contribution towards the cost of treatment) with the aim of reducing demand, in particular by limiting reimbursement rates. Policies aimed at rationalizing demand do, after all, make it possible to reduce the contribution made by the social security system by shifting a proportion of the cost of treatment on to patients. Nevertheless, such policies certainly pose a number of problems; in particular, they increase inequalities, since the patient’s contribution places a relatively greater burden on low-income households. It was against this background that attempts were to be made in the 1990s to regulate supply and demand jointly, in particular by introducing an overall budget and having parliament set quantiﬁed national targets. The family risk In 2005, expenditure on family and maternity beneﬁts totalled 8 per cent of all beneﬁt payments. The volume of expenditure on family-related beneﬁts (which is still the most 212

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uniﬁed segment of the social security system) has tended to stagnate in recent years. Furthermore, it has seen a steady erosion of its share in total beneﬁts over the last 40 years. This erosion is due in part to the decline in the birth rate, as well as to a reversal of priorities. After all, between 1945 and 1970, French family policy followed the ‘natalist’ principle with the aim of achieving horizontal redistribution towards families with children. Between 1970 and 1980, there was a shift towards boosting family incomes and hence towards vertical redistribution. It was during this period, in 1978, that entitlement to family allowances was extended to become truly universal and beneﬁts were paid to all individuals residing in France, regardless of nationality or whether they were economically active. Since the 1990s, there has been a reversal of this trend. The ‘natalist’ principle that had underlain family policy since its beginnings was to become less important. At the same time, beneﬁts began to diversify considerably, in particular with the introduction of new beneﬁts, such as the single parent allowance, which in itself reﬂects a shift in the approach to family policy. The housing risk Expenditure on housing beneﬁt amounts to a little more than 2.6 per cent of total expenditure on social security beneﬁts. It accounts for more than a quarter of the beneﬁts paid out by the family allowance oﬃces (caisses d’allocations familiales/CAF). The general purpose of housing beneﬁts or allowances is partially to cover housing costs and thereby lighten the burden of such costs for poor households or those on modest incomes. Today, 75 per cent of beneﬁts are paid to individuals whose incomes are lower than the minimum wage. At the beginning of the year 2000, almost half of households in rented accommodation and approximately 18 per cent of owner–occupier households were in receipt of a personal housing allowance. The various forms of housing beneﬁt are the family housing allowance, the social housing allowance and the personalized housing subsidy. In addition to these three standard forms of housing beneﬁt or subsidy, there is also a subsidy paid to associations that provide temporary accommodation for disadvantaged individuals waiting to be allocated their own accommodation. This subsidy, introduced in 1991, is funded through the National Housing Subsidy Fund, which itself is ﬁnanced equally by the family allowance oﬃces and the state. It is paid to approved organizations (voluntary associations, CCAS2) that provide disadvantaged people with accommodation for a limited period. It is also used to fund the management of sites for ‘travellers’ (those living an itinerant lifestyle). The unemployment risk and the employability problem The expenditure incurred in the name of employment has increased considerably since the 1960s. Its share in the total social security spent has risen sixfold since then, in particular because of the growth in the number of jobseekers from 1973 onwards. These expenditures amount to more than 7 per cent of the total, far above the EU average. But this is consistent with the fact that unemployment rates are also above the EU average (see Table 11.3). Thus in 2004 total expenditure was close to 37.6 billion euros (35.4 billion on unemployment beneﬁts and 2.2 billion on labour market integration and reintegration). The beneﬁts in question are funded by contributions paid by those in employment. The 213

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Table 11.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

fr

eu27

eu15

11.0 11.5 11.5 11.0 10.4 9.0 8.3 8.6 9.0 9.3 9.2 9.2 8.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

system is managed by the social partners. However, the rise in unemployment has led the state to intervene selectively in order to rebalance the accounts. Most of the cover for the risk of unemployment is provided by two schemes. One is the compulsory unemployment insurance system, which is managed by UNEDIC, a body independent of the public authorities, and the other is the guaranteed supplementary scheme (régime de solidarité), funded by the state with the purpose of providing beneﬁts for those who are not members of the insurance scheme because they have not paid in the appropriate contributions. The level of unemployment beneﬁt depends on the contribution period. The amount of beneﬁt paid decreases over time. Until relatively recently, the main beneﬁt was the single tapered allowance (allocation unique dégressive/AUD). The period of entitlement and the amount paid depended on the jobseeker’s age, the length of the previous period of employment and the level of the daily reference earnings. The AUD was replaced in July 2001 by the allocation d’aide au retour à l’emploi, which translates roughly as jobseekers’ allowance. The beneﬁts paid under the guaranteed supplementary scheme provide a replacement income for individuals who are no longer covered by the unemployment insurance scheme. Several allowances are paid, most of them subject to means testing. Payments are made to individuals who have exhausted their entitlement to beneﬁts from the unemployment insurance scheme, to jobseekers aged 55 and over and to individuals in particular circumstances (widowhood, divorce etc.). The poverty and exclusion risk The poverty and exclusion risk covers all the non-contributory minimum welfare beneﬁts paid to the most impoverished individuals with few if any resources. Thus the system of minimum welfare beneﬁts is a major instrument in the ﬁght against poverty. Indeed, the at-risk-of-poverty rates totalled 13 per cent of total in France compared with around 16 per cent for EU25 (see Table 11.4). Many of the concerned beneﬁts were introduced as the social protection system developed in an attempt to compensate for the weaknesses in the insurance principle governing the social security system and the unemployment beneﬁt scheme. 214

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Table 11.4 At-risk-of-poverty rates by gender

fr total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

15 15 15 15 15 16 13b 12 12 13b 13 13

eu25 males 15 14 14 14 15 15 12b 12 12 13b 12 12

eu15

females

total

males

females

16 16 16 15 16 16 13b 13 13 14b 14 14

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

Here too, the slow process of building up a system of minimum welfare beneﬁts has produced a regime that is multi-layered, diversiﬁed and complex. There are now eight such minimum welfare beneﬁts that aﬀect more than 3.3 million people but a total of 6 million if all the eligible individuals are included (which represents 10 per cent of the French population and almost 15 per cent of households). They are the guaranteed minimum income for older people (1941), minimum disability allowance (1930), handicapped adult allowance (1975), single parent allowance (1976), widow’s allowance (1980), integration allowance (1984), allowance for the long-term unemployed (ASS) (1984) and guaranteed minimum income (RMI) (1988). The guaranteed minimum income or RMI, introduced in 1988, is undoubtedly the best known of these minimum welfare beneﬁts.3 Its purpose is to give a basic income (through the payment of a variable allowance) to any individual aged 25 or over (or younger if they have a dependent child) and it is available to all, including foreigners, once they have been living in France for a certain minimum period. Although it had originally been intended for those who were incapable of working, it has become the third and ﬁnal stage of the unemployment beneﬁt system, after unemployment insurance and the allowance for the long-term unemployed. Furthermore, it is also clear that, originally, the RMI was not intended to perpetuate welfare dependency but rather to give recipients a temporary breathing space that would enable them to rebuild their lives and live independently again. The actors in social protection The institutions with responsibility for social protection, whether they be delivering services or managing the system, are also extremely diverse. This diversity applies equally to their purpose, legal status, size and mode of funding. 215

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The jointly managed institutions The Bismarckian roots of the French system are reﬂected in the fact that joint institutions (i.e. those that are jointly managed by employers’ and employees’ representatives) play an important role in social protection. Nevertheless, even since its beginnings, joint management has been the target of regular attempts to reform and redeﬁne it (decrees of 1967, act of 17 December 1982, reform of 1996, etc.). These numerous attempts at reform seem to be indicative of the diﬃculties facing the French form of joint management. Furthermore, joint management has been seriously weakened by changes in the system itself. On the one hand, the expansion of social security has considerably weakened the occupational link; on the other hand, the fact that an increasing share of the system’s funds comes from taxation has reduced the legitimacy that joint management derived from the contributions-based funding system. The state and the other public actors A distinction has to be made here between the state (central government) in the strict sense of the term, which is characterized by its power of supervision and control over the various organizations that make up the social protection system, and a whole series of regional bodies whose importance also seems to be increasing. The state plays a key role in the social protection system. However, it seldom takes direct responsibility for administering the system, since it ‘prefers to make use of autonomous institutions, established under public law, such as hospitals, but also private, nonproﬁt-making bodies, such as the social security organisations, the mutual insurance companies, the associations set up under the 1901 Act to manage health care, welfare and medico-social establishments and even private proﬁt-making organisations … ’ (Simon, 2004: 69). Having entrusted these various organizations with their respective tasks, the state retains a power of supervision and control over all bodies engaged in the delivery and management of social protection. Thus their autonomy is contained, as is the actual power of employee representatives in the management of the same organizations. For their part, the local and territorial authorities (the municipalities, departments and regions, in ascending order of size and importance) have long played a part in the social protection system. However, their role in the system has expanded considerably since the 1980s, particularly as a result of the 1983 and 1986 decentralization acts. This legislation transferred most of the responsibility for social welfare to the departments, which also acquired some competences in the sphere of public health (particularly for the welfare of mothers-to-be and infants) and the ﬁght against social scourges such as TB and STDs. Furthermore, the departments also play a key role in the administration of dependency beneﬁts. The municipalities, for their part, have responsibility for environmental cleanliness and public health. Furthermore, as poverty has increased, the municipalities have expanded their activities in the ﬁeld of social welfare, particularly through the municipal social welfare centres and by increasingly subsidizing organizations working with disadvantaged groups. Overall, the decentralization legislation has led to an expansion of the competences of local authorities (mainly the regions and the departments) in the sphere of health (regional public health programmes) as well as in that of social welfare (decentralization of the RMI and continuation of the trend towards the decentralization of vocational training). 216

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The actors in the social economy The actors in the social economy can be divided into two quite distinct groups: the mutual insurance companies, on the one hand, and the voluntary associations, on the other. The mutual insurance companies, which have been legally recognized since 1898, are major social institutions and a distinctive feature of the French system. They are nonproﬁt-making organizations, managed by activists, which oﬀer their members certain beneﬁts, including mutual assistance and provident schemes. These mutual (health) insurance companies are non-compulsory and in particular oﬀer members additional health insurance. Moreover, since the 1947 Morice Act, they also administer the basic health insurance scheme for civil servants. In addition, they manage a diverse range of more than 1,600 welfare institutions and charitable organizations, including hospitals, retirement homes, pharmacies, opticians and even leisure and holiday centres. There are more than 1,100 mutual organizations in France, which pay out more than nine billion euros in beneﬁts to their members, most of which are health related. Thus the mutual sector as a whole ﬁnances approximately 7 per cent of current expenditure on health care. Moreover, its share in the reimbursement of health care costs is growing constantly as a result of the gradual retrenchment in the national health service. The mutual companies are increasingly ﬁnding themselves in direct competition with private insurance companies, particularly since the 1989 Evin Act. This competition is not unproblematic, and is likely to become even more so in future. After all, the mutual companies still operate according to the solidarity principle, whereas the main organizing principle for private insurance companies is the equalization or levelling of payments and risks. More speciﬁcally, the mutual companies make no distinction between the various risks, which fundamentally sets them apart from the private companies. Thus the private companies are able to oﬀer low-risk individuals cheaper policies, while at the same time raising premiums for high-risk individuals in order to dissuade them from seeking private cover. Consequently, the market could very quickly become split, with the private insurers concentrating on low-risk individuals and the mutual organizations reduced to managing high risks. The health and welfare associations incorporated under the 1901 Act are great in number: there are undoubtedly more than 100,000 across France as a whole. Their main objective is to plug the gaps in the social protection system; their primary target groups are the most impoverished and the excluded. Right from the outset, French social policy gave them an important role to play, particularly as they are frequently the organizations that respond to new social demands. These associations are well suited to tackling social problems, if only because they are frequently ahead of the curve in policy matters and are able to provide support in experimental or expanding areas of social policy (Simon, 2004). In addition, they play a part in the implementation of health and social policy, particularly through the management of organizations such as residential and nursing homes for older people. The private commercial sector The private commercial sector is becoming an increasingly important actor within the health care system (pharmacies, private clinics and hospitals, outpatient services, medical equipment, etc.), and is gradually establishing itself in the health insurance and provident funds sector. It is also well established in certain rapidly growing niches in the health and social work, including retirement and nursing homes. 217

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In the years to come, the private commercial sector is likely to play a greater role as it responds to certain societal changes (medical and welfare consumerism), makes up for some of the diﬃculties with the public social protection system or quite simply follows the general European trend towards liberalization and deregulation. The funding of social protection There are four main sources of funding for social protection: social security contributions, taxation, the state budget and various secondary sources of income: &

&

&

&

Social security contributions based on earned income are still the main source of funding for social protection in France (66.2 per cent), even though their share has been considerably reduced over the long term, from 80 per cent at the beginning of the 1980s to around 66.2 per cent in 2005. The burden of social security contributions (with the exception of workplace accidents) is shared (albeit unequally) between employers and employees. For several years, however, there has been a clear shift in the balance between employers’ and employees’ shares to the beneﬁt of the former. Funding out of taxation has increased signiﬁcantly in the last 20 years. In 1981, it accounted for only 2 per cent of the resources devoted to social protection; by 2005, that share had risen to 21 per cent. This increase is due largely to the introduction in 1991 of the universal social security contribution (contribution sociale généralisée/CSG) and its rapid development as a source of funding. Contributions from the state budget (10 per cent) are used to fund social welfare measures introduced by the public authorities, such as the guaranteed minimum income (RMI) and the handicapped adults’ allowance. They are also used to balance the accounts of certain social protection regimes, such as those of the Parisian Transport Authority and the mining industry, whose share has diminished over the long term. The secondary sources of income are made up of a proportion of the taxes levied on alcohol, motor insurance and pharmaceutical advertising. Since they are an attempt to increase the ﬁnancial contribution of those whose consumption habits are likely to impact on social security spending, these taxes can be said to follow the ‘polluter pays’ principle.

The funding of social protection is now signiﬁcantly more diversiﬁed than in the past, when it was based almost exclusively on social security contributions. However, the most signiﬁcant development seems to us to be the increasingly pronounced trend towards funding out of taxation. Social protection and redistribution In principle, one of the fundamental elements of social protection is a high share of redistribution; in this sense, we still speak of transfer incomes. The share of this type of income in households’ disposable income has grown continuously in the last 20 years. Thus the ‘rate of socialization of household income’ (social security beneﬁts/gross disposable income) had reached 36.4 per cent by 2002, which suggests that more than a third of households’ income is derived from transfers. Moreover, it should be noted that 218

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the ‘rate of social redistribution’ (social security beneﬁts/GDP) is now close to 30 per cent (compared with less than 14 per cent in the 1960s). As Simon (2004: 67) notes, ‘the French social protection system functions like a machine for redistributing income horizontally (from the economically active to the economically inactive, from the healthy to the sick), vertically (from the rich to the poor, and sometimes from the poor to the rich) and crosswise (between young and old)’. Of course, social transfers have a redistributive role that cannot be ignored. It is well known that, generally speaking, it is the households of manual or clerical workers that beneﬁt most (as a percentage of their earned income) from these transfers. However, some studies (Bichot, 1997) tend to show that redistribution takes place in the opposite direction from what is desirable. It is certainly true that it is not easy accurately to assess the level of redistribution. After all, it is diﬃcult to measure and accurately identify who the real beneﬁciaries of the redistribution are. Thus for many beneﬁts the redistributive element is relatively limited. After all, it is known that beneﬁts are highly redistributive when the level of payment is not dependent on the beneﬁciaries’ income. However, in the case of health care and workplace accidents, a high proportion of the beneﬁts paid are directly linked to beneﬁciaries’ income. Moreover, the voluntary consumption of medical products is increasingly a function of income. In other words, health beneﬁts increase with income. Higher earners take more and better care of themselves, particularly when it comes to prevention. Daily allowances, which are another component of health insurance, are calculated solely on the basis of the beneﬁciary’s income, which limits the redistributive aspect of this type of beneﬁt proportionately. This argument can also be applied to unemployment beneﬁts which can reach high levels, as can old age beneﬁts (particularly pensions). In a nutshell, the French welfare system can be characterized as a very complex system, fragmented between multiple regimes, more and more liberal and contrary to the expectation emerging with relatively poor redistributive eﬀects.

Towards a hybrid system of social protection Over the last 20 years, the French social protection system has undergone many apparently haphazard changes. However, among these changes, new practices and new operating principles can be seen emerging which suggest that the national system does seem to be starting to shift away from its historical path dependence (Palier 2002). Three major areas and principles undergoing change The changes that have been made to the social protection system are aﬀecting the beneﬁts provided by the system, its funding structure and, more generally, its mode of governance (Parienty, 2006). The evolution of the beneﬁts provided As far as beneﬁts are concerned, there has been a very marked trend towards a reduction in the level (in terms of both quantity and quality) of the protection provided by the social insurance funds. This trend clearly reﬂects what might be termed the ‘welfare 219

C . G A L L OU J A N D K . G A L L O U J

retrenchment’ principle (see Bonoli et al. 2000) which manifests itself in a number of diﬀerent ways, some of which are described below. &

&

&

&

&

&

Strengthening of the contributory aspect of beneﬁts, in other words a tightening of the link between contributions and beneﬁts. The strengthening of that link clearly means a reduction in welfare cover, in terms both of the number of people covered and of the level of beneﬁts (or protection). Overall, there has been a sharp decline in the generosity of basic retirement pensions and a reduction in the beneﬁts provided by the compulsory supplementary pension schemes. The successive reforms of health insurance, which have reduced the share of public money in health expenditure, in particular by leaving an increasingly less residual share for contributors to pay themselves. The restriction of the period of entitlement to unemployment beneﬁt. With the permanent increase in the number of unemployed people and the lengthening of unemployment spells, there has been a tightening of the eligibility conditions. Because of the gradual tightening of the criteria governing access to the social insurance schemes and to the beneﬁts they provide, two separate trajectories can be observed, depending on whether the population in question can be categorized as insiders or outsiders. In that segment of the population that can fund the services in question, this is reﬂected in a shift to private insurance, the mutual insurance companies or to reliance on household income or even on employers. In fact, French households are increasingly dependent on supplementary social protection and an increasingly large proportion of their health care costs are being assumed by the mutual and private insurance companies. In the other segment of the population, made up of those who generally cannot aﬀord to pay, there is increased dependence on means-tested beneﬁts and in particular on the minimum welfare beneﬁts.

Thus it seems clear that the contraction of the social security insurance schemes has further strengthened the ever more important role of the non-contributory subsistence beneﬁts paid to the most impoverished. For its part, the universal health cover scheme (CMU) is compensating for the gradual reduction in cover provided by the statutory health insurance regimes. A reversal of the modes of funding Although, as we have seen, employers’ and employees’ contributions are still the main source of funding for the French welfare system, there has been a very pronounced rise in the share of funding through taxation, which marks the beginning of a shift in the sources of funding of social protection towards taxation. For a long time, taxation played only a small role in the funding of social protection; since 1983, however, there has been a marked change with the introduction of the 1 per cent levy on individuals’ earnings and, from the 1990s onwards, the introduction of the universal social security contribution (CSG) in 1991 (and a gradual increase in its rate) and then the supplementary contribution for the repayment of the social security debt (CRDS) in 1996. The CSG and the CRDS are genuine ﬁscal innovations that reﬂect a desire to extend the contributions base, with the aim of sharing the burden as widely as possible in such a 220

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way as to increase revenues without increasing employers’ contributions, which would damage ﬁrms’ competitiveness. Thus the increased share of funding out of taxation may mean that France is shifting towards a tax-based system of funding social protection, like those of the Scandinavian countries. This tax-based funding also lies at the heart of the debate on the distinction between contributory and non-contributory (or tax-funded) beneﬁts. Batifoulier and Touzé (2000: 110) go further, noting that: the CSG is more than a source of funding. By redistributing the roles of the various funding sources (not just earned income, but the other sources of income as well), it is also a powerful instrument for the reorganisation of social protection; in emphasising the prerogatives of the legislature instead of the social partners, it is playing an active part in calling into question the Bismarckian principle in favour of the Beveridgian principle. This strengthening of the legislature’s prerogatives is undoubtedly evidence of the shift towards a new form of governance. A new mode of governance In the period immediately following the Second World War, joint management by employer and employee representatives became established as an eﬀective mode of governance for social protection, despite opposition from other possible models (employers’ institutions, mutualist traditions, etc.). Current developments in the social protection system show clearly that joint management is being weakened, ﬁrst because the expansion of social protection has undermined the occupational link and second because the fact that an increasing share of the system’s funds comes from taxation has considerably reduced the legitimacy of funding through contributions. Thus decisions are increasingly being taken out of the hands of the social partners, who are in principle the responsible parties in a Bismarckian system. We have also seen that the institutional reform initiated by the Juppé Plan marked a new phase in the strengthening of the state’s grip on the system, the consequence or corollary of which has been a weakening of the social partners’ role. Thus after many changes and reversals, the 1996 reform can be said to have given rise to a hybrid form of joint management involving representatives not only of employers’ associations and trade unions but of civil society as well (and in which the state’s power has been signiﬁcantly strengthened). This strengthening of the state’s power within the social protection system has been a gradual process, in which the social partners’ management of the system has been called into question over a long period. Bruno Palier has produced a very detailed analysis of the gradual discrediting of the social partners, particularly the trade unions, and the consequent replacement of the social democratic principle, which has been made to appear increasingly less legitimate, with the parliamentary democracy principle. A new approach to social protection The various changes and developments described above have been facilitated by a considerable shift in thinking on the role of social protection. After all, the post-war period 221

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that saw the establishment of the modern social protection system was one in which there was a genuine consensus on the notion of social protection. In the eyes of those concerned (the state, the trade unions and the employers’ associations): the social protection system played a key role in the general mechanisms of economic, social and political regulation. It ensured a high degree of consistency between economic and social policy, contributed to social cohesion and led to an outbreak of peace in relations between the social partners, while at the same time allowing the state to play an important, though not explicit role. (Palier, 2006: 9) However, this harmonious state of aﬀairs began to break down from the 1970s onwards and the welfare state, once regarded as the victim of the economic crisis triggered by the oil shocks, came to be regarded rather as the cause of the crisis, or at least as one of the contributory and aggravating factors. The social protection system, it was argued, made market mechanisms less eﬃcient, increased labour costs, distorted prices and gave rise to ineﬃcient behaviours. The whole system was subjected to an ideological onslaught that emphasized its limitations. For a long time, the people of France declared themselves wholly in favour of the notion of a comprehensive welfare state, on the grounds that an increase in social expenditure is always and systematically reﬂected in an increase in social solidarity and a reduction in inequalities (Smith, 2006). Gradually, however, perceptions have changed. Many think that the French social model is functioning poorly. If we take the case of the RMI, the French tend to express increasing reservations about the real results of the measure, and in particular about its adverse eﬀects with regard to incentives to work. Social protection in France: a hybrid or unique system? The French social protection system is a fundamentally Bismarckian system, and the Bismarckian tradition is certainly still very evident within the system. Nevertheless, there has been a tendency – as in most European regimes of the same type – to incorporate more and more elements characteristic of Beveridgian systems. Practices include the dissociation between employment and social protection, the development of universal and/ or ﬂat-rate beneﬁts and an increase in the share of tax-based funding. It might be reasonable to assume, on this basis, that we are witnessing the emergence of a combinatory or hybrid system. In reality, the French system has, ever since its earliest days, drawn on both the Bismarckian and Beveridgian models. From the former it borrowed its modes of funding and from the latter the principle of universal coverage. What is new, on the other hand, is the move towards a balance between the respective contributions of the two source models. As far as this question is concerned, the recent changes and developments reﬂect a number of diﬀerent and frequently contradictory concepts and approaches. Parienty (2006) takes the view that France is moving further and further away from a Bismarckian model that it had never in fact fully embraced. Other authors, conversely, take the view that what is emerging is a system located somewhere between the liberal-residual model and the universalist social democratic model. What is certain is that the French system is now based on three main pillars: traditional social insurance, private social insurance and a series of programmes targeted at the most deprived and excluded groups in society. 222

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These three elements are in part a reﬂection of the contradictory principles that are operating within the national model. Over the long term, nevertheless, the resources once allocated to the ﬁrst pillar have gradually been funnelled away in favour of the other two. Under these circumstances, it is diﬃcult not to take the view that the French model is increasingly being opened up to the market and is shifting towards a residual liberal model, which will in turn cause the inequalities that already exist to widen still further. The challenges for the future Until now, the French social protection system has adjusted relatively well to exogenous shocks and sometimes also to endogenous shocks (its own internal contradictions) that have made it more fragile and vulnerable. Nevertheless, the upheavals the system is likely to experience in the years to come seem to us even more fraught with consequences and the social protection system will have to adjust to even more pronounced breaks with its past as a result of demographic and societal changes. These changes and discontinuities are now familiar and they can be observed in most OECD countries: the increase in the number of older people, which has a signiﬁcant impact on the costs of providing health and personal care, and above all its corollary; the breakdown of family structures, which is destabilizing a system that was, from its origins, conceived and put in place on the basis of the traditional family; the emergence and growing importance of new occupational risks (characterized by deferred eﬀects); the constant cost inﬂation engendered by the new medical technologies. Without denying the undoubted importance of these various issues, it seems to us, however, that in the French case the main breaking point is located elsewhere, and namely in the increasing diﬃculty the welfare state and, more generally, the social protection system as a whole is experiencing in maintaining social cohesion. In the recent period, the role of the welfare state in maintaining social cohesion has been less and less in evidence. It would even appear that the current system is doing little more than going along with the changes without really seeking to compensate for them. In fact, the system no longer reﬂects social solidarity but rather a diversity of diﬀerent situations. This may appear relatively logical, to some extent, if only because the French system was from its origins based on employment and the wage society, which has itself gradually broken up. In fact, what is becoming increasingly evident is a social and generational fracture. The increasingly precarious nature of employment is producing a new category of workers earning less than the minimum full-time wage. The phenomenon of the working poor, from which France thought itself to have been spared, has become considerably more widespread, to the point where it now aﬀects almost 2 million individuals. Moreover, a new form of poverty is emerging, one that aﬀects not only young people (19 per cent of under-25s are living below the poverty threshold) but also, and particularly, women and immigrants (or populations of foreign origin). Overall, therefore, inequalities are still very considerable and are even tending to increase after decades when the trend was towards reduction. As Bruno Palier notes, market principles have gradually been introduced into the social insurance schemes and the welfare state, which is expected to become more competitive, less expensive and create more incentives. Consequently, new notions of justice are emerging, ones whose ‘objective is less to protect against social risks and to encourage redistribution and equality than to foster equality (to each depending on what he has contributed) and less to guarantee a replacement income than to provide incentives for claimants to return to work (beneﬁts must encourage them to seek employment) (Palier, 2006: 68). 223

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Notes 1 Conseil National de la Résistance. 2 Centres communaux d’action sociale/municipal social welfare centres. 3 Recipients of the RMI are also entitled to a number of additional beneﬁts, including universal health care (CMU) and housing beneﬁt, which may account for up to 60 per cent of their total income.

Bibliography Batifoulier, P. and Touzé, V. (2000) La protection sociale, Paris: Dunod. Bichot, J. (1997) Les politiques sociales en France au XXème sicècle, Paris: A. Colin. Bonoli, G., George, V. and Taylor-Gooby, P. (2000) European Welfare Future: Toward a Theory of Retrenchment, Cambridge: Polity Press. Elbaum, M. (2008) Economie politique de la protection sociale, Paris: PUF. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Cambridge: Polity Press. Frémaux, F. (2006) ‘Qui doit ﬁnancer la protection sociale ?’ Alternatives Economiques, 244: 36–40. Friot, B., Colin, T. and Abdelmoumène, A. (1995) ‘L’origine du système de protection sociale française’, Revue Française des Aﬀaires Sociales, 4: 45–66. Lefebvre, A. and Meda, D. (2006) Faut-il brûler le modèle social français? Paris: Seuil. Merrien, F.X., Parchet, R. and Kernen, A. (2005) L’Etat social: une perspective internationale, Paris: Armand Colin. Murard, N. (2004) La protection sociale, 5th edition, Paris: La Découverte. Palier, B. (2002) Gouverner la sécurité sociale, Paris: PUF. —— (2006) ‘Le système français de protection sociale’, in P. Tronquoy (ed.), Le modèle social français, Cahiers français, Paris: La documentation française. Parienty, A. (2006) Protection sociale: le déﬁ, Paris: Gallimard, Folio-Le Monde Actuel. Renaut, A. (2005) Modèle social: la chimère française, Paris: Textuel. Richez-Battesti, N. (1998) La sécurité sociale, synthèse, Paris: A. Colin. Simon, N. (2004) ‘Protection sociale et institutions sociales’, in de Montalembert (ed.), La protection sociale en France, Paris: La documentation française. Smith T. (2006) La France injuste, Editions Autrement, p. 349.

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Chapter 12

gr Inequalities and deﬁciencies in social protection The welfare system of Greece Christos Papatheodorou

Introduction: a brief historical review Most researchers in the ﬁeld would argue that the welfare system of Greece is less developed than the north-west EU countries. Many of its characteristics are rooted in choices made in the social, economic and political ﬁeld after the Second World War. Welfare policies were connected to economic growth and served certain macroeconomic objectives (Gravaris 2006). The interwar period was also crucial, because the process of industrialization and capital accumulation aﬀected the class structure and the emerging social conﬂicts (see Petmesidou 2006, 26–29). In the early 1920s the ‘Asia Minor disaster’ necessitated state intervention in the resettlement and employment of 1.3 million refugees, and in public health (Petmesidou 2006). Later, during the great recession, demands were raised for intervention in jobs and social insurance. Existing social insurance funds covered only a small part of the working population. In 1937 the Social Insurance Organization (IKA) was established for workers in the private sector. Even then, only a small part of the population (33 per cent) was insured (Petmesidou 2006, also Katrougalos 1996). The Second World War and then the Civil War left Greece with a destroyed economy. However, during the ﬁrst post-war decades, the average annual rate of growth of gross domestic product (GDP) became the highest in the world and the average annual increase in labour productivity one of the highest in Europe. One would assume that the living standards of the population improved; instead, inequality increased due to government policies for strengthening capital accumulation (Karageorgas and Pakos 1986). In 1950 the vast majority (60 per cent) of the labour force were employed in the low productivity agricultural sector (28.5 per cent of GDP), while the relevant ﬁgure for the industrial sector was only 20.2 per cent (see Vaitsos and Giannitsis 1987, 17). During the 1950s, emphasis was placed in reconstructing the economy and in developing the necessary infrastructure for further development. The average annual growth of GDP and per capita GDP were 5.7 per cent and 4.7 per cent respectively (Vaitsos and Giannitsis 1987, p. 17). Although governments were conservative, state intervention was growing, aiming to attract foreign capital and investments, and to increase the capital accumulation and industrialization (see Ioannidis and Mavroudeas 1999, Karageorgas and 225

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Pakos 1986). The state also became involved in investments to infrastructure, and in the ﬁnancial system. There seemed to be a contradiction or a ‘pseudo-liberal perspective’ (Petmesidou, 2006, p. 30) where the liberal ideology was promoted in the private sector but signiﬁcant factors and sectors of the economy were controlled by the state. During the period 1960–73 the Greek economy showed even more rapid rates of growth. The economy’s restructuring was completed and the country’s position in the world economy was upgraded (see Ioannidis and Mauroudeas 1999). The average annual growth of GDP and per capita GDP were 7.7 per cent and 7.1 per cent respectively, ﬁgures that are much higher than those found in other European and OECD countries, with the exception of Japan (OECD 1997a, p. 50). The country saw high rates on the average annual growth of investments, of industrial productivity and of the exports of goods and services (OECD 1997a, p. 61, Georgakopoulos 1995, p. 117). Evidently, the restructuring of the Greek economy was achieved in favour of the industrial sector. By the end of this period, the share of the agricultural sector in GDP decreased to 15.6 per cent, while the relevant ﬁgure for the industrial sector increased to 34.7 per cent (see Lianos and Lazaris 1995, p. 73). The share of services in GDP remained more or less constant (at around 50 per cent). On the other hand, unemployment rates remained well above the relevant average ﬁgures for EU and OECD countries (see Thomadakis 1997). This, and the surplus labour in the agricultural sector, contributed to massive emigration and a high urbanization In the political arena, conservative governments dominated, a result of the Left’s defeat in the Civil War following the Second World War. Even with parliamentary democracy, civil liberties were most seriously restricted. The aid sent in the 1950s by the USA through the Marshal Plan increased the economic and political dependency. That period was also marked by two events: (i) the agreement of 1961, which opened the way for joining the European Community, and (ii) the military coup, which established dictatorship (1967–74). The development of the welfare state during the period 1950–73 did not follow the trend of the other domestic macroeconomic indicators, as happened in most European countries (see Petmesidou 1991, 2006; Maloutas and Papatheodorou 2004). During that period the development priorities within Greece consisted largely of securing favourable conditions for industrial development by squeezing the incomes of the lower middle and working classes (as well as of the peasantry), and at times by open intimidation. (Petmesidou 2006, p. 31) The political oppression resulted in repression of any demands from the low income strata for distributional policies, such as wage and income increase, social provisions and so on (see Karageorgas and Pakos 1986, Petmesidou 1991). This led to the development of familiarism and clientelism, characteristic of the welfare system since then. The only noticeable legislation introduced in the social policy area concerned certain tax and family allowances with doubtful distributional eﬀects. The mid-1970s, with the oil crisis, brought considerable changes in the country’s economic and political character. The collapse of the military dictatorship marked the beginning of a new era. Economic and political development was considerably aﬀected by Greece becoming a member of the EU in 1981. Greece witnessed a retardation of 226

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growth rates and an increase in inﬂation. The average annual rate of inﬂation during the period 1973–79 was 16.1 per cent, increasing to 21.8 per cent during the period 1979– 84, and remained above the 17 per cent for the period 1984–93 (see Thomadakis 1997, p. 46). The annual average GDP growth rates were reduced to 3.7 per cent in the period 1973–79, and until the mid-1990s remained particularly low, ﬂuctuating over time. Between 1980 and the mid-1990s, the growth rate of GDP in Greece was lower than the relevant average ﬁgure for the EU15 (see OECD 1997a). During the 1980s a stabilization programme was introduced to confront the serious ﬁscal imbalances and the widening trade deﬁcit. Unemployment decreased considerably by 1979 and then increased, reaching the average ﬁgures for EU15 in the mid-1990s (see Georgakopoulos 1995, Thomadakis 1997). Since the early 1990s and its struggle to achieve the Maastricht objectives for joining the European Monetary Union (EMU) the picture has changed dramatically. Inﬂation rates have been reduced to below 5 per cent, but have remained above the average ﬁgure for EU15 and EU27. The annual growth of GDP has increased and consistently outperforms the European average. Thus in 2007 the real growth of GDP in Greece was 4.0 per cent, compared with 2.7 per cent for the EU15 and 2.9 per cent for EU27 (http://epp.eurostat. ec.europa.eu). By contrast, unemployment rates have increased to an alarming level. A factor to consider is that since the early 1990s Greece has experienced a massive wave of immigration, mainly from the Balkans and eastern Europe, roughly estimated to be 10 per cent of the country’s population (OECD 2005, Bagavos and Papadopoulou 2003). This large inﬂow, generally illegal, is mostly occupied in low-paid, insecure jobs. The majority are in the informal sector. One impact of this large immigration has been to increase the ﬂexibility of the labour market (see OECD 2005, Seferiades 2006, Gravaris 2006). Contrary to the economy’s performance, signiﬁcant positive changes have taken place in the political process since 1974. A major achievement was the strengthening of democracy and the establishment of a political system that guaranteed stable governments and constitutional order. Two parties have been alternating power: the conservatives (New Democracy Party) and the socialists (Panhellenic Socialist Movement – PASOK). It was after the mid-1970s, and during the period of stagnation, that Greece saw an increase in public spending in social provisions. During the early 1980s there was a rapid expansion of public expenditures. Signiﬁcant legislation in the social policy sphere was introduced, following the socialist’ rhetoric for social and political reforms (see Petmesidou 1991, 1996, Maloutas and Papatheodorou 2004). Among these reforms were the establishment of a National Health System (ESY), the founding of the open-care centres for older people (KAPI) and the introduction of a system of means-tested public pensions for older people with no other means of support which is not dependent on any past contributions. A signiﬁcant change in family law took place promoting gender equality. Additionally, there was a signiﬁcant increase in expenditures on pensions, which exceeded the average ﬁgure for OECD countries (OECD 1997b, p. 78). The automatic indexation scheme (ATA) was introduced linking earnings and pensions with inﬂation rates. At the time these measures seemed promising for achieving certain redistributive goals based on social needs. But since then their distributional eﬀect has been questioned. It seems that the eﬀect has been limited to employees in the public sector. Furthermore, in the mid-1980s, within the framework of the stabilization programme, a bill passed prohibiting any increase in wages and salaries beyond ATA. The law’s application to the private sector negatively aﬀected the collective bargaining for wage increases. To 227

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complicate matters, the state often discriminated in favour of public sector sections with a strong trade union (Petmesidou 1991). The expansion of welfare policies was soon threatened by the ﬁscal crisis, the public deﬁcits, and the stabilization programme that put pressure on social spending. In the 1990s governmental policy priorities to meet EU requirements prevented further development of the welfare system. No safe prediction can be made on the future development of the welfare system in Greece since a lot of factors, often conﬂicting, are involved. However, as the following analysis will show, the system suﬀers from core deﬁciencies that are diﬃcult to overcome: fragmentation is high; social provisions and services are rudimentary and uncoordinated; Polarization is also high, with families and kin networks playing a central role in the provision of social care.

Status quo: analysis and political dimensions Services and beneﬁts According to the National Accounts data, social expenditure as a percentage of GDP was relatively low in the 1960s and 1970s and until the mid-1980s. The total public consumption and current transfers of general government to households for health, education and social security represented only 10.1 per cent of GDP in 1962 (see Maloutas and Papatheodorou 2004, Table 1, p. 339). As shown in Papatheodorou 2008a (pp. 290–91, Figure 1), social protection expenditure as a percentage of GDP remained stable from the late 1960s until the mid-1970s, increased slightly during the late 1970s and more sharply in the ﬁrst half of the 1980s, overcoming the 20 per cent of GDP. This trend was reversed in the second half of the 1980s and remained relatively stable during the 1990s. Only in the late 1990s did social protection expenditure increase and reach the levels of the mid-1980s, overcoming the 20 per cent of GDP (see also Maloutas and Papatheodorou 2004, Petmesidou 2006). As shown in Table 12.1, during the 2000s the increase in social protection expenditure as a percentage of GDP has reduced the gap between Greece and the European average. Regardless of this increase, per capita social expenditure in Greece remains well below the ﬁgures for average EU15 and EU27. Greece diﬀers from other EU countries in the way that spending on social protection is distributed between programmes (see Table 12.2). The contribution of various categories of beneﬁts to total social beneﬁts has not changed dramatically since the early 1990s (see Papatheodrou 2008a, p. 292, Table 3). Diﬀerences between Greece and the EU are also evident in the share of means-tested provisions to total provision and to various programmes (Papatheodrou 2008a). Similar diﬀerences exist in the proportions of cash beneﬁts. Pensions Old age and survivor beneﬁts represent the highest share of social protection expenditure in EU countries. In Greece these functions are well above the EU average ﬁgures, indicating that the Greek social spending favours pensioners (mainly old people) (see Abramovici 2005, Kubitza 2005, Taylor-Gooby 2006). According to the most recent available estimates (2005) old age and survivor pensions represent almost 50 per cent of the total spending on social protection (excluding administration costs and other expenditures), higher than the corresponding average ﬁgures for the EU15 and the EU25 that 228

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Table 12.1 Social protection expenditure

gr

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

20040.7 22454.4 24957.8 26415.0 30015.1 32387.2 35581.5 37574.9 40468.1 43756.1 47985.5

1884.5 2096.7 2315.9 2438.0 2758.1 2966.5 3249.5 3419.8 3671.1 3955.6 4321.5

19.9 20.5 20.8 21.7 22.7 23.5 24.1 23.8 23.6 23.6 24.2

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 12.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

gr

eu27

eu15

100.0 97.3 6.3 5.0 2.2 2.3 31.8 49.8

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

were at 44 per cent. Estimates based on micro-data from ECHP show that in Greece, pensions account for more than 90 per cent of the total social cash transfers to households (see Papatheodorou and Petmesidou 2004, 2006, Matsaganis 2006). This ﬁgure is well above the corresponding ﬁgures of the other EU countries, where on average other social transfers (except pensions) represent a quarter of total social transfers in EU15. Old age pensions have increased rapidly since the early 1990s. Between 1993 and 2002 the nominal growth of pension expenditure was the highest among EU countries (Kubitza 2005, Figure 2, p. 2). Also signiﬁcantly high, was the increase in the ratio of pension expenditure to GDP during the above period. This is mainly attributed to the increased number of pension beneﬁciaries. The ageing of the population in Greece in that period 229

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was more rapid than in the other EU15 countries (Kubitza 2005, p. 3). The system of social security is highly segmented with a plethora of funds covering 90 per cent of the population (Ministry of Employment and Social Protection 2007, also Petmesidou 2006, Venieris 1995, OECD 1997b). It is a deeply fragmented and highly polarized system with huge inequalities in the replacement rates, the level of beneﬁts, the reference earnings, the (statutory and actual) retirement age and the contributory framework. The system favours certain privilege insurance funds, such as employees in the public sector, in the banking sector and in liberal professions (such as doctors, lawyers and engineers). Health By contrast, public spending on health, sickness and disability are well below the corresponding average ﬁgures for EU countries. Overall, public health expenditure, as a proportion of GDP, increased from only 2.7 per cent in 1981 to 4.9 per cent in 1996 and has had small ﬂuctuations since then. (OECD 1997b, p. 104, Pulpanova, 2006, p.5). The National Health System (ESY), established in 1983, faces serious imbalances and ineﬃciencies and has failed to meet its goals for universal coverage, equity of access and eﬃcient use of resources. The ESY proved a corrupted system with large inequalities, favouring those in privileged insurance funds. Of signiﬁcance are also the regional disparities with regard to quality and quantity of the resources provided. It is characterized by lack of eﬃcient management and allocation of resources. Unemployment Similarly, the low proportion of social spending is related to unemployment beneﬁts, despite the rapid increase in unemployment rates since the early 1990s. Unemployment rates in the 1960s were considerably low. They increased steadily from 2.1 per cent in 1974 (OECD 1997a) to 9.2 per cent in 1995, reaching 11.9 per cent in 1999 (see Table 12.3). In 2007 unemployment was 8.3 per cent. Since the late 1990s unemployment has remained at levels higher than the average EU15 and EU27. The country has also shown signiﬁcantly lower employment rates than the average ﬁgures for the EU, which is partly considered as hidden unemployment (http://epp.eurostat.ec.europa.eu). Similarly, longterm unemployment rates are higher than the corresponding ﬁgures in average EU. In 2007 half of the unemployed were long-term unemployed (OECD 1997a). Women and young people are those with the lowest employment rates and the most aﬀected by unemployment. These ﬁgures leave no room for optimism concerning the achievement of the Lisbon objectives. Unemployment beneﬁts as a proportion of total social beneﬁts were 4.1 per cent in 1990, increased to 6.2 per cent in 2000, but fell to 5 per cent in 2005. This reﬂects ineﬃciencies in the system of unemployment beneﬁts, such as low population coverage, small duration and low value of beneﬁts (which are not associated with income earned before). Welfare support to the unemployed is dramatically low by international standards (Papadopoulos 2006). Low unemployment beneﬁts are partly explained by considering that Greece traditionally put emphasis on active policies (educational and vocational training programmes, incentives to entrepreneurs, etc.). The European Strategy for Employment has further strengthened this tradition. Consequently, deregulation of the labour market and expansion of part-time employments were high on the agenda of labour market policies (see NAP-employment 2004, Seferiades 2006). 230

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Table 12.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

gr

eu27

eu15

9.2 9.6 9.8 10.8 12.0 11.2 10.7 10.3 9.7 10.5 9.9 8.9 8.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

Housing Government expenditure on housing and community amenities as a percentage of GDP was only 0.4 per cent in 2003 and 0.5 per cent in 2004, that is half the corresponding ﬁgures for the EU15 and EU25 averages (see Pulpanova 2006).1 Housing policy is marginal and lacks social planning (see Maloutas and Papatheodorou 2004). It is mainly implemented by the Workers’ Housing Organization (OEK), which is supervised by the Ministry of Labour and Social Aﬀairs. Public housing at low (or no) rent to low income households are not oﬀered and the OEK’s policy is mainly exhausted in the development of a limited number of houses that are provided at low cost to the eligible beneﬁciaries at random. Housing beneﬁts, as a percentage of total social beneﬁts, are relatively higher than the EU average (see Table 12.2). However, these allowances and beneﬁts are of low-value, means tested and target certain population groups. Housing policy includes subsidized interests for loans to construct or buy a new home (family’s ﬁrst home), loans for repairing or completing houses as well as tax allowances. Education Education in state schools is free of tuition at all levels, with free textbooks. The main public educational institutions are primary schools, compulsory (low cycle) and postcompulsory (upper cycle) secondary schools (including also technical vocational educational schools and vocational training institutes) and higher education (university and non-university) institutions. Included are nurseries, kindergartens and a limited number of schools for students with special needs. Compulsory education corresponds to nine years of schooling. Government expenditure on education, as a percentage of GDP, is by far the lowest among all EU countries. Thus in 2005 it was equal to 3 per cent of GDP when the corresponding ﬁgure for EU15 and EU27 was 5.3 per cent (http://epp.eurostat. ec.europa.eu – 08/08/2008). Government expenditure in education was reduced further in 2006 (ibid). While in most EU countries public expenditure on education has increased signiﬁcantly in recent years, no similar trend is found in Greece. Private expenditure on education is also considerably lower than the EU and OECD average (ibid, http://stats. 231

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oecd.org – 06/07/2008). Financial aid to students such as scholarships are few and of low value. In 2005 it represented only 0.6 per cent of the total public expenditure on education. This ﬁgure is signiﬁcantly lower than the corresponding ﬁgures for the average EU15 and EU27, which were 5.6 per cent and 5.9 per cent (http://epp.eurostat.ec. europa.eu). Family Beneﬁts to families and children were above the average ﬁgure for EU15 in the early and mid-1990s but since then their share to total beneﬁts has been reduced to a level lower than the average ﬁgure for the EU15 and the EU25. They include contributory and non-contributory beneﬁts of low value, mostly favouring large families with more than three children (see Matsaganis 2006, Sotiropoulos 2003). Traditionally in Greece, as in the other southern EU countries, informal networks such as families and kin have played a signiﬁcant role is social care provision, making up for the lack of an adequate social protection system. Financing Social protection is mainly ﬁnanced by social contributions, which in 2005 accounted for 58.4 per cent of all receipts (see Table 12.4, also Papatheodorou 2008a). However, in contrast to the average trend in the EU, general government contributions were reduced from 32.2 per cent in 1992 to 30.7 per cent in 2005. In that same period, the corresponding ﬁgure for the EU15 average increased from 31.3 per cent to 37.9 per cent. Similarly, the share of the employers’ contribution was reduced from 38.8 per cent to

Table 12.4 Social protection receipts by type in Greece and the EU 1992–2005 (% of total receipts)

1992

1995

2000

Employers’ social contribution EU27 – EU15 41.2 Greece 38.8

– 39.2 37.4

38.7 38.2

38.3* 38.2* 35.5

Social contribution paid by the protected persons EU27 – EU15 23.3 Greece 19.9

– 24.7 23.5

22.3 22.3 22.6

20.8* 20.7* 22.9

General government contributions EU27 – EU15 31.3 Greece 32.2

– 32.1 29.0

35.5 35.4 29.2

37.6* 37.9* 30.7

Other receipts EU27 EU15 Greece

– 4.0 10.0

3.5 3.6 10.0

3.4* 3.2* 11.0

– 4.1 9.2

2005

Source: Author’s calculation based on Eurostat-ESSPROS data obtained from http://epp.eurostat.ec.europa.eu (accessed 10 August 2008) Note: * estimated value

232

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35.5 per cent. The proportion of the ‘other contributions’ to all receipts remained rather stable. This reduction in the proportion of government and employers’ contributions was compensated by an increase in the contribution paid by protected persons, which increased from 19.9 per cent in 1992 to 22.9 per cent in 2005. Again this contribution shows the exact opposite trend to the corresponding ﬁgures for the EU15 average. It seems that Greece does not ﬁt in with the convergence observed in most EU countries concerning the funding structure of social protection (Papatheodorou and Petmesidou 2004, 2006). The heavy deﬁcits that the main insurance funds have started to rack up since the mid-1980s, has resulted to an increase in employees’ contributions, transferring the burden to the immediately interested parties (see Maloutas and Papatheodorou 2004). There seems to be a move towards a social protection system where contributions paid by the protected people will play an increasing role in the funding of social protection. Pensions Social protection favours those with full and uninterrupted work in the formal labour market, which is also a precondition for entitlement to other beneﬁts (Petmesidou 2000). As already mentioned, pensions dominate the social protection system, and are provided by a plethora of social insurance funds. Public primary insurance funds and auxiliary funds are mainly pay-as-you-go ﬁnanced. In 2007 there were 175 social insurance funds for diﬀerent professional groups. There were more than 60 insurance funds providing primary and supplementary pension schemes (Ministry of Employment and Social Protection 2007). However, the vast majority of pensioners belong to four major funds: IKA (covers mainly private sector workers), OGA (farmers), OAEE (self-employed workers) and the fund for civil servants (Ministry of Employment and Social Protection 2007). These funds are mainly ﬁnanced by contributions paid by employers and employees. However, there is high variation concerning the employees’ and employers’ contributions to primary and auxiliary pensions (ibid). Similar large diﬀerences exist in the contributions made by the state to various funds. Contributions by the self-employed and liberal professions are a ﬂat rate, depending on certain predeﬁned categories in each fund. Huge diﬀerences between various insurance funds are found in the proportion of insured to pensioners in each fund (ibid). The statutory retirement age also varies greatly between pension funds. In general, retirement age is lower for civil servants, women and mothers with dependent children. Those who have entered the labour market since 1993 face a uniform retirement age of 65. Exceptions exist for mothers with dependent children and those in ‘hard and arduous’ occupations (see Matsaganis 2006). In 2008, a mini reform took place aiming to rationalize the insurance system, reduce the number of funds and harmonize imbalances in contributions and in retirement age. This reform has faced the trade unions’ strong opposition and has not been fully implemented. Non-contributory pensions are provided mainly by OGA, and consist of a ﬂat rate and non-income-tested monthly pension to farmers aged over 65. The monthly amount of the basic pension is quite low. In 1997 OGA became a social insurance fund based on contributions. The social pension for non-insured older people is also non-contributory, but means tested, and equals a farmer’s basic pension. Additionally, Social Solidarity Beneﬁt (EKAS) introduced in the mid-1990s is non-contributory. This is a means-tested supplement for pensioners with particularly low pensions. Other non-contributory but low-value pensions are war pensions. 233

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Until the mid-1990s, state restrictions on the ﬁnancial management of the pension funds contributed to the enlargement of deﬁcits in the main insurance funds (see Petmesidou 2000). Pension funds were not allowed to use their reserves proﬁtably, but were obliged to deposit them in the Bank of Greece with low interest rates. To cover their deﬁcits, they were forced to borrow from state-controlled banks at unfavourable interest rates. A law of 1994 allowed some proﬁtable use of reserves. Unemployment Unemployment beneﬁts are low, ﬂat rate and short-term. Also, the amount of beneﬁt is not related to the individual’s employment record. These beneﬁts are provided by OAED (Greek Manpower Employment Organization), which is supervised by the Ministry of Labour and Social Aﬀairs. Beneﬁts are funded mainly (75 per cent) by employers’ and employees’ contributions.2 The rest comes from the government budget, the European Committee and personal resources. Unemployment beneﬁt was set in 2008 at 418 euro, and increased by 10 per cent for each additional family member (http://www.oaed.gr). The maximum eligibility period for receiving this beneﬁt is 12 months. Thus, long-term unemployed people and young unemployed people (new jobseekers) are not entitled to this beneﬁt. Some other beneﬁts provided by OAED for longterm unemployed people, young unemployed people, etc., are less important since they are of signiﬁcantly lower value (than the main unemployment beneﬁt) and short-term. Owing to the strict requirements for beneﬁt eligibility, only a small fraction of the unemployed receive beneﬁts (see NAP-inclusion 2005). Similarly, only few long-term unemployed people receive beneﬁts, even though more than half of unemployed people are unemployed long term (see Papatheodorou 2008a). Health Despite the existence of a National Health System (ESY), the goals of universal coverage, equality of access and eﬃcient use of resources have not been fully achieved. Health insurance is compulsory and 97 per cent of the population is covered (http://www.euro. who.int). Only 7 per cent of the population has complementary health insurance through a private insurance fund. The ESY is characterized by lack of eﬃcient management and allocation of resources. Dissatisfaction is reﬂected in the large proportion of private expenditure on health. In 2005 total expenditure on health was 10.1 per cent of GDP of which 57.2 per cent was private expenditure (ibid). Evidently, the Greek health system is highly privatized. Public expenditure in health is ﬁnanced by taxes and compulsory health insurance contributions. The decisions on heath policy (priorities, national strategies, allocation of resources and of responsibilities) are made by the Ministry of Health and Social Cohesion. Housing Housing beneﬁts are means tested and mainly concern cash assistance to tenants provided by OEK (Workers Housing Organization). A contributory record is needed for applicants. This category includes some allowances of small value to immigrants of Greek origin. 234

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Family Non-contributory beneﬁts also consist of some family and disability beneﬁts. Family and child care beneﬁts concern mainly income transfers to large families and families with three children and more (families with many children). These are not means tested and are beneﬁts of relatively low value, ﬁnanced by general taxation. Mothers with more than three children are entitled to a life time pension. Family beneﬁts include contributory beneﬁts to private sector employees and family allowances to civil servants. Maternity leave is quite short by European standards with the exception of public sector employees. Other beneﬁts and services concerning child care and long-term care are limited. The only noticeable exception are the open care centres for older people (KAPI) and a limited number of public nurseries, the responsibility of which has been transferred to local authorities. Disability beneﬁts are diverse, of low value and involve a large number of disability categories. Non-contributory beneﬁts are ﬁnanced by the government through taxation. Indirect taxation is by nature regressive. However, as shown elsewhere, despite the progressive income taxation imposed by Greek legislation, income taxes and social security contributions have failed to have any signiﬁcant distributional impact. This is due to high tax evasion and contribution avoidance typical of the high-income population, particularly those with incomes from entrepreneurial activities, liberal professions and freelance occupations (Papatheodorou 2003, 2006a). Given that the vast majority of beneﬁts are contributory, the lack of a universal income safety net aﬀects the large number of unprotected persons greatly. This is evident in the weakness of the system to alleviate poverty (see Papatheodorou and Petmesidou 2004, 2006), despite the increase in social expenditure (as a percentage of GDP), which reached the EU average. Analysis Compared with north-west European countries, the Greek welfare system is less developed, with rudimentary welfare policies. It relies mainly on pensions and contributory beneﬁts. The lack of a universalistic safety net makes the system less eﬀective in alleviating poverty and social exclusion and in assisting those in need. Income inequality and poverty statistics have been crucial in evaluating and comparing the performance of welfare systems. Despite the increase in social protection expenditure that the country witnessed in the 1980s and since the late 1990s, cash social transfers proved very weak in alleviating income inequality and poverty. These were reduced signiﬁcantly between 1960s and the mid-1980s, and later showed small ﬂuctuations without indicating a clear trend (see Mitrakos and Tsakloglou 2003, Tsakloglou and Mitrakos 2006, Papatheodorou and Petmesidou 2004). Since the mid-1980s, when comparable estimates became available for EU countries, inequality and income poverty rates in Greece appear to be the highest of the EU countries (see Deleeck et al 1991, Papatheodorou and Petmesidou 2004, 2005, 2006, Eurostat 2002). Inequality and poverty in Greece are well above the corresponding average ﬁgures for the EU15 as well as the EU25 (see Table 12.5). The most recent available estimates show that Greece and Latvia have the highest poverty rates among all EU25 countries (http:// epp.eurostat.ec.europa.eu). In 2006 21 per cent of the Greek population fell below the threshold of 60 per cent of the country’s median equivalized income when the corresponding average ﬁgures for the total EU25 were 16 per cent (Table 12.5). However, as 235

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Table 12.5 At-risk-of-poverty rates by gender

gr total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

22 21 21 21 21 20 20 – 21b 20 20 21

eu25 males 21 21 21 20 20 19 19 – 20b 19 18 20

eu15

females

total

males

females

22 21 22 22 21 20 22 – 21b 21 21 21

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

shown elsewhere, diﬀerences in poverty rates between EU countries appear extremely high when the comparison is based on poverty lines not estimated on a national level (Papatheodorou 2005, 2006b). It is striking that social protection has so little impact on the reduction of inequality and poverty risk. Cash social transfers have the weakest distributional impact in the EU (Papatheodorou and Petmesidou 2004, 2005, 2006, Papatheodorou 2008b). Inequality and poverty rates for income before social transfers do not signiﬁcantly diﬀerentiate Greece from the rest of the EU countries. In fact, before cash social transfers, poverty rates are lower than in many other EU countries such as Denmark and Finland (Papatheodorou 2008b). Therefore, the high poverty rates that Greece shows are mainly attributed to the ineﬃciency of the social protection system to help those in need to increase their incomes and maintain a decent living standard. The social protection system is highly centralized and its administration is ineﬃcient (see Venieris 2003a,b, Petmesidou 2006). Responsibilities are overlapping among ministries and various organizations. Attempts at decentralization during the 1980s had limited impact. As already discussed, the fragmentation and polarization of the system of social protection is high, with large inequalities, favouring certain privileged insurance funds. Additionally, many insurance funds face large deﬁcits that, taking into account the country’s demographic trends, threaten the social insurance system (see Rompolis et al. 2003). Since the mid-1990s, the reform of the pension system is high on the agenda but no signiﬁcant results have been produced so far. The reorganization of OGA as a contributory social insurance fund in 1997 and the reduction of the number of social insurance funds through the mini-reforms of 1999 and 2008 were probably the most signiﬁcant results (see Petmesidou 2006, Sotiropoulos 2004). Eﬀorts to introduce major reforms during early 2000 have been strongly opposed by trade unions. Social dialogue in this area has failed so far to create the necessary consensus between interested parties. The importance of social assistance within the social security system is particularly limited, and there is lack of any general safety net scheme (Gough 1996, Matsaganis 2004, 236

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2006). Greece is the only country in the EU15 where there is no minimum guaranteed income of any kind. As mentioned previously, the high unemployment and the low employment rates of certain social groups are recognized in government rhetoric, and often by researchers in the ﬁeld, as the main cause of the high poverty rates in Greece. So in the ﬁght against poverty and social exclusion, policies aiming to increase employment rates and employability were prioritized (see NAP-inclusion 2005, NAP-employment 2004). However, as the evidence shows, only a very small fraction of those in poverty are unemployed (see Papatheodorou and Petmesidou 2004, 2005, 2006, Papatheodorou 2006b, 2008b). The vast majority of the poor are pensioners (roughly half of the poor) and people with lowpaid jobs. As already stressed, employment policies have traditionally focused on what is often labelled as active policies, such as policies targeting to improve skills through educational and vocational training programmes, motives to entrepreneurs (i.e. subsidies) to employ the unemployed (particularly from certain vulnerable groups), etc. This tradition is further reinforced by the European Strategy for Employment following Lisbon European Council of 2000 (see NAP-employment 2004, Seferiadis 2006, Papadopoulos 2006). Deregulation of the labour market, expansion of part-time employment and incentives to entrepreneurs are among the priorities set in employment policy. The need to remove the barriers for work of the most vulnerable population groups – such as women, young and older people, those with special needs and the long-term unemployed – are used in governmental rhetoric for justifying and legitimizing these policy priorities. Greece, however, already has a very ﬂexible labour market because of the large informal sector and the large number of immigrants occupied in low-paid, very insecure and often part-time jobs (see Seferiadis 2006, Gravaris 2003). The government’s main policy priority, according to NAP-employment (2004) and NAP-inclusion (2005) is macroeconomic stability and further acceleration of economic growth, which is believed to also increase employment. Again, as the recent history of the country shows, the high rates of growth that Greece has experienced since the late 1990s – higher than the average EU15 and EU25 – were accompanied by high unemployment rates (see Papatheodorou 2008b). As stressed by Gravaris (2003) employment policies are not aiming to reduce unemployment but to guarantee certain macroeconomic goals (such as ﬁscal stability at EU level) by promoting part-time occupations and even by increasing unemployment. Concerning health policy, the most signiﬁcant reform was the establishment of the National Health System (ESY) in 1983. It aimed to promote universal coverage, equality of access (regardless of the ability to pay) and eﬃciency in the use of the resources (see Davaki and Mossialos 2006, Venieris 1997, 2003c, 2006). The ESY soon encountered serious problems reﬂecting, among others, the absence of any long-term strategy, the lack of eﬃcient management and ineﬃciencies in the organization of health services (Petmesidou 2000, p. 320, Venieris 2006, pp. 74–75, see also Abel-Smith et al. 1994). As a result, hospitals were faced with huge deﬁcits. Large inequalities existed, favouring people of the privileged social insurance funds (i.e. employees in the public and banking sectors), and corruption often in the form of informal payment to hospital specialists. The system shows great deﬁciencies concerning the primary care and great regional disparities in the quality and quantity of services. Most signiﬁcant among attempted reforms were the eﬀorts in 2000 to decentralize health by creating 16 regional authorities, foster hospital management and improve monitoring by introducing health inspectors. The inadequate welfare system and the deﬁcient social provisions were complemented by families and kin networks that still play a signiﬁcant role in welfare provision (see 237

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Petmesidou 1996, Taylor-Gooby, 2006, Symeonidou 1997). Within this tradition, women are most often engaged in unpaid work, such as care for older people or children. This is often combined with work in the informal sector or in uninsured jobs in family enterprises. However, the increase in women’s employment rates and the changes in traditional family structure have weakened the family’s role in welfare provisions (see Papatheodorou and Petmesidou 2005, Petmesidou 2006). Synopsis In a nutshell, the Greek welfare system is deeply fragmented with rudimentary policies and uncoordinated social provisions and services, highly polarized, clientistic, with the families and kin playing an important role in social care. The rapid change from a preFordish to a post-Fordish structure, where Greece was transformed from an agrarian to a services economy, is provided as an explanation of this phenomenon (see Petmesigou 2000, 1996, Papatheodorou and Petmesidou 2006, Maloutas and Papatheodorou 2004, Venieris 2003a). Petmesidou (1991, 1996, 2000, 2006) has conveyed some of the essential features of the development and the ‘peculiarity’ of the Greek welfare state: these are rooted in the lack of consensus among the population strata on the aims of the social and economic development, and in their competition for access to political power and economic gains. No consensus among middle classes on the distributional goals of social provision on a basis of need was ever achieved. Petmesidou emphasizes the relation between the state and civil society to elucidate the development of social policy. Katrougalos (1996) also argues that this lack of consensus is rooted in the ‘dual society’ that emerged in the ﬁrst two decades after the Civil War. Political criteria and mechanisms have been central in the distribution of income and wealth, a phenomenon closely associated with the statism and clientelism of Greek society (see Petmesidou 2006). Gravaris (2006) adds that welfare policies in Greece have been traditionally connected with the process of economic growth and have been linked to certain macroeconomic goals. This is actually evident in the policy priorities set in the country’s National Action Plans for inclusion and employment. In contrast to most western European countries, Keynesian perspectives had a limited impact on policy debate in Greece during the ﬁrst post-war period. So, in several cases, forms of ‘self-regulation’ of social reproduction were promoted by the state (see Maloutas and Papatheodorou 2004). The welfare system shares common traits and trajectories with the other southern EU countries. Thus in the debate over the welfare typologies, Greece, together with Italy, Spain and Portugal are often seen as constituting a distinct welfare regime (see Papatheodorou and Petmesidou 2004, 2005, 2006, Matsaganis et al. 2004). Ferrera (1996) grouped these countries in the ‘Southern Model’, characterized as ‘particularistic–clientelistic’ with main features being a fragmented social insurance, a universalistic health care and families playing a signiﬁcant role in welfare provision. The central role of the family in welfare provision is also emphasized by Leibfried (1992) in considering these countries to constitute a residual welfare regime. Also Gough et al. (1997), in their typologies of social assistant regimes, placed Greece in the group of countries with ‘rudimentary assistance’ (see also Gough 1996). Katrougalos (1996) on the other hand considered Greece, and the other southern EU countries, as an immature and less developed type of the continental model. Nevertheless, as Papatheodorou and Petmesidou (2006) stressed, apart from certain similarities, these countries also exhibit signiﬁcant diﬀerences in their welfare systems. 238

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These diﬀerences are evident in the large distortion in the poverty proﬁle and incident among certain population groups, mirroring existing diﬀerences in policy priorities and in reform agendas. At the dawn of the twenty-ﬁrst century, the Greek family remains an important provider substitute for a number of welfare provisions, and preserves its functional role as a basic unit for decisions that concern the welfare of its members (see Petmesidou 1996, 2006, Symeonidou 1997).

Outlook The above analysis leaves little room for optimism concerning the future development of the welfare system in Greece. Nevertheless, a safe prediction is never possible when so many often conﬂicting factors are part of the process. It is generally agreed that the Greek welfare system is lagging behind the north-west EU countries and suﬀers from serious imbalances and deadlocks. Most of its crucial features and peculiarities stem from the country’s development path and priorities, particularly during the post-war period. In contrast to the trajectories of the northern EU countries, the most signiﬁcant attempt to establish a welfare system in Greece took place in the early 1980s, a period of stagnation. This delayed increase in social expenditure has been seriously constrained by ﬁnancial and political limitations and has failed to establish an eﬀective welfare system (Maloutas and Papatheodorou, 2004). The need for major reforms is broadly acknowledged. Reforms on pensions, the health and education system, and the labour market, are prioritized in the relevant public debate. However, these reforms should overcome certain structural and administration deﬁciencies that are deeply rooted in Greek society. Statism, clientelism and distribution of income through political means, coexist with ineﬃcient social planning and administration (see Petmesidou 2003, 2006). These deﬁciencies are evident in the country’s ineﬃciency to alleviate inequality and poverty, despite the increase of social protection expenditure that, as a percentage of GDP, has reached the ﬁgure of average EU15 and EU25 (Papatheodorou and Petmesidou 2004, 2005, 2006). A point to stress is that no broad agreement has ever been accomplished on the kind of reforms and their objectives. This reﬂects the lack of consensus among population strata on the aims of social and economic development during the post-war period. Since the late 1990s, attempts at a social dialogue between social parties to build the necessary consensus have not produced any signiﬁcant result (see Petmesidou 2000, 2006). Pressure to reform the Greek welfare system has been coming from various actors (endogenous and exogenous), often promoting incompatible objectives. Thus objectives such as budget consolidation, liberation of product market, and ﬂexibility of labour market coexist with demands for social cohesion and eﬀective policies to compact poverty and social exclusion. The analysis of all these alternative and often conﬂicting goals, as well as their impact on the welfare system is a large task by itself and beyond the scope of this chapter. What one needs to emphasize is that further developments and reforms in social policy and welfare provisions would involve conﬂicting interests and objectives among social actors concerning the aims of social and economic development. We brieﬂy discussed the impact of the EU, the role of which is emphasized in this matter. It is important to stress that the previously mentioned conﬂicting objectives are also apparent in EU policies. No matter what the motives were, European anti-poverty 239

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programmes, and the relevant emergent debate, put pressure on Greece to increase the volume of research into issues relating to income inequality, poverty and the adequacy of social policy, partly in order for the country to take advantage of the availability of EU resources (Petmesidou 1991). Similarly, National Action Plans for employment and inclusion may have contributed in this respect. By contrast, the ﬁscal discipline to meet EMU objectives, under the Maastricht criteria, has put limitations to the increase of social expenditure and to the expansion of welfare provisions. Community support frameworks (CSFs) on the other hand, as well as other EU programmes, have inﬂuenced many policy areas, increasing the funding in certain social programmes and in infrastructure (see Petmesidou 2006). Part of the increased social expenditure that the country experienced in recent years is attributed to the funds from the EU (mainly through the CSF). Nevertheless, these programmes have failed to introduce signiﬁcant reforms in the welfare system. Their eﬀect has strongly been questioned since they further weakened the country’s ability for social planning by increasing its dependency on policy objectives and priorities set at Community level (also Petmesidou 2003, 2006, Seferiades 2006). Still, CFS funds and relevant EU programmes may have a positive impact on certain policy areas through the necessary involvement of various social actors and interesting parties in policy process. This could help establish a social dialogue and improve citizen’s participation, thus promoting decentralization of policy making and appraisal at local agencies.

Notes 1 Housing beneﬁts are not included in this function but in expenditure on social protection. 2 The unemployment insurance is compulsory to all employees, except farmers and tenured civil servants.

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Vaitsos, C. and Giannitsis, T. (1987), Technological Transformation and Economic Development: The Greek Experience and the International Prospects, Athens: Gutenberg (in Greek). Venieris, D. (1995) ‘The Social Insurance System in Greece: A Historical Analysis’, Review of Social Insurance Law, 10(442):576–85 (in Greek). —— (1997) The History of Health Insurance in Greece: The Nettle Governments Failed to Grasp, Discussion Paper No9, LSE-Health, The London School of Economics and Political Science. —— (2003a) ‘Decomposition and Recomposition of Social Policy: The Greek Experience’, in D. Venieris and C. Papatheodorou (Eds), Social Policy in Greece: Challenges and Prospects, Athens: Ellinika Grammata, pp. 41–88 (in Greek). —— (2003b) ‘Social Policy in Greece: Rhetoric versus Reform’, Social Policy and Administration, 37 (2):133–47. —— (2003c) ‘Health Policy in Greece: “Ill” mint in a healthy body’, in D. Venieris and C. Papatheodorou (eds), Social Policy in Greece: Challenges and Prospects, Ellinika Grammata, Athens, pp. 251–92 (in Greek). —— (2006) ‘The Virtual Reality of Welfare Reform’, in M. Petmesidou and E. Mossialos (eds) Social Policy Developments in Greece, Aldersot: Ashgate, pp. 73–95.

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Chapter 13

hu From state socialism to a hybrid welfare state Hungary Katalin Tausz

Legacy of the past and the transition If we try to incorporate the welfare system of socialist Hungary in the comparative typologies and assume that there was not, and is not, so to speak, a black hole in the middle of Europe, a complicated story emerges. If a market-based economy and political democracy are substantive elements in any form of welfare state, welfare provision existed in the socialist countries, but the welfare state as such did not. Social security – or, more in line with the phraseology of that period, the ‘well-being of the people’ – was initially served by the concept and practice of full employment. Social policy was not separated from the other subsystems of the society. Social insurance systems, albeit within certain limits, existed in Hungary before the political changes of 1989, i.e. before the basic framework of social services (such as child protection institutions and institutions for senior and disabled citizens) and family support were developed. Social assistance had a limited ‘residual’ role in maintaining incomes and was mainly discretionary. By the 1970s more or less the whole population was entitled to health services and an old age pension. Social provisions were made dependent on employment. … the institutions did not attempt to negate capitalist solutions. On the contrary, in the last three decades [1970–2000] they followed by and large the evolution in the Western countries, in line with the ILO [International Labor Organization] recommendations and conventions. Entitlements were expanded; universal or nearuniversal solutions were introduced; in the case of social insurance, the ‘insurance’ principle was increasingly enriched by a solidaristic element, without giving up the ‘earnings-related’ schemes meant to accommodate the better-oﬀ groups. Following the regime types of Esping-Andersen, the welfare system of socialist countries at the end of the 1980s was formally quite close to the social democratic model. (Ferge 1998:19) Substantively, however, the welfare system cannot be identiﬁed with any of the welfare state models. This is a consequence of the totalitarian political system and the command economy. 244

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In spite of full, guaranteed employment, social protection by signiﬁcant price subsidies, enterprise-based social beneﬁts and other social policy measures, poverty existed in Hungary under socialism, but from the 1950s onwards the majority of the population was gradually protected from serious penury. In this period older citizens living on low pension, disabled people and the Romany population was most hit by the risk of poverty. Living standards and the quality of life of Hungarians fell short of that enjoyed in developed western societies. The establishment of democratically elected parliaments and the institution of free and fair elections were the ﬁrst and most important achievements of the post-1989 transition process. Over the past years Hungary has achieved a relatively transparent political culture within which various parties compete. The creation of a democratic political system, the shift to a market-based economy, the reorganized system of governance and the changing social structure have created a distinctive context within which the welfare sector operates, as in most of the former state-socialist countries. In these changes in the political system, and in the development of democratic institutions, the independence of social policy, and its transformation into a separate sector, represented a very important stage. The new social protection systems of the Central and Eastern Europe (CEE) states brought with them great change; however, they fell into the trap of creating a welfare system while making cuts in social expenditure required in order to mitigate budgetary crises. These activities took place during a period of high unemployment, of rising levels of poverty and social inequality, of an ageing population and other diﬃcult challenges. It was hoped the new social policy sector would improve the opportunities and standard of living of millions of people: prevent the impoverishment of the middle classes and meet the basic needs of those living in extreme poverty (Table 13.1).

Table 13.1 Social protection expenditure

hu

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – 9345.2 10038.6 11460.2 14396.3 15761.7 17065.7 19433.0

– – – – 912.8 983.1 1124.9 1417.2 1556.0 1688.5 1926.5

– – – – 20.7 19.3 19.3 20.4 21.1 20.7 21.9

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

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It is extremely diﬃcult to evaluate the ideological developments that have taken place over the past years in Hungary. The ﬁrst democratically elected government had a Conservative-Christian and nationalist character. In the 1990s it promised a ‘social market economy’, whatever that meant in Hungary after the collapse of the state-socialist system. In line with this phrase the basic institutions of social dialogue were set up, and social insurance came to have a very important role in social provision. The family was repeatedly declared to be the basic unit of the society. Conservative institutions such as the Church and the professions gradually regained their pre-war role in society. Although several very important social policy initiatives (on unemployment insurance 1991; the transformation of public health into insurance 1992; the creation of elected boards for the pension and health funds; the ‘Social Act’ on social assistance and institutions 1993; an act on voluntary insurance 1993) were introduced at that time, the ﬁrst few years of transition were mainly dedicated to crisis management of social policy and to the search for ways to mitigate negative eﬀects of the shift to a market-based economy. The unemployment beneﬁt system is a good example of this phenomenon. It could have been foreseen that unemployment would be a long-term and large-scale problem. The necessary containment and preventative measures, however, were not devised at an early stage. The passing of the Social Act 1993 was an important step towards a constitutionally declared right to social security, but the basic system of social provision did not change until 1995. The declarations of the coalition of socialists and free democrats (in the second government) suggested a strong commitment to traditional social democratic values such as solidarity, the reduction of social inequality and, in line with this, a wide range of proactive, social insurance-based and universal social policy measures. They also suggested a commitment to basic human rights. In reality, however, the pre-war nationalist-conservative phrases ultimately vanished from mainstream political discourse, and instead social democratic wording with echoes of the state-socialist era was widely used. Neither the social policy programme nor the ﬁrst measures of the new government represented a real turning point in welfare provision. Real change had to await the so-called ‘Bokros package’ of 1995–96. Continuing the reform processes of the 1980s, reacting to the economic crisis, and making the way for the neo-liberal economic theories of the leading economists, the government applied a form of shock therapy in the ﬁeld of social policy. Under this second government many signiﬁcant pieces of legislation were enacted. These concerned the family beneﬁt system, the non-proﬁt sector, the child protection system and equal opportunities for disabled people. A three-pillar pension scheme was introduced at that time as well. Essentially, most of the measures attempted to deal with the economic crisis by cutting back the state’s role in social provision. The pension system was privatized. More and more medical services were now to be paid for by users. The family support system was ‘residualized’ and social assistance measures became increasingly important. Loudly expressing its commitment to conservative-Christian political ideology, the third government followed some practices of neo-liberal social policy as well. The social policy of this government was explicitly focused on the strengthening of the middle classes and incorporated the traditional family model. As a ﬁrst measure they reintroduced universal family beneﬁts and tax beneﬁts for families with children. This beneﬁted better oﬀ people but did not help the poorest third of society. Increases in family allowance and child care allowance schemes, however, did not occur. Instead the tax allowance scheme was made stronger. This government not only in its rhetoric, but also in the services diﬀerentiates between the deserving and the undeserving poor, introduced subsidized credits and other incentives to promote home building for the better oﬀ. As is 246

HU N G A RY

characteristic of neo-liberal policy, there was a tendency towards greater selectivity; the beneﬁts gradually eroded as well, and harsher measures were introduced to link welfare with work. In line with the conservative ideology, this government favoured a strong, centralized approach to governance. Decentralizing institutions were being enfeebled or dismantled step-by-step, and sometimes abolished. This government broke up the system of social dialogue, and this hardly accords with the conservative (selective) welfare regime. Fundamentals of the system of the tripartite social dialogue were altered. The health and pension boards were destroyed, and the funds freed up by this were renationalized. The relevant contributions are currently collected by the tax authorities and supervision of the funds has been assigned to the Ministry of Finances. Owing to underfunding, local self-governments found it increasingly diﬃcult to fulﬁl their statutory obligations. The socialist-free democrat coalition elected in 2002 and re-elected in 2006 follows a policy based on a special mixture of social democratic and neo-liberal ideas. In spite of the diﬀerences in the social policy initiatives of the governments in the past years there are some evident driving forces since joining the European Union to accomplish its requirements: strong ideological priorities (traditional conservatism, neo-liberal social democracy); prioritizing the budgetary problems; gradually diminishing eﬀorts to keep the social peace.

Status quo: analysis and political dimensions Services according to national priorities The main objectives of recent social policy in Hungary are in line with those of the other member states of the European Union as the main challenges formulating social policy are similar. According to diﬀerent strategic government documents the future Hungarian government policies have to be targeted to increase sustainable economic growth and labour market participation. As far as social insurance based services are concerned as a consequence of the ageing population, the need to increase labour market participation and the ﬁnancial problems of the funds both the pension and the health insurance system are undergoing a radical reform process. To increase the motivation to participate in the labour market several incentives as well as measures of compulsion were introduced among others into the social assistance system. The system of governance also changed signiﬁcantly as a result of the democratization process. In Hungary the constitution treats local governments as fundamental components in a territorial division of state power. Moreover, special laws establish the political autonomy of local governments. Dismantling the command economy and the centrally controlled structures of public administration and public institutions has been a critical element of the post-communist transition. The changing division of power among state branches and administrative levels as well as the appearance of market based and non-proﬁt service providers created a new setting for social policy in the 1990s. Local governments were elected and provided with a wide range of rights and responsibilities. Basic tasks and competencies relating to education, health and social services, as well as child and youth protection, have been allocated to local governments. The conﬂict between their statutory obligations and their ﬁnancial and administrative capacities has, however, reduced the scope of the local authorities’ activity. 247

K. TAUSZ

Table 13.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

hu

eu27

eu15

100.0 98.0 11.5 2.8 2.4 0.7 39.0 41.6

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

There are unintended consequences of decentralization like the failure to reduce territorial diﬀerences due to the lack of adequate policies. The danger of poverty and unemployment correlates with the place of residence (town or village, rich or poor region of the same country). If the self-government, representing the will of the local majority, adopts local prejudices and racist attitudes, social policy may become the vehicle for undermining basic human rights and for institutionalized discrimination. The re-emergence of the voluntary/none-governmental organization (NGO) sector has been a major advance in social service provision. In 2000 there were about 50,000 NGO/voluntary sector organizations, and about 60 per cent of them were operating in the ﬁelds of education, culture and social policy. Most of them were small NGOs delivering services relating to just one school or a small community. The process of marketization and privatization started in the middle of the 1980s in Hungary. However, it remained marginal in the social sector until about 1993. Since then former areas of public responsibility – for instance, utility services such as water, gas, electricity and garbage collection – have been fully or partly privatized. More than 90 per cent of the housing stock was also sold, usually to sitting tenants. Unfortunately, we possess only incomplete statistical data on these outsourced services, but these data indicate that, despite the rapid growth of the sector, the role of business and non-proﬁt organizations in social services is still not signiﬁcant (Table 13.2). Governments in Hungary after 1989 had one thing in common: all of them were convinced that economic performance and high-level social protection are not mutually reinforcing, but contradictory. In this discourse – a discourse characterizing not only the period of economic crisis during the transition to a market economy, but later periods as well – budgetary constraints were represented as being necessary, ﬁrst of all, in the area of welfare services. Instruments and measurements Traditional insurance-based instruments Health insurance and pension insurance have a long history in Hungary. They date back to before the Second World War. Hungary had a relatively robust health care and 248

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pension system in the period of state socialism based on more or less guaranteed employment, resulting in considerable security for the citizenry. Serious problems aﬀected the health care system of state-socialist Hungary: decades of low growth, ineﬀective, highly centralized management, internal ineﬃciency, the low quality of the provisions, gratitude money and poor health status of the population. But in spite of these, the inherited system was at least easily accessible for most people and free of charge. It should also be noted that a wide range of formal and informal privileges and semi-legal cash ﬂows accompanied the institutionalized system. The most important starting point of the reform process was to revise the citizen’s right to medical services free of charge. Under these ideological circumstances, the Amendment to the Social Security Act (of 1975), passed in 1991, determined eligibility by a detailed speciﬁcation of those groups who are entitled to compulsory health insurance, creating a system ‘open at its bottom’ (Orosz, 2001:8). In the reforms of 1989 – and somewhat similarly in the 1990s – the main goals were a stable, viable system of ﬁnance; the development of mixed ownership; performancebased ﬁnancing; restructuring of service delivery giving primary care more, and the hospital sector less, weight; reorganization of the system of professional supervision; an increase in the autonomy of institutional management; the introduction of supplementary insurance; and the enhancement of the patients’ rights. Successive steps in the reform process followed this script, at least formally speaking. In reality, despite formal changes in ﬁnancing, ownership and such like, the system was in trouble. As the Commission’s regular Report formulated the matter in 2000: The healthcare system is the most urgent structural reform confronting Hungary. Healthcare indicators compare unfavorably with other OECD countries, while the weak ﬁnancial structure places a heavy burden on public ﬁnances. The reform process is at an early stage, and no political consensus has yet been reached. More generally, the government needs to develop a coherent and systematic programme of reforms which will both improve healthcare outcomes and address the diﬃcult ﬁnancing issues. (Regular Report, 2000). These problems still have not been solved; however, basic changes were initiated in the last years. The basic question is to preserve the social insurance-based system of medical services with a possibility to complement it with joining voluntarily a private health insurance company (in the second quarter of 2006 571,324 people choose this option) or to create a system of competing insurance companies. Some of the reform initiatives of the recent government collapsed on a referendum organized by the political opposition, however a system of ‘service packages’ based on the level of contribution was introduced. There is much at stake and not only in ﬁnancial terms: the average life expectancy rate is signiﬁcantly shorter than that in the EU15 countries, the health status of diﬀerent social groups strongly correlates with their social status and there are serious inequalities in the access to health services. More fundamental changes occurred in the pension system. The coverage of the state managed pay-as-you-go (PAYG) pension system increased continuously from 1950 onwards. In 1989 it covered practically the whole labour force. A variety of professionals alleged, and it had indeed been recognized from the early 1980s, that the pension system was incomplete, unsustainable, and full of inequalities and inconsistencies – in short, in 249

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need of reform. Demographic change and developing economic and labour-market conditions also ensured that reform of the pension system was inevitable. Until 1995–96 the aim, so far as the pension system was concerned, was to reform and ensure the functionality of the PAYG scheme. In 1992, for the ﬁrst time in Hungary, a law introduced compulsory annual indexation of pensions – originally to wages. The pension age was also increased as part of the reform process. After 1996 pensions discourse changed fundamentally: the ‘multi-pillar’ system was now on the agenda, and the age limit was increased. A bill passed in 1997 restructured the PAYG system into one with three pillars. It now consisted of a state-managed payas-you-go public pension system (1,649,000 senior citizens were provided with social insurance based old age pension in 2005) that was based on the principle of the solidarity between generations; a privately funded contribution scheme that was mandatory for newcomers to the labour market and optional for everybody else (2,563,000 persons in the second quarter of 2006); and a private voluntary system (also privately funded and managed with 1,346,000 members in the second quarter of 2006). Those who are not eligible for any form of pension can apply for means-tested social assistance. Unemployment beneﬁt system The labour market crisis – the rapid decrease in employment – became the most serious problem in Hungary after the 1990s. The registered unemployment rate has been, however, slowly falling. At its peak, registered unemployment reached 663,000, 9.9 per cent in 1992 (Table 13.3). In line with international trends, the unemployment rate is higher than average among the youngest and the oldest, the low-skilled or uneducated, the Roma population and in underdeveloped areas. The rigidity of the labour market is also signiﬁcant. The rate of the long-term unemployment – those who are unemployed for more than 12 months – has rapidly grown and reached 49.4 per cent in the ﬁrst quarter of 2008. The average duration of unemployment is 18.7 months (KSH, 2008a). Originally, the primary role of the new unemployment insurance system was to mitigate the ﬁnancial hardship of households with unemployed members. At ﬁrst the system was quite generous. Later, however, the eligibility conditions became increasingly stringent. The insurance character of the system is indeed gradually disappearing: it has hardly any relation to the earlier incomes, the replacement rate has decreased and the conditions of access have become harsher. The amount of the beneﬁt has also declined in comparison even with the minimum wage. In 1993 the Social Act introduced a targeted form of social assistance called ‘income compensation allowance’ which oﬀered ﬁnancial support to the long-term unemployed – originally without a time limit. A time limit of two years was imposed in 1995. Regular social assistance was provided by law in 1997. This was the last element of the system of unemployment provisions. Both access to, and the beneﬁts of, this tripartite system of provisions formed a kind of hierarchy: the level of the provisions declined as users passed to later stages, and the conditions of access were increasingly severe. The government elected in 1998 (third government) repeatedly emphasized that ‘working people are good citizens!’ The conditions and nature of the above provisions reﬂected this mantra. It was assumed that poorer provisions constitute a better incentive to work. In 1999 the unemployment beneﬁt period was reduced from twelve to nine months. From 1 May 2000 the income replacement allowance (oﬀered at that point for 250

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Table 13.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

hu

eu27

eu15

– 9.6 9.0 8.4 6.9 6.4 5.7 5.8 5.9 6.1 7.2 7.5 7.4

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

two years) was abolished. Unemployed people receiving regular social assistance might receive assistance from the local authority providing they met an additional condition: they had to accomplish at least 30 days per year of public work. ‘Workfare’ – with its capacity for what is euphemistically referred to in the scientiﬁc literature as ‘activation’ – has become an increasingly dominant aspect of political ideology in Hungary. Social assistance beneﬁts and compulsory public work play a more and more important role in the system, especially in the case of the long-term unemployed. As an inevitable response to these processes, people who felt threatened by unemployment made eﬀorts to obtain a more secure and longer-term kind of ﬁnancial support: for example, disability pension. The number of pensioners below the pensionable age limit rose from 260,000 in 1990 to 600,000 in 1998. Consequently, the participation rate is comparably low, 54.9 per cent in 2007 (KSH, 2008b). This situation would have been untenable if many were not involved in the grey or black economy. Of course, those working solely in the black or grey economy have no labour rights and no social protection. On 1 November 2005 the employment law was amended and cash beneﬁts were made more job-search focused. The new measures intend to increase the participation rate, to encourage the ﬂexibility of employment, to promote the reconciliation of work and family life, to ‘whiten’ the grey and black economy and to provide more rehabilitation oriented employment services for disabled people and for persons with long-term health problems – so far with not too much success. Education Problems of employment and – as they are proved by the PISA studies – the negative outcome of the functioning of the educational system are strongly correlating in Hungary. The level of employment of persons with at least secondary education is similar to the European ﬁgures; however, people with eight years of schooling or less suﬀer extreme diﬃculties entering the labour market. In Hungary today, the social factors determining mobility are extremely powerful. Only about 4–5 per cent of children do not enrol in some form of secondary education after ﬁnishing primary school, but the Hungarian education operates 251

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with a shockingly high dropout rate. The ratio of Roma among children starting out with economic and social disadvantages and living within the immobile segment of society is quite high. While it is estimated that Roma make up 5–6 per cent of the overall population, they account for 30 per cent of the people whose education levels do not exceed eight grades of primary school. One sign of the poor performance of the Hungarian education system is that during the number of years they spend in school the educational disadvantages of children who come from a disadvantaged background do not decline but, in most cases, increase. Thus the improvement of the education system could play a vital role in breaking the cycle of inherited intergenerational poverty and in the increase in the labour market participation of people with social disadvantages. There appears to be a clear government intention to reduce inequalities and to increase the eﬀectiveness of public education; however, there seems to be some resistance in the acceptance of the arsenal of tools which ought to implement the government intent by the schools and by the local governments that maintain them. Housing In state-socialist Hungary, most people renting government-owned apartments lived in cities, and these apartments were distributed on the basis of a combination of welfare and political considerations. After the regime change, government-owned housing was privatized on a large-scale, resulting in very few remaining rental units. Even though, the current administration announced a programme it called ‘Nest Building’ in 2005, to alleviate the housing problems of young people and families with children, the ability of local governments to oﬀer housing is sorely limited by tight budget constraints and they also have very little funding for renovation of rental housing. As a result of the withdrawal of the price subsidies, rents and rates increased dramatically in Hungary. There are a variety of aid conﬁgurations intended to help people keep the homes they live in, such as social assistance-type home maintenance support; debt management service oﬀering cash assistance and counselling to low-income people who have built up debts; and gas bill and district heating bill subsidies. Although the Constitution guarantees the right to social security, it does not include the right to remain in one’s home. The result is that even families with children can be and are evicted because of severe debts to the utility companies. Family support systems As happened in other CEE countries, family provisions accounted for a considerable proportion of welfare expenditure in Hungary. They also played an important role in poverty relief as well as in the reduction of inequalities of income. Two parallel processes have had an eﬀect on families with children over the last years. On the one hand, a commitment to family autonomy has become prevalent; on the other, the state has been steadily cutting back on its responsibilities for social policy. While freedom of choice for families with children increased in areas such as choice of school and educational approach, the social (existential) security guaranteed by family provisions has been decreasing till 2002. From 2002 onwards the family allowance was increased and probably not independently of this, the child poverty rate slightly decreased (Darvas, 2000). With diﬀering emphases and rhetoric, each government has connected family provision with the increased costs associated with pregnancy and child care. 252

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The most important schemes for families with children are family allowance, child care allowance (GYES), child care fee (GYED) and child care support (GYET). Family allowance, GYES and GYED were introduced in the socialist era and continued to function in more or less the same way until the so called ‘Bokros package’ was implemented. Although GYES and GYED were employment-linked provisions, the former functioned in practice almost as a universal beneﬁt as a result of the emphasis on equity. In accordance with the conservative ideology of the government, a new family provision was introduced in 1994. This was GYET, a form of child care support designed for families with three or more children. GYET and the institution of ‘full-time mother’ were intended to encourage both the rebirth of the traditional family model and a steady birth rate. From 1996 family allowance and GYES became means tested and GYED was gradually abolished. The socialist-free democrat coalition annulled the employment-linked entitlement criteria from GYET. The Orbán (third) government restored the family allowance, GYES and GYET as universal beneﬁts, and reintroduced GYED. The socialist-led coalition (fourth government) increased the family allowance by 20 per cent and families with children were provided with the so called thirteenth-month family allowance before the beginning of the school year. In the last years of state socialism, the family allowance amounted to approximately one-third of the subsistence minimum for families with two or more children. When evaluating the adequacy of state-funded family provisions, one must bear in mind that in spite of the alleviation of poverty these schemes brought about, a signiﬁcant loss in the real value of these beneﬁts took place. This loss was in part the result of the fact that there was no systematic mechanism of indexing the beneﬁts. The money available through GYES and GYET respectively is the same as that provided in the minimum old age pension. Thus these allowances are quasi-indexed. But in reality the level of the minimum old age pension depends on the budgetary and political preferences of the ruling political elite in the Parliament (Table 13.4). The poverty reduction function of the family support system decreased as a result of the diminishing value of the family allowance and the negative redistribution eﬀects of the family tax deduction. It is notable that children living in families with three or more children and in single-parent families are the most seriously hit by the inadequacy of the family support system. The three-tiered family beneﬁt system consisting of the universal family allowance, the family tax deduction for families with taxable incomes, and the regular child protection assistance for families whose inﬂow was less than the minimum old age pension were replaced by an across-the-board family allowance payable to every family with children from 1 January 2006. The new system may increase the take-up rate of the beneﬁts (previously 20–30 per cent of poor households with children were not covered by social assistance; parents earning minimum wages could not take advantage of the tax deduction and were not entitled to the regular child protection assistance, either) and puts and end to the humiliating and stigmatizing procedure of means testing completed by making home visits. This change has made the system more predictable, strengthens social rights, and eliminates some injustices (Tausz, 2006). Social assistance Some forms of selective social assistance existed in the state-socialist period, but this was an insigniﬁcant part of the social protection system. 253

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Table 13.4 Real value of family beneﬁts relating to child care (%)

Year

Child care fee (GYED)

Child care allowance (GYES)

Family allowance

Real value of average monthly amount per family (1990 = 100.0) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

100.0 94.6 96.1 95.0 91.6 82.1 78.7 79.3 – – 96.7 110.7 120.1 124.6 129.9 135.0 139.3

100.0 99.8 95.0 88.9 91.7 77.7 74.7 82.3 80.2 80.5 80.4 79.0 83.2 89.1 91.9 94.7 96.0

100.0 92.9 84.9 79.3 66.8 53.3 44.6 44.2 45.7 42.0 38.4 35.7 39.4 42.4 42.1 42.7 70.7

Source: Yearbook of Welfare Statistics, 2006 (2007) KSH, Budapest

One of the most important events of the formation of the post-socialist welfare system was the drafting and approval of the Act III./1993 on social administration and social services. On the basis of the principle of subsidiarity, this piece of legislation requires the local community to take responsibility for meeting the basic needs of the citizens. It speciﬁes the individual types of ﬁnancial and in-kind social beneﬁts and those relating to personal care. It also speciﬁes the eligibility criteria, and the principles and institutions governing the ﬁnancing of social services, and the fundamentals of the legal relationship between the social service provider and beneﬁciaries of that service. Act XXXI/1997 on the protection of children extended the role of local governments in child protection. The recent social assistance system in Hungary consists of a variety of beneﬁts, each carrying diﬀerent eligibility criteria to ensure that social protection is better targeted. This is the theory, at least. In fact there has been serious leakage in cash beneﬁts handled by local governments. According to a survey on the situation of families living in poverty representing the lowest three income deciles 77 per cent of households were not provided with any form of social assistance in 2006 (Bass et al., 2007:79). There are no reliable data on the adequacy of beneﬁts and on the coverage partly due to the statistical data gathering methods. The legally deﬁned sums, however, suggest, social assistance sums are insuﬃcient to cover even the most basic needs. The above mentioned survey indicates, the income of the poor households – including social transfers – does not reach even two-thirds of the subsistence minimum (Bass et al., 2007:73). Whatever other eligibility criteria they use, social assistance systems are always based on means testing. Income testing can be imperfect, owing to problems relating to the informal or, ‘shadow’, economy. In addition to income testing, property and employmentbased criteria as well as behavioural or character-based tests are applied as components in the selection process. These tests often carry a serious stigma. They may also discriminate 254

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against the most needy. The more preconditions that have to be met in order to gain an entitlement, the more vulnerable low-income families and individuals become. As a consequence of decisions made at local government level, some beneﬁts may also be rendered (fully or partly) as social services in kind. This seriously limits the freedom of choice of the beneﬁciaries. The purpose of means testing is partly to relate the recipient’s income to an ‘oﬃcial’ standard, the poverty line, as determined by the state. Even though the goals of most beneﬁts in the Social Act 1993 are formulated using phrases like ‘guarantee the subsistence level of … ’, there is no legally determined poverty line in Hungary. Instead the minimum old age pension is the reference point when beneﬁts are calculated. The average value of the subsistence minimum amounted to 66,271 HUF (approximately 280 euro) in 2007, while the old age pension being the administrative poverty threshold was 27,130 HUF (approximately 115 euro) monthly, in the same year (KSH, 2008c). In the evaluation of systems of social assistance the maintenance of the real value of beneﬁts is a key issue. In Hungary the indexing of social assistance beneﬁts is not regulated by law. As a result of the diﬀerent regulations and ﬁnancial resources of the local governments, there are signiﬁcant regional diﬀerences in the delivery of social assistance. The ﬁrst Gyurcsány administration (2004–5) fundamentally altered the government’s philosophy concerning poverty. While its predecessors concentrated resources on maintaining the position of the middle classes and middle class families with children, the current administration seems to target assistance to those families that need it most. For this purpose some reforms were introduced to change the social assistance system. The most important change relates to the regular social assistance provided to people of economically active age who are not eligible for unemployment beneﬁts and persons with long-term health problems. The new measure aims to create a beneﬁt system taking into account the composition of the family (instead of calculating with the per capita income of the family an equivalent scale was introduced) and to use more eﬀective incentives to encourage people to re-enter the labour market. It does not prohibit occasional work any more and new entrants to the labour market who formerly were provided with regular social assistance will continue to get 50 per cent of the beneﬁt for their ﬁrst three months on the job and 25 per cent for the next three months, as a way of recognizing the additional costs of employment. Regular social assistance, when received, will build the whole household’s income to as much as 90 per cent of the minimum old age pension (but it cannot exceed the level of the minimal wage), which is a slight increase compared with the previous system, but the level is still very low. Distribution The performance of the welfare system cannot be easily evaluated. From the change of the regime till 2005 social inequalities and the poverty rate continuously increased indicating that social policy and labour market policy measures were not eﬀective enough (Table 13.5). As a result of the shift to a market-based economy, inequalities of income began to increase in the 1980s. In 1982 the incomes in the highest decile were three times larger than incomes in the lowest decile. By 2003, however, the former were eight times larger than the latter and by 2007 it decreased to seven times larger (Tárki, 2007: 28). The survival of a growing number of families was endangered and several sectors of the population had to face poverty for the ﬁrst time. Changes in the ‘oﬃcial’ income of 255

K. TAUSZ

Table 13.5 At-risk-of-poverty rates by gender

hu

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – 11 11 10 12 – 13b 16

– – – – – 11 11 9 12 – 14b 16

– – – – – 12 12 10 12 – 13b 16

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

households had not kept pace with the rate of inﬂation, and the net income of households had decreased. These developments were eﬀects of the labour market (principally, the radical reduction in the number of Hungarians employed, the increase and subsequent stabilization of long-term unemployment). They were also the result of the withdrawal of price subsidies, as well as being rooted in the system of income redistribution. Absolute poverty, i.e. the ratio of those who live below the subsistence minimum calculated for 1990, has tripled: it was around 10 per cent in 1990, but by 1993 this ﬁgure increased to 22–25 per cent, since when it has risen even further and remains now at approximately 30 per cent (Table 13.6). On the basis of demographic indicators children, single-parent families, families with three or more children and families with small children, elderly citizens living in single households, people living with disability and long-term sickness, were (and are) most at risk of poverty. Unemployment, especially long-tem unemployment, the lack of appropriate qualiﬁcations, the type of settlement (e.g. village or small town) and being Romany – all these signiﬁcantly increased, and continue to increase, the risk of poverty. The number of social assistance beneﬁciaries multiplied, but the public expenditure spent on poverty relief was hardly increased. There were about 1.5 million people getting assistance (15 per cent of the population) in 2005, and the whole sum spent on assistance amounts to about 1 per cent of the gross domestic product (Bass et al., 2005). Even though there is by and large a consensus that targeting has been improving throughout the decade, statistical data indicate that about half of the poor do not accede to social help. Data also conﬁrm families with children are better served than single adults, or households without children. In a nutshell, the welfare system of Hungary can be characterized with mostly the same institutional framework as that of the traditional welfare states. Pluralization of the welfare services gained ground in the past years: in addition to the public and informal sector, non-proﬁt and private participants have also become involved in these services. 256

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Table 13.6 Relative income poverty, 1992–2007

0–15 year old children One parent with a child/children Couple with three or more children Head of the household Roma Total

1992

1996

2000

2003

2005

2007

12.5 20.0 24.2 52.8 11.9

19.5 25.7 33.1 64.9 14.2

16.5 32.1 – 70.4 12.9

18.7 37.4 30.4 50.8 13.5

14.6 32.7 23.3 37.1 12.0

15.3 25.4 24.0 50.2 12.6

Source: Szívós, P. and Tóth, I. Gy. (eds.) (2008) Köz, teher, elosztás. TÁRKI, Budapest p. 52. Calculated with the OECD2 equivalence scale as 60 per cent of the median income

In line with the international trends the most important aims of health care and pension reform were the democratization of the system, the introduction of new provisions meeting new needs, and diminishing the importance of the solidaristic elements in the existing schemes. The last of these aims was met mainly by facilitating the emergence of various private schemes. Both the health and pension insurance reforms curtailed the role of the state, and in particular the state’s ﬁnancing role: the reforms have involved cuts in public expenditure and growth in private ﬁnancing. Individualism has gained ground over social solidarity, individual responsibility over responsibility for each other. Various labour market initiatives were introduced however without signiﬁcant results. The family beneﬁt system – so far – preserved its importance in the ﬁght against poverty and social exclusion. Because of the lack of a coherent social protection system and the acceptance of the basic welfare rights of the citizens, social assistance became a huge bureaucratic, alienated industry.

Outlook The transitional period can be interpreted not only in political and economic terms but also as the birth of a new welfare system. In Hungary a market-based economy is operating in a parliamentary democracy. The basis for the social security system are laid, but as the data on poverty show the very low level of provisions, the granting of local discretion and the process of privatization of the social insurance schemes do not guarantee even a minimal safety net for the population. There has been a tendency to overlook the least well oﬀ members of the population when trying to solve the dilemma: how to provide greater social protection for the people in need, while cutting back social expenditure. And while the state has become more and more rigorous in handling national ﬁnances, it has also been decentralizing its welfare responsibilities. The new social risks challenging the traditional European social model hit Hungary as well. These challenges have been recognized for years, and have been dealt with to some extent. However, none of the consecutive governments found ways how to manage the serious labour market problems. Blaming the poor, namely hundreds of thousands of citizens without the necessary education and skills, living in the most disadvantageous areas of the country and restrictions in the social assistance system will not result in any kind of solution either in the short or the long run. 257

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The speciﬁcities of the formal state-socialist countries have not had too much attention in the comparative social policy. Hungary had to face dramatic economic and social tensions and to create a new welfare system. However, while in the traditional welfare states an unquestionable social security minimum exists, a more or less living ‘memory’ of the golden age of the welfare state, the same period makes the Hungarian population remember the harsher years of state socialism. In this sense the timing of the transition was not too favourable as it fell on the period of the crises of the welfare state. Some elements of the social security system are quite fragile even nowadays. This is due partly to their relatively short history (e.g. measures to handle unemployment, social services, social assistance, etc.), and partly due to the frequency of the so-called reform changes. As a consequence of the weakness of the trade unions and of the other types of organizations representing the interests of diﬀerent groups in the society these changes do not meet strong opposition. In Hungary party politics dominates public discourse, and the possible reﬂection of the social processes in the welfare arrangements are embedded in the political power relations as a consequence of which the answers are sometimes totally unreasonable, illogical. If we choose Esping-Andersen’s welfare regimes as the starting point of our argument, the Hungarian welfare system can not be compared with the neo-liberal, the conservative or the social democratic welfare regime; neither can be the former state-socialist countries; it is an anti-model or a hybrid model. It can hardly be characterized as a more or less consistent system either. The diﬀerent measures and arrangements are the reﬂections of the ideologies and of the interests of the consecutive governments; this is the main reason of being a hybrid and of the ineﬀective use of public resources. None of the consecutive governments had a clear social policy orientation; none of them had a clear political proﬁle. It is more or less fair to say that we have not met any transition country where a societal policy programme and a long-term institutional vision existed or was consistent. The social changes tended to be spontaneous consequences of the political and economic changes. Both the inherited and the newly created systems had contributed to alleviate the shocks of the transition, yet there never was enough political will to give suﬃcient or adequate help to those needing it. The lack of the systemic construction activity and that of a long-term vision result in the impossibility of the stabilization and strengthening of the welfare system, result in the weakness of the planning process even in the middle-run and in the diﬃculties concerning the evaluation of the performance of Hungarian social policy. One has to conclude that there is no unique label to describe these countries, and none of the relatively clear-cut ideal–typical labels applies to them. They diﬀer from each other, and they are all changing constantly, inﬂuenced by home and foreign social forces. Most of them seem to share just one feature: the absence of a project for a welfare system which would signiﬁcantly mitigate the costs of the transition in the short run, and would promote the emancipatory dimension of social policy as well as the formation of an integrated society in the longer run. (Ferge, 2001)

Bibliography 2000 Regular report from the Commission on Hungary’s progress towards accession. 8 November. www.gov. hu/euanyag/hu_en.htm.

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Bass, L., Darvas, Á., Dögei, I., Ferge, Zs., Juhász, G., Márton, I., Márton, K. and Tausz, K. (2005) Kik és miért nem veszik igénybe a közszolgáltatásokat. Budapest: Eötöuös. Bass, L., Darvas, Á., Dögei, I., Ferge, Zs. and Tausz, K. (2007) A szegénység és kirekesztés változása, 2001– 2006. Gyerekesély füzetek 3. MTA KTI Gyerekprogram Iroda, Budapest. Darvas, Á. (2000) Utak vagy tévutak? Családtámogaások Közép-Kelet-Európában a rendszerváltás óta. Unpublished manuscript. Ferge, Zs. (1998) ‘Social Policy Regimes and Social Security’, in Zs. Ferge and J.E. Kolberg (eds): Social Policy in a Changing Europe Campus Verlag, Westview Press. Ferge Zs. (2001) ‘Welfare and “ill-fare” systems in Central-Eastern Europe’, in R. Sykes, B. Palier and P. Prior (eds.) Globalization and European welfare states: challenges and change. London: Macmillan. Ferge, Zs. et al. (1995): Societies in Transition. International Report on the Consequences of the Transition. IWM, Vienna. Ferge, Zs., Morva, T., Sziklai, I. and Wells, N. (eds) (2000a): Az államháztartás reformjának hatása a társadalmi ellátásokra civil néző pontból. A SAPRI jelentés összegzése és következtetései, in Zs. Ferge (ed.) Elszabaduló egyenlő tlenségek. Hilscher Rezső Szociálpolitikai Egyesület. Ferge, Zs. et al. (Eds) (2000b) Implementing the Copenhagen Commitments Adopted at the World Summit for Social Development. Copenhagen, 1995. Civil report for Hungary 2000. Report of the national Committee of ICSW – Alliance of Social Professionals for the Copenhagen +5 Special Session of the UN. The Geneva 2000 Forum, Geneva, June 2000. Ferge, Zs., Tausz, K. and Darvas, Á. (2002) Combating poverty and Social Exclusion – Volume 1. ILO SRO-Budapest. KSH (2002) Household Budget Survey KSH, Budapest. Létminimum 2007, (2008c) KSH, Budapest. KSH Gyorstájékoztató, Foglalkoztatottság-munkanélküliség (2008a) http://portal.ksh.hu/pls/ksh/docs/ hun/xftp/gyor/fog/fog20806.pdf. KSH Statisztikai Tükör, 2008/57 (2008b) Munkaerő piaci jellemző k 2008 első negyedévében, http:// portal.ksh.hu/pls/ksh/docs/hun/xftp/idoszaki/munkero/munkero081.pdf. Orosz, É. (2001): Reform ideas and reality: a story of the transformation of the Hungarian health care system. Unpublished manuscript. Szívós, P. and Tóth, I. Gy. (eds.) (2008) Köz, teher, elosztás. Tárki, Budapest. Tárki (2007) Lifepath Analysis of Hungarian Households: a 2007 update of the Hungarian Household Panel 1992–1997 (www.tarki.hu/adatbank-h/kutjel/pdf/b227.pdf. Tausz, K. (2006) Trends, Recent Developments Active Inclusion and Minimum Resources. First semester report 2006. European Commission DG Employment, Social Aﬀairs and Equal Opportunities http:// ec.europa.eu/employment_social/spsi/docs/social_inclusion/experts_reports/hungary_2006_en.pdf. .

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Chapter 14

ie The Irish welfare system Anthony McCashin and Judy O’Shea

The Republic of Ireland is a small open economy with a total population of about 4 million. It gained its independence from Britain in 1922. Economically and socially underdeveloped for the ﬁrst half of the twentieth century, it has experienced signiﬁcant economic growth from the early 1990s onwards with the emergence of the so-called Celtic Tiger economy. This chapter traces the development of the Irish welfare state and outlines its main features, concluding with a brief discussion of the challenges it faces.

The Irish welfare state in a comparative historical context Historical overview The birth of the Irish welfare state can be traced to 1838 with the enactment of the Irish Poor Law by the British government. It was based on a system of indoor relief in workhouses, reﬂecting the laissez faire philosophy of the Whig government. In adopting this approach, the British government ignored the recommendations of an oﬃcial inquiry that had rejected the idea of a Poor Law for Ireland and recommended a programme of national economic development and a range of measures to deal with both the causes and the alleviation of destitution in Ireland. The British government reformed the Irish Poor Law in 1847 and introduced a system of indoor relief in response to the extreme destitution caused by the Great Famine. The Irish Poor Law was gradually expanded to include basic health services and services for children and other vulnerable groups over the remaining decades of the nineteenth century (Cousins 2005). The British inﬂuence continued into the twentieth century with the introduction by the Liberal Government of the Old Age Pension in 1908 and National Insurance for unemployment and sickness in 1911. These were the ﬁrst social security schemes in Ireland and they began the ‘gradual erosion’ of the Poor Law regime (McCashin 2004). The Cumann na nGaedheal party that formed the ﬁrst independent government was ‘socially conservative and ﬁscally liberal’ (Cousins 2005). Inﬂuenced by economic diﬃculties and the interests of its prosperous farming and urban middle class supporters, it 260

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reduced public expenditure: indeed, the most notable social policy initiative of this ﬁrst independent government was the reduction in the old age pension in 1924 (Cousins 2005). The 1932 election led to the formation of the ﬁrst Fianna Fail government, which adopted more interventionist policies. This party had campaigned for social reform and economic development, and in government during the 1930s and 1940s introduced protectionist economic policies and welfare reforms such as pensions for widows, unemployment assistance, child beneﬁt and large-scale programmes of public housing (Cousins, 2005). There was a ﬂurry of debate about social reform during the reign of the coalition government (1948–51). Enlivened by the participation of the radical Clann na Poblachta party, and inﬂuenced by the post-war welfare state initiatives in the UK, this government introduced the foundations of social insurance and health care (McCullagh 1998). In the 1950s after the collapse of the inter-party government over the issue of health care reform, the economy stagnated. Ireland entered a sustained period of development in the early 1960s, characterized by the opening of the Irish economy and a concerted programme of economic development, resulting in a high level of economic growth, industrialization, and urbanization. As part of a programme of national development, governments implemented initiatives in social security, education, labour market, health and other areas. This phase of welfare state development continued until the early 1980s and led to a sustained increase in social expenditure and a narrowing in the distribution of income (O’Hagan 1991). During the 1980s, the economy and the welfare state experienced a ﬁscal crisis, occasioned by poor macro-economic policies and populist public-spending policies. This crisis (exempliﬁed by an unemployment rate of 18 per cent in 1985) was addressed through a new corporatist strategy that began in 1987 and remains in place today. Essentially, governments have accepted the macro-economic disciplines of EU membership; this has meant compliance with ﬁscal targets and low levels of nominal wage increases negotiated in a series of national agreements. To underpin this strategy, governments have reduced taxes on incomes to augment employees’ net pay, adhered to a process of consultation on economic and social policy, and invested in infrastructure, training and industrial development. The Irish welfare state is now shaped by the imperatives of a small open economy that has actively embraced the European and global economies while attempting to remain competitive and retain legitimacy through moderate rather than substantial redistribution. Understanding the development of the welfare state in Ireland Studies of welfare state development focus on modernization, democratization and classbased politics, although there is considerable theoretical diversity in the interpretation of the causal forces at work. There is a dearth of theoretically informed scholarship about the Irish welfare state, but existing work would suggest that understanding the development of the Irish welfare state requires a particular focus on the role of the state (Breen et al. 1990). For example, the 1960s and 1970s were decades of welfare expansion. During this period the state was the principle actor in redeﬁning national goals and redirecting the economy along a path of export-led industrialization (based on foreign direct investment). Social improvements such as the expansion of education, the consolidation of social insurance, and the establishment of manpower services were implemented as part of a national development programme. The state exercised a degree of autonomy in formulating and implementing this strategy (Breen et al. 1990). 261

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The central role of the state can be seen again in the restructuring that followed the ﬁscal crisis of the 1980s. The state engaged with the economic interest groups and instituted a process of consultation and incorporation. This led to the formulation of a sequence of national agreements that rest on acceptance of broad macro-economic and ﬁscal targets and include commitments on pay, taxation and, increasingly, social measures. Critically, the social aspects of this strategy are limited: they include ameliorative measures such as minimum pay legislation and agreement on social security beneﬁt increases. The state has acted to sustain this variant of corporatism, and has continuously articulated the developmental, economic and social rationale for this strategy (Allen 2000). A fuller account of the welfare state development would need to incorporate these three speciﬁc factors. First, Irish party politics are politics ‘without social bases’ (Whyte 1974). During the 86 years since political independence Fianna Fail, a cross-class, nationalist party has been in government (either single party or coalition) for 60 years. Therefore, Irish welfare politics are populist rather than liberal or social democratic. Fianna Fail does not advance egalitarian goals, nor does it pursue broad retrenchment policies or neoliberal principles even in contexts of ﬁscal crisis. Second, agrarian inﬂuences are relevant. From the late nineteenth century onwards the national social project was the establishment of a land-owning class of family farmers. This required a substantial, long-term programme of land redistribution and agricultural development that had signiﬁcant distributional and social implications. ‘Welfare’ developments in the ﬁrst half of the twentieth century were primarily deﬁned in terms of the needs of the rural, farming sector. This meant that early welfare state initiatives (such as family allowances) were constructed in response to both agrarian inﬂuences and the needs of the small urban working class (Carey 2005) Third, there were Catholic and corporatist inﬂuences on the Irish welfare state. Catholicism oﬀered moral reinforcement to the male breadwinner model of the family. In the ﬁrst half of the twentieth century Irish Catholicism idealized the farm family and later, when the economy industrialized, it gave a moral rationale (reﬂected in the Constitution) for the male dominated, one-earner family. European Catholic social thought inﬂuenced political discourse in the 1930s and 1940s and led to a debate about subsidiarity. This debate was short-lived and the dominant political party, Fianna Fail, repudiated subsidiarity as a principle of governance (Lee 1989). However, the cultural emphasis on consensus and on containing class conﬂict rooted in Catholic social teaching has persisted, helping to sustain the cross-class, consensual character of electoral politics. Finally, any analysis of recent welfare state developments must allude to the nature and impact of the series of national agreements (the most recent pact was Towards 2016: Ten-Year Framework Social Partnership Agreement 2006–2015 ). This series of pacts has been described as ‘competitive corporatism’ (Hardiman 2000). The strategy entails the state renewing the consent of economic actors to macro-economic policies, and consolidating this consent by careful balancing of wage increases, taxation and incremental social improvements. However, the pacts have not provided a forum for the resolution of many contentious social policy issues (pension reform, equity in health spending, housing aﬀordability) and some have argued that they distract attention from wider distributional issues. However, in the absence of these pacts, public sector and low-paid workers might not have shared in the economic boom and some improvements in social security might not have materialized. These pacts are especially interesting for what they reveal about the political economy of the Irish welfare state; the tendency to consensus and 262

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the capacity of the dominant party to maintain mechanisms of political incorporation (Allen 2000). Ireland’s place in the standard typology of welfare regimes is ambiguous. EspingAndersen (1990) located Ireland in the liberal category on the basis of its low decommodiﬁcation score. However, in analysing the detailed attributes of welfare states he described Ireland as having low scores on socialist regime attributes, low scores on liberal attributes and medium scores on conservatism. In contrast, a standard work on comparative social policy describes Ireland as ‘Catholic corporatist’ (Cochrane and Clarke 1993) and commentaries on health and social security policy also refer to corporatist elements in Irish social policy (Millar and Adshead 2004; Daly and Yeates 2001). Cousins’ (1997) critique of Esping-Andersen emphasizes some similarities between the Irish welfare state and Mediterranean, semi-peripheral states: late industrialization, populist politics, agrarian inﬂuences and centralized state structures. Bonoli (1997) recorded Ireland as having a low level of state spending and a low share of social insurance in social spending: he therefore placed Ireland in the liberal world. An alternative perspective focuses on Ireland’s late, state-sponsored industrialization and its strategic commitment to globalization: this perspective has given rise to the characterization ‘developmental welfare state’ (O’Riain and O’Connell 2000; NESC 2005). The balance of opinion in comparative analysis, based on conventional measures such as welfare expenditure, indicators of poverty and inequality, and qualitative comparisons of social provisions is to categorize Ireland with the liberal, Anglo-Saxon countries (Arts and Gelissen 2002).

The contemporary welfare system in the Republic of Ireland This section describes the main features of the welfare state, concluding with some observations about its distributive impact and the way in which welfare state trends are related to Ireland’s economic performance. Social expenditure From the early 1990s until 2002 social expenditure was falling as a share of rapidly increasing national income. Table 14.1 shows that Ireland’s social expenditure has been consistently and very signiﬁcantly below that of the average for the EU15. These data also show that from 1992 until 2000 the social expenditure and gross domestic product (GDP) ratio declined, and has not yet returned to the level of the early 1990s. Income maintenance is the largest programme followed by current expenditure on health services. The relative importance of transfer payments (not discernible in the functional classiﬁcation in Table 14.2) reﬂects characteristics of Ireland’s social policy that it shares with Christian Democratic welfare states: the dominance of the male breadwinner family model, and the signiﬁcant role of the family and voluntary organizations in service provision. Taken together, these all imply a relatively limited role for state social service provision than in the Nordic welfare states (van Kersbergen 1995). The income maintenance system, summarized in Table 14.3, is a Beveridgean system predicated on poverty alleviation rather than income replacement. Currently, the system comprises social insurance beneﬁts, entitlement to which is governed by social insurance contributions. Insurance-based beneﬁts have corresponding means-tested, social assistance 263

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Table 14.1 Social protection expenditure

ie

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

7585.4 8098.2 9261.4 9446.5 13208.0 14743.1 17569.7 22538.6 24834.5 27090.5 29460.5

2101.9 2226.3 2520.6 2544.2 3517.5 3874.3 4544.2 5732.4 6215.3 6658.7 7083.4

14.8 13.9 12.9 12.0 14.6 14.1 15.0 17.3 17.8 18.2 18.2

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 14.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

ie

eu27

eu15

100.0 93.0 13.6 6.9 2.8 1.9 42.9 24.8

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

allowances for claimants without adequate social insurance. Social insurance is ﬁnanced by payroll contributions from employers and employees, and social assistance and Child Beneﬁt are funded from general tax revenues. Central government administers the system and is responsible for all legislation. Over the last two decades there has been a shift in the balance between social insurance and social assistance. First, the coverage of the contribution system has substantially widened. Second, the majority of the recipient population is in receipt of an insurance beneﬁt; 55 per cent of recipients receive insurance beneﬁts and 45 per cent assistance allowances, and this balance is continuing to shift in the direction of social insurance. Third, the increase in employment and the fall in unemployment to 2005, summarized 264

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Table 14.3 Income maintenance in Ireland

Criteria

Description

General system characteristics

National (Beveridge style) system of ﬂat-rate social insurance and social assistance payments structured around main risk contingencies; system funded by employer and employee contributions and general taxation; national government administers the system.

Targeting and recipients

Social Insurance: 77% of the labour force is contributing for the full range of beneﬁts. Social Assistance: means tested allowances for those with incomplete social insurance: Family Income Support: citizenshipbased child beneﬁt for all families and additional means-tested payments for low paid workers and beneﬁt recipients with families.

Beneﬁt structure and levels

Social insurance pensions approximately 35% of gross average earnings, and unemployment and sickness beneﬁts 27%; beneﬁts not statutorily indexed to incomes or prices; additional beneﬁts-in-kind to long-term recipients for energy, travel; dental, optical, and aural services based on insurance record; means-tested allowances less than insurance beneﬁts; insurance beneﬁts and assistance allowances have dependents’ additions for partners and children.

Funding and expenditure

Total expenditure 7.8% of GDP; approximately half of total expenditure on social insurance and half on family income supports and social assistance combined; social insurance beneﬁts funded from social insurance fund, 71% of revenue from employers, 22% from employees and 6% from self-employed.

Table 14.4 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ie

eu27

eu15

12.3 11.7 9.9 7.5 5.7 4.3 4.0 4.5 4.7 4.5 4.4 4.5 4.7

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Dec 2008)

in Table 14.4, reduced reliance on means-tested allowances and increased revenue ﬂows into the social insurance fund. The social insurance and assistance system is complemented by family income support payments, the largest element of which is Child Beneﬁt. This is a universal payment in respect of all children and is the single largest item of expenditure in the income maintenance system, comprising 16 per cent of all expenditure. The beneﬁt and allowance systems consist of ﬂat payments with additional payments for spouses and children. 265

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Historically, the level of beneﬁts and allowances were not benchmarked or index linked. Recipients of long-term pensions also receive beneﬁts-in-kind such as free travel on public transport, and subsidized fuel and energy; entitlement to certain dental, optical and aural services is also linked to social insurance contributions. Income maintenance expenditure was just under 8 per cent of GDP in 2005. Recently, a number of developments have exerted upward pressure on income maintenance expenditure, notably the maturing of entitlements to insurance beneﬁts, rising demand for housing allowances and payments for lone parents, and substantial increases in Child Beneﬁt. However, unemployment fell dramatically and the labour force grew, and with incomes in the economy rising rapidly, beneﬁt levels fell relative to incomes overall. The net eﬀect of these trends was a fall in expenditure from 10.3 per cent of GDP in 1994 to 7.5 per cent in 2005. As Table 14.5 shows, the poverty line, based on 60 per cent of median income, rose very rapidly in line with the general rise in incomes. Beneﬁts and allowances also rose, but income growth overall still left them declining as a per cent of the poverty line: Child Table 14.5 Poverty line and beneﬁts and allowances, Ireland, selected years

Poverty and beneﬁts

1994

1997

2000

2003

2005

1. 2. 3. 4. 5.

76.86 117.3 97.3 7.6 15.6

102.42 96.7 81.1 8.5 18.0

143.58 84.9 67.2 8.7 20.9

185.28 84.5 67.3 15.6 22.7

192.74 93.0 77.2 18.3 17.0

Poverty line euro per week Beneﬁt as per cent of 1 Allowance as per cent of 1 Child beneﬁt as per cent of 1 Per cent Poor

Source: Department of Social and Family Affairs and Central Statistics ofﬁce Notes: The poverty line is 60% of median disposable income (per capita equivalent); child beneﬁt is the weekly (equivalent) amount per child for the ﬁrst child

Table 14.6 At-risk-of-poverty rates by gender

ie

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

19 19 19 19 19 20 21 – 20b 21 20 18

17 18 18 18 17 19 20 – 19b 19 19 17

20 21 20 20 20 21 23 – 21b 23 21 19

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

266

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Beneﬁt was an exception, growing more rapidly than incomes. These trends are implicated in the poverty data. The share of the population falling below the relative income poverty line grew from 15.6 per cent to 22.7 per cent from 1994 to 2003 and declined again to 17 per cent in 2005. Relative income poverty is higher in Ireland than in other EU countries, as Table 14.6 records. It exceeds the EU average for all years and is the only country with a ﬁgure in excess of 20 per cent. This pattern is due in part to Ireland’s beneﬁt system which sets beneﬁts at a low level relative to average income. There are some aspects of Ireland’s income maintenance system that distinguish it from many of its European counterparts. Ireland has persisted with a Beveridge-type beneﬁt system; even in the recent phase of exceptional economic growth the option of adopting an income replacement model has not been considered. Also, the integration of health care ﬁnancing and entitlement with social insurance that characterizes many European countries does not apply to Ireland. It is also important to note the institutional contrast between Ireland’s income maintenance system and those of the European corporatist systems. While some quite speciﬁc aspects of policy are occasionally negotiated in national social pacts, the central government alone is responsible for management, legislation and administration. There is no direct role for trade unions, employers, voluntary organizations or civil society. Hence, Ireland’s income maintenance system, as well as having ﬂat-rate beneﬁts, lacks two other deﬁning attributes of corporatist systems: selfadministration, based on principles of autonomy and subsidiarity, and embeddedness, arising from the fragmentation of schemes along occupational lines (Daly 2001). Health care A recent comparative analysis of health systems describes Ireland’s publicly provided health system as conferring 100 per cent coverage of the population (Bambra, 2005). However, the authoritative study of Irish health care more accurately describes it as ‘an extraordinary symbiosis of public and private’ (Barrington 1987). As Table 14.7 indicates, the system is funded from general taxation, and managed by central government: current public expenditure on health services is about 7.3 per cent of GDP – very close to the EU norm. Entitlement to health care is not universal (as is the case in the British National Health Service) nor is it linked to social insurance status (as is the case in some European welfare states). These are the two important features of the system. First, entitlement to health services is based on a means-test: only 25 per cent of the population is currently entitled to all services free of charge. The balance of the population, while entitled to publicly provided acute hospital care, is not entitled to free primary care, such as general practitioners (GPs) or prescribed medication. Second, the system of entitlement operates in the context of a substantial role for private care, allowing quicker access and superior care for persons in the higher income groups. This hybrid system deﬁes neat description as either public or private. A large and growing proportion of the population (about 55 per cent) is enrolled in health insurance. Health insurance premiums are tax deductible. Until the mid-1990s, health insurance was sold by a state monopoly insurer (at which point implementation of the EU competition directive allowed private health insurers to compete in the health insurance market). In relation to primary care, the poorest quarter of the population receives free GP services and medication. Higher income persons pay for primary care but may 267

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Table 14.7 Health care system in Ireland

Criteria

Description

General system characteristics

A non comprehensive system funded from general taxation and administered and managed centrally, separate from income maintenance system. Only the population in lowest income group entitled to free primary care and hospital care, public health services, and prescribed medicines; balance of population entitled to public hospital care (subject to per diem inpatient charge), subsidized prescribed medicine above a limit, and tax allowances on health insurance premiums and un reimbursed medical expenses. Over 50 per cent of population have health insurance, with partial coverage for primary care and hospital care and some outpatient care; private care plays important role in acute hospitals, primary and other services; private, fee-paying is dominant form of access to primary care, and an important route into acute hospitals; some hospitals are wholly for private, insured patients, but private care also takes place in public hospitals. Least developed part of health system; role for private, public and voluntary sectors; largest sector is nursing home care for the elderly: access to public and subsidized private nursing homes based on income; domiciliary care for elderly and other client groups undeveloped and in voluntary sector.

Publicly funded care

Privately funded care

Social care and ancillary services

recoup some of these costs from insurers, and any costs not recouped in this way may be oﬀset against taxation. The whole population is entitled to acute hospital services (subject to limited charges). Those who have health insurance may pay for earmarked private beds (so called) in public hospitals under the control of medical consultants, and can also purchase services in non-public hospitals. These costs are also borne by insurers and any un-reimbursed costs are allowable against income tax. This system has been described as ‘two-tier’ (Wren 2003). The health system in Ireland is distinctive in a European context in a number of ways. Notably, Ireland is unusual in having private provision on a large scale. For example, 20 per cent of beds in public hospitals are allocated for the use of salaried consultants treating private patients, in respect of whom they receive additional remuneration on a per patient basis. These beds, taken together with services in wholly private hospitals, mean that a substantial proportion of hospital beds are private. Overall, the structure of entitlement and the mix of public and private provision result in a system that is far from equitable; health care access is strongly aﬀected by income. Second, the core of the primary care system, General Practice, is underdeveloped and consequently there is heavy reliance on hospital-based care (Department of Health, 2001). Less than 30 per cent of the population is entitled to free GP care and most GPs function as sole practitioners in small practices, oﬀering only limited diagnostic and treatment facilities. The isolation of GPs within the health care system arises from their historical separation from the emerging national insurance system early in the twentieth century (Barrington 1987). Third, the governance of health care is highly centralized. Public provision is ﬁnanced from general taxation and the planning and organization of services is the remit of central government. Local government has no role in the ﬁnancing, planning or management of 268

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health – even in the area of social care and ancillary services. Finally, while public expenditure on health has grown since 2000 after a period of signiﬁcant underinvestment, the health system remains relatively under-resourced in respect of hospital beds, doctors, nurses and health professionals (Tussing and Wren 2006). Housing The dominance of private ownership makes Irish housing distinctive in a European context. Owner occupation now accounts for 75 per cent of the total housing stock, with public rental housing and private rented housing accounting for 7 per cent and 16 per cent respectively. This largely private system is embedded in a complex set of subsidies to the various tenures, the underlying rationale for which is to maximize owner occupation Table 14.8. The private rented sector was in decline for decades. General economic and demographic factors contributed to this decline, and these factors were then compounded by the policy of supporting ownership as the preferred tenure (McCashin 2000). In the last decade private rented housing has grown rapidly in absolute size and its share of the housing stock has grown signiﬁcantly. This reversal reﬂects buoyant labour market and demographic conditions (such as increased rates of immigration and rising rates of household formation) and the inﬂuence of recent policies to increase supply and support demand in the private rented sector (Table 14.9).

Table 14.8 Housing system, Ireland, 1961–2006, tenure shares per cent

Tenure

1961

1971

1981

1991

2002

2006

Private, owned Private rented Public-social Non-proﬁt All

59.8 17.2 18.4 4.6 100

68.8 13.3 15.5 2.4 100

74.4 10.1 12.5 3.0 100

79.3 8.0 9.7 3.0 100

77.4 11.1 6.9 4.6 100

74.6 16.1 7.2 2.1 100

Source: Central Statistics Ofﬁce

Table 14.9 Housing provisions in Ireland

Tenure

Share of housing(%)

Policies and provisions

Owner occupation

75

Private rented

16

Public rented

7

Voluntary, social

2

Tax allowances for mortgage interest; no capital gains tax on sale of principal private residences; imputed income on ownership non-taxable; special mortgage schemes for lowincome owners. Tax credit for rent paid by employees; means tested rent allowances for welfare recipients; moderate regulation comprising registration of accommodation, minimum physical standards, limited security of tenure. Non-market rents; rents diﬀerentiated by income and family size; tenants have right to buy; access based on means and a points system indexing health, social and other need criteria. Capital Assistance Scheme for non-proﬁt housing associations and Rental Subsidy Scheme; these schemes apply to special needs housing.

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Housing policy is not tenure neutral in Ireland, as owner occupation beneﬁts from ﬁscal and other privileges. Owner-occupiers receive tax allowances for mortgage interest, there are no land or community taxes, or residential property taxes, and the capital gains from the sale of principle private residences are untaxed. In the private rented sector employed tenants receive a modest tax credit, and low income tenants dependent on social security in this sector may be eligible for a means tested rent allowance (this currently applies to about one third of the private tenancies). Since 2003 this tenure has been subject to enhanced regulation in relation to registration of tenancies, documentation of rent payments, minimal physical standards, security of tenure and regulation of rent increases. An independent central body administers the regulations and operates a tribunal to resolve landlord–tenant disputes. On the supply side, landlords’ expenses are tax deductible and currently investors in rented housing may claim tax relief on mortgage borrowings. Additionally, as a side eﬀect of persistent policy support for the residential construction sector, government oﬀers tax inducements to property investors in newly built rented housing. Irish local authority housing (social housing) is ‘residualized’ (Malpass and Murie 2004). First, it makes up less than 7 per cent of the housing stock. Furthermore, this tenure is inhabited by the lowest income tenants: in the largest urban area, almost-two thirds of these households have incomes below a poverty line of half average income. This housing is socially stigmatized, and is spatially segregated from private owneroccupied housing. Access to local authority housing is governed by a points system that measures tenants’ housing needs and income. The rent system is redistributive; a formula based on family income and number of dependents determines the rent payable. An important feature of local authority housing is the way in which it linked to owner occupation. Tenants have a right to buy their homes at substantial discounts, and historically a substantial portion of new stock is later sold to tenants. This provides a route into owner occupation for the working classes. It also creates a horizontal inequity between low income tenants in local authority housing and comparable tenants in the private rented sector, and the fact that more economically secure tenants buy their homes reinforces the revisualization of the poorest families that remain as tenants. Third, the impact of new social housing on the share of social housing in the housing system overall is oﬀset by the large volume of sales of existing dwellings into private ownership. Currently, the major policy preoccupations regarding this tenure are the capacity of the sector to respond to housing need and the management and quality of the housing stock. As regards need and demand, gross additions to the stock have been in the range 3,500–504,000 per annum (0.93 to 1.07 per 1,000 population) in the ﬁve years to 2006. Gross unmet housing need, measured by the number of households of oﬃcial housing waiting lists, was 11.15 per 1,000 population in 2005, compared with a ﬁgure of 12.35 per 1,000 in 2002. These aggregate data suggest that acute housing need has stabilized or fallen (Department of the Environment 2005) In relation to the management and quality of the public housing stock, the last decade has seen a shift away from mass production of large-scale housing estates. Mass social housing became associated with various forms of housing failure such as a concentration of poor families in speciﬁc areas, a high incidence of social problems and diﬃculties in housing management because of high turnover, social order problems, and high levels of rent arrears and maintenance problems (Fahey 1998; Power 1997). Considerably greater emphasis is now placed on tenants’ involvement in housing management and physical and social regeneration of housing estates. 270

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Kemeny’s typology of rental systems distinguishes between unitary and dualist systems. A unitary rental system is one which is not secondary to owner-occupation in terms of scale, demand and social status. In such unitary systems tenants have security of tenure, the tenure is well regulated, and the public and private rental subsystems draw from the same broad pool of prospective tenants without any sharp social gradation as between public and private renting (Kemeny 1995). The rental system in Ireland, by contrast, is close to the typical dualist regime; rented housing is a secondary tenure; public and private rental tenures operate on a separate basis in terms of access, subsidy and regulation, and social rental housing is seen as a distinct tenure – the tenure reserved for those unable to aﬀord their own housing. The boom in the housing market that lasted till 2006 had uneven eﬀects. Studies of housing costs in relation to income show that while local authority tenants have lower incomes, less than 1 per cent of them spend more than one-third of their income on rent. The corresponding ﬁgures for mortgage repayments for owner occupiers and rents for private tenants are 6 per cent and 28 per cent respectively. Tenants in private rented housing, therefore, are more likely to face serious aﬀordability problems. Education The education system has three tiers; primary, secondary and third-level, and can be summarily described as a public and comprehensive system. As Table 14.10 shows, the primary sector is state funded. The schooling system follows a national curriculum and is funded from general taxation. Most schools are owned by local denominational dioceses, and they are free to raise additional income from parents. This allows variation in schools’ resources based on disparities in parental income across diﬀerent communities. There is no national early education or pre-school system. In Ireland attendance at second level education in most schools is free, and is compulsory up to the age of 16. The second level school system contains some fee-paying schools, and although these schools are the preserve of the highest socio-economic

Table 14.10 Education in Ireland

Level of education

Participation rate (%)

Policies and provisions

Primary

100

Universal provision for all children aged 5-12; funding from general taxation, central government administers funding, curriculum etc; supplementary funding available for schools in disadvantaged communities. Universal access for all children; compulsory schooling till 16, without fees; Non fee paying schools are owned by state or local authorities, and some by voluntary religious bodies subsidized for the absence of fees; a private fee paying sector co-exists with free sector and private schools also receive subsidies. Access to third level is governed by state exam performance; third level colleges are legally independent but state funded; no fees are payable for undergraduate education; means tested maintenance grants for students’ living costs.

Secondary

64.6

Third

46.8

Note: The participation rate for secondary refers to age 18 and for third level refers to age 20.

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groups, they also receive substantial capitation grants. The co-existence of private and public ﬁnancing on these terms means that the pupils from higher socio-economic groups are in receipt of public subsidy. There have been no fees for undergraduate education since 1995. Access to third-level courses is based on measured performance in the national examination. Low-income pupils may be eligible for means-tested grants to cover living costs. The subsidy–access mixture in Ireland is unusual in an international context. Pupils from higher socio-economic groups have a greater chance of achieving the necessary qualiﬁcations to enter the third level. If such pupils attend the fee-paying secondary schools, they will beneﬁt from public subsidies in such schools and may have an advantage over their peers in non-fee-paying schools in terms of examination points and access to the third level. At third level there is formal equality of opportunity, as students do not pay fees. However, this must be viewed in the context of the growing importance of the feepaying second-level schools. The abolition of fees in the mid-1990s gave a windfall gain to high-income families. Participation rates in the third level had more than doubled from 1980 to 1994, and therefore the abolition of fees at a time when parental incomes were beginning to grow rapidly beneﬁted many who would have paid third-level fees. In addition, these windfall gains eﬀectively subsidized higher income parents in diverting income previously required to pay third-level fees to pay fees in (fee-paying) second level schools, reinforcing their children’s educational advantage. The central point to note about education is the long-term increase in participation rates at the second and third levels. At the second level, completion of this tier of education reached saturation point among the higher socio-economic groups by the end of the 1990s, and among working class pupils the rate reached 60 per cent. There was also an increase in third-level participation: the rate among 20 year olds is now 47 per cent overall (55 per cent for women and 40 per cent for men). The most recent analyses of social class diﬀerentials refer to the late 1990s and they point to the persistence of social inequality (Smyth and Hannan 2000; McCoy and Smyth 2003). In the cohort of students completing the second cycle in 1998, over 70 per cent from the highest socioeconomic group proceeded to the third level, compared with 25 per cent from the lowest (McCoy and Smyth 2003). A recent overview of the evidence concluded that there has been ‘a remarkable persistence of social class inequalities in educational outcomes in the face of educational expansion and policies explicitly designed to reduce such inequalities’ (Smyth and Hannan 2000) Ireland’s expenditure on education, 4.6 per cent of GDP, is less than the Organisation for Economic Co-operation and Development (OECD) average. Per pupil expenditure at primary and secondary levels is below that of the OECD average, and at the third level is above the OECD average. The ratio of primary to tertiary expenditure in Ireland moved signiﬁcantly in favour of the primary level from 1992 onwards (OECD 2002) However, in 2003 the OECD pointed to the persistence of subsidies at the third level and argued that this is ‘questionable on both equity and eﬃciency grounds’ (OECD 2003). From the early 1960s the focus of educational policy was to achieve universal participation at the ﬁrst and second levels and adapt education to the needs of the economy. In the last decade policy has focused on addressing educational disadvantage, by means of speciﬁc initiatives in curriculum and separate programmes aimed at the socially disadvantaged. However, these initiatives are modestly funded. The absence of a publicly funded system of early education means that in Ireland the scope to address educational inequality by 272

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long-term, preventative measures such as extensive re-allocation of education resources to pre-school children is limited (McCoy and Smyth 2003). Overview It is necessary to place the welfare state in the context of the transformation of the Irish economy. Although, at the time of writing, the economy is entering a recession with national income stagnant and unemployment increasing, it has experienced a qualitative change in the last 15 years. This change brought full employment, rising population and levels of income above the average for the EU15 for the ﬁrst time ever. Did this modernization of the economy change the social and distributional character of the welfare state? Arguably, economic growth has been accompanied by forces generating greater inequality. For example, the distribution of factor incomes in the economy shifted markedly towards capital and away from labour. There was also a trend towards greater earnings inequality – at least until the late 1990s (Lane 1998). These trends need to be viewed in the context of budgetary policies. Notably, in relation to budgetary policy aﬀecting personal incomes, simulation studies suggest that from the mid-1990s until 2002 policy was regressive. Households in higher income groups beneﬁted more than lower income groups from tax and related policy changes. From 1994 to 2003, the policy of reducing tax rates and increasing beneﬁts by less than the overall growth in incomes reinforced income inequalities. A central point here is that over the last decade and a half beneﬁts increased in real terms, but this increase did not match the increase in incomes in general. This resulted in the trend reported earlier; as beneﬁts increased, the living standards of beneﬁt recipients rose, but with incomes increasing rapidly the relative income poverty line also increased and the rate of relative income poverty grew. These policies were then reversed in the budgets from 2003 onwards (Callan et al. 2005). It is important to note that the growth in employment was pervasive. From 1988 to 2003 the numbers at work grew by 3.6 per cent annually; 69 per cent of the employment growth was full time, it was divided 57 per cent and 43 per cent between women and men, and it was spread widely across the economy (Walsh 2004). As one analyst observed, the occupational structure was ‘upgraded’ (O’Connell 2000). Employment growth reduced reliance on beneﬁts and oﬀered a powerful antidote to the other forces creating greater inequality. Third, real earning rose signiﬁcantly: for example, average hourly industrial earnings increased by 6.9 per cent in the ﬁve years to 2004. Pay determination for unionized workers was governed by a series of national agreements that established modest levels of nominal pay increases, and in some of these agreements the low pay increases were explicitly traded oﬀ against reductions in tax rates. In relation to the lower paid, a national minimum wage was introduced in 1999 at approximately 40 per cent of average earnings. The rise in employment was related to the social security and tax systems: both of these became more employment focused. In the 1990s, tax reductions and beneﬁt changes were introduced that involved the ﬁnancial return to work for the unemployed and the low paid: this eﬀect was enhanced by the introduction of the national minimum wage (McCashin 2004). Combined with a stronger focus on labour market activation, these changes have orientated the tax and beneﬁt systems towards labour market participation. The trend in social security, tax and family policy away from the male breadwinner model and towards greater individualization encouraged the growth in female 273

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employment – although this policy was not uncontroversial. The growth in female employment strengthened the role of employment and private income in families’ and individuals’ welfare: the share of households (headed by prime age adults) in which all adults were at work increased from one-third in the mid-1990s to over 50 per cent in 2000, reﬂecting the growing number of dual earner families. In income terms the distributional eﬀects of these changes are diﬃcult to unravel. The academic and oﬃcial data show that the summary index of (disposable) income inequality has, strikingly, remained stable at around 0.32 for some decades (O’Donoghue 2006). Of course, such a summary measure, especially when based on household surveys, may obscure important trends such as the rise in the income share of the top 5 per cent of income holders (Nolan and Smeeding 2005). It is clear from the stable income distribution coeﬃcient, however, that a variety of trends and policies have had counterbalancing distributional eﬀects. At this point a general characterization can be oﬀered of the Irish welfare state. It is a liberal, developmental state focused on integrating Ireland into the world economy. Its social policies, which show marked continuity, modify tendencies to extreme inequalities rather than attempting substantial redistribution or universal social provision. Also, Ireland places comprehensive provision of social services in second place to the transfer payment system, implicitly favouring a growth in private rather than public consumption. Finally, the welfare state co-exists alongside private provisions which also receive state support. The redistributive impact of the welfare state is therefore limited: to the contrary, it could be argued that social class inequalities are reinforced by the roles, structures and funding of the health, education and housing systems.

The future Contemporary debates about the welfare state are concerned with crisis (Pierson 2001). While national welfare states face the challenges of globalization, it has become evident that national, political and institutional factors still retain autonomy in shaping welfare states’ responses to globalization (Swank 2002). Many European welfare states are dealing with the particular challenge posed by demographic ageing and its associated ﬁscal burden – a burden accentuated in some countries by low economic growth and high unemployment (Pierson 2001). Consequently, the restructuring of social security, pensions and health care has been a concern for political actors and analysts for more than two decades. The Irish welfare state faces rather diﬀerent challenges in the decade ahead. First, the welfare state model has been predicated on an institutionalized bargain that has generated a high level of employment, low nominal wage increases and reduced levels of personal income tax. However, the globalization of the labour market is putting this model under pressure. High levels of immigration have created a clandestine labour market, and even in the unionized parts of the labour market there is concern that nationally agreed wage rates and the national minimum wage are being undermined by employers’ exploitation of immigrant labour. This has led to public unrest and industrial action. The signiﬁcance of this issue is that national pacts may lose their legitimacy, and one of the institutional elements of the Irish welfare state may be undermined. Second, social expenditure in Ireland is low by international standards. Until very recently, rising employment and growing real incomes sustained a national sense of increased 274

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prosperity and improved welfare. However, the limits of the low tax and low social expenditure model may become clear. In the areas of health care and pensions in particular, the impact of the state’s limited provisions and its reliance on tax-subsidized, private welfare is becoming visible. Signiﬁcantly, middle class voters are aﬀected by the acknowledged crisis in health care, and the limitations of the state pension system are seen to aﬀect a wide range of employees. If these concerns generate wide public attention in the future, then there may be political pressure to improve state provisions, although there is no evidence of a concerted mobilization in favour of universal social policies. The dilemma for the Irish welfare state here is that the low tax and low social spending regime is not just a distributional outcome of the national bargaining process. It is also an inherent part of Irish employment and development strategy: low income taxes and corporate taxes are a core element in the state’s economic strategy to create a low-cost, ﬂexible economy that will attract foreign investment on a large scale. The future of the welfare state may be determined by these factors; the degree of political adaptability of the major parties, if the public shifts its focus to the social quality of the welfare state, and the capacity of the state and the economic interests to retain the competitive corporatist model in the globalized economy.

Bibliography Allen, K. (2000) The Celtic Tiger: the myth of social partnership in Ireland, Manchester: Manchester University Press. Arts, W. and Gelissen, J. (2002) ‘Three Worlds of Welfare Capitalism or More? A State-of-the-Art Report’, Journal of European Social Policy, vol. 12, no. 2, pp. 137–58. Bambra, C. (2005) ‘Cash versus Services: Worlds of Welfare and the Decommodiﬁcation of Cash Beneﬁts and Health Cash Services’, Journal of Social Policy, vol. 34, no. 2, pp. 195–213. Barrington, R. (1987) Health, Medicine and Politics in Ireland 1900–1970 Dublin Institute of Public Administration. Bonoli, G. (1997) ‘Classifying Welfare States: A Two-dimensional Analysis’, Journal of Social Policy, vol. 26, no. 3, pp. 351–72. Breen, R. Hannan, D. F., Rottman, D. B. and Whelan, C. T (1990) Understanding Contemporary Ireland: state, class and development in the Republic of Ireland, Dublin: Gill and Macmillan. Callan, T., Walsh, J. and Coleman, K. (2005) ‘Budget 2006: Impact on Income Distribution and Relative Income Poverty’, in A. Barrett, I. Kearney, S. Garrett and Y. McCarthy (eds) Quarterly Economic Commentary Winter 2005. Dublin: Economic and Social Research Institute. Carey, S. (2005) ‘Land, Labour and Politics: Social Insurance in Post-War Ireland’, Social Policy and Society, vol. 4 no. 3 pp. 303–11. Cochrane, A. and Clarke, J. (1993) Comparing Welfare States. London: Sage. Cousins, M. (1997) ‘Ireland’s Place in the Worlds of Welfare Capitalism’, Journal of European Social Policy, vol. 7, no. 3, pp. 223–35. —— (2005) Explaining the Irish Welfare State: an historical, comparative, and political analysis, Lewiston, NY: Edwin Mellen Press. Daly, M. (2001) ‘Globalization and the Bismarckian Welfare States’, in B. Palier, P. Prior and R. Sykes (eds) Globalisation and European Welfare States. Challenge and Change, Basingstoke: Palgrave. Daly. M. and Yeates, N. (2003) ‘Common Origins, diﬀerent paths: adaptation and change in social security in Britain and Ireland’, Policy and Politics, vol. 31, no. 1, pp. 85–97. Department of the Environment (1995) Annual Bulletin of Housing Statistics, Dublin: Government Publications. Department of the Environment and Local Government. Annual Bulletin of Housing Statistics (2005), Dublin: Government Publications. Department of Health (2001) Primary Care. A New Direction, Dublin: Government Publications.

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Drudy, P. J. and Punch, M. (2005), Out of Reach. Inequality in Housing in Ireland, Dublin: New Island. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Cambridge: Polity Press. Fahey, T. (1998) Social Housing in Ireland. A Study of Success, Failure, and Lessons Learned, Dublin: Oaktree Press. Hardiman, N. (1987) Pay, Politics and Economic Performance in Ireland, 1970–1987, Oxford: Clarendon Press. —— (2000) ‘Social Partnership, Wage Bargaining, and Growth’, in B. Nolan P. J. O’Connell and C. T. Whelan (eds) Bust to Boom, Dublin: Institute of Public dministration. Kemeny, J. (1995) From Public Housing to the Social Market; Rental Policy Strategy in Comparative Perspective. London: Routledge. Kirby, P. (2002) The Celtic Tiger in Distress: growth with inequality in Ireland, Basingstoke: Palgrave. Lane. P. (1998) ‘Proﬁts and Wages in Ireland’, Journal of the Statistical and Social Inquiry Society of Ireland, vol. 27, part v, pp. 223–47. Lee, J. (1989) Ireland 1912–1989. Politics and Society, Cambridge: Cambridge University Press. Malpass. P. and Murie, A. (2004) Housing Policy and Practice (4th edition), London: Macmillan. McCoy, S. and Smyth, E. (2003) ‘Educational Expenditure: Implications for Equity’, in T. Callan, A. Doris and D. McCoy (eds) Budget Perspectives 2004, Dublin: Economic and Social Research Institute. McCashin, A. (2000) The Private Rented Sector in the 21st Century, Policy Choices, Dublin: Threshold. —— (2004) Social Security in Ireland, Dublin: Gill and Macmillan. McCullagh, D. (1998) A Makeshift Majority: The First Inter-Party Government, 1948–51, Dublin: Institute of Public Administration. Millar, M. and Adshead, M. (2004) ‘Health Care in Ireland: applying Esping-Andersen’s typology of welfare to the Irish case’, Paper to Political Studies Association Conference, University of Lincoln. NESC (2005) The Developmental Welfare State, Dublin: National Economic and Social Council. —— (2006) People, Productivity and Purpose. Dublin: National Economic and Social Council. Nolan, B. and Smeeding. T. (2005) ‘Ireland’s Income Distribution in Comparative Perspective’, Review of Income and Wealth, vol. 54, no. 4, pp. 537–60. O’Connell, Philip. (2000) ‘The dynamics of the Irish labour market in comparative perspective’, in B. Nolan, P. J. O’Connell, and C. T. Whelan (eds) Bust to Boom, Dublin: Institute of Public Administration. O’Donoghue, C. (2006) ‘The Impact of Macro Economic Growth on the Income Distribution in Ireland’, Journal of the Statistical and Social Inquiry Society of Ireland, Vol. 35, pp. 201–17. OECD (2002) Education at a Glance: OECD Indicators. 2002, Paris: OECD. —— (2003) Economic Surveys: Ireland, Paris: OECD. O’Hagan, J. ed. (1991) The Economy of Ireland: policy and performance, Dublin: Irish Management Institute. O’ Hearn, D. (1998) Inside the Celtic Tiger: the Irish economy and the Asian model, London: Pluto. O’Riain, S. and O’Connell, P. (2000) ‘The Role of the State in Growth and Welfare’, in B. Nolan, P. J. O’Connell and C. T. Whelan (eds) Bust to Boom? The Irish Experience of Growth and Inequality. Dublin: Institute of Public Administration. Pierson, P. (2001) The New Politics of the Welfare State, Oxford: Oxford University Press. Power, A. (1997) Estates on the Edge. The Social Consequences of Mass Housing in Europe. Basingstoke: Macmillan. Smyth, E. and Hannan, D. F. (2000) ‘Education and Inequality’, in B. Nolan, P. J. O’Connell and C. T. Whelan (eds) Bust to Boom? The Irish Experience of Growth and Inequality, Dublin: Institute of Public Administration. Swank, D. (2002) Global Capital, Political Institutions and Policy Change in Developed Welfare States, Cambridge: Cambridge University Press. Tussing, A. D. and Wren, M. A. (2006) How Ireland Cares, Dublin: New Island. Van Kersbergen, K. (1995) Social Capitalism. A Study of Christian Democracy and the Welfare State, London: Routledge and Kegan Paul. Walsh. B. (2004) ‘The Transformation of the Irish Labour Market: 1980–2003’, Journal of the Statistical and Social Inquiry Society of Ireland, vol. 33, pp. 83–115. Whyte, J. H (1974) ‘Ireland: Politics without Social Bases’, in Rose, R. (ed.) Electoral Behaviour: a Comparative Handbook, New York: The Free Press. Wren, M. A. (2003) Unhealthy State. Anatomy of a Sick Society, Dublin: New Island.

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Chapter 15

it The Italian welfare state (still) in transition The progressive recalibration of social programmes and greater ﬂexibility of labour market policies David Natali

The Italian welfare state is the paradigmatic example of the south European model, with the following features: highly fragmented social protection schemes (related to their Bismarckian roots); a public health care system based on universal rights; transfer-heavy and service-light social programmes (consistent with the key role of the family in the provision of the latter); wide protection for some occupational categories (insiders) while other groups (outsiders) are underprotected; the porosity of the public administration to partisan interests consistent with low eﬀectiveness and major frauds and abuses (Ferrera, 1996). While our analysis conﬁrms these traits, there have been signiﬁcant evolutions in the last two decades, suggesting the emergence of a new welfare conﬁguration in Italy. Recent reforms have consisted of the ﬁrst (but still limited) recalibration of social spending (between generous social insurance and underdeveloped social assistance programmes), the greater ﬂexibility of the labour market and the decentralization of competencies from central to regional and local government. The chapter is structured as follows: the ﬁrst part brieﬂy introduces the emergence and evolution of welfare and labour market programmes between the end of the nineteenth century and the ‘golden age’ of Keynesian welfare after the Second World War. In line with the Italian literature on social policy, the term welfare state mainly refers to three ﬁelds: social insurance (pensions, unemployment, family allowances, etc.), health care and social assistance (cash beneﬁts and services). With some exceptions, education and housing are not treated as part of it (Ferrera, 2006). After a brief summary of the rapid increase of problems and strains in the last part of the twentieth century, part two shows the main lines of action over the last two decades and the welfare status quo, with particular reference to: social insurance, health care, social assistance and labour market policy. Given the huge ﬁnancial weight of old age, survival and disability schemes, in the following we focus on pensions as the key part of social insurance schemes. Unemployment beneﬁts will be analysed within the section on labour market policy. Part three concludes with some remarks on the present and future evolution of the welfare state in Italy.

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Introduction In Italy, the emergence of the public intervention on social policies dates back to the beginning of the 1880s. In 1883, the ﬁrst step consisted of the introduction of a (voluntary) scheme against occupational injuries. In 1886, it was followed by the law forbidding labour by children. The ﬁrst state mandatory scheme on occupational injuries was then voted for in 1898, together with the ﬁrst voluntary social insurance programmes against old-age and disability risks (Ferrera, 1993). These ﬁrst schemes were typically ‘Bismarckian’ in two respects. On the one hand, they were employment related and directed to provide protection to industrial workers. On the other, new measures came from the political elite to protect political institutions from the growing labour movement and to integrate the working class through social rather than political rights. Welfare programmes then evolved through a second wave of legislative innovations before the First World War. This step was consistent with the political and then electoral competition between liberals and socialists with the important inﬂuence of trade unions and Catholic organizations. In 1910 the government introduced the ﬁrst public scheme against unemployment and in 1911 a new voluntary scheme for maternity, while more subsidies were directed to the other voluntary social insurance programmes. In 1919, voluntary pension schemes became mandatory for dependent workers and the parliament introduced the mandatory unemployment insurance programme for industrial workers. The Fascist regime (between 1922 and 1943) had a huge impact on welfare policies. In a ﬁrst phase, between 1922 and 1926, the dictatorship followed a liberal if not residual approach. Since 1927, a second phase was consistent with the corporatist ideology and a progressive growth of social spending. Corporatist and public institutions proliferated in the social insurance, social assistance and health sector. In the latter, the Fascist regime recognized and protected a plethora of Catholic organizations. The authoritarian regime increased social spending especially on maternity and family beneﬁts, and programmes against occupational disease. From an institutional point of view, the Fascist period was characterized by the increased complexity of welfare programmes all organized along occupational lines. All these elements created the roots for a distinct path to welfare reforms in the following decades. After the Second World War and the end of dictatorship, the Republican welfare state did develop in line with the Constitution of 1948. This shows the divergent ideological roots of social insurance schemes, with a typical employment-related protection, and social assistance and health care deﬁned as universal rights for citizens. Articles 32 and 38 state the universal right to health care and social assistance. Yet, the latter article states the workers’ (not citizens’) right to be protected against the risks of injuries and disease, disability, old-age and unemployment. As far as pensions are concerned, the reform of 1965 introduced a social fund within the National Institute for Social Protection (INPS). This provided the social ‘part’ of pension beneﬁts. In 1968–69, other measures tended to reduce the insurance logic of the system (that was the strict link between contributions and beneﬁts). The new pension system was entirely based on the PAYG (pay-as-you-go) method of ﬁnancing; with a ‘deﬁned-beneﬁt’ formula: pensions were mainly based on the last salary and years of contributions (irrespective of the quantum of contributions paid).1 The reform also introduced the so-called ‘seniority’ pensions: the possibility to retire after 35 years of contribution regardless of age. The new legislation did not introduce any rationalization of the institutional fragmentation. It provided particularly generous beneﬁts, with huge 278

ITALY

diﬀerences between occupational categories, and almost no role for supplementary private schemes. What is more, policy makers did revise the administrative rules of public schemes: the most important pension schemes were administered by the representatives of workers and employers. In 1978, Law n. 833 introduced the National Health Service (Servizio Sanitario Nazionale, SSN) replacing the pre-existing professional insurance funds. While it was intended to be ﬁnanced through general taxation, the SSN was partly funded by compulsory social contributions (about 50 per cent of total resources), and general taxation and patient copayment. Social assistance, health care and housing became the competence of sub-national governments. The labour market originated distributional distortions (reinforced by welfare schemes), with the cleavage between oversecured and protected insiders, in core sectors like industry, public administration, etc., and outsiders in more peripheral and underprotected sectors (e.g. black economy, atypical workers, etc.). Vocational training and employment services were partly decentralized. The transformation of social programmes combined with a rapid expansion of public spending: from 1950 to 1975 public social outlays more than doubled and reached the average level of about 22 per cent of gross domestic product (GDP) (Ferrera and Gualmini, 2004). The 1980s did not show any major reform. Some eﬀorts for cost containment were counterbalanced by other ameliorative measures that increased public and social spending. At the end of the twentieth century, the Italian welfare state summarized the main traits of the south European model: a highly fragmented income maintenance system with a cleavage between overprotected and underprotected workers; a low degree of state penetration of the welfare sector combined with the dominance of political parties’ interests, the clientelistic distribution of beneﬁts, the radical transformation of health care system based on universalism, and the lack of an eﬃcient administration (Ferrera, 1996).2 Another signiﬁcant peculiarity of the Italian welfare all along its historical evolution has been the persistent role of the family. In line with the Mediterranean model of strong family ties, the Italian family has been a central institution which (explicitly and implicitly) provides many social services and beneﬁts (Saraceno, 1994; Micheli, 2006).

Status quo: analysis and political dimensions As a consequence, at the beginning of the 1990s, welfare programmes presented two main problematic aspects. The ﬁrst one consisted of their ﬁnancial strains: the social outlay had continued to grow since the late 1960s (even if at the beginning of the twenty-ﬁrst century they are still below the EU average, see Table 15.1), while revenues stagnated (see Natali, 2004; Ferrera, 1997). The second tension was represented by the inequity implicit in the system: between generations (young vs older people), occupational categories (public vs private employees, and dependent workers vs the self-employed), genders and across the standard risks (for instance, pensions vs family and unemployment beneﬁts).3 As to labour market policy, the Italian approach was mainly passive. Income support programmes and early retirement were progressively developed to respond to economic shocks and increased unemployment. The lack of results, especially in the southern part of the country, led to a partial shift to more active policy in the 1980s. Legislative innovations introduced new instruments, like work-sharing, work and training contracts 279

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Table 15.1 Social protection expenditure

it

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

208044.2 241249.3 262529.6 267074.7 279625.0 294314.0 311486.0 327797.0 344624.0 361601.0p 376030.0p

3659.9 4242.8 4614.7 4693.2 4912.9 5168.7 5466.9 5735.0 5982.6 6215.7p 6416.1p

24.2 24.3 24.9 24.6 24.8 24.7 24.9 25.3 25.8 26.0p 26.4p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

and part-time work. Yet, these measures were not particularly eﬀective and poorly implemented. As a consequence, at the beginning of the 1990s, the unemployment rate was about 12 per cent (with youth unemployment over 30 per cent), while employment rates were particularly low (around 53 per cent, with just 35 per cent for women). All these ﬁgures demonstrated the existence of a vicious circle. On the one hand, growing economic diﬃculties, negative demographic trends, and the stagnation of wages and labour force participation greatly weakened the revenue basis of welfare programmes. On the other hand, all these factors led to the expansion of social spending. Notwithstanding its growing imbalances, Italian welfare was highly supported by public opinion until the 1980s. All socio-economic categories received some forms of beneﬁts while the cost of welfare programmes was particularly diﬀuse and thus ‘unclear’. Then, ‘public vices’ (i.e. social contribution evasion, clientelism, and high public budget deﬁcit and debt perceived as such by experts and commentators) represented ‘private virtues’ for programme beneﬁciaries (i.e. stagnation of contributions, oversized bureaucracy and privileges). The high degree of tax evasion, and massive recourse to deﬁcit spending, contributed to lower explicit costs. It is a typical example of ‘distributive policy’ where beneﬁts are concentrated while costs are diﬀused. What is more, in a context characterized by strong family ties, social services (in particular child and care of older people) were underdeveloped while public transfers to families and children were not generous. However, in the 1980s the convergence of diverse narrow interests collapsed. The increase in general taxation and social contributions started to make the welfare costs much more explicit, and painful, for a number of categories. The European integration contributed to increase the anti-welfare mood: stronger competitive pressures and more restricted regulations on businesses forced the more open sectors to demand lower taxes. Owing to that systemic crisis, the last two decades have proved a period of huge innovation. The political earthquake in the 1990s (the so-called fall of the First Republic, 280

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when old parties disappeared and judicial investigation led to a radical turnover of political elite) favoured the opening of larger window for reforms. Long- and short-term constraints posed by European integration (e.g. economic and monetary union), then, were a decisive exogenous impetus forcing Italy to innovate its welfare policies. In the following we distinguish between major reforms on social insurance (pensions in particular), social assistance, health care and labour market policy. First, I refer to legislative innovations and the relative policy-making process. Then, I focus on their implementation through the analysis of instruments and indicators of their eﬀects. The key legislative innovations: a brief overview Social insurance Reforms adopted since the early 1990s have produced a radical change in the Italian pension system. Their ﬁnancial eﬀects were substantive as well as their institutional impact. The most important changes were the Amato Reform in 1992 and the Dini Reform in 1995 then followed by the Berlusconi Reform of 2004 and the most recent pension reform included in the so-called ‘welfare protocol’ of 2007. Both reforms, introduced by technocratic governments (led by technical caretakers with no particular stake in the old clientelistic arrangement) had two aims: to overcome the ﬁnancial crisis and to reduce inequalities. In the ﬁrst respect, the Amato Reform provided for the temporary halt of the granting of seniority pensions. For the same purpose, the retirement age for calculating private workers’ old age pension was raised (from 60 to 65 for men and from 55 to 60 for women), and more restrictive mechanisms were introduced to calculate the pension amount. It provided for a new method of allocating beneﬁts, replacing wage indexation with the ‘cost of living’ indexation. These measures caused huge reductions in the pension costs expected for the coming years. Rules for the calculation of both seniority and old age beneﬁts were made more homogeneous between occupational groups (Natali and Rhodes, 2005). The Dini Reform embraced a wider range of objectives. To face ﬁnancial strains, the beneﬁt structure was modiﬁed, involving a major shift from a ‘deﬁned-beneﬁt’ to a ‘deﬁned-contribution’ basis for pension calculation.4 The retirement age was made ﬂexible between 57 and 65 years for both men and women. Seniority pensions were not completely eliminated, but new rules were introduced to restrict them. A further change proposed by the union confederations (and then accepted by the government) was a clearer distinction between national solidarity and social insurance beneﬁts. In order to improve equity, public and private sector employees were obliged to contribute to the system in equal measure, while self-employed contributions were increased. Old age protection was extended to workers on ﬂexible contracts to improve the eﬀectiveness of pension programmes and enlarge the base of contributions. Eligibility rules for disability beneﬁts were restricted. The reform was the result of cooperation with the trade unions. Innovations were implemented very gradually and will not be fully completed until 2035. As we will show later on, the long phase-in period partly explains the limited short-term eﬀects of cutbacks. One of the most innovative elements of the new provision was the new regulation of supplementary funded schemes through the introduction of tax incentives. Still voluntary occupational and individual funds would represent a further pillar of the system capable 281

D . N A TA L I

of guaranteeing the same level of social protection (notwithstanding the reduction of public schemes’ beneﬁts). After the measures introduced by the ﬁrst Prodi Government in 1997 (with further retrenchment of beneﬁts especially for public employees and the self-employed), the Berlusconi Reform of 2004 was the further eﬀort to revise pension rules. In line with the measures mentioned above, its key aims were the control of public pensions’ spending in the mid-term, the development of supplementary funds and the increase in employment rates among older workers. Minimum retirement age, for old age pensions, was increased up to 65 years for men and 60 for women; and from 57 to 63 years for seniority beneﬁts. To open more opportunities for the supplementary pillar, the reform eased the use of the severance pay (Trattamento di Fine Rapporto, TFR) to ﬁnance funded schemes through the automatic enrolment of workers (the so-called auto-enrolment). Finally, the new law introduced some incentives to postpone retirement. While the previous innovations were the result of the dialogue between the government and social partners, in this case the government voted for the law against the will of trade unions and after much confrontation ( Jessoula and Ferrera, 2006). In 2007, the second Prodi Government (supported by a left-of-centre coalition) agreed with social partners to further revise retirement programmes. For the ﬁrst time since the 1990s, the ‘welfare protocol’ aimed at increasing pension spending for the period 2008–17 of about 30 billion Euro (including both social insurance and assistance beneﬁts). In the meanwhile, new measures increased resources for means-tested schemes: minimum pensions (increased in 1998 and 2001), while social assistance programmes were rationalized (see following section). Social assistance Faced with low public spending and institutional fragmentation, major reforms on social assistance schemes aimed at creating a social safety net, coordinating local competencies and rationalizing cash transfers. First steps consisted of new rules for the wider application of means-testing to social assistance beneﬁts. The ﬁrst Prodi Government in 1997 approved a new indicator for socio-economic conditions based on renewed income criteria. The same year the government introduced, in some municipalities and in an experimental way, the Minimum Income Inclusion Programme (Reddito minimo d’inserimento, RMI). This represented an absolute novelty for Italy and dealt with one of the historical gaps of the welfare state: the lack of a last resort safety net. In 1998, Law n. 448 introduced two new means-tested beneﬁts: the Family Allowance for families with three or more children (under 18); and the Maternity Allowance for resident (citizens and immigrants) unemployed mothers (Madama and Ferrera, 2006). Another line of action was about the decentralization of administrative tasks. The Framework Law n. 328 of 2000 gave authority to lower levels of government through a multi-level governance with the participation of non-governmental actors and social partners to the phase of deﬁnition of policy priorities. The government made an eﬀort to promote social inclusion through diﬀerent sets of measures across policies: family policy, children rights, combating poverty, support of dependent persons through both transfers and services and the inclusion of speciﬁc groups (such as immigrants) (Ferrera and Sacchi, 2005). Widespread reorganization aﬀected the ﬁnancial resources for social assistance through the National Fund for social policies introduced in 1998. The Constitutional reform of 282

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2001 enhanced the decentralization process by devoting to the regions exclusive legislative power. This contrasted with the previous goal to reinforce coordination from the centre. The long-term decentralization has led to deep territorial discrepancies. Northern regions show high-level spending on social services while southern regions spend much less, and regions of the centre are in between. The second Berlusconi Government proved to be less involved in social assistance policies. The new approach, described in the White Paper on welfare of 2003, consisted of putting the family at the core of social policy as the main provider of welfare. Consequently, and coherently with this statement, the minimum income scheme introduced in 1997 was de facto abandoned by the second Berlusconi Government and left eventually to the regional authorities. However, new funds were devoted to newly wed couples and to ﬁnance workplace crèches (Ferrera and Sacchi, 2005: 161). Health care In 1992, the Amato Government rationalized the National Health Service launched by the 1978 reform. The so-called ‘reform of the reform’ consisted of the transformation of Local Health Authorities (USL) into Local Health Care Enterprises (ASL) with considerable organizational and operating autonomy led by managers and no longer by elective political bodies. Senior managers were appointed by the region on a contractual basis with performance related pay. Managers’ contracts could be renewed in case of eﬀective performance. More autonomy for larger hospitals was introduced. All these measures were consistent with the aim to increase cost containment and eﬃciency and to reduce frauds through ‘competition’ (France, 1998). Moreover, the reform introduced a form of ‘quasi-market’. Regions set tariﬀs to ﬁnance hospitals so that they would be funded for ‘what they produced’ while ambulatory care providers would be funded via fees for services. The aim was to increase competition between health care providers for patients. Providers would have to be accredited by regional authorities to serve the NHS patients. The central government has maintained overall planning responsibility, with the deﬁnition of broad priorities, but it leaves to regional authorities the task to ﬁll in the details. As a consequence, since 1992 regions have used that autonomy to introduce diﬀerent models of ‘quasi-market’ in health care. Some of them (e.g. Lombardy) implemented a virtually total ‘purchaser/provider’ separation, with a large ‘freedom of choice’ for patients and the competition between public and private providers. Others (e.g. Emilia-Romagna) based the health service on the key role of the region to control and coordinate the interaction between providers. Local Health Care Enterprises decide quantity, quality and prices of services to purchase. Thus, freedom of choice for patients is more limited as well as competition between public and private agencies (Maino and Ferrera, 2006). The 1992 legislation modiﬁed the procedures for calculating the amount of central funding towards regions. The total amount of contribution from the National Health Fund consisted of a per capita allowance suﬃcient to provide uniform levels of care. This had to be multiplied for the number of residents. Regions had to ﬁnance the diﬀerence between entitlements and what was actually spent by the health service. The legislative decree n. 56 of 2000 widely reformed regional health care ﬁnancing. About 95 per cent of health care spending is actually ﬁnanced by general taxation (from VAT, regional imposition, etc.). The then 1999 reform had the ambition to better regulate the ﬁnancing of health care with parallel tasks for national and regional institutions. The key issue shifted from 283

D . N A TA L I

‘competition’ to ‘cooperation’ within the integrated network of national, regional and local institutions. At the same time, it stated new rules for the contractual relationship between hospital doctors and the national health service (SSN), and denied the opportunity to combine full-time contracts with the SSN and private contracts. Labour market policy Three programmes represent the corner stones of the system. The ﬁrst consists of the general unemployment insurance schemes which covered workers remaining without job and with a minimum period of contributions. Ordinary unemployment beneﬁts are provided to workers who have paid contributions for at least 52 weeks in the two-year period preceding unemployment. Despite periodical adjustments, beneﬁts have decreased in the second part of the twentieth century and did not cover ﬁrst jobseekers. Mobility beneﬁts are then provided in case of collective dismissals by ﬁrms eligible for beneﬁts against temporary redundancies and in case of individual dismissal of workers. Since the 1940s, a second group of schemes has provided protection against the risk of temporary redundancies. The Cassa integrazione guadagni ordinaria (CIGo) scheme provided cash transfers related to previous salary. In the second part of the twentieth century, they have gained in importance and generosity. Law n. 1115 of 1968 introduced a further scheme called Cassa integrazione guadagni straordinaria (CIGs). It is a special shortterm beneﬁt in case of industrial restructuring and reorganization leading to dismissals. It is ﬁnanced through social contributions paid by both employers and employees and replaces up to 80 per cent of previous earnings. Public employment services consist of the third key element of labour market policies. In 1949, Law n. 264 established the state monopoly through the competency of the Ministry of Labour. The administrative organization was based on a network of national and local agencies. Assignment of the unemployed was rigid and based on compulsory lists, while employers did not have the right to independent and autonomous choices. Public agencies automatically assigned the worker to the ﬁrm instead. The extreme rigidity of the system favoured the development of parallel unoﬃcial labour recruitment. The last two decades have been characterized by a huge eﬀort for reform. With regard to unemployment schemes, the expert Commission appointed by the ﬁrst Prodi Government in 1997 recommended the rationalization of pre-existent schemes in line with three main tiers: the ﬁrst one of a scheme to cover the risk of temporary suspension of employment (similar to the Cassa Integrazione scheme), the second tier was to be a general unemployment beneﬁt to unify diﬀerent beneﬁts actually in the Italian welfare system; and ﬁnally the residual tier in case the social insurance beneﬁts do not produce eﬀects. These wide proposals have not been implemented so far. Yet, some measures have aimed to enhance protection against unemployment. As regards ordinary unemployment schemes, the Law n. 80 of 2005 improved access conditions, generosity and duration of beneﬁts. For workers under 50, the maximum duration was extended from six to seven months (for workers aged 50 or less) and to 10 months (for workers over 50) and beneﬁts were increased from 40 per cent to 50 per cent of previous earnings for the ﬁrst six months and then reduced to 40 per cent in the following three months and to 30 per cent in the last (Vesan and Ferrera, 2006). The recent ‘welfare protocol’ of 2007 provided the further increase of unemployment beneﬁts. As to employment services, Legislative decree n. 469 of 1997 promoted the decentralization of placement tasks from the Ministry of Labour to regional and local governments. 284

ITALY

The then Constitutional reform of 2001 established shared legislative authority between the state and the regions over employment policies and thus reduced the room for central coordination while improved confusion of attributions between levels of governance. Vocational training is exclusively in the hands of the regions (Ferrera and Sacchi, 2005). The decentralization process has not yet produced either more homogeneous social conditions or more eﬃciency in the public administration. The approach to employment services then shifted from passive to active policies. Local agencies received the task to provide speciﬁc services to orient and train the unemployed (with a special focus on women and young people) and favour new job opportunities. What is more, new measures encouraged the competition between public and private institutions. Social partners and non-proﬁt actors were allowed to create their own agencies, while private (especially temporary work) agencies could develop their activity (Vesan and Ferrera, 2006). The progressive liberalization of employment services was then combined with the increased ﬂexibility of the labour market. The Law n.196 of 1997, the so-called Treu Law, from the name of the then Minister of Labour, ﬁrst introduced more opportunities for ﬂexible contracts: tax beneﬁts for employers to favour the use of part-time contracts, relaxing rules on the organization of working time, etc. This step was followed by other measures consistent with the attempt to increase both ﬂexibility and employability. Under the second Berlusconi Government (2001–6), the government proposed to modify the Workers’ Statute of 1970, one of the milestones of the labour legislation inherited from the ‘golden age’ of the Italian welfare. The reform draft led to a huge confrontation between the right-wing government and trade unions. After mass protest and a general strike, negotiations with social partners started. They led to the Pact for Italy of July 2002, signed by two major trade unions (but not the major leftist confederation, CGIL), the employers’ organization and the government. This social agreement consisted of a limited revision of the Workers’ Statute, the projected improvement of unemployment beneﬁts and new initiatives to boost economic growth in the less developed southern regions. In March 2003, the Law n. 30 (known as the Biagi Law after the expert killed by the Red Brigades terrorists in 2002) introduced new ﬂexibility measures: new forms of contract, staﬀ leasing, as well as training and further liberalized placement services (Ferrera and Gualmini, 2004). As regards the conciliation of work and care-taking time, a stimulus has been provided by the funding of Art. 9 of Law n. 53 of 2000 (on provisions for support of maternity and paternity, for the right to care and training and for the coordination of time schedules in cities), which arranges for the disbursement of contributions to ﬁrms that apply contractual agreements foreseeing positive measures regarding ﬂexibility. In the same period, the reform of the education (and especially university) system was bound to have major repercussions on the entry into the labour market of students and graduates. It should help reduce the drop-out rate and the excessively long time taken to graduate – two distinctive features of Italian universities – and therefore accelerate students and graduates entry into the labour market. The diversiﬁcation of university education should lead to a closer match between labour demand and supply. Welfare beneﬁts and receipts and their management In the last two decades, major reforms aﬀected all the main programmes: pensions ﬁrst, but also health care, social assistance and employment policies. In the following we 285

D . N A TA L I

propose some remarks on such innovations and their main outcomes. In particular we focus on the composition of welfare beneﬁts and receipts and their management. Social insurance Pensions suﬀered ﬁve major reforms in the period 1992–2007 consistent with long-term reduction of public spending in the ﬁeld (with the partial exception of the last ‘welfare protocol’ of 2007). New rules have led to a more diversiﬁed system organized around three pillars. The ﬁrst public pillar consists of a ﬁrst tier providing social assistance beneﬁts. Within the National Institute for Social protection (INPS), the scheme for social assistance interventions (GIAS) is ﬁnanced by the annual Budget Law. The second employment-related tier is ﬁnanced through social contributions paid by employers and workers.5 Social partners share administrative tasks in all these schemes. Administrative resources have represented an important source of legitimacy for social partners to be an active part of the reform process. According to projections from the Italian Government, the expected peak level of public spending will be 16 per cent of GDP in 2033 instead of the previously forecasted 23 per cent for the year 2040. The future increase is determined by population ageing, while individual beneﬁts will decrease. New pensions will be more strictly related to the insurance (or actuarial) principle: beneﬁts will depend on contributions rather than on revenues and seniority. This is expected to reduce the room for redistribution. The generosity of public pensions will decline as well: the gross replacement rate is projected to decrease by about 20 per cent between 2000 and 2040.6 According to microeconomic simulations, in the next decades an increased number of pensioners will have to ask for the social assistance beneﬁts because of the decline in social insurance pensions (Marano, 2006). The less generous ﬁrst public pillar will be then combined with supplementary schemes. These cover, for the moment, a minor part of the labour force (about 2.6 million people, 12 per cent of total employed) but are projected to widen. They are based on fullyfunded methods of ﬁnancing and on a ‘deﬁned-contribution’ formula which tends to transfer the risk of old age pension ﬁnancing towards individual workers. The second pillar consists of occupational funds: ‘closed’ funds, introduced through collective bargaining, coexist with ‘open’ funds managed by ﬁnancial institutions with no participation by social partners. At the beginning of the twenty-ﬁrst century more than 600 funds were active. The third pillar is represented by funds with individual subscription by the worker. Pension beneﬁts from all the three pillars are taxable. Quite paradoxically, reforms have not led to a short-term decrease in pension spending, because of the long phase-in period of innovations and the parallel process of population ageing. Social protection expenditure stands at just over 26 per cent (still below the EU average) over 58 per cent of which is made up of old age and survivor pensions (see Table 15.2). Social assistance The preponderance of expenditure on pensions takes an obvious toll on other forms of social expenditure, namely unemployment and social assistance. In Italy, up to now, the major limit is the lack of a generalized minimum income scheme. Yet, between 1996 and 1999 family, social inclusion and housing outlays slowly increased by around 0.4 per 286

ITALY

Table 15.2 Social protection beneﬁts as a percentage* (2005)

it Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 96.5p 4.2p 2.0p 0.1p 0.2p 31.5p 58.6p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

cent of GDP. In 2001, total spending in these ﬁelds was about 5 per cent of total social protection expenditures, against the EU average level of 11.5 per cent. This is consistent with the mixed record of innovations implemented for unemployment, social inclusion and social assistance programmes. The recalibration of welfare spending between risks is still a work-in-progress. Resources for social assistance programmes (National Fund for Social Policies, FNPS) come from the annual state budget law. The Budget Law for 2004 ﬁnanced the FNPS, which then directed the resources to the scheme for social interventions (GIAS) within the National Institute for Social Protection (INPS) more than 40 per cent of the total amount, regional authorities (50 per cent) and municipalities (Madama and Ferrera, 2006). Municipalities are the key loci for the provision of social assistance beneﬁts and services through their interaction with Local Health Care Enterprises, non-proﬁt organizations and private agencies. As far as the ‘third sector’ is concerned, the number of organizations and the services provided have increased during the 1990s. Non-proﬁt organizations have participated in the experimentation of new forms of social assistance, of management and of interaction with public authorities, while promoting the interests of civil society. What is more, new social and economic trends (e.g. ageing, increased female employment, etc.) have led to some important changes in the informal provision of social care. The role of the family, as argued by Da Roit and Sabatinelli (2005), is declining. And given the limited (ﬁnancial) scope for more active intervention by public institutions, the market is gaining a central role. Especially for child care and care of older people, private services are increasingly an important source of help through new forms of outsourcing from public authorities and ﬁscal incentives for the beneﬁciaries. Italian families have in recent years increasingly relied on immigrants to take care of a dependent family member. According to recent statistics registered migrant domestic workers were about 400,000 in 2003 (van Horen, 2008). Health care In 2002, public spending on health care was at 6.4 per cent of GDP, while in 1978 it was about 5 per cent. The spending level was, at the beginning of 2000s, slightly lower than that of the other European countries: 8.3 per cent in Germany and 7.2 per cent in France 287

D . N A TA L I

(Maino and Ferrera, 2006). This is conﬁrmed by the incidence of health care in the total social protection outlay. In 1990, health care represented around 27 per cent of total social protection spending. In 2003, it declined to 25 per cent of total social protection. Despite the stability of health care spending, ﬁnancial strains have characterized the sector since the 1980s. That trend has combined with two other ‘historical’ deﬁciencies: the ineﬃcient public administration and territorial cleavages. As to the ﬁnancing of health programmes it is now almost entirely derived from regional sources (95 per cent of total resources) and from taxation. Central government’s transfers amount to 5 per cent of the total. The institutional architecture of the National Health Service is organized in three main levels: national, regional and local. At the central level, the Ministry of Health has the task to deﬁne the National Health Plan (PSN). The Ministry interact with the ‘State/Regions’ Conference, which agrees on ﬁnancial agreements between the centre and periphery. Each region has to approve the Regional Health Plan, nominees the management of Local Health Care Agencies and distributes ﬁnancial resources to the lower level. Public and non-public organizations interact at local level to provide services. This complex institutional architecture provides three-level health care services. The ﬁrst level (primary care) is mainly provided by the family doctor who provides patients with preventive and curative care and serves as a professional guide to the patient. The second- and third-level services (special care) are provided by hospitals, and other public and private institutions. The so-called pharmaceutical assistance that is the reimbursement by the NHS of pharmaceuticals represents the fourth part of it and its outlays amount to about 15 per cent of total public health care spending. Labour market policy Labour market reforms have proved more eﬀective. As summarized above, since the 1980s Italian policy makers have introduced major innovations to improve the eﬀectiveness of employment services through decentralization, and opening more room for private agencies. The public administration approach has shifted from a bureaucratic to a more active attitude to improve opportunities for employment (especially at local level). In 2001, public spending on both passive and active labour market policies was at 1.12 per cent of GDP (average EU15 level at 1.93 per cent). At that time, passive policies were quantitatively more developed than active ones. The former represented 0.61 per cent of GDP while the latter amounted to 0.51 per cent. Yet, spending trends since the 1990s have shown the increase of ‘active’ measures combined with a certain decrease of passive policies (Vesan and Ferrera, 2006). Unemployment beneﬁts are administered by the National Institute for Social Protection (INPS) and thus by social partners’ representative and public bureaucracy. Ordinary unemployment beneﬁts are ﬁnanced through social contributions paid by employers. Beneﬁts against temporary unemployment (CIGo and CIGs) are ﬁnanced by employers’ contributions and the state. Active policies, by contrast, are of exclusive competence of regional and local authorities. Each region has a system of public employment services (Sistema di servizi pubblici per l’impiego, SIP). It consists of the Tri-partite Regional Commission (Commissione regionale di concertazione, which includes representatives of social partners and public institutions) for the planning, monitoring and implementation of labour policy; the Regional Institutional Committee, which include representatives of the various levels of government, aimed at coordinating decisions at diﬀerent levels; and 288

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Table 15.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

it

eu27

eu15

11.2 11.2 11.3 11.4 11.0 10.1 9.1 8.6 8.5 8.1 7.7 6.8 6.1

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2007)

the Regional Labour Agency with the duty to provide technical support to the provinces. A network of local employment agencies provides services (in competition with nonpublic institutions) and monitors the labour market. Local agencies are coordinated at the province level (Ferrera and Sacchi, 2005). Moreover, new measures have reduced the labour market rigidity through new forms of short-term, part-time and other ﬂexible contracts. All these eﬀorts have contributed to at least partially reduce structural deﬁciencies of the labour market in Italy. The unemployment rate about 12 per cent at the end of the 1990s then has declined to 6.1 per cent in 2007 (the same year the average EU15 level was 7 per cent, Table 15.3). In the period between 1995 and 2001, 1,500,000 new jobs were created with a rapid increase in ﬁxed-term contracts and temporary work (Ferrera and Gualmini, 2004: 100– 101). Employment has been rising for eight consecutive years and the employment rate increased by almost ﬁve percentage points since 1996, but at 56.1 per cent in 2003 remains one of the lowest in the EU. The women’s rate, although rising, remains especially low, around 42 per cent. Positive trends in the labour market also appear largely to credit for the overall slight decrease in the poverty rate recorded in national data: however, Italy suﬀers from a higher poverty risk than the EU as a whole (see Table 15.4). Regional diﬀerences remain vast, with the employment rate in the north (63.3 per cent) 20 points higher than that of the south, and poverty still overwhelmingly concentrated in the south (CEC, 2005). Analysis The Italian welfare state has largely evolved in the last two decades. While it conﬁrms some of the traditional features of the south European model, it is in transition. Last innovations did not break the old path but paved the way for future breaks. On the one hand, welfare programmes still suﬀer from some traditional distortions. At the beginning of the twenty-ﬁrst century, the Italian welfare is mainly oriented towards social protection programmes and pensions ﬁrst. In line with Eurostat statistics on social protection expenditures, Italy spends a lot on old age and survivor pensions (in 2003, 289

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Table 15.4 At-risk-of-poverty rates by gender

it total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

20 20 19 18 18 18 19 – – 19b 19 20

eu25 males 19 19 19 17 18 18 19 – – 18b 17 18

eu15

females

total

males

females

21 21 20 19 18 19 20 – – 20b 21 21

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

61.7 per cent of total social protection outlays, while the average in the EU25 is 45.7 per cent). Social expenditures on health care, disability and especially on family, unemployment and housing are below the EU average. On the other hand, legislative innovations have been numerous in the last years. They are consistent with some broader lines of reform. The ﬁrst trait is that of a (limited) recalibration of welfare spending. Major interventions have focused on the inter-risk inequity. Pensions have been renewed through major reforms since the early 1990s. In the long term, the expected peak of pension expenditures has declined from 23 per cent to 16 per cent of GDP. Italy has then started to spend more on social assistance programmes. New schemes are focused on families with more than three children, unemployed mothers and the minimum insertion income programme has been experimented (but then abandoned). While the new measures are consistent with the progressive reduction of the disequilibrium between social protection and assistance, statistics prove they are far from granting a more balanced welfare state. Policy makers have then dealt with the interoccupational inequity. Recent measures have reduced the uneven distribution of beneﬁts and costs between insiders and outsiders, especially in the pension ﬁeld. The second dimension of the recent wave of reforms consists of the deﬁnition of a new public/private mix. More than a coherent process of deregulation and privatization of social programmes, the country witnesses a trend towards a more complex and integrated governance between public and societal players. New legislation on health care, social assistance and pension ﬁelds all contributed to increase the room for non-public institutions to provide beneﬁts and services. While social partners maintain a key administrative role, other non-public actors are integrated in the management of welfare beneﬁts and services (e.g. ‘third sector’ organizations). The same is true for labour market policies. Public employment services now compete with private agencies and institutions managed by social partners. Moreover, the modernization of employment policies has mainly concentrated on greater ﬂexibility of labour 290

ITALY

contracts. This has contributed to the decrease of unemployment rates and the parallel but limited increase of employment rates. Yet, the security of jobs and working conditions is still limited to the more protected occupations (insiders) while it is still low for the outsiders. The emphasis on the regional and local dimension of welfare policies contributes to a more precise understanding of Italy, and gives new insights about the need for a critical approach to traditional taxonomies of welfare regimes that underestimate variations within single countries. The increasing role of regional and local authorities has added in the last decade more complexity to the Italian welfare system, with a patchwork of institutions, regulations, and decision-making processes.

Some remarks about the present and future of Italian welfare As shown above, the last two decades have been characterized by a huge reform eﬀort. A wide number of innovations have contributed to revise the Italian welfare model. First of all, reforms have contributed to reduce ﬁnancial strains on social programmes. Cutbacks have mainly aﬀected pension schemes and restored their long-term ﬁnancial viability. Public spending on health care has been rationalized as well. This trend has contributed to the more limited role of public institutions and the parallel increased weight of non-public (market and community) actors. In the case of pensions, supplementary schemes cover a large part of the working population. And the principle of voluntary participation has been recently substituted by the auto-enrolment mechanism. In the national health care system, recent innovations have introduced quasi-market mechanisms and the competition between accredited providers. In the case of social assistance, new socio-economic trends seem to reduce the then central role of the family, especially in the provision of child and elderly care. For some experts, Italy is experiencing the transition from a ‘family’ to a ‘migrant in the family’ model of care (Bettio et al., 2006). Public social services are not widespread while in recent years there has been a continuous ﬂow of migrant workers into domestic service employment. And recent reforms on employment policy has led to the ongoing reduction of unemployment rates and the increased ﬂexibility of the labour market. Despite the eﬀort to change social policies, some old and new problems are expected to aﬀect the Italian welfare in the future. While cost containment has stabilized social spending, future sustainability is still under pressure (due to ongoing economic stagnation and persistent strains on the public budget). Moreover, inequality between social groups persists. Cutbacks have been concentrated on younger generations, and outsiders groups (like ﬂexible workers). The increased ﬂexibility of the labour market risks enhancing uncertainty on the same social groups. And this category is extending in terms of scope. Innovations of unemployment beneﬁts have been of limited scope, while the reconciliation of family and working activities especially for women seems in need of more eﬀective legislation. For all this, the future adequacy of social programmes seems under pressure. Territorial disparities are still present if not increased after recent reforms. The decentralization of administrative tasks and ﬁnancial resources in diﬀerent social policy ﬁelds has not improved institutional capabilities. More administrative eﬃciency seems far from being achieved. Moreover, the expected growth of the market in the ﬁeld will probably increase inequality among social groups and individuals. 291

D . N A TA L I

Notes 1 In PAYG schemes, current contributions paid by both employers and employees (or revenues coming from current taxation) are not saved but immediately used for ﬁnancing current beneﬁts. 2 Clientelism is a particular political system where political elites control and use public resources to distribute individual and collective beneﬁts in exchange for electoral support. 3 As stressed by Ferrera and Gualmini (2004), in the 1980s pension expenditure was seven times higher than that for family beneﬁts. 4 While a ‘deﬁned-beneﬁt’ pension is ﬁrst related to the employees’ salary on retirement, a ‘deﬁnedcontribution’ beneﬁt is related to contributions. Thus, this shift produced the strengthening of the insurance principle. 5 For dependent workers the contribution rate is of 32.7 per cent of total revenues: two-thirds paid by the employer and one-third by the worker (Ferrera, 2006). 6 Gross-replacement rate is the ratio between the ﬁrst gross pension after retirement and the last gross earnings before retirement.

Bibliography Bettio, F., Simonazzi, A. and Villa, P. (2006) ‘Change in care regimes and female migration: the “care drain” in the Mediterranean’, Journal of European Social Policy, 16/3, pp. 271–85. CEC, European Commission (2005), Joint Report on Social Protection and Social Inclusion, Brussels, COM (2005)/14 ﬁnal. Da Roit, B. and Sabatinelli, S. (2005) ‘Il modello mediterraneo di welfare tra famiglia e mercato’, Stato e Mercato, 74/5, pp. 267–90. Ferrera, M. (1993) Modelli di Solidarietà, Bologna, Il Mulino. —— (1996) ‘Southern Model of Welfare in Social Europe’, Journal of European Social Policy, 6/1, pp. 17–37. —— (1997) ‘The Uncertain future of the Italian welfare state’, West European Politics, 20/1, pp. 231–49. —— (2006) ‘L’analisi delle politiche sociali e del welfare state’, in M. Ferrera (eds) Le politiche sociali, Bologna, Il Mulino, pp. 11–51. Ferrera, M. and Gualmini, E. (2004) Rescued by Europe, Amsterdam, Amsterdam University Press. Ferrera M. and Sacchi S. (2005) ‘The Open Method of Co-ordination and National Institutional Capabilities. The Italian Experience’, in J. Zeitlin and P. Pochet (eds) The Open Method of Co-ordination in Action, Bruxelles, PIE-Peter Lang, pp. 137–72. France, G. (1998) ‘Healthcare quasi-markets in a decentralised system of government’, in W. Bartlett, L.A. Roberts, J. Le Grand (eds) Quasi-market Reforms in the 1980s: a revolution in social policy, Bristol, The Policy Press, pp.155–73. Jessoula, M. and Ferrera, M. (2006) ‘Le Politiche Pensionistiche’, in M. Ferrera (eds) Le politiche sociali, Bologna, Il Mulino, pp. 43–112. Madama, I. and Ferrera, M. (2006) ‘Le Politiche di Assistenza Sociale’, in M. Ferrera (eds) Le politiche sociali, Bologna, Il Mulino, pp. 227–86. Maino, F. and Ferrera, M. (2006) ‘Le Politiche Sanitarie’, in M. Ferrera (eds) Le politiche sociali, Bologna, Il Mulino, pp. 171–225. Marano, A. (2006) ‘Pension reforms in Italy: principles and consequences’, Revue française des aﬀaires socials, 1/06, pp. 223–52. Micheli, G. A. (2006) ‘Criticità ed esempliﬁcazioni del modello di famiglia forte’, Rivista di politiche sociali, 04/05, pp. 111–29. Natali, D. (2004) ‘Europeanization, Policy Arenas, and Creative Opportunism: The Politics of Welfare State Reforms in Italy’, Journal of European Public Policy, 11/6, pp. 1077–96. Natali, D. and Rhodes, M. (2005) ‘The Berlusconi Pension Reform and the Double Cleavage of Distributive Politics in Italy’, in C. Guarnieri and J. Newell (eds) Italian Politics Quo Vadis? 2005, Oxford, Berghahn Books, pp. 172–89.

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Saraceno, C. (1994) ‘The ambivalent familism of the Italian welfare state’, Social Politics, Spring, pp. 1–22. Van Horen, F. (2008) ‘Welfare provision beyond National boundaries: the politics of migration and long term care in Italy’, paper presented at the 2008 Espanet doctoral workshop, Forli, Italy, June 5–7. Vesan, P. and Ferrera, M. (2006) ‘Le Politiche del Lavoro’, in M. Ferrera (eds) Le politiche sociali, Bologna, Il Mulino, pp. 113–69.

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Chapter 16

lt The welfare system of Lithuania Jolanta Aidukaite

Introduction Lithuania constitutes an interesting case to study social policy, as the country was incorporated into the former Soviet Union and had experienced the authoritarian Communist rule. In 1990 Lithuania regained its independence and has returned to being a democracy with a market economy. As with other central eastern European countries, Lithuania went through massive privatization during the ﬁrst years of independence, suﬀered from high inﬂation and growing unemployment, and consequently people felt there had been a decrease in their material well-being (see EBRD, 1999). However, Lithuania managed to stabilize its economy, and was experiencing the fastest growing gross domestic product (GDP) in Europe up to 2008 (Embassy of the Republic of Lithuania, 2003). The success of its transition made it possible for Lithuania to join the European Union and NATO in 2004. According to Tiirinen (2000), ﬁnancial structures, private services, telecommunications and higher education are some of the successful areas with a high level of performance. However, various social problems (ageing, low fertility, inequality and poverty) suggest that issues like social security require further eﬀorts to be made in order to reach the appropriate standard of western European countries. The relatively higher poverty level, as is illustrated by Table 16.1, and lower wages1 than the ‘old’ EU countries show that Lithuania still has some way to go before catching up with the other developed European welfare states. The socio-economic changes took place together with the changes to the social security system of Lithuania. As Deacon (1992b) has pointed out, the collapse of the Communist regime brought to an end not only a particular type of political and economic system, but also a speciﬁc type of welfare state. According to Aidukaite (2004), the social security system of Lithuania can be referred to as a distinct post-socialist welfare regime. This regime deviates from the other three delineated by Esping-Andersen (1990) and is already gaining acceptance within comparative welfare state research (see, for example, Aidukaite, 2004; Deacon, 2000; Kääriäinen and Lehtonen, 2006; Oorschots and Arts, 2005). On the basis of the example of the three Baltic States, Aidukaite (2004: 81–85) has indicated the main features of the post-socialist welfare state regime. The post-socialist welfare state is 294

L I T H U AN I A

Table 16.1 At-risk-of-poverty rates by gender

lt

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – 17 17 – – – 21b 20

– – – – – 17 18 – – – 20b 19

– – – – – 17 17 – – – 21b 21

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

characterized by such features as high coverage, but relatively low beneﬁt levels. Insurancebased schemes play a major part in the system of social protection and this is not surprising considering the fact that the former Soviet system was based on employment. However, the same programmes cover everyone. In many cases, universal beneﬁts still overshadow means-tested ones. Nevertheless, the relatively low beneﬁt levels do not create enough incentives for people to be honest and declare their income for taxation. Even if the state plays a vital role in protecting its citizens from social risks, the market and the family are still two of the most important agents for guaranteeing an adequate standard of living for the population. Thus, the current Lithuanian welfare system theoretically should reﬂect basic features of the ideal typical post-socialist welfare state regime. In order to review the current welfare system, it is necessary to know what kind of social welfare system Lithuania had in the past. Previous studies (Aidukaite, 2004; Macinskas, 1971) indicate that the ﬁrst social security programmes appeared in Lithuania as early as in 1919. It can be claimed that social security in Lithuania before the Second World War (1919–40) resembled the Bismarckian system of social insurance. However, the number of insured persons was low and only permanent state employees had a right to a state pension. The money that went into the pension fund was mainly obtained from employer and employee contributions. Farmers were totally excluded from the social insurance system (Macinskas, 1971). After the Second World War, when Lithuania was incorporated into the Soviet Union, it was subjected to the same social policy regulations as the whole Soviet Union. Thus, Lithuania has experienced a Soviet social protection system during the period 1940–91. The legacies of the Soviet protection system can be felt in Lithuania up to the present day. Thus, it is worth mentioning some of the major features of the Soviet welfare system. The Soviet system can best be thought of as a form of authoritarian welfare state, based on compulsory employment with a huge redistributive mechanism. The state was the main provider of welfare for its citizens. Thus, the coverage of the social security system was universal in the Soviet Union, with rather low 295

J. AIDUKAITE

beneﬁt levels. Everybody was guaranteed security in all cases of loss of working capacity, old age, invalidity, illness and the loss of the breadwinner. The extensive social policy (full employment, free education and health care) and social security with its huge redistributive mechanism promoted equality within classes and various social groups (Aidukaite, 2004). Some studies, however, indicate (Poldma, 1999; Deacon, 1992a; Ferge, 1992) that there was an upper class, a so-called nomenclature, that proﬁted more from the beneﬁts of the authoritarian welfare state than other social groups. Other studies (Hartl and Vecernik, 1992) have also underlined the negative side of the former Soviet system, such as no indexation of beneﬁts, poor quality of health care and other services, and housing shortages. Nevertheless, according to Deacon (1992a), there was job security for many in the former socialist countries, workers’ wages represented a high percentage of the average wage, and cheap housing and free health care were available to everybody. After the collapse of the Soviet regime, Lithuania, like many other east European countries, has undergone a process of social policy reform. However, social policy issues have never belonged to that group of issues, which were given top priority in the Baltic States. Instead, they revolved around the necessity of establishing a market economy and reinforcing political independence. Thus, social issues were left behind, believing that the market economy might solve them automatically as soon as it started to function. The negative attitudes towards the paternalistic Soviet state, which saved everybody in every situation without leaving any space for individual initiatives, created favourable conditions to move from a universal form of social provision to one more fragmented in nature (Aidukaite, 2004). Since social policy was not at the forefront of the Lithuanian political agenda, it could be diﬃcult to deﬁne the main leitmotif of the welfare system. The emphasis since the 1990s was placed on combating poverty by increasing individual initiative and reducing dependency on welfare. The EU enlargement through its promotion of social values and generous social policies has brought the social dimension into the political agenda of contemporary Lithuania.

Status quo: current welfare system in Lithuania When the Soviet system collapsed, Lithuania started to gradually replace the old welfare system with new ones. Previous studies (e. g. Aidukaite, 2004) have revealed that, in general, it can be seen that the current system, when compared with the previous one, has changed considerably. Housing has become the private responsibility of the individual and the same is true, in part, for education and health care. Nevertheless, the Lithuanian case also demonstrates a degree of continuity in social policy development. There was a great emphasis placed on the previous social structures and on the economic and social conditions of the country. Thus, the welfare system of Lithuania has experienced restructuring since the restoration of independence and is still being further improved and transformed. Currently the social protection system in Lithuania is mainly managed by the state. However, private initiatives are increasingly taking oﬀ. For example, the law on private pension funds came into force in 2000 and started to be eﬀective in 2004. Both private health insurance as well as private educational establishments exist in Lithuania. The housing that was mainly under state authority during Soviet times has become almost fully privatized. Expenditure on social protection says a lot about the performance of the welfare state. Many previous studies demonstrated that countries which spend more on social protection have lower levels of inequality and poverty, a higher quality of social services and 296

L I T H U AN I A

beneﬁts, and consequently higher longevity of its population and a higher standard of overall well-being. Lithuania spends much less on social protection than the EU15 or EU25 average (see Table 16.2). Overall, the share of GDP spent on social protection in the three Baltic States is among the lowest in Europe (based on Eurostat data; see also Keune, 2008: 13). When it comes to social protection expenditure per head, again the Baltic States are at the bottom compared with the EU15 or EU25. However, regarding the distribution of social protection beneﬁts as a percentage of total social protection expenditure the situation is very similar in Lithuania to other EU countries (see Table 16.3). According to the Ministry of Social Security and Labour (2006), the major expenditures incurred by the state Social Insurance Fund were pensions, followed by sickness and maternity social insurance, unemployment insurance expenditure, occupational accidents and occupational diseases social insurance and the expenditure related to the transfer of funds into the compulsory health insurance. The system of social protection of Lithuania is divided into social insurance, social assistance and social services. The social insurance is ﬁnanced from the Social Insurance Fund, which is administered by SODRA. Money to the Social Insurance Fund comes from employer and employee contributions. The social assistance and social services are ﬁnanced from general tax revenues and these are non-contributory schemes. Social insurance was separated from general revenue after the fall of the Soviet regime. The structure of the social insurance contributions is given in Table 16.4. In 1996, the employer paid 30 per cent of the social insurance contributions, while the employee – paid 1 per cent. From 2000, the overall rate of the contributions increased to 34 per cent, of which the employer pays 31 per cent and the employee pays 3 per cent. According to the social insurance law all individuals who are contractually employed are compulsorily insured and may receive all kinds of insurance beneﬁts. However, selfemployed persons and farmers are only compulsorily insured for pensions, the reimbursement Table 16.2 Social protection expenditure

lt

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– 863.9 1219.9 1513.0 1682.3 1955.9 1998.9 2114.6 2231.4 2409.8 2738.8p

– 239.9 341.2 426.3 477.3 558.9 574.2 609.6 646.0 701.4 802.1p

– 13.4 13.8 15.2 16.4 15.8 14.7 14.1 13.6 13.3 13.2p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

297

J. AIDUKAITE

Table 16.3 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

lt

eu27

eu15

100.0p 97.0p 9.0p 1.8p 0.0p 1.7p 39.5p 45.0p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

Table 16.4 The structure of the social insurance contributions (%)

Year

Total contributions: Pension (of which paid by insurance employer and employee)

1996 2000 2004 2006

31 34 34 34

(30 (31 (31 (31

and and and and

1) 3) 3) 3)

25 25.9 26.1

Sickness and maternity insurance

Unemployment insurance

Occupational disease and accidents insurance

Health insurance

3.5 3.3 3.3

1.5 1.5 1.3

1 0.3 *

3 3 3

Source: Lazutka, 1997; the MSSL Note: * The rate of the contributions depends on the incidents of traumas and occupational diseases of each insured person (0.28% 0.531%) 2006.

of some expenses of medical treatment and prevention, and funeral beneﬁts. If they want to be insured against unemployment, occupational disease and accidents, it is done on a voluntary basis (Lazutka, 1997). In Lithuania, employer–employee cooperation exists regarding the governance of the social insurance. This means that trade unions, employer organizations and representatives from the state are involved in administering the various social insurance programmes (this is particularly true for unemployment insurance). However, trade unions are rather weak as are employer organizations. The unionization rate in Lithuania is only 11 per cent, which is low compared with other ‘old’ EU countries. The collective agreements coverage is also low. Therefore, wages are mostly bargained on an individual level (Paas et al, 2004). However, according to the Ministry of Social Security and Labour (2004c), there has also been a growing interest in collective labour relations in Lithuania. The Health Insurance Law was approved in 1996. According to this law everyone who pays social insurance contributions also has compulsory health insurance for their family members. Those who are not insured may apply for necessary medical aid only. Such persons have to pay for other services according to the prices set by the Ministry of Health of the Republic of Lithuania (2006). 298

L I T H U AN I A

Overall, Lithuania has adopted an insurance-based social security system. The eligibility to beneﬁts and allowances is mainly based on contributions. Those who do not pay contributions will not be eligible in future to a pension, unemployment beneﬁts or free medical treatment. However, there is a range of universal beneﬁts in Lithuania. They are mainly directed at children and families with children, foster children and the disabled and those who are not eligible to social insurance pension. There are also various means-tested beneﬁts that come in cash or kind for low-income families. These kinds of beneﬁts are called social assistance in Lithuania and are administered by the local municipalities. Social services (social care institutions, home care, psychological consultation, social work) have been developing very rapidly; however, they are still not suﬃcient enough (Aidukaite, 2004). In the following discussion, we will study the Lithuanian social welfare system in detail. Services and beneﬁts Pension policy Social security occupies a special place within the welfare state as one of the most important instruments to achieve redistributional eﬀects among generations and various social groups and mitigate and prevent poverty and inequalities. Financial constrains, growing unemployment and massive poverty during the ﬁrst years of transition from planned to market economy put enormous pressure on the system of social security in Lithuania. The system designed to protect older people was particularly under pressure. This is not only because of economic constraints, but also as a result of an ageing population. Currently, retired people make up 262 per cent of the population in Lithuania (the LSD, 2002). In the future, the number of older people is expected to increase even more (see Muller, 2002, for more details). In these circumstances, the retirement age has been raised in order to maintain a suﬃcient amount of labour available for the employment market. Moreover, by 2008 the retirement age will be 62.5 for men and 60 for women (Paas et al., 2004: 35; the MSSL, 2001: 82, 92). Owing to the ageing of the population and ﬁnancial constraints, the Lithuanian state has been facing problems with guaranteeing future pension provisions for their large, ageing groups of citizens. The pension insurance system has been transformed in order to resolve this challenge. According to pension reform (see, for example, MSSL, 2001, 2005), the pension system has been established with ‘three pillars’ in Lithuania. The second pillar is for the old age pension only. The ﬁrst and third pillars are for old age, disability and survivor pensions. The ﬁrst pillar (so called state social pension insurance) is a compulsory, statemanaged, mandatory pension scheme, based on current contributions (pay-as-you-go) and has been operating since 1995. Everyone who pays contributions to the Social Insurance Fund is insured by the state social insurance pension. The old age pension, which comes out of the ﬁrst pillar, is earnings related. However, the old age pension consists of two parts: the basic pension, which provides basic security (everyone who was in paid employment for at least 15 years is eligible for a basic security pension); and a supplemental part, providing an earnings replacement, based on contributions and the accrued salary (see the MSSL, 2001). The second pillar started to operate in Lithuania in 2004 and it is a voluntary privately managed funded pension scheme. The second pillar makes it possible for everyone who pays social insurance contributions to accumulate 299

J. AIDUKAITE

assets for their future pension without having to pay additional contributions (http:// www.pensijusistema.lt). According to the Ministry of Social Security and Labour (2006), contributions for accumulating assets will increase gradually: from 2.5 per cent in 2004 to 5.5 per cent in 2007. This contribution part will be calculated both from the part paid by the employee and from the part paid by the employer. The total tariﬀ of 34 per cent will not change. People joining the second pillar must sign a pension accumulation agreement with the chosen pension accumulation company, which then informs SODRA about the decision. SODRA will transfer 2.5 per cent of the contributions to the pension accumulation company (http://www.pensijusistema.lt). The third pillar is a voluntary funded private pension scheme and it started to operate in Lithuania as late as 2004. The third pillar creates possibilities for the individuals to choose to pay their own additional money to life insurance companies or private pension funds. Oﬃcially, the second and third pillars were developed to increase individual interest and responsibility in the pension system as well as to avoid a drop in the pension replacement rate due to unfavourable demographic developments (see the MSSL, 2001, 2006). However, it could be argued that the impact of global organizations, such as the IMF and the World Bank, has been crucial here. For instance, Casey (2004: 32) has pointed out that Estonia, Latvia and Lithuania were recipients of substantial World Bank loans, ‘although in no cases were these loans tied to pension reform, the countries’ willingness to adopt appropriate pension reform made them “suitable” candidates for assistance’. Thus, Lithuania has employment-related old age retirement schemes based on paid contributions. In addition, it has a ﬂat-rate pension called ‘social pension’ for those who are not eligible for an employment-related pension. The ﬂat-rate pension is non-contributory and ﬁnanced from the general tax revenue (the MSSL, 2001). As data show, the take-up rate and coverage are almost 100 per cent. However, the replacement rate is maintained at low levels and accounts for only 30–40 per cent of the gross average wage (Muller, 2002). This is considered to be low according to west European standards. However, the social insurance pension is increasing each year. This is due to the rise in the general wealth of the country and also due to the increase in wages and salaries (MSSL, 2004c). Since 2004, it is possible to received pre-retirement pension in Lithuania for those who become unemployed at the age of 55 for women and 57.6 for men and who have acquired a period of pension insurance of at least 30 years. The law takes into consideration the fact that it is very diﬃcult for individuals of pre-retirement age to ﬁnd a job if they become unemployed (MSSL, 2004c). Unemployment policy In its employment policy and support for unemployment, Lithuania, as with other EU member states, is striving to achieve the goals set in Lisbon and Stockholm; namely, full employment, labour quality and eﬃciency, social cohesion and inclusion. Therefore, employment and labour market policy in Lithuania has been seeking to achieve a high employment rate and to combat problems of unemployment. In order to achieve this, successful economic measures (leading to favourable conditions for creating new jobs) are necessary (the MSSL, 2004c). Unemployment was a serious problem in Lithuania during ﬁrst years of independence. Today the unemployment rate in Lithuania is comparatively low and amounts only to 4 per cent, while the EU27 and EU15 average is around 7 per cent (see Table 16.5). The 300

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Table 16.5 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

lt

eu27

eu15

– – – 13.2 13.7 16.4 16.5 13.5 12.5 11.4 8.3 5.6 4.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

accession into the EU in 2004 has lowered the level of unemployment in Lithuanian society. Some of the labour force migrated to richer EU countries to look for employment. This created a labour shortage in the country and reduced unemployment greatly. At the same time, with the inﬂow of investments from the EU, more jobs were created in the service, ﬁnancial and construction sectors. The implementation of active labour market policies may have also lowered the unemployment rate as well as the introduction of unemployment insurance. In the following discussion we are going to discuss previous and current problems related to unemployment in Lithuanian society in more detail. According to the latest social report issued by the Ministry of Social Security and Labour of Lithuania (2004c), the unemployment rate is highest among young people (15–24 years of age), in particular rural young people and among people in the pre-retirement age. According to the Social Report (2004c: 17–19) youth unemployment was 22.5 per cent in 2004. While the unemployment rate for men and women was 11.1 and 11.7 per cent respectively. Since 2001, the unemployment rate for men had always been slightly higher than for women. But that changed in 2004 and now the unemployment rate is slightly higher for women. Overall, unemployment in all age groups in Lithuania decreased in 2004, except for the pre-retirement age. The number of the unemployed of pre-retirement age increased from 9 to 11.4 per cent during 2004 (for further details see MSSL, 2004c: 172). Despite the overall decline in the unemployment rate, the number of unemployed persons receiving unemployment beneﬁts have also been decreasing; for example, ‘in 2004 unemployment beneﬁt was paid to every tenth unemployed’ (the MSSL, 2004c: 29). This might be due to strict qualifying conditions for unemployment beneﬁts. The unemployment beneﬁts were also so low that there was little point in people signing up. This could be a reason for the relatively low take-up among the unemployed; for example, about 13 per cent in Lithuania (the MSSL, 2001). From 1 January 2005, after the enforcement of the Law of the Republic of Lithuania on the Unemployment Social Insurance, a new unemployment insurance system was implemented, with the necessary contribution period being reduced from 24 to 18 months (the MSSL, 2004b). The new unemployment insurance system has increased the 301

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level of unemployment beneﬁt. Before this new reform, the beneﬁt level was relatively low. Unemployment beneﬁt, was set according to the minimum and maximum level of beneﬁts determined by the state and depended on the state social insurance period. However, the minimum and maximum unemployment beneﬁt was only 16 and 30 per cent of the average Lithuanian salary.3 According to the new system of unemployment insurance (see the MSSL, 2004c: 29), the social beneﬁt will consist of a ﬁxed amount of LTL 135 (39 euro) and 40 per cent of the previous wage within the period of the last three years. However, the maximum limit of the whole beneﬁt is LTL 693 (201 euro) (which amounts to around 80 per cent of an average salary4). The duration of unemployment beneﬁt was/is quite short in Lithuania. Unemployment beneﬁts are paid no longer than a period of six months in every twelve months (the MSSL, 2001). Under the new law, unemployment beneﬁt will be paid for six months to people with a working record less than 25 years, for seven months to people with a working record over 25–30 years, eight months to people with a working record of 30–35 years, and nine months to people with a working record over 35 years (the MSSL, 2004c: 29–30). However, those who do not pay social insurance contributions under certain conditions are also eligible for unemployment beneﬁts. The right to unemployment beneﬁts is extended to certain categories of people who have not contributed to the social insurance system (because they have not been employed) on account of the following important reasons: they looked after a disabled person, served in the army or were imprisoned. Graduates from vocational schools and institutions of higher education, women and single men who are bringing up children under the age of eight are not required to have a record of their state social insurance period (the MSSL, 2001, 2002). This might explain why the unemployment rate among young people is higher than other age groups. It has to be mentioned that in addition to passive labour market measures to ﬁght unemployment, there are various training programmes in Lithuania. According to the Ministry of Social Security and Labour (2004c), by the end of 2004 licences on carrying out labour market vocational training programmes were issued to 261 institutions. Short-term beneﬁts Short-term beneﬁts (sickness and maternity beneﬁts) have not seen so much change since the Soviet period (Aidukaite, 2004). The entitlement or qualifying conditions for sickness, maternity and parental insurance beneﬁts are based on social insurance contributions and citizenship (residency). All expenses are paid from social insurance money (the State Insurance Fund) that is ﬁnanced by pay-as-you-go schemes. In Lithuania, sickness and maternity beneﬁts were and still are earnings-related, though, there is a minimum and maximum ceiling set by the state. Paid parental leave was introduced in 1996. It was paid out of the social insurance fund, and provided 60 per cent of the replacement income. According to new amendments, since 1 March 2008 the parental leave beneﬁt was increased from 60 per cent to 70 per cent of the replacement income. However, the maximum income ceiling when calculating beneﬁt is applied (see the MSSL, 2004). Maternity beneﬁt amounts to 100 per cent of the replacement income in Lithuania. The beneﬁts are paid for 126 days (70 days before the delivery and 56 days after). The period for maternity beneﬁt may be extended due to complications during the delivery. 302

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Reports published by the Ministry of Lithuania (the MSSL, 2002, 2003, 2004c), provide comprehensive information on the replacement rates for sickness insurance. The replacement rate is quite high in Lithuania (85 per cent). Furthermore, the duration is long, but no more than 90 days during a calendar year or the conﬁrmation of a permanent disability. No waiting period is required to qualify for sickness beneﬁt. An insurance period is required to qualify for short-term beneﬁts. For sickness and maternity beneﬁts, an insurance period of three months in the last twelve months or six months within the past two years is required. Paternal beneﬁt requires seven months during the past 24 months. According to the Ministry of Social Security and Labour (2004c: 93), ‘the maternity and parental beneﬁts are not granted after a dismissal from work except for the cases when a person is dismissed from work due to enterprise bankruptcy or liquidation’. However, for mothers, who study and are not covered by social insurance, the state grants a special ﬂat-rate maternity (pregnancy) beneﬁt that is categorical (non-means tested). Social assistance to families and children Social assistance in Lithuania provides mainly cash support to families and children. There are various universal (birth grant, child care beneﬁt up to the child’s third birthday, child beneﬁt for each child between three and 18 years), category-targeted (child beneﬁt to families raising three and more children, beneﬁts for children of conscripts, guardianship beneﬁt and settlement beneﬁt for orphans) as well as means-tested support schemes for families and children. In Lithuania, means-tested beneﬁts are quite wide-ranging, such as social beneﬁt, compensation for the cost of heating and for the cost of water compensation, lump sum beneﬁts, free school meals for pupils, assistance for the preparation for a new school year. Cash beneﬁts to families and children are ﬁnanced from the municipalities’ budgets and partly from the Social Insurance Fund. For more than a decade after Lithuania gained its independence, the family support system was arranged more on a category-targeted and means-tested basis rather than universal support for all families. Universal support was provided only up to the child’s third birthday. However, from 1 July 2005, universal beneﬁt up to the child’s seventh birthday was introduced. This beneﬁt was extended gradually each year and it is now paid up to the child’s eighteenth birthday. Children who continue to study full time receive universal beneﬁt until their twenty-ﬁrst birthday. If a family has three or more children, then universal child beneﬁts are paid up to the child’s twenty-fourth birthday if they continue to study (the MSSL, 2004a,c, 2008). It is important to mention that universal child beneﬁt varies according to the number of children in a family. Children receive less beneﬁt if a family has only two children. If a family has three or more children, each child receives more beneﬁt. Another important beneﬁt in Lithuania is the childbirth grant. A birth grant is given (as well as a form of aid for mothers) to the mother at birth. The birth grant is a ﬁxed lump sum paid in one instalment and is not income tested. Previous studies indicate that the beneﬁt levels are quite low in Lithuania and, in particular, for universal beneﬁts (for further details see Aidukaite, 2004, Table 8: 79). However, it has to be mentioned that family beneﬁts have been increasing gradually. For instance, according to a new amendment on 1 January 2005, the birth grant has increased from 750 LTL (217 euro) to 1000 LTL (290 euro) (for further details see the MSSL, 2004c: 112). 303

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Means-tested beneﬁts are paid to families and single residents who are unable on objective grounds to support themselves enough to make ends meet. The number of those who receive means-tested beneﬁts has recently decreased. According to the Ministry of Social Security and Labour (2004c), this was caused by the overall increase in the income of the population, the fall in the unemployment rate and with the fact that means-tested beneﬁts started to be calculated taking into consideration not only family income, but also property owned by the family. In summary, in Lithuania, the entitlement to social assistance by families and children is based on citizenship or on proven needs. Currently almost all families are eligible for family beneﬁts up to the child’s eighteenth birthday. This is according to the criterion of citizenship and the beneﬁts provided are set at a ﬂat rate. However, there are many means-tested beneﬁts for poor families and individuals in Lithuania. The beneﬁts level, as discussed above, is relatively low. Nevertheless, they are considered as being a rather useful tool for preventing those families from falling into the poverty trap (see Aidukaite, 2004; Stankuniene et al., 2003). Social services Social services have been developing very rapidly in Lithuania since the period of independence. During the Soviet era, services were limited only in providing institutional care and the system was very centralized. Therefore, the leading principle in reforming social services was decentralization. Currently primary responsibility in organizing and rendering social services lies within the municipalities. Older people are the main users of social services (the MSSL, 2004c). In 2004, services for older people at social care institutions were provided in 95 homes of various types (state owned, municipal, or parish). By the end of the year, 4,800 people lived in such homes. Almost the same number of older people (4,300) received services at home (the MSSL, 2004c: 137). The same services are provided for disabled people and their families. For those without a permanent place of residence, there are temporary accommodation institutions, such as shelters and crisis centres. Social services for orphans and children deprived of parental care are particularly well developed in Lithuania. According to the Ministry of Social Security and Labour (2004c), these are homes for infants, boarding schools for general education and special training centres, children’s homes under the jurisdiction of counties and municipalities, families, pre-school educational child care groups, etc. It is important to mention that non-governmental organizations (NGOs) were quite active in developing social services in Lithuania. In 2004, the following NGOs were established by institutions providing social services: 30 care homes for older people, 12 child care homes, 18 long-term social rehabilitation establishments for drug addicts (the MSSL, 2004c: 138). The role and the number of social workers has been gradually increasing since the period of independence. According to the Ministry of Social Security and Labour (2004c), the quality of social services provided, amplifying the signiﬁcance of social workers in addressing social issues, has been steadily increasing. In addition the professional skills of social workers have been increasing. Although, in general, social services have been expanding in Lithuania, child care facilities for preschool children have experienced a decline since independence. Child care facilities were extensive during the Soviet period, but were cut back during the ﬁrst years of independence because it was claimed that it is primarily a female duty and also 304

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an enormous advantage for children as well as the family if women stayed at home and raised children (see Stankuniene, 2001). Nevertheless, this ideology proved quite short lived given the perceived need for two-income families and the rapid spread of gender equality values from the west (Aidukaite, 2004). Therefore, this ideology does not exist anymore and is not supported by any family policy arrangements. As reported by the Ministry of Social Security and Labour (2004a) the demand for social services is increasing. The growth of demand is caused by socio-demographic factors: the numbers of families with children at risk has been increasing each year as well as the number of people with disabilities; the ageing population creates demands for social services. However, despite great progress made in this ﬁeld, the network of social services is not adequately developed yet and there is no quality control for social services (the MSSL, 2001, 2004c). Education Some of the areas of social policy have been reformed particularly successfully. For instance, according to Tereseviciene and Zuzeviciute (2002), the reform of the Lithuanian education system has been rather impressive. New forms of schools were established (for example grammar schools), teacher training was improved and new text books were developed. The system of higher education was transformed appropriately (Tereseviciene and Zuzeviciute, 2002): & & & &

non-state establishment of higher education has emerged since 1990; in 2000 the dual system of higher education was established: universities and colleges provide higher education; courses have been internationalized; a credit system was introduced.

Overall, the system of higher education currently resembles those in other western European countries. The success of the educational reform has resulted in a growing number of students enrolled in higher education institutions. The system has become decentralized and democratized. Higher education has become available to almost everyone wishing to continue their education. However, an increasing number of students pay tuition fees. There is still unequal participation in higher education by regions in Lithuania. Few people participate from remote regions and regions with diﬀerent ethnic backgrounds. Higher education is provided by the number of institutions (19 universities and 16 colleges). A variety of study forms are taught by highly qualiﬁed teachers (Tereseviciene and Zuzeviciute, 2002). Health care politics Conversely, health care reform has not experienced such great progress compared with the education system. This is an area that still needs more eﬀort to be made. Studies reveal (Bankauskaite and Saarelma, 2003; Jakusovaite et al., 2005) that after the restoration of independence, Lithuania inherited a centralized system that mainly delivered ineﬃcient health care management and resource allocation. It opted for restructuring and decentralization of the system in order to increase the eﬃciency and quality of health services. Currently Lithuanian citizens have a choice either to use public health care 305

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services, ﬁnanced through the Sickness Fund (obligatory health care insurance ﬁnanced through social insurance contributions see Table 16.1) and state subsidies or ‘visit private health care clinics or hospitals that had no agreements with the Sickness Fund, requiring full coverage for their services from the patients’ (Jakusovaite et al., 2005: 5). Although, as was pointed out by Jakusovaite et al. (2005), the eﬀectiveness of the health care system in Lithuania occupies ﬁfty-second position in the global rating out of 191 countries, there are still big problems with ensuring equality in health care. Moreover, the corrupt medical and other personnel is still prevalent as well as improper behaviour, negligent or negative attitudes, and incompetent individual practitioners (for further details see Bankauskaite and Saarelma, 2003: 28). This leads to a high degree of dissatisfaction with the health care system among Lithuanian citizens. Résumé The overview of the social welfare system of Lithuania conﬁrms statements made at the beginning of this chapter that Lithuanian social policy is typical of the post-socialist welfare state. The main feature that allows this country to be grouped into the postsocialist welfare state model is, of course, the identiﬁcation of the social security system with its Soviet past. Although Lithuania went through a social policy reform, as has been highlighted in this chapter, it is still clear that some structures from the Soviet era have been retained. The predominance of the social insurance system also could be traced back to Soviet times, when social security was available through employment. As analyses have revealed, everyone who pays social insurance contributions is insured against all social risks in Lithuania. Nevertheless, the beneﬁt levels are relatively low. The same social security programmes cover everyone. The importance of the private pension insurance funds is still quite low. However, it cannot be denied that their importance might grow in the future. These are the basic features of the post-socialist regime. Thus, even if state support in Lithuania is quite extensive and covers a lot of the population, participation in the labour market and in the family play signiﬁcant roles in guaranteeing the well-being of individuals. This assumption can be conﬁrmed by public opinion data. A survey carried out by Aidukaite (2005) has revealed that a sizeable majority of Lithuanians are dissatisﬁed with the social security system. Results from the 2002 survey show that more than 90 per cent of the respondents agreed with the statement: ‘the social security system does not guarantee the social security of its citizens. People have to rely more on the market and/or family for support’. This could explain why around 16 per cent of old age pensioners (Pavlovaite, 2000: 1) work in Lithuania, as well as why the kinship network is quite well developed. Although tax avoidance is becoming less and less of a problem in Lithuania, the tax authorities still have problems collecting taxes since there is a lot of hidden income, for example salaries paid in cash (see Chandler, 2002). The relatively low levels of social beneﬁts do not create enough incentives for people to be honest and declare their income for taxation. Simultaneously a survey in 2002 also revealed that a sizeable majority have not experienced any improvement in their well-being over a period of more than 10 years. A substantial majority (63 per cent) still did not support the statement: ‘my or my family’s ﬁnancial situation has improved compared with the ﬁnancial situation in 1989’. Thus, the transition has not brought any prompt improvements to the well-being of the population, and it can be observed today that the distribution of transitional beneﬁts seems to be quite narrow. People who have above-average income and are highly 306

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educated, young and healthy are the ‘winners’ in the post-socialist welfare regime (Aidukaite, 2005), whereas people who are of retirement or near-retirement age, single parents, families with many children and the unemployed are the most disadvantaged groups during the transition (see for example UNDP, 2001).

Outlook Many previous studies, which included eastern Europe, observed the welfare state development in this region as falling [following Esping-Andersen’s (1990) or Titmuss’s (1974) typologies] within the liberal or residual regime (see Ferge, 1997, 2001; Standing, 1996), in which welfare is based on a mix of social insurance and social assistance, and a partial privatization of social policy. Yet, as those studies showed, the attempts to reform have come up against a legacy of what was essentially comprehensive social policy. However, recent studies seem to be far more optimistic. Manning (2004) oﬀers a comprehensive comparative overview of the social policy systems of the eight central and eastern European countries (including Lithuania) that joined the EU in 2004. He ends with an optimistic note that while eight new EU countries (Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Slovenia, Hungary) may not have the same potential for rapid development that has been the experience of Spain and Ireland since joining the EU, it would appear that the new central and eastern European members are currently posed for a period of economic growth, and dynamic and ﬂexible policy making, with an improving social base which may look quite positive after a further 10 years of EU membership. (Manning 2004: p. 231) The overview of the social policy system of Lithuania also allows making an optimistic prognosis. The Lithuanian social policy system was transformed in a more residual way during these years of independence; however, it still remains quite comprehensive. Universal beneﬁts for children have been expanding and there is still basic security for everyone. Even if beneﬁt levels are lower than western European standards, there is hope that in the future salaries and beneﬁts will increase taking into account the rapid growth in the GDP of Lithuania. The cognitive inﬂuence of the European social policy model through the Open Method of Coordination has had a positive impact on the development of social policy in Lithuania too. Social policy is reformed by the exchange of policy experiences with other European Union countries. As is well known, solidarity among generations and classes, and generous welfare systems are fundamental features of the European social policy model. However, further reforms are needed in order to increase citizens’ satisfaction with the social security and health care, and social services in Lithuania.

Notes 1 For instance, as Clare and Paternoster (2003) have speciﬁed, among the member states and the candidate countries (including the Baltic States), statutory minimum wages, in January 2003, varied between 56 and 1,369 euros per month. In Lithuania, the monthly minimum amounted to 125 euros. Afterwards the minimum wages were measured in purchasing power parities (PPPs) that removed the eﬀect of the price level diﬀerence, and the ranking among EU and candidate countries

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remained almost unchanged. Out of the 21 European countries that were measured, Lithuania occupied eighteenth place. 2 Data revised according to the ESSPROS methodology (the LSD, 2002: 14). 3 Own calculations. Source for monthly payment for unemployment and average salary: the MSSL, 2001: 52; SIDA 2002: 21. 4 Own calculations.

Bibliography Aidukaite, J. ‘Who are the winners and losers of the transition in the Baltic States? Citizens’ satisfaction with the material well-being’, paper presented at the ESPANET annual conference, Fribourg, September 2005. —— (2004) ‘The Emergence of the Post-socialist Welfare State – The Case of the Baltic States: Lithuania, Latvia and Estonia’, Södertörn Doctoral dissertation No. 1, Södertörn University College. Bankauskaite, V. and Saarelma, O. (2003) ‘Why are people dissatisﬁed with medical care services in Lithuania? A qualitative study using responses to open-ended questions’, International Journal for Quality in Healthcare, 15 (1): 23–29. Casey, B. H. (2004) ‘Pension Reform in the Baltic States: Convergence with “Europe” or with “the World”?’, International Social Security Review, 57 (1): 19–45. Chandler, M. ‘Tax Collection and the Shadow Economy in the Baltics’, paper presented at the conference Unoﬃcial Activities in Transition Countries: Ten Years of Experience, Zagreb, October 2002. Clare, R. and Paternoster, A. (2003) ‘Minimum Wages: EU Member States and Candidate Countries, January 2003’, Statistics in focus. European Communities: Eurostat. Deacon, B. (1992a) ‘East European Welfare: Past, Present and Future in Comparative Context’, in B. Deacon (ed.) The New Eastern Europe Social Policy Past, Present and Future, London: Sage Publications. ——(1992b) ‘The Future of Social Policy in Eastern Europe’, in B. Deacon (ed.) The New Eastern Europe Social Policy Past, Present and Future, London: Sage Publications. ——(2000) ‘Eastern European Welfare States: The Impact of the Politics of Globalisation’, Journal of European Social Policy, 10 (2): 146–61. EBRD (European Bank for Reconstruction and Development) (1999) ‘Transitional Report 1998, Financial Sector in Transition: Economic Transition in Central and Eastern Europe, the Baltic States and CIS’, London. Embassy of the Republic of Lithuania to the United States of America. (2003) ‘Lithuania: Baltic tiger: Lithuania has the fastest-growing economy in Europe’, The Economist, 19 July. (www.ltembassyus. org/Economist.html) (accessed 5 April 2004). Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Cambridge: Polity Press. Eurostat (2005) Population and Social Condition. Total unemployment rate. (http://epp.eurostat.cec.eu.int/ portal/) (accessed 13 May 2005). Fajth, G. (1999) ‘Social Security in a Rapidly Changing Environment: The Case of the Post-Communist Transformation’, Social Policy and Administration, 33 (4): 416–36. Ferge Z. (1992) ‘Social Policy Regimes and Social Structure Hypotheses about the Prospect of Social Policy in Central and Eastern Europe’, in Z. Ferge and J. E. Kolberg (eds.) Social Policy in a Changing Europe, Frankfurt am Main: Campus Verlag. —— (1997) ‘The Changed Welfare Paradigm: The Individualization of the Social’, Social Policy and Administration, 31(1): 20–44. —— (2001) ‘Welfare and “Ill-Fare” Systems in Central-Eastern Europe’, in R. Sykes, B. Palier and P. M. Prior (eds.) Globalization and European Welfare States Challenges and Changes, Basingstoke: Palgrave. Hartl, J. and Vecernik, J. (1992) ‘Economy, Policy and Welfare in Transition’, in Z. Ferge and J. E. Kolberg (eds.) Social Policy in a Changing Europe, Frankfurt Main: Campus Verlag. Jakusovaite, I., Darulis, Z. and Zekas, R. (2005) ‘Lithuanian health care in transitional state: ethical problems’, BMC Public Health, 5: 117.

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Kääriäinen, J. and Lehtonen, H. (2006) ‘The Variety of Social Capital in Welfare State Regimes – a Comparative Study of 21 countries’, European Societies, 8 (1): 27–57 Keune, M. (2008) ‘EU enlargement and social standards: exporting the European Social Model?’ ETUI-REHS, Printshop: Brussels. Lazutka, R. (1997) ‘Restructuring Social Security’, in A. Buracas (ed.) Lithuanian Economic Reforms: Practice and Perspectives, Vilnius: Margi Rastai. LSD (Lietuvos statistikos departamentas) (2002) Constant Statistical Bulletin 2002/3. (www.std.lt/web/ uploads/Canstat/social.pdf) (accessed 16 November 2003). Macinskas, C. (1971) Socialinis draudimas Lietuvoje ir kova de.l jo 1919–1940 metais, Vilnius: Mintis. Manning, N. (2004) ‘Diversity and Change in Pre-Accession Central and Eastern Europe since 1989’, Journal of European Social Policy, 14 (3): 211–33. Manning, N. och Shaw, I. (1998) ‘The Transferability of Welfare Models: A Comparison of the Scandinavian and State Socialist Models in Relation to Finland and Estonia’, Social Policy and Administration, 32 (5): 572–90. MSSL (Ministry of Social Security and Labour) (2001) Social Report 2000. Vilnius. —— (2002) Social Report 2001. Vilnius. —— (2003) Social Report 2002. Vilnius. —— (2004a) Valstybe.s parama besilaukiancˇioms ku-dikio moterims ir vaikus auginancˇioms šeimoms nuo 2004 m. liepos 1 d. (www.socmin.lt/popup.php) (accessed 17 June 2004). —— (2004b) Nauja draudimo nuo nedarbo systema. (www.socmin.lt/) (accessed 29 December 2004). —— (2004c) Social Report 2004. Vilnius. —— (2005) Nauja pensiju˛ kaupimo sistema. (http://www.socmin.lt/) (accessed 20 May 2005). —— (2006) Socialinio draudimo sistema. Valstybinio socialinio draudimo ku-rimas ir vystymasis 1991–2006 metais. (http://www.socmin.lt/) (accessed 1 November 2006). —— (2008) Valstybe.s parama besilaukiancˇioms ku-dikio moterims ir vaikus auginancˇioms šeimoms. (http:// www.socmin.lt/) (accessed 12 August 2008). Muller, K. (2002) ‘Old-Age Security in the Baltics: Legacy, Early Reform and Recent Trends’, EuropeAsia Studies, 54 (4): 725–48. Oorschots, van W. and Arts, W. (2005) ‘The Social Capital of European Welfare States: the crowding out hypothesis revisited’, Journal of European Social Policy, 15(1): 05–26. Paas, T., Hinnosaar, M., Masso, J. and Szirko, O. (2004) ‘Social Protection Systems in the Baltic States’, Report, University of Tartu: Tartu. Pavlovaite, I. (2000) ‘News from Lithuania’, Central Europe review, 2 (43), 11 December 2000. (Ce-review. org) (accessed 29 December 2007). Poldma, A. (1999) ‘Ageing Policies in Estonia’, Revue Baltique, 13: 213–23. SIDA (2002) Women and Men in the Baltic States, Statistical oﬃces of Estonia, Latvia and Lithuania: Vilnius. Standing G. (1996) ‘Social Protection in Central and Eastern Europe: A Tale of Slipping Anchors and Torn Safety Nets’, in Esping-Andersen Gosta (ed.) Welfare States in Transition: National Adaptations in Global Economies, London: Sage. Stankuniene, V. ‘Family Policy of Lithuania: A Changing Strategy’, paper presented at the European Population Conference, Helsinki, June 2001. Stanku-niene., V., Jonkaryte., A., Mikulioniene., S., Mitrikas, A.A. and Maslauskaite., A. (2003) Šeimos revoliucija? Iššu-kiai šeimos politikai, (Vilnius: Socialiniu˛ tyrimu˛ institutas). Tereseviciene, M. and Zuzeviciute, V. (2002) The System of Higher Education in Lithuania. (www. csvs.cz/projekty/2001_hern_sramek/Seminar1/Lithuania.doc) (accessed 3 May 2006). The Ministry of Health of the Republic of Lithuania (2006) The Main Features of Lithuanian Health Policy. (www.sam.lt/en/sam/HP/) (accessed 10 November 2006). Tiirinen, M. (2000) Regions of the Baltic States, Stockholm: Nordregio. Titmuss, R. M. (1974) Social Policy. London: George Allen and Unwin. UNDP (United Nations Development Programme) (2001) Skurdo bu-kles Lietuvoje 2001 metu˛ pranešimas, Vilnius.

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Chapter 17

lu The welfare system of Luxembourg From past dependency to the European approach Nicole Kerschen

The development of the Luxembourg welfare state in historical perspective Origins linked to the Bismarckian model The welfare system in Luxembourg started at the beginning of the twentieth century with the creation of two social insurance schemes, namely sickness insurance and employment injuries insurance. At that time, Luxembourg had a mono-industry, iron and steel metallurgy, and it belonged to the German Zollverein (custom union). Therefore, Luxembourg followed the model of the Bismarckian social insurance system. Sickness insurance was created by a law on 31 July 1901 and employment injuries insurance by a law on 11 April 1902. These laws were linked together. They applied to the same beneﬁciaries: all blue-collar workers and white-collar workers with wages below a certain level. Sickness insurance covered not only illness, but also minor employment injuries (Scuto 2001, Kerschen 2001). Social insurance was completed by the creation of an invalidity and old age pensions on 6 May 1911. Finally, the Luxembourg welfare system was established by the codiﬁcation of the diﬀerent branches in the Code des assurances sociales (17 December 1925). It must also be noted that pensions for all white-collar workers in the private sector were established in 1931. Inﬂuence of the Beveridge report after the Second World War After the Second World War, the Luxembourg social insurance system was inﬂuenced by the Beveridge report (Beveridge 1942). The Luxembourg public authorities stayed in London during the war and came back to Luxembourg with Beveridge’s most famous idea: ‘social security for all and everything’ (universalism). During the post-war period, social insurance was extended to civil servants and to all blue-collar workers (sickness 1951), to the independent workers (pensions 1951, 1960, 1964; sickness 1957, 1964) and, last but not least, to the agricultural sector (pensions 1956; sickness 1962). Each category had its own scheme, fund and oﬃce. But social insurance remained conditioned 310

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by professional activity. Universalism meant also the integration of new social risks: family (1947), maternity (1975), unemployment (1976), pre-retirement (1990) and longterm care (1998). Meanwhile, a guaranteed minimum income was also established as a social assistance beneﬁt (1986). Coordination and harmonization The progressive development of the Luxembourg social insurance system required more coordination and harmonization. During the 1960s and the 1970s, fundamental changes were made in pension schemes and in sickness insurance. Coordination rules were introduced in pension schemes, allowing workers to migrate from one scheme to another. Pension rights and their ﬁnancing were standardized. The rights for people with early invalidity or widowhood were improved. In the 1980s, a general risk community was created between the diﬀerent funds allowing for ﬁnancial compensation by sharing expenditure. This resulted, in 1989, in a unique contributory pension scheme covering old age, invalidity and survivor pensions for all insured persons in the private sector. Sickness insurance schemes were harmonized under ﬁnancial pressure: the same rules for contributions and beneﬁts, ﬁnancial regulation mechanisms, bargaining with health providers. In order to implement these changes, the Luxembourg Government decided to create a union of the diﬀerent funds, named Union des Caisses de maladie (UCM). It must also be mentioned that, since 1974, the state pays part of the costs. In a historical perspective, Luxembourg has been a strong example of the EspingAndersen type of conservative/corporatist welfare regime, which has been inﬂuenced by Beveridge’s universalism. Today, the Luxembourg welfare state is considered a generous one. Social protection expenditure per inhabitant is much higher than the EU15 average expenditure per inhabitant (Table 17.1). But the average expenditure per inhabitant may Table 17.1 Social protection expenditure

lu

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

3276.7 3440.0 3520.8 3665.2 4070.0 4309.0 4712.3 5176.6 5717.5 6119.4 6569.1

8018.7 8304.6 8393.8 8630.1 9454.6 9876.2 10672.6 11602.0 12707.0 13499.7 14217.5

20.7 21.2 21.5 21.2 20.5 19.6 20.9 21.6 22.2 22.3 21.9

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro ** in euro

311

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not be a very good indicator. Luxembourg has got a complex trans-national labour market, which may be described by two diﬀerent concepts: & &

national employment (emploi national), which means employment of people residing in Luxembourg; interior employment (emploi intérieur), which means employment of people working in Luxembourg, whatever their country of residence.

Interior employment is much higher than national employment: 307,300/197,800 (2005). Therefore, to get a clear picture, it would be necessary to divide social protection expenditure by the number of beneﬁciaries instead of dividing it by the number of inhabitants. All people working in Luxembourg are more or less entitled to Luxembourg social security.

The present Luxembourg welfare system A general sketch The present Luxembourg welfare system does not oﬀer universal rights, in the sense of people’s insurance covering all citizens, with the exception of family beneﬁts. By covering workers and their family members, it is still based on the social insurance technique, on employment and on the male-breadwinner model. The organization of the welfare system is the responsibility of the social partners (employers and employees), who play a very important role. Funds are managed by them and they are liable for the ﬁnancial balance between contributions and costs. Moreover, contributions are based on wages: one part is paid by the employer and the other part by the employee. Social partners make decisions on the contribution rates and on the amount of the beneﬁts. But, since the 1970s, the state pays part of the expenditure. Nowadays, the participation of the state represents more than one-third of the contributions of sickness insurance and old age, invalidity and survivors insurance. The state budget ﬁnances maternity costs, maternity allowances and several family and child beneﬁts. The state also pays unemployment beneﬁts, because Luxembourg has never created an unemployment insurance based on contributions and managed by the social partners. Unemployment beneﬁts are part of public employment policy. In 1998, the government introduced a new contribution, called long-term care contribution, which ﬁnances part of the long-term care insurance (45 per cent is paid by the state budget). It is raised on all income not just wages. The contribution rate has been deﬁned in the law and, each year, parliament may amend it. This contribution, which was deﬁned on the model of the French contribution sociale généralisée, is a hybrid between social contribution and taxation and is a new source for ﬁnancing social security in Luxembourg. The Luxembourg welfare system is part of the Luxembourg social model, which is characterized by a tripartite approach, which means that the government consults social partners in an institutionalized process of social policy making. The so-called Tripartite was introduced in the 1970s, when the iron and steel industry had to be reorganized and social problems had to be dealt with. It was ﬁrst used in a crisis period and then institutionalized as a Tripartite Coordination Committee (Comité de coordination tripartite). At the end of the 1990s, the government used it to implement the European Employment Strategy (EES) and elaborated the national action plan with the social partners. The 312

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Tripartite is not only about searching for consensus, but also about sharing the eﬀort that has to be put in. Each partner, the state, the representatives of the employers and the representatives of the employees has to commit to make one-third of the eﬀort. In the social security system, the Tripartite often becomes a Quadripartite, which means that the representatives of the providers have to play a role in sharing the eﬀorts. Recently, the Luxembourg government had to face a deterioration in public ﬁnances and decided to use the Tripartite once more. The procedure was the following: in October 2005, the prime minister made a general policy statement in parliament, presented his diagnosis and provided ‘food for thought’. Between October 2005 and April 2006, the government discussed the diﬀerent options with the social partners. The results of these discussions were written down in the Advice from the Tripartite Coordination Committee. This advice constitutes the basis of the government’s programme for the reforms. A ﬁrst law was adopted in June 2006. It changed indexation of wages and pensions and other social security beneﬁts. A second bill, including employment and social security measures, was adopted in December 2006. Tripartite 2006 showed a double limit. On the one hand, it was diﬃcult to ﬁnd a consensus and trade unions declared in public that they were opposed to measures cutting back unemployment beneﬁts. On the other hand, the sharing of eﬀort did not follow the traditional route, because the subject of the Tripartite was the deterioration of public ﬁnances and implied that social partners had to make most of the eﬀort. Therefore, a discussion about the eﬀectiveness of these processes in the future has been raised. A description In our description of welfare arrangements, we will focus on the changes which have been made during the last 20 years in the Luxembourg welfare system: social security, unemployment beneﬁts and social assistance. In Luxembourg, education and housing do not belong to the welfare state. The structure of social protection beneﬁts (2005) shows a country with a young labour force (Table 17.2). On the one hand, family beneﬁts are much higher in Luxembourg than the EU15 average. This is because the amount of family beneﬁts is very high, but also because Luxembourg has a very complex trans-national labour market (see underneath). Table 17.2 Social protection beneﬁts as a percentage* (2005)

lu Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

100.0 98.1 16.5 4.9 0.7 2.0 38.0 35.9

eu27

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

313

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One-third of family beneﬁts are paid to frontier workers and to migrants, whose families reside abroad. On the other hand, many migrants never work in Luxembourg during their whole career and, therefore, do not get full pensions. Moreover, cross-border workers are not yet entitled to pensions. Social security system The Luxembourg social security system contains two types of schemes: family allowances or beneﬁts for children as universal rights and social insurance for workers and the members of their family. FAMILY BENEFITS AS UNIVERSAL RIGHTS

The Luxembourg social system provides ﬁve diﬀerent family beneﬁts: child beneﬁt (allocation familiale), maternity allowance (allocation de maternité), childbirth allowance (allocation de naissance), child-raising allowance (allocation d’éducation),1 and allowance for the beginning of a new school year (allocation de rentrée scolaire). The objectives of family beneﬁts have changed several times since their origins: social assistance, supplement of wages, natalist policy, individual right for children. In 1985, a unique fund, called Caisse Nationale des Prestations Familiales (CNPF), was established. It is ﬁnanced mainly from the state budget. As a reminder of the past, employers still pay a contribution. Child beneﬁt is a personal right of each child. It is a uniform amount,2 which means that it is independent from the parental income. It belongs to a system of redistribution in the interest of the child, based on the principle of social solidarity. Unlike other European Union member states, Luxembourg has increased the amount of the diﬀerent family beneﬁts during the last 20 years. At the present moment, Luxembourg oﬀers the highest family beneﬁts in Europe. By a law of 21 November 2002,3 Luxembourg changed the legislation on family beneﬁts. This law redeﬁned, clariﬁed and simpliﬁed the entitlement conditions in accordance with European Court of Justice case law and the ‘international context, which is more and more complex’. More recently, indexation of family beneﬁts was abandoned (see below). Social insurance for workers Social insurance mainly focuses on sickness, especially beneﬁts in kind, and on pensions, including old age, invalidity and survivor pensions. Recently, long-term care was recognized as a social risk similar to sickness.4 Sickness and long-term care insurance Sixteen categories of people, listed by law, are compulsory insured against sickness. The main criterion in Luxembourg is employment. All insured persons are employed or selfemployed or belong to assimilated categories, such as apprentices, helpers in a family business, disabled persons, etc. They are entitled to direct rights. Provisions of sickness insurance apply also to the family members of the insured person, deﬁned as the husband/ wife or partner,5 an unmarried member of the family who performs unpaid domestic work for the insured person, and children.6 They are entitled to derived rights. Since 314

L U X E M BO U R G

1999, these categories are automatically covered by long-term care insurance (direct rights and derived rights). In Luxembourg, health care providers are bound by collective arrangements to sickness insurance. They must respect oﬃcial lists relating to medical practices and oﬃcial tariﬀs. They must also follow medical recommendations, and sanctions may be imposed on them if they do not respect these recommendations. Public and private hospitals are ﬁnanced by annual budgets drawn up separately for each service and costs are completely covered by the sickness insurance fund. The objective of these constraints is twofold: to guarantee high-quality services open to all and to maintain the ﬁnancial balance of the social security system. Patients are free to choose their doctor (and their hospital). There is no restriction to seeing a specialist. Fees are paid by the patient and then refunded by the sickness insurance fund. Patients have to pay a contribution towards the hospital maintenance costs, fees by medical services and fees for drugs.7 Each year, the Minister for Social Security organizes a Quadripartite, a round-table conference with social partners and health care providers, who analyse the ﬁnancial situation of the sickness insurance fund and who consequently have to make proposals. The eﬀorts have to be shared equally by the diﬀerent stakeholders (state, employers, employees and providers). As a result of Quadripartite 2004, an independent scientiﬁc council was established with the aim to promote ‘evidence-based medicine’ in Luxembourg. A law of 19 June 1998 introduced compulsory long-term care insurance, called assurancedépendance. The Luxembourg system was inspired by the German model. Dependency or the need for long-term care was recognized as a new social risk. This new scheme covers people of all ages. It is organized within the social security system, ‘under the umbrella’ of sickness insurance, without any means test or income test. It compensates the costs created by long-term care needs in daily living activities. Dependency must be due to a physical or mental disorder or impairment. The state budget ﬁnances 45 per cent of expenditure and the other 55 per cent is paid by the insured people through a social contribution of 1 per cent levied on all income, called long-term care contribution, similar to the French contribution sociale généralisée, and by a special tax on electricity. The need for care is determined on the basis of an assessment by a public service under the authority of the Ministry for Social Security, called cellule d’évaluation et d’orientation (CEO). Beneﬁts in kind and in cash are established in a care plan (budget for needed support). In the case of community care, the person in need of long-term care can choose between professional help (beneﬁt in kind) and cash support (beneﬁt in cash). Cash support is limited and must be used to pay for informal care. Cash support and support in kind can be combined. Long-term care insurance also pays old age pension contributions for informal carers. In case of residential care, beneﬁt in kind is paid directly to the nursing home. Collective arrangements are made between long-term care providers and long-term care insurance. Old age, invalidity and survivor pensions For more than 30 years, old age pensions have been at the centre of all discussions on the social security system. This is because civil servants have a right to pensions representing ﬁve-sixths of their last wage and that workers in the private sector are claiming the same rights. A special political party has even been created with a unique demand, called Five-sixth pensions. 315

N . K E RS C H E N

Moreover, the Luxembourg pensions system is still characterized by a traditional approach. On the one hand, it was based, until very recently (1999), on a single pillar, a compulsory contributory regime; on the other hand, it covers the insured person and their family members in a way based on the traditional male-breadwinner model. The present pension scheme comprises three pillars: & & &

the ﬁrst pillar is a compulsory pay-as-you-go system called régime général, extended to the civil servants in 1998 by a special scheme; the second pillar is a professional complementary system supported by companies or by groups of enterprises; the third pillar is a voluntary individualized scheme promoted by tax advantages.

Our presentation will mainly focus on the ﬁrst pillar. As a pay-as-you-go system, the basic pension system is ﬁnanced by contributions paid half by employers and half by employees (two-thirds) and by the state budget (onethird). But it may be considered as a ‘mixed system’, because pension funds are obliged to guarantee a reserve fund of 1.5 times the annual expenditure. There are three diﬀerent beneﬁts: old age pensions, invalidity pensions and survivor pensions. An old age pension is guaranteed to all persons who are insured under Luxembourg legislation. The pension comprises two parts: a ﬂat-rate part, named majoration forfaitaire, of 353.36 euros per month (2006), depending on the number of insurance years of 1/40 per year (full pension = 40 years) and an income-related part, named majoration proportionnelle, calculated as 1.85 per cent of total earnings during the professional career. There is also a minimum pension, 1,353.29 euros (2006) per month for the full pension. The amount is reduced according to the duration of insurance, each missing year representing 1/40. Until June 2006, pensions were automatically adjusted to the consumer price index (see underneath). The legal retirement age is 65, but early retirement is possible from the age of 57 years on, with 40 insurance years, and from the age of 60 on, with 40 insurance years including non-contributed periods.8 In 2003, the average age of retirement was 57. On 28 June 2002 a law introduced incentives for workers over 55 to stay in employment (see underneath). Moreover, it is possible to cumulate an old age pension with earnings from work under certain conditions. But it is impossible for pensioners to improve the level of their pension. Baby years, periods during which one parent (mother or father) interrupted the professional career in order to care for the children, are taken into account as if the parent had been in employment and had paid contributions. Until recently, the state covered the income-related part of the pension according to the baby years. At present, baby years allow women without a full pension career to increase the number of insured years. The law of 28 June 2002 recognized care for parents, mainly women, who did not work at all and who did not pay contributions to old age insurance. As compensation for caring, from their sixtieth birthday they will get a ﬂat-rate care allowance, called forfait d’éducation, which must not be confused with the child-raising allowance (allocation d’éducation), which is a universal family beneﬁt. Care allowance is a special pension right ﬁnanced by the state budget. It is 86.54 euros per month and per child (2006). Two conditions must be fulﬁlled: 316

L U X E M BO U R G

& &

care for children under the age of four not taken into account by the pension regime of the mother and the father; residence in Luxembourg during the care period, which means that frontier workers are not entitled to this care allowance.

Like pensions, care allowance may be exported by people over 60 going back to their country of origin. The law on invalidity pensions was recently changed (2002). We will deal with this subject later. Survivor pensions cover widows and orphans. The Luxembourg system is still based on the traditional family: the husband has an activity enabling him to provide for his family and the wife stays at home caring for children and for older people. In the event of death of the insured breadwinner, the housewife and the children are entitled to survivor pensions as derived rights. For the widow, these rights last as long as she does not get married again, otherwise she will loose her rights. Rights are granted to the children until the age of 27, if they are undergoing education or training. In the 1980s, under the principle of equal treatment for men and women, survivor pensions were extended to the widower and, as a consequence, these rights became income tested. In the case of divorce, the widow and the former divorced wife/wives have to share pension rights according to the number of years they were married. It is well known that divorced wives often face ﬁnancial problems at retirement age; therefore, there are proposals to adopt the German system of splitting pension rights in the event of divorce, or even without divorce as a way of individualizing pensions rights (Kerschen 2005). The second pillar was introduced by a law of 8 June 1999, which created the ﬁrst complementary pension scheme in Luxembourg. The directive 1998/49/EC, which seeks to guarantee the right for equal treatment for people moving from one country to another, urged Luxembourg to create a legal framework. Two diﬀerent regimes are available: beneﬁt-deﬁned regimes and contribution-deﬁned regimes (BLQS 2002, 12). The third pillar was promoted by a law of 21 December 2001 on taxation, in which the government introduced article 111A on a new tax regime applicable to voluntary private individual pension schemes, oﬀering either a unique capital or a monthly life annuity. Unemployment beneﬁts as part of employment policy There is no unemployment insurance scheme in Luxembourg. Unemployment beneﬁts are part of employment policy measures. They are ﬁnanced by the state budget and by diﬀerent solidarity taxes, through the employment fund, and managed by the Luxembourg Employment Public Service, known as ADEM. Unemployment beneﬁts are granted to workers who involuntarily lost their job after a period of activity of at least 26 weeks during the last 12 months and who registered as jobseekers. As a rule, they must reside in Luxembourg. Unemployment beneﬁts are paid for 365 days. After this period, jobseekers may be entitled to the legal minimum income (RMG). Unemployment beneﬁts represent 80 per cent of last wages (85 per cent, if there are children). The number of registered jobseekers has nearly doubled in the last ﬁve years. The unemployment rate was 2.7 per cent in 2002, 4.5 per cent in 2005, 4.7 per cent in 2006 and 4.1 per cent in 2007 (Table 17.3). Half of registered jobseekers are entitled to 317

N . K E RS C H E N

Table 17.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

lu

eu27

eu15

2.9 2.9 2.7 2.7 2.4 2.3 2.0 2.7 3.7 5.1 4.5 4.7 4.1

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

unemployment beneﬁts. These ﬁgures do not include frontier workers, who have lost jobs in Luxembourg. They are registered in their state of residence according to EC regulation. It must also be noticed that these ﬁgures do not include people who are involved in active measures. Otherwise, the unemployment rate would be over 6 per cent. During Tripartite 2006, the government made proposals to reduce the number of unemployed and their beneﬁts (see below). Social assistance (RMG) Social assistance is seen as an expression of national solidarity and not as a counterpart of work. It is founded on the needs of individuals and their families. It is based on the principle of subsidiarity. In 1960, a law introduced a national solidarity fund, which granted only means-tested beneﬁts. Its aim was to supplement the social security scheme, especially for those social categories not well covered. A law of 26 July 1986 concerning the ﬁght against poverty and social exclusion introduced the concept of a right to a guaranteed minimum income, called revenu minimum garanti (RMG). The aim of this new beneﬁt was to guarantee each citizen a decent life through minimum means of existence, without taking into account the reason why they lacked suﬃcient means. By the laws of 29 April 1999, 21 December 2001 and 8 June 2004, this scheme adapted to new challenges. Those entitled to the minimum income must be Luxembourg nationals and people authorized to reside in Luxembourg (they need authorization even if they belong to the European Union9), at least 25 years old, and whose own income and savings – and the income and savings of the members of their household10 – are under the legal minimum income. RMG includes two categories of beneﬁts. &

318

An inclusion beneﬁt (indemnité d’insertion) for people under 60 capable of being employed, which guarantees them a minimum income, professional inclusion activities and social security rights. In this case, the beneﬁciary must sign a contract with the National Service for Social Assistance, called Service National d’Action Sociale (SNAS) and commit to searching for a job and to participate in occupational activities in order to re-enter the labour market (see below).

L U X E M BO U R G

Table 17.4 At-risk-of-poverty rates by gender

lu total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

12 11 11 12 13 12 12 – 11b 12 13 14

eu25 males 11 11 11 12 12 12 12 – 11b 12 13 14

eu15

females

total

males

females

13 11 12 13 13 12 13 – 12b 13 13 14

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

&

A complementary allowance (allocation complémentaire) for people over 60 and for those under 60, unable to work or temporarily exempted from employment.11 Before claiming for the complementary allowance, beneﬁciaries have to ask their family members, obliged by the Civil Code,12 to ensure their means of existence.

Minimum income is deﬁned according to the size of the household, called communauté domestique. It is 1,035.05 euros for a single person, 1,554.49 euros for a couple, 298.12 euros for each additional adult and 94.81 euros for each additional child (from 1 October 2005). There may be a supplement for housing. Table 17.4 shows growth of the at-risk-of-poverty rates between 1995 and 2006. This applies especially to men. Since 1999, the number of the beneﬁciaries of RMG has also risen. This is partly because the legal conditions for receiving the beneﬁt, such as age or residence, have been changed. The majority of the beneﬁciaries are people living alone or lone parents. The best represented age group is 35–39. The number of people over 70 is decreasing since the 1980s.

New perspectives The Luxembourg welfare system is undergoing rapid Europeanization. Consequences of the complexity of the labour market As in the beginnings of the Luxembourg welfare state, when capital and the workforce of the mono-industry were of foreign origin, Luxembourg now faces a similar situation with multinational companies, on one hand, and migrants and cross-border workers, on the other. 319

N . K E RS C H E N

In 2006, Luxembourg workers with residence in Luxembourg represented no more than one-third of the workforce (Table 17.5). Cross-border workers are more than 40 per cent of the labour force. Half of them come from France. Between 1990 and 2006, there was a huge diﬀerence between the average variation of the growth of the workers with residence in Luxembourg and the average variation of the growth of cross-border workers: growth of residential employment was only on average 1.6 per cent per year; even though growth in employment of cross-border workers was on average 8.8 per cent per year. The complexity of the Luxembourg employment market has had increasing eﬀects on the social security system. This can be observed by the recent evolution of exportation of beneﬁts. The total amount of exportation of the ﬁve branches of the Luxembourg system represents nearly one-quarter of the beneﬁts. In its Economic Survey on Luxembourg 2006, the OECD identiﬁed high rates of migrants and cross-border workers in employment in Luxembourg as a weakness of the Luxembourg social system. According to EC Regulation No. 1408/71 on the application of social security schemes to employed persons, to self-employed people and to members of their family moving within the EU, people covered by Luxembourg legislation, such as migrants or crossborder workers, are entitled to export family beneﬁts for their children residing abroad (except for childbirth allowance13). Forty per cent of the recipients of family beneﬁts are families living abroad. This is four times higher than when the Caisse Nationale des Prestations Familiales was established (1985). In cases where entitlement to family beneﬁts under the legislation of the country of work and under the legislation of the country of residence of the members of the family overlaps, the country of residence is obliged to pay the basic amount and Luxembourg, as the country of work, has to pay the complément diﬀérentiel, which represents the diﬀerence between both beneﬁts.14 Seventeen per cent of the beneﬁts in kind (2005) have been paid for health care abroad. This is because part of the insured persons are non-residents, but also to the fact that a

Table 17.5 Evolution of employment by residence and by nationality

1990

1995

2000

2002

2004

2006

Luxembourg workers with residence in Luxembourg

90,411 54%

87,013 45%

90,630 37%

93,006 35%

93,661 33%

94,900 31.7%

Other EEC Member States workers with residence in Luxembourg

40,872 24%

49,169 25%

59,996 25%

64,711 24%

66,973 24%

70,830 23.7%

1,438 0.5%

1,671 0.5%

7,880 3%

8,533 2.8%

eu15 member states 2004 eu new member States 2004

Non EEC Workers with residence in Luxembourg Frontier workers Total

3,620 2%

5,262 2%

32,973 20%

54,156 28%

6,920 3%

8,303 3%

84,402 101,621 110,404 123,568 35% 38% 39.5% 41.3%

167,876 195,600 241,948 267,641 280,206 299,502 100% 100% 100% 100% 100% 100%

Sources: MSS, IGSS (2004) Rapport Général de la Sécurité Sociale au Grand-Duché de Luxembourg 2003; STATEC (2007) L’Economie luxembourgeoise en 2006 et évolution conjoncturelle récente

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certain number of medical treatments in another member state have been authorized by the Luxembourg institutions according to article 22 of EC Regulation 1408/71. Long-term care beneﬁts may be exported according to EC Regulation 1408/71.15 People who satisfy the conditions of Luxembourg sickness insurance and who reside in another member state are entitled to cash beneﬁts. Beneﬁts in kind are provided by the institution of the place of residence, on behalf of Luxembourg social security, in accordance with the provisions of the legislation administered by that institution. Beneﬁts in kind are provided only if long-term care beneﬁts exist in the legislation of the place of residence (for example, in Germany). EC Regulation 1408/71, article 69, allows jobseekers to export unemployment beneﬁts, for a maximum period of three months, under certain conditions.16 During this period, the person remains entitled to Luxembourg social security rights. EC Regulation 1408/ 71 has also a special provision for cross-border workers (article 71, §1). When crossborder workers are wholly unemployed, they receive beneﬁts in accordance with the legislation of the member state in whose territory they reside as though they had been subject to that legislation while last employed. These beneﬁts are provided and paid by the country of residence. It should be noted that more than 120,000 frontier workers (2006), residing in France, Belgium and Germany, are employed in Luxembourg. If they lose their job, they are entitled to unemployment beneﬁts in their country of residence. Unemployment costs are transferred from Luxembourg to the country of residence. It must also be noticed that cross-border workers losing their job in Luxembourg are also losing social rights granted by Luxembourg legislation (long-term care insurance, family beneﬁts). Social security and labour market policies or implementation of European employment strategy and OMC on social protection Luxembourg has played a major role in the introduction of the European Employment Strategy (EES), by organizing, under its presidency, the Extraordinary European Council on Employment in November 1997. The Luxembourg government also heavily supported the Lisbon Strategy, launched in March 2000, and the Open Method of Coordination on Social Protection (social inclusion, pensions, health and long-term care). To meet the EU employment rate target of 70 per cent in 2010, Luxembourg has to create new jobs. The Luxembourg employment growth rate was 5.3–6 per cent in the period 1999–2001 and is still around 3 per cent in 2006. But, surprisingly enough, Luxembourg has low employment rates, especially for women and older workers. In 2007, the global employment rate was 64.2 per cent, the female employment rate was 56.1 per cent and the employment rate of people between 55 and 64 was 32 per cent. This is because employers have a preference for young cross-border workers. New jobs are notably taken up by them (70 per cent of new jobs). The Council of the European Union recommended Luxembourg to give priority to ‘attracting more people to the labour market and making work a real option for all’. Employment policy measures had to be targeted mainly at the female labour force and workers over 55. In response to the recommendation of the European Council, Luxembourg promoted parental leave and child care facilities for working parents, introduced incentives for older workers to stay in employment and created new integration measures for workers with disabilities and activation measures for jobseekers and RMG beneﬁciaries. 321

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Reconciling work and family life In order to increase the female employment rate, Luxembourg created parental leave and child care facilities. According to Directive 96/34/EC, parental leave was introduced by a law of 12 February 1999. It is possible for the mother or the father to interrupt employment or to change to a part-time job in order to take care of a child under the age of ﬁve. The duration of parental leave is normally six months. It may be 12 months in the case of part-time work. During full-time parental leave, the labour contract is suspended. The parent gets a ﬂat-rate allowance, which is 1,778.31 euros for a full-time leave or 889.15 euros for a part-time leave (2006). Social contributions for pensions are also paid by the state budget. The Luxembourg social system also oﬀers another option for parents who decide to care for their children instead of working. They can get a ﬂat-rate incomerelated allowance, named allocation d’éducation, for 24 months, which is 485.01 euros for full-time care or half of it for part-time care (2006). Moreover, Luxembourg is promoting child care facilities for children under the age of four and, for school-age children apart from time at school. Luxembourg developed care facilities only at the end of the 1980s. The state justiﬁed this backwardness with reasons such as the fact that the female employment rate is traditionally lower than the European average or the family’s choice to opt for care inside the family rather than for care services. In the future, municipalities will have to oﬀer kindergarten to all children from three years onwards. Some companies are also planning to oﬀer crèches to the children under the age of four for their employees. Incentives to increase the average age of retirement A law of 28 June 2002 introduced an incentive for older workers to stay in employment. All people of at least 55 years and who have 38 insured years are entitled to double their future pension rights if they decide not to retire. The income-related part of their pension, called majoration proportionnelle, will be raised from1.85 per cent by 0.01 per cent for each supplementary year of age and by 0.01 per cent for each supplementary year of insurance, with a maximum of 2.05 per cent. Reintegration measures for workers with disabilities The aim of the new system, introduced by a law of 25 July 2002, is to protect workers who are not considered as invalids in the eyes of the law on invalidity, but who nevertheless are unable to resume their previous duties. It also aims to make them return to the labour market. A special procedure has been created. If an applicant for invalidity pension has been considered by the medical inspectorate of the social security administration (contrôle médical de la sécurité sociale) as not being an invalid and if they are also unﬁt to resume previous duties, a special joint committee will decide on redeployment, either internally or externally. If internal redeployment is not possible, the joint committee will prescribe external redeployment through the labour market. The worker will be registered as a jobseeker and get unemployment beneﬁt. If it is not possible to redeploy them through the labour market during the period for which full unemployment beneﬁt is payable, they will be entitled to a tide-over allowance (indemnité d’attente) corresponding to the 322

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amount of the invalidity pension. But the worker must remain available for employment and the allowance will end when the recipient ﬁnds appropriate work. Internal and external redeployed workers who go back to work are entitled to a compensatory allowance (indemité compensatoire) representing the diﬀerence between their old pay level and their new pay level, if their wage is reduced. Employers are entitled to grants for the recruitment of workers with disabilities and to tax relief. Activation measures for jobseekers and RMG beneﬁciaries More than 20 per cent of jobseekers (2006) are involved in ‘activation measures’ organized by the Public Employment Service (ADEM). This trend, which is part of an active employment policy, will continue in the future (see below). Since 2004, people entitled to RMG may also be involved in activation measures. The recipients of inclusion beneﬁts (indemnités d’inclusion) must sign a special contract with the SNAS. Through this integration contract (contrat d’insertion), they commit themselves to making an eﬀort to become professionally and socially integrated into society and especially by participating in integration activities deﬁned in the contract. The objective of the integration contract is to establish the rights and obligations of the beneﬁt claimant and the SNAS.17 Activation measures may be an assessment of the capacities of the recipient along with advice on a course of action, an activity of public interest in an administration or in a non-proﬁt organization and even training or a professional experience in the private sector. If the recipient does not fulﬁl the commitments set out in the integration contract, payment of the inclusion beneﬁt may be withdrawn after a warning letter. If employers want to recruit the recipient of an inclusion beneﬁt, they must do it under a common labour law contract. In order to encourage the employers to do so, SNAS may pay part of the wages, up to the guaranteed minimum wage, during a maximum of 36 months. Recipients are also encouraged to take up a job, because part of the inclusion beneﬁt can be maintained under certain circumstances. The aim of the Luxembourg guaranteed minimum income (RMG) is slowly changing. It provides ﬁnancial support to recipients who have no income and it develops their professional capacity or, at least, their social integration. But, through the recent introduction of wage supplements paid by SNAS to employers and the maintaining of the inclusion beneﬁt to the recipient taking up a job, RMG may be seen as a mechanism to supplement low wages and to promote poor workers. Social security and control of public expenditure or implementation of the European Stability and Growth Pact Since 2004, Luxembourg has had to face a structural deterioration of public ﬁnances due to the fast growth in public expenditure in relationship to gross domestic product (GDP). A public deﬁcit is gradually growing and deviating from the budgetary aim deﬁned by the European Stability and Growth Pact. The government also took into account the recent rises in the unemployment rate and in the inﬂation rate. In consequence, it decided with the social partners, through Tripartite 2006 (see above) to reduce public expenditure, especially in the ﬁeld of social security, and to change the employment policy by opting for active measures. Two proposals were introduced into parliament. The law of 27 June 2006 changed the automatic adjustment of pensions (and wages) to the consumer price index. Between 2006 and 2009, pensions will be adjusted at three 323

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ﬁxed dates: 1 December 2006, 1 January 2008 and 1 January 2009. The same law abandoned the indexation of family beneﬁts. A decision by the government will deﬁne the new amounts of these beneﬁts by law. This decision will stabilize the level of Luxembourg family beneﬁts and surely have eﬀects on the exportation of family beneﬁts as regards the ‘additional amount’ (see above). The law of 22 December 2006 promoted employment and changed social security measures. Preventive strategies building on the early identiﬁcation of individual needs will be developed. Jobseekers will be oﬀered active measures in order to improve their employability. Therefore, an ‘activation contract’ will be signed by ADEM and the jobseeker, in which the rights and obligations of both partners will be determined. These changes ﬁt in with the European trend for ‘contractualism in employment services’ (Sol and Westerveld 2005). These changes may also be interpreted as modernization of the Public Employment Service under EC Regulation 883/2004 on the coordination of social security systems (see below). Two important changes aﬀect pensions and long-term care. Pension funds will have to cover costs that were previously paid by the state budget, such as baby years, granted to parents who have left employment in order to care for their children. As to long-term care, the contribution of the state, which is 45 per cent of expenditure, will be frozen, that means that the state will limit its participation at the amount represented by 45 per cent in 2005. In consequence, the rate of the social contribution levied on the income of insured persons will be increased from 1 per cent to 1.4 per cent. Tripartite 2006 has probably been the ﬁrst major step in a revolution in the Luxembourg welfare system. The Luxembourg welfare state is undergoing progressive transformation into an active welfare state.

Future challenges There are four major challenges, which have already been identiﬁed. The ﬁrst challenge is restructuring the organization of the Luxembourg welfare system. A bill has been introduced in parliament, which will put an end to the legal diﬀerences between blue-collar workers and white-collar workers and establish a unique status for workers of the private sector in Luxembourg. Social security institutions will merge and, in consequence, there will be a simpliﬁcation of the whole system. The second challenge is about the individualization of social rights. Some years ago, women’s representative bodies presented a report on social security and claimed for individualization of social rights in a European perspective (Commission of the European Communities 1997). Each individual should be entitled to social rights ‘from the cradle to the grave’ (Beveridge 1942) and derived rights linked to an insured worker should be abandoned for spouses and for children. In the medium term, splitting of pensions in cases of divorce should be introduced in the Luxembourg pension system. Since the law of 21 December 2007, which introduced a new allowance, called boni pour enfant (bonuses for the child), individualization of taxes and social rights is under way. Each child entitled to child beneﬁt is also entitled to the new bonus, which is 922.50 euros per year (2008). It is compensation for the repeal of the previous income tax cut linked to the number of children in the household. The third challenge concerns unemployment measures for cross-border workers. The new EC Regulation 883/2004 on the coordination of social security systems will oblige Luxembourg, 324

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as the country of last employment, to reimburse unemployment beneﬁts to the country of residence for the duration of three months. This measure will increase unemployment costs in Luxembourg. There will be an extension to ﬁve months for workers who were employed for at least 12 months during the last 24 months (article 65, §7). Moreover, the new regulation will allow cross-border workers to also register as jobseekers in the state of last employment, i.e. Luxembourg (article 65, §§2 and 3). This will increase the work of the Public Employment Service in Luxembourg. During the negotiations of this regulation, Luxembourg was granted two favours: &

&

the application of the extension and the duration of the reimbursement period will be subject to the conclusion of bilateral agreements between, on one hand, Luxembourg and, on the other hand, Belgium, France and Germany (article 86); the registration of cross-border jobseekers will not apply immediately to Luxembourg. It will be applicable, at the latest, two years after the introduction of the EC regulation.

The fourth challenge is long-term sustainability of the pension system. Tripartite 2006 commissioned a study on how to adapt the Luxembourg pension system to the ﬂexibility of professional careers, to demographic changes in an ageing society and to an approach on working time in a working life.

Notes 1 Child-raising allowance and parental leave are of the same nature, but applicable to diﬀerent situations. Parental leave was established by a law of 12 February 1999, according to a national action plan for employment and by the Council Directive 96/34/EC. It falls under labour law. 2 It may be a diﬀerent amount according to the number of the children in the household or according to the age of the child. 3 All Luxembourg legislation is available from www.legilux.public.lu. 4 Luxembourg has followed the European approach: ECJ case law 5 March 1998 Molenaar (C-160/96). 5 A law of 9 July 2004 on legal eﬀects of certain partnerships recognized the same social rights to a registered partnership as to marriage. 6 There are three categories of children: children of the insured person, if he/she gets family beneﬁts for them; other children who belong to the household, if the insured person gets family beneﬁts for them; children of the insured person who are not entitled to family beneﬁts, who are under the age of 30 and whose earnings fall under the minimum income. 7 Participation according to classiﬁcation of drugs: normal – 20 per cent, preferential – 0 per cent, reduced – 60 per cent 8 In particular, education and training periods between the ages of 18 and 27 are taken in to account as assimilated periods. 9 According to Directive 2004/38/EC on the right of citizens of the Union and their family members to move and reside freely within the territory of the member states and to Luxembourg law 28 March 1972, Luxembourg may refuse the right to reside in Luxembourg to people whose income is lower than the Luxembourg RMG. The annual report 2004 and 2005 of the Luxembourg Ombudsman related several cases. Moreover, people from outside the European Union must have been resident in Luxembourg for more than ﬁve years during the last 20 years before claiming for RMG. 10 The household is called communauté domestique and includes all persons living together in the same home and using the same budget who are unable to prove that they reside somewhere else. 11 Exemption may be due to care (for children or for a person in need for long-term care), to sickness or to studies and training.

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12 Luxembourg belongs to a 200-year tradition of maintenance obligations applying to an extended family, from the parents to the minor and major children and from the children to their parents and grand-parents (Code Civil Napoléon). 13 The aim of the Luxembourg childbirth allowance is to increase birth rate in Luxembourg. Therefore, it can be submitted to a residence condition. 14 See recent case-law on Luxembourg child-raising allowance: ECJ 7 July 2005, CNPF v. Ursula Schwarz née Weide (C-153/03). 15 Since ECJ case-law 5 March 1998 Molenaar (C-160/96), long-term care beneﬁts are considered as sickness beneﬁts according to Regulation No. 1408/71. Principles of EC Regulation apply equally to both beneﬁts. 16 Before departure, he/she must have been registered as a person seeking work in Luxembourg for at least four weeks after becoming unemployed; then he/she must register, within seven days, as a person seeking work with the employment services of the member states to which he/she goes. If these conditions are fulﬁlled, entitlement to Luxembourg unemployment beneﬁts continues. 17 A similar contract will be introduced between the Public Employment Service (ADEM) and the jobseeker.

Bibliography Beveridge, W. (1942 reprinted 1969) Social insurance and allied services. Report presented to Parliament; reprinted New York: Agalhon Press. Bulletin luxembourgeois des questions sociales (2001), ‘100 ans de sécurité sociale au Luxembourg’, BLQS, 10. (http://www.secu.lu/missions/pubaloss/blqs10.pdf ) (accessed 4 August 2008) ——(2002) ‘La loi du 8 juin 1999 relative aux régimes complémentaires de pension’, BLQS, 12. (www. secu.lu/missions/pubaloss/blqs12.pdf ) (accessed 4 August 2008) Commission of the European Communities (1997), Modernising and improving social protection in the European Union, Communication from the Commission; COM (97) 102 ﬁnal. (http://aei.pitt.edu/4734/ 01/000830_1.pdf ) (accessed 4 August 2008) Delvaux-Stehres, M. and Kerschen, N. (2003) ‘Le système luxembourgeois des pensions’, unpublished paper, Luxembourg. Kerschen, N. (2001) ‘Aux origines des assurances sociales luxembourgeoises. Analyse de la documentation parlementaire relative à l’assurance obligatoire contre les maladies et à l’assurance obligatoire contre les accidents (1897–1902)’, BLQS, 10: 61–99. (www.secu.lu/missions/pubaloss/blqs10.pdf ) (accessed 4 August 2008) ——(2001, 2002, 2003) ‘Application of EC Regulations 1408/71 and 574/72 in Luxembourg’, unpublished reports on Luxembourg, European Observatory on Social Security for Migrant Workers. ——(2005) ‘Towards individualization of social rights in a European perspective’, in Polityka Spoleczna ‘The future of social security system. Poland compared to Europe’, Warsaw: 33. ——(2005, 2006, 2007) ‘Application of EC Regulations 1408/71 and 574/72 in Luxembourg. Training and reporting on European Social Security’ unpublished report on Luxembourg, TRESS network. (www.tress-network.org) (accessed 4 August 2008) Kieﬀer, R. (2003) ‘Analyse de l’évolution des indemnités pécuniaires de maladie de la gestion art. 29, 1,c.’, BLQS 14: 1–48. (www.secu.lu/missions/pubaloss/blqs14.pdf ) (accessed 4 August 2008) Ministère de la Sécurité Sociale, Inspection Générale de la Sécurité Sociale (2002), ‘Luxembourg. Rapport sur le système de pension’. Rapports nationaux sur les stratégies: des systèmes de pension viables et adéquates. Méthode ouverte de coordination. Union européenne. (http://ec.europa.eu/employment_ social/spsi/docs/social_protection/lux_pensionreport_fr.pdf ) (accessed 4 August 2008) ——(2004) ‘Rapport Général de la Sécurité Sociale au Grand-Duché de Luxembourg 2003’, Luxembourg. (www.mss.public.lu/publications/rapport_general/rg2003/rg_2003.pdf ) (accessed 4 August 2008) ——(2005) ‘Luxembourg. Rapport de stratégie nationale sur les pensions’, Rapports nationaux sur les stratégies: des systèmes de pension viables et adéquates. Méthode ouverte de coordination. Union européenne.

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(http://ec.europa.eu/employment_social/spsi/docs/social_protection/2005/lu_fr.pdf ) (accessed 4 August 2008) ——(2005) ‘Rapport Général de la Sécurité Sociale au Grand-Duché de Luxembourg 2004’, Luxembourg. (www.mss.public.lu/publications/rapport_general/rg2004/rg_2004.pdf ) (accessed 4 August 2008) ——(2006) ‘Rapport Général de la Sécurité Sociale au Grand-Duché de Luxembourg 2005’, Luxembourg. (www.mss.public.lu/publications/rapport_general/rg2005/rg_2005.pdf ) (accessed 4 August 2008) ——(2007) ‘Rapport Général de la Sécurité Sociale au Grand-Duché de Luxembourg 2006’, Luxembourg. (www.mss.public.lu/publications/rapport_general/rg2006/rg_2006.pdf ) (accessed 4 August 2008) ——(2005) ‘Droit de la sécurité sociale. Luxembourg’, (www.mss.public.lu/publications/droit_securite_ sociale/droit2007/droit_2007.pdf ) (accessed 4 August 2008) Scuto, D. (2001) ‘La naissance de la protection sociale au Luxembourg. Le contexte économique et social, les acteurs et les enjeux politiques’, BLQS 10: 39–60. (www.secu.lu/missions/pubaloss/blqs10.pdf ) (accessed 4 August 2008) Sol, E. and Westerveld, M. (2005), Contractualism in Employment Services. A new form of Welfare State Governance, The Hague: Kluwer Law International. Wolter, T. (2003) ‘L’application de la loi du 25 juillet 2002 concernant l’incapacité de travail et la réinsertion professionnelle’, BLQS 14: 155–68. (www.secu.lu/missions/pubaloss/blqs14.pdf ) (accessed 4 August 2008)

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Chapter 18

lv The welfare system in Latvia after renewing independence Feliciana Rajevska

Introduction Before proclaiming its independence in 1918 Latvia was a part of the tsarist Russian Empire. The independent Latvian state (1918–40) had a rather developed social policy with an advanced system of health insurance, elaborate labour market legislation, a social assistance network and an emerging pension insurance system. After annexation and incorporation into the Soviet Union in 1940, Latvia experienced the common model of USSR social policy: standardization of protection and its extension to all employed people, integration of social insurance into the state budget, centralized and universal health services. The cornerstone of social security was the right to work. Other policies for income maintenance were based on it. Beneﬁts were provided in respect of all the social security contingencies detailed in Convention No. 102, 1952, of the International Labour Organization (ILO) dealing with social security minimum standards. The social security system provided beneﬁts in one contingency, paid leave for child care according to more recent standards than those indicated in Convention No. 102; they were provided in line with Recommendation No. 165, 1981, which relates to workers having family responsibilities. Pensionable age was relatively low: 60 for men and 55 for women. Private complementary schemes did not exist. Pensions were actually high enough to survive on. Health care was free of charge, ﬁnanced from the state budget. Basic commodities and services such as food, shelter, heating and transport were largely subsidized and available at very low cost. The Soviet system of welfare was paternalistic. The absence of rights to articulate and lobby for needs autonomously from below was a very important issue. Welfare recipients were objects of welfare provision, but never active subjects in deﬁning their needs and in running services that met the needs. Salaries and wages were low and many people were dissatisﬁed with the quality of services and the huge deﬁcit of goods. Such was the legacy and background for social policy making after the renewal of Latvian independence in 1991. Latvia experienced all the consequences of a crisis in the economy in the early nineties – high level of inﬂation, rapid collapse of the consumer market, disastrous decrease in 328

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the scope of industrial production and a reduced gross domestic product (GDP). Since 2000 Latvia’s economy has grown extremely rapidly. From 2000 to 2007 GDP expanded at an average annual rate of 9 per cent. Real expenditure exceeded remarkably the amount of people’s income due to credit boom between 2003 and 2007. In 2008 years of unsustainable high growth turned into a rapid decrease of economy (-4.6% of GDP) and large current account deﬁcits. For economic stabilization Latvia signed conditions for receiving a loan from European Union, International Monetary Fund and partner countries in amount of 7.5 billion Euros. The conditions envisage strong cut of all expenditures including social, to reduce wage fund for public sector by 20% and other unpopular but necessary measures especially painful for vulnerable groups. The Gini coeﬃcient in Latvia has been steadily rising from around 2.5 in 1991 to 3.6 in 2003 and 3.9 in 2006. The inequality gap is still growing. The at-risk-of-poverty group is among the highest in the EU: 19 per cent in 2005 and 23 per cent in 2006. The poverty risk has signiﬁcantly increased for one-person households, especially for women. Social policy reforms in Latvia have had a very clear liberal orientation introducing social insurance principles in some areas and providing social assistance in others. Reform included quite radical short-, mid- and long-term changes for employed people, turning from paternalistic expectations of the state towards personal responsibility for social welfare. This is also reﬂected in a decreasing share of GDP devoted to social expenditure (see Table 18.1) All inhabitants had to make radical changes in their expectations and behaviour in all spheres of life, turning to the more individualistic way of life relying on one’s own forces ﬁrst of all. State and local municipalities have created a social security safety net providing the country with social services. Parties in the ruling coalitions are opposed to state-supported redistribution activities. The level of redistribution is in some way an indicator of the level of solidarity in society.

Table 18.1 Social protection expenditure

lv

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per % inhab.** GDP

total*

per % inhab.** GDP

total*

per % inhab.** GDP

– – 840.1 968.4 1175.8 1297.6 1332.6 1378.6 1373.0 1444.3 1611.2p

– – 345.3 401.8 491.9 546.8 565.9 589.5 590.5 624.5 700.4p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

– – 15.3 16.1 17.2 15.3 14.3 13.9 13.8 12.9 12.4p

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

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This level is very low in pension policy, health policy, housing policy. Latvia has had a ﬂat or proportional (25 per cent) income tax since the early days. The introduction of a progressive income tax has never been on the policy agenda. Social policy is shaped by a diversity of forces, including actors from outside the country. The World Bank supported initiatives that promoted social reforms by providing loans and expert consultations. With the help of World Bank consultants Latvia introduced pension reform, established a means-tested social welfare scheme and a system of welfare provision in social service institutions. Throughout the accession process to the EU, Latvia adopted EU requirements, enacting national legislation that met EU standards. A Joint Inclusion Memorandum with comprehensive analysis of social risk groups, poverty and exclusion and deﬁnition of social policy priorities has been prepared, accompanied by National Activity Plans combating poverty and social exclusion. The ﬁnancial resources of the European Social Fund and the European Regional Development Fund had a signiﬁcant impact on the growth in welfare funding, promoting employment, improving the infrastructure of social services and the development of alternative social services in the regions, as well as providing the information and communication technologies for institutions administering the social services sector. The declared goal of policy is the opening up of opportunities for everybody. Each person can choose among them and success will depend only on the individual’s eﬀorts, capacity and fortune. Such vision is very close to a liberal approach, which predominates. At the same time, the Latvian social policy model has included features of the conservative model, such as reliance on family support and compulsory social insurance against some risks, and the socialist model, such as universalism, for example, in family beneﬁt payments. Social reforms developed in a very dynamic environment. The stratiﬁcation and polarization of society as a result of the operation of market economy mechanisms is also among the outcomes of reforms. Regulation of stratiﬁcation processes must become an important component of the national social policy to reduce the social tension in the community. However the deeply rooted prejudice of Latvian politicians that the social sector only takes and is an area that consumes with a negligible return has not been overcome yet. That is why such a function of the social policy as investment in people, their health and education is underdeveloped.

Status quo: analysis and political dimensions National priorities in providing welfare: description and output One of the social reform objectives was to establish a direct dependency of social insurance beneﬁts on social insurance contributions, to strengthen the people’s motivation to make these contributions and to secure their fair distribution. Forms of social insurance in Latvia include: & & & & &

330

state pension insurance, insurance against unemployment, insurance against occupational accidents and occupational diseases, disability insurance, maternity and sickness insurance.

LATVIA

Table 18.2 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

lv

eu27

eu15

100.0p 95.7p 10.6p 3.7p 0.6p 1.0p 33.6p 46.3p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

The number of socially insured persons has continued to grow year by year. The growth can be explained by the growing awareness among the general public of the signiﬁcance of social insurance contributions as well as the fact that the labour market is made up of young people born in the 1980s when the birth rate was high. The state social insurance system has its own budget, separate from the state budget. The redistribution of social tax payments between the employer and the employee in Latvia is as follows: employer’s payments, 24 per cent; employee’s payments, 9 per cent. Payments of all social insurance beneﬁts are ﬁnanced exclusively from the revenues of the state special social insurance budget(s). People subject to compulsory social insurance are employees, self-employed people, people insured from the national general budget (people taking care of a child of under one and a half years as well as spouses of diplomats); people insured from the social insurance special budgets (the non-working disabled, recipients of maternity, sickness and unemployment beneﬁts). There is a maximum amount of personal income from which social insurance contributions have to be paid. The Cabinet of Ministers establishes this amount on an annual basis (2000, 21,340 euro; 2005, 28,315 euro; 2006, 29,454 euro). This means that people with high salaries and wages are not paying social contributions to the full amount. Data from Table 18.2 show that paying priorities in social protection beneﬁts by functions in Latvia are similar to other EU countries. However in Latvia the share of old age and family/child social protection beneﬁts is higher, but the share of unemployment, housing and sickness protection beneﬁts is lower. There is a particularly large diﬀerence (3.7 times) in the share of housing beneﬁt, because Latvia has only means-tested local government housing beneﬁt. Description and distribution Unemployment insurance In the last years, the unemployment rate fell steadily and reached 8.9 per cent in 2005, thus equalling the EU25 mean (see Table 18.3). Therefore, Latvia managed to decrease its above-average unemployment ﬁgures to moderate levels. 331

F . R A J E V S KA

Table 18.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

lv

eu27

eu15

– – – 14.3 14.0 13.7 12.9 12.2 10.5 10.4 8.9 6.8 6.0

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

Unemployment beneﬁt has been estimated in proportion to the person’s individual insurance contribution salary, the length of the insurance period and the length of the period during which the beneﬁt is received, and varies between 50 per cent and 65 per cent of the average insurance contribution payment salary. The system of unemployment beneﬁt is oriented to stimulate the unemployed person to look for a new job, because the beneﬁt decreases from 100 per cent at the start to 50 per cent. In 2007 eligibility rules for unemployment beneﬁt were tightened even more. The duration of unemployment beneﬁt was cut to four months for those whose working experience is under 10 years and to six months for those whose working experience is under 20 years. Such measures were supposed to stimulate people to return to the labour market, because the number of vacancies is growing and Latvia faces a shortage of labour in some areas. Although the population of working age is diminishing, the number of economically active residents is increasing and the employment rate is growing year by year from 60.4 per cent in 2002 to 66.3 per cent in 2006. The employment rate for women in Latvia is higher than average in the European Union: 56.8 per cent in 2002 and 62.4 per cent in 2006.1 The proportion of unemployed people who receive unemployment beneﬁt out of the total number of unemployed people has grown from 44.3 per cent in 2002 to 48 per cent in 2005 and 50.4 per cent in 2006. The level of unemployment is decreasing and was under 6 per cent in 2007. Family policy During the last 10 years family policies in Europe have been in the process of change. The promotion of reconciliation between work and family life is largely facilitated by EU policy and measures. Attention is paid to the necessity to support families with children not only by the means of social beneﬁts, but also through diﬀerent services, thus reducing expenditure on child care and raising children.2 Although the old and new EU member states are facing similar problems, they represent diﬀerent opinions about the priorities of family policy. Citizens in the old EU member states prioritize the promotion of employment possibilities and ﬂexible working hours. Many 332

LATVIA

people in the new EU member states believe that prioritizing family policy is increasing the amount of social beneﬁts for families with children and reducing the expenses of child care. In Latvia the transformation of family policy issues into the political agenda has been very slow. Family policy appeared on the political arena for the ﬁrst time in 1998, introduced by the right-wing ‘People’s Party’, using the family as a symbol. The elections in 2002 initiated a rapid and positive turn in the development of family policy. The new political actor was the ‘Latvia’s First Party’ – a centrist, conservative party, with a Christian outlook. A special new position of Minister for Children and Family Aﬀairs was established for a member of this party. Family issues came on the agenda through the prism of demography. The demographic situation in Latvia has been extremely unfavourable since 1991: the population has continued to decline due to the negative natural increase and negative migration balance. The birth rate halved from 1990 to 2002. The changes in the amount of beneﬁts for families with children in Latvia were implemented with one aim – to improve the demographic situation and to stop depopulation. Since 2004 ﬁnancial support is provided for families with children up to the age of one. From 1 October 2004 the childbirth allowance increased three times. In 2006 in addition to the 421 euro, an extra payment was introduced: 142 euro for the ﬁrst child, 213 euro for the second and 284 euro for the third and each subsequent child. Since 2005 an increase in the share of the untaxed minimum for families with children has taken place. Support for parents in employment is provided through maternity and paternity beneﬁts. In Latvia maternity beneﬁt is 100 per cent of the average insurance contributions of an insured person. It is granted for 112 calendar days: 56 days during pregnancy and 56 days after the birth. The number of maternity beneﬁt recipients is growing year by year as well as the proportion of socially insured mothers among the total number of mothers that give birth (60.1 per cent in 2001, 74 per cent in 2005, 78.8 per cent in 2006)3 Since 2004 fathers have the right to receive paternity beneﬁt. It amounts to 80 per cent of the person’s average social insurance contribution payment salary. The popularity of this beneﬁt is growing. In 2004 22 per cent, in 2005 25.5 per cent and in 2006 29.5 per cent of the fathers of newborn children exercised their right to spend the ﬁrst 10 days of the child’s life at home with the family.4 From 2005 the amount of child care allowance (till the age of one) in Latvia is based on the parents’ previous earnings: 70 per cent of the average monthly wage subject to insurance contributions (the minimum amount 80 euro, the maximum amount – 558 euro per month). If the person is unemployed, the amount of the allowance for children up to the age of 1 is 71 euro per month. If the person, who takes care of a child from the age of one to two years, is unemployed or is employed and works not more than 20 hours per week, she/he can receive the allowance to the amount of 43 euro. It is legally prohibited to work and receive child care allowance at the same time. There were hot debates in society concerning such restrictions. Some mothers considered such an approach as discriminative. They have twice turned to the Constitutional Court. The ﬁnal decision of the Constitutional Court was in favour of working parents. From 1 March 2007 even employed persons taking care of a child up to one year have the right to work and receive the child care beneﬁt in full. Parents have discretion to decide which of them will apply for this beneﬁt. As a result the proportion of fathers receiving parental payments has increased rapidly from 17.6 per cent in July 2007 to 25.1 per cent in December 2007. Since 2008 there is no longer a ceiling of 558 euro, but is limited to 70 per cent of the previous year’s salary. 333

F . R A J E V S KA

Latvia provides support to guardians, foster families and to people who have adopted a child, allocating a guardian’s allowance for looking after a child, providing compensation for fulﬁlling a guardian’s duties, providing an allowance for adoption and fostering, and providing beneﬁts in case of the loss of the breadwinner. A person who has lost one or both breadwinners and is not married has the right to receive the state social security beneﬁt – 64 euro per month – until the age of 18. In 2004 Latvia borrowed the French idea of a Maintenance Guarantee Fund; this aﬀords a family ﬁnancial support and has been quite successful. If one of the parents breaches the duty to pay maintenance to the child, it is paid through the Maintenance Guarantee Fund, and the parent has to subsequently repay this sum back to the fund. The ﬁnancial means paid by the fund do not have limitations – the debtor has a lifelong duty to refund the money from any source of income. The proportion of universal beneﬁts is diminishing in EU member states in favour of means-tested beneﬁts.5 In Latvia the majority of beneﬁts are universal. It is unlikely that in the near future beneﬁts for families with children in Latvia will be more oriented to indigent families. The main argument is that the administration of beneﬁts would be complicated and the beneﬁts would not justify the expense. The second argument is that it would be diﬃcult to lay down a concrete principle for grouping families with children, because families who are not at risk of social exclusion are low-income families and need to be supported by the state. The family state beneﬁt is paid until the child reaches the age of 15 (until the age of 20 if continuing education). The family state beneﬁt has remained unchanged since 1998. Only in 2007 was the beneﬁt increased by 30.4 per cent, but still it is very small and not adequate for covering basic expenditures: for the ﬁrst child, 11.4 euro; for the second child, 13.7 euro; for the third, 18.2 euro and for the fourth and each successive child, 20.5 euro per month. The family state beneﬁt in Latvia is acknowledged as the least eﬀective of all allowances for families with children. On the one hand, the state provides more ﬁnancial resources for this beneﬁt than other family beneﬁts, and for indigent families this beneﬁt provides essential ﬁnancial support. On the other hand, the dynamics of the amount of beneﬁt cannot be comparable to the increase in the average monthly wage, and provides a negligible contribution to the family budget. The birth rate is increasing very gradually. In 2006 it was the highest for the last 12 years. Nevertheless it is still lower than the death rate. An insuﬃcient number of places in kindergarten, family-friendly employment policy, free and healthy meals for pupils in the beginning of their school life, violence against children and other issues are now on the public agenda in Latvia. There are intense discussions about the necessity to establish the allowance before the start of the school year; however, for the time being such an allowance is granted only to indigent families, and the provision of this kind of allowance for each child of school age is a thing of the future. Pension reform Pension reform was the most important part of social reform, and new solutions rather than gradual change were preferred. Latvia was the ﬁrst country introducing such a model with the assistance of a World Bank expert from Sweden. A similar pension model was introduced in Sweden and in Poland. The reform is replacing the pay-as-you-go system with a new three-tier system: (1) the modest state pensions, the level of which is determined by contributions, but including a 334

LATVIA

state-deﬁned minimum amount; (2) a fully funded mandatory contribution scheme; (3) voluntary private pension arrangements. The ﬁrst tier, mandatory state nationally deﬁned contribution pension scheme (PAYG), became eﬀective on 1 January 1996. Calculating the initial capital has been one of the most controversial areas. Many amendments followed during the last decade trying to adapt the scheme to Latvian conditions. The ideology of the pension system is directed towards involving the working age populations in the state social insurance system and urging them to continue work, deferring retirement as long as possible. The amount of the old age pension depends both on the insured person’s proven length of service and on the accumulated pension capital from 1 January 1996. Since 1 July 2008 the minimum retirement age has been 62 for both genders. The law provides a possibility of earlier retirement at 60 if working experience is at least 30 years. In this case pensioners are guaranteed only 80 per cent of the pension amount and employment is prohibited. The average age when people terminate their economic activities is gradually rising. In 2006 it was 61.54 years for men and 59.73 years for women.6 There has been a recent trend for a decline in early retirement. The second-tier pension scheme is a fully funded, mandatory state pension scheme, where the reserves from the ﬁrst tier have been channelled into individual pension accounts and invested. It started on 1 July 2001. Its declared purposes are (1) as the result of the ageing population to avoid increasing the burden of the current working population with mandatory social insurance contributions to the ﬁrst pension tier; (2) to provide retired people with bigger pensions, as the ﬁrst tier alone is not capable of providing this without a necessary increase in social contributions; (3) to facilitate the development of the state economy, by investing the majority of the capital from both schemes (second and third) in the Latvian economy. The administration of the second tier pension system was initially shared by state institutions, but since 2007 it is solely in the hands of commercial banks. The participants of the ﬁrst pillar of the pension system are oﬀered 27 various investment schemes. Joining at the second level does not demand additional payments. The state guarantees strict supervision of the resource managers and holding banks of the resources; it approves the investment regulations and issues licences. In such a way Latvia has private management of state funded pensions. The third tier, private voluntary pension scheme, was created in 1998. There are two kinds of private pension funds: a closed fund, which is only for the employees of a company or companies that founded the private pension fund; an open fund, which is formed by a bank or a life insurance company to sell pension coverage as collective or individual aﬃliation plans. Contributions are tax exempt for the employee. Contributions made to private pension funds for the beneﬁt of company employees are treated as a tax-deductible business expense, if the contributions do not exceed 10 per cent of the salary of the employee. Contributions to private pension funds are not subject to social tax. There are three choices to receive beneﬁt at retirement: the private pension fund pension beneﬁt can be paid as a lump sum; it can be transferred to the life insurance company, which subsequently provides a lifelong annuity; it can be transferred to the state PAYG pension system. Health care reform Latvia is among the countries with the lowest health care expenditure rates in Europe. The expenditure for health care was stable between 1994 and 2007: only 3.4–3.9 per 335

F . R A J E V S KA

cent of GDP. The law on Medical Doctors in Practice (1997) deﬁnes that medical practice is a speciﬁc form of entrepreneurship. Most family doctors are self-employed, employing people in their practices, but there is also a small number working as employees in health care centres. The reform of health care suﬀered from delay and really only started in 1998 after a long period of hesitation and looking for the most appropriate model. Latvia has a taxﬁnanced health care model. In 1999 the State Compulsory Health Insurance Agency and eight regional sickness funds were established. Almost all the funding for primary and secondary health care has been transferred to sickness funds that pay for health care services provided to inhabitants of their respective territory and cover administrative cost. The ineﬀectiveness and ineﬃciency of the health care system is a permanent issue on the policy agenda in 2002–8. The Family Physicians’ Association has participated in elaboration of the contracts with the government, establishing the provision and remuneration of health care services. General practitioners are working as independent practice practitioners under contracts with sickness funds. Since 2005 the partial capitation model as a ﬁnancing system of primary health care has been implemented in Latvia. It consists of four components: capitation sum, ﬁxed payments, extra beneﬁts and quality criteria. There is an alarming trend that the number of paid sickness days and the period of treatment are getting longer with every year and people return to their work after longer intervals. The proportion of sickness beneﬁts as a total expenditure of the social insurance budget has increased from 2.2 per cent in 2002 to 3.5 per cent in 2004 and to 4.6 per cent in 2006. The number of paid sickness days has grown twice from 2002 to 2006, the number of recipients of sickness beneﬁt has increased 1.7 times.7 There are some explanations for this situation: poor health conditions, decrease in illegal employment and misuse of the existing system. There has been oﬃcial recognition of the existing alarming situation: The general health condition of the Latvian population in terms of life expectancy and mortality indicators is unsatisfactory. Population mortality indicators are very high – 13.9 per 1,000 residents in 2002 (9.8 in the EU in 1997). … Mortality rates among persons of working age people are high – almost one-ﬁfth of the people who died in 2002 were aged 20–59.8 But we cannot exclude abuse of the existing system by patients and family doctors. Therefore in autumn 2006 government ministers accepted new stronger rules ensuring control over sickness beneﬁts. The serious crisis in the health care system of Latvia has not been overcome yet. A total of 2,500 physicians have left their positions in Latvia since 1996: they have joined business, politics or gone abroad. Currently, there is a shortage of doctors and nurses. Many of them have to combine their jobs working in hospitals and clinics. The proportion of private payments for health care (around 48 per cent) is closer to the American rather than the European model. There is an increase in the diﬀerence concerning access to health care. Social assistance The functions of social assistance are divided between the state and local government. In Latvia the social beneﬁt system includes universal state social beneﬁts (beneﬁts which are 336

LATVIA

granted on the grounds that the individual belongs to a speciﬁc group of the population) as well as means-tested local government social assistance beneﬁts. The list of state social beneﬁts includes a long list of very diverse instruments. They are universal and targeted at groups of people who are exposed to the greatest risk of diminishing income due to their inability to earn income from work or due to the increase in their expenditure for objective reasons. The eligibility of a person does not depend on the material situation of the person at the moment of receiving the beneﬁt; it depends on the social group the said person belongs to and is therefore not linked with any speciﬁc income level established in the country. The size of these beneﬁts tends to grow much slower than consumer prices or GDP. State social provision beneﬁt is a monthly beneﬁt paid out of the state basic budget. The recipients of state social provision beneﬁt are those with a disability since childhood, people who are not eligible to the state old age or disability pension. The amount of beneﬁt has increased periodically. In 2006 it was equal to 64 euro or 40 per cent of the oﬃcial subsistence minimum. It means that recipients of this beneﬁt (14,400 in 2006) are highly dependent on support from the family, local community, parish or charity. Social care services have been provided at special institutions paid from the state budget for such target groups as children under the age of two and disabled children up to the age of four, disabled children from the age of four, and mentally disabled people. Social care institutions for older people and people with special needs and for children from age two to 18 have been ﬁnanced from the municipal budget. Municipalities organize home care for older people and incapacitated people. There are two kinds of home care: organized care services and paid beneﬁts for care. There was a large growth in the number (more than three times) of recipients of beneﬁt who receive paid beneﬁts for care. The sum for home care in absolute ﬁgures and the proportion of municipal expenditure is slowly increasing from 4.6 per cent in 2003 to 6.3 per cent in 2006. The largest proportion of municipal social budget expenditure is social assistance beneﬁts: 58.3 per cent in 2003, 42.1 per cent in 2006. The municipalities spend the greatest amount of their funding on housing beneﬁts (around one-third of the municipal social assistance funding). The share of health care beneﬁt is growing as well (19 per cent) due to the price rise in pharmaceuticals and health care services. Local governments are responsible for providing a guaranteed minimum income (30 euro in 2005, 34 euro per month in 2006) for each household member in return for individually agreed activities for every person of working age. Local governments can also pay beneﬁts for other purposes. The practice of purchasing social services from the private sector has been developing, especially in such spheres as social care for disabled people, night shelters, child social care and rehabilitation, and social care for people with special needs. In 2005, according to the data provided by the Social Service Board, in Latvia the structure of social service providers according to legal status was very mixed. Non-governmental organizations (NGO) concentrate their work on risk and vulnerable groups: disabled people, drug addicts, people with AIDS, etc. State and municipality institutions delegate these functions to the NGOs, pay for them and monitor progress. A particularly active private sector is in the capital, Riga, providing services for the homeless. There is a lack of cheap municipal housing and dominance of market regulation in the housing area. Therefore, housing allowances have a stable dominant position in the structure of municipal social allowances in Latvia: 38 per cent in 2000, 41 per cent in 2005, 32 per cent in 2006. Families with children dominate the structure of social allowance recipients, followed by pensioners, disabled people and single people. 337

F . R A J E V S KA

The number of social workers has almost doubled during the ﬁve years from 2002 to 2006. They have become more professional in their attitude to clients. Signiﬁcant real improvements can be reached with the support provided by the Community initiative EQUAL. An institutional network of social services has been gradually developing in Latvia. It includes a pensioners’ federation, children and orphan care centres, day centres, crisis centres and also institutions of long-term social care and rehabilitation. The private and non-governmental sector has become increasingly involved in delivering these services in Latvia during the last ﬁve to six years. The number of people per social worker has decreased by 1,000 from 2,346 in 2002 to 1,339 in 2006. Social services have become more specialized and mobile. However, according to law, municipalities have to provide at least one social work specialist per 1,000 inhabitants. Analysis We can conclude that Latvia already has elaborate legislation and institutional structures for social protection. This has been done in accordance with modern requirements. The development of social policy in Latvia has been inﬂuenced by many kinds of pressures, both internal and external. The most important factors of internal pressure were (1) the necessity to change the system of social security in the new market economy situation and establish a social assistance network from scratch since the old system was based on support given by the workplace; (2) the decline of GDP and impoverishment, which require active state involvement to be overcome; (3) priority to the market solutions given by the political elite and active role of private sector; (4) a weak organizational structure of employees, that has resulted in very low pressure from the bottom and large autonomy of the political elite in social policy design and implementation. In the Latvian case we have almost a pure case of policy transfer in pension policy without a public debate on pension policy or even among representatives of the ruling elite. The Latvian parliament supported the principles of pension reform (concept) presented by an expert group. The law on the state pension was accepted in 1995 when only some politicians understood the revolutionary nature of the reform. The reform process was closed and accommodated fewer interests in Latvia. Many factors have contributed to such policy transfer options: (1) a high level of uncertainty in many positions of social security; (2) a severe banking crisis in 1995 and ﬁnancial constraints for the existing pension scheme; (3) national elections in autumn 1995; (4) an acute need for pension system reform – high system dependency rates, low retirement age, unfavourable demographic trends. There were more than 10 amendments to the initial version of the pension legislation, with the main task to adapt it to the conditions in Latvia. The special coeﬃcient for work experience as an instrument to correct the pension formula for low pensions was introduced in 2002. The process of introducing the new pension system was very long. Old age pensioners are an extremely heterogeneous group in Latvia. The dominant group until now has included those pensioners who retired before 1996, according to the previous legislation. Their share of the total number of old age pensioners has decreased, because of the natural process, from 75 per cent in 2000 to 60.5 per cent in 2006 or per 100,000 people in absolute ﬁgures. The diﬀerence in the amount of pensions in this group is rather small. Their pensions have been regularly indexed. But owing to the low starting sum the amount paid to the majority of this group is below the oﬃcially recognized 338

LATVIA

subsistence minimum. The government made some incremental measures to improve the situation, introducing special additional payments (0.27 euro since 2005 and 0.57 euro since 1 July 2008 for each working year up to 1996). The second group includes those pensioners who have retired under the new rules, amounting to 39.5 per cent of the total number of old age pensioners in 2006. The diﬀerence in the amount of pension in this group is very large (four to eight times) dependent on their contributions since 1996. A high proportion among them receives only a minimum pension. As a result, the number of older people at risk of social exclusion is comparatively large. The fact that pensions are too low for the length of the insurance period remains a serious problem. Serious problems relating to social and labour policy in Latvia became evident with the rapid increase in labour mobility in 2004–6, when more than 10 per cent of the labour force (predominantly qualiﬁed) left the country for Ireland and the United Kingdom. In some way it was a reaction to the very low level of remuneration in the public and private sectors. The dynamics of wages is, to a large extent, also a result of the convergence process where a gradual equalization of labour costs takes place within the EU single market. This process in Latvia is among the fastest in the EU member states, which is partly explained by the very low level of wages in comparison with the EU average. In 2003 it made 15 per cent of the average of the EU level. As a result of the last wage increases the level of wages grew to 22.2 per cent of the EU average in 2006 and 28 per cent in 2007. At the same time productivity in Latvia compared with the EU has developed as follows: 44.2 per cent in 2003, 49.2 per cent in 2005 and 56.7 per cent in 2007.9 However, the growth in income is very unequal – both in diﬀerent socio-economic groups and in the regions. The polarization of material welfare increases. As Table 18.4 shows, poverty has increased. The share of the poor population is high and is on the increase. Though every year the monthly disposable income per household member is growing, the at-risk-of-poverty rate had grown and reached 19 per cent in 2005 and 23 per cent in 2006. Household Budget Survey data indicate that the increase in the average household

Table 18.4 At-risk-of-poverty rates by gender

lv

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– – – – – 16 – – – – 19b 23

– – – – – 17 – – – – 18b 21

– – – – – 16 – – – – 20b 25

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

339

F . R A J E V S KA

disposable income is based on the highest income quintiles.10 Nevertheless, the total funding of the welfare sector and the ratio of expenditure on separate sectors to GDP has a tendency to decrease. Important changes in public opinion have taken place. In 1999 Latvian society demonstrated the view that poverty and social exclusion are the results of a person’s disregard of social norms and values as well as the lack of initiative to resolve their problems. Diﬀerent answers were given to the same question in 2005 in the framework of FAFO (Norway) project Poverty, Social Assistance and Social Inclusion – Developments in Estonia and Latvia (2003–6).11 Researchers have examined the perception of Latvia’s population about the causes of poverty in 2005. Respondents had a choice of four answers: (1) because they have been unlucky; (2) because of laziness and lack of willpower; (3) because of injustices in society; (4) because it is an inevitable part of progress. The ﬁrst and the second are individual reasons, the third and the fourth can be labelled as structural. Respondents were invited to give their ﬁrst and second priority. The most prevalent reason mentioned is injustice in society. Summing up the ﬁrst and the second reasons, almost two-thirds of the respondents believe injustice in society is an important explanation of poverty. Compared with research in 1999, the proportion indicating injustice as the main reason for poverty has increased substantially. At the same time laziness and lack of willpower has dropped from second to third place as the main cause of poverty. This is a strong indication of recognition in Latvian society that poverty is a structural phenomenon and cannot be solely explained by individual characteristics.

Outlook Did the main reforms bring the intended outcome? In general the answer to this question is positive. Latvia has developed institutional capabilities in many areas, for example in pension policy, employment policy and social assistance. The changes in family policy, the increase in childbirth and especially child care allowances, contributed to some degree to the improvement of the demographic situation. Currently, the problem of kindergarten places has become very acute for local municipalities and state authorities. Policy transfer and the policy-learning process contributed a lot to social policy-making in Latvia. Politicians and civil servants were ready to learn and capable of adapting international experience. The main external pressure came from the globalization process, from the inﬂuence of the IMF, World Bank, ILO experts and negotiation processes with the European Union. The funding of European Structural Funds and European Social Funds contributed a great deal to the development of employment policy and infrastructure, to the training of social workers and the activities of the non-government sector. State and municipality institutions are becoming more active in planning cooperation with NGOs. The public sector has played a dominant role in welfare provision until now. However, the private sector is increasing in almost all spheres of social welfare and has taken diﬀerent forms in the provision, ﬁnance and control of services. It concerns the provision of health care. Medical practice has been deﬁned as a speciﬁc form of entrepreneurship. In general, family doctors are working as independent practice practitioners under contracts with sickness funds. The proportion of physicians in private institutions is growing. The administration of the second-tier of pension system became the function of the commercial bank only. Privately provided services have grown in the housing area. 340

LATVIA

Municipalities cooperate actively with NGOs and the private sector, providing night shelters for the homeless. The Riga municipality is buying social care for mentally disabled people, family support centres, group apartments, crisis centres and other services from NGOs and the private sector. In general, welfare activity is becoming more mixed. Latvia has a social security net and social insurance system. However, inhabitants do not think themselves socially secure. The FAFO research project Poverty, Social Assistance and Social Inclusion – Developments in Estonia and Latvia (2003–6)12 in 2005 clearly showed that there is a strong sense of a lack of economic security in Latvian society. The question was to what extent the respondents thought they were covered by a system of social insurance and beneﬁts if they were to lose the main income of the household, e.g. due to illness or unemployment. More than three-quarters (78 per cent) believe that they would be insuﬃciently covered to make ends meet. Income diﬀerences in Latvia have increased dramatically in the period since Latvia regained independence in 1991. A warning for policy makers is that the majority of the population would like to see smaller income diﬀerences in society. Of those who expressed their view on this question 69 per cent thought that income diﬀerences should be much smaller and 23 per cent thought they should be slightly smaller. Despite a welfare system that has undergone substantial reforms in the past 10–15 years, unemployment, illness and age are seen as risks that may seriously alter the living conditions of those aﬀected – this is the dominating mood in Latvian society during recent years. Some explanation of this situation has been the small and decreasing share of social expenditures. The percentage of GDP spent on social expenditure in Latvia has been steadily decreasing. The amount of social expenditure in absolute terms per capita is almost 10 times less than in the EU25, but costs were almost 60 per cent of the EU level in 2006 and there is strong tendency that they will become equal. The term ‘guaranteed minimum income’ (GMI) is not de facto because the amount of GMI is inadequate to meet basic needs. Poor municipalities have to spend almost all the social assistance resources for covering the GMI beneﬁt. Therefore, it is necessary to guarantee the GMI by involving state support. Nevertheless this problem is not policy nor even on the public agenda. The amount of family beneﬁt is inadequate as well. Therefore, many people of working age are leaving Latvia for Ireland or the United Kingdom, supporting the social security systems of the older EU member states. The recommendation of the Irish deputy prime minister given to Latvian politicians in January 2006 at the seminar Does Latvia Follow Ireland’s Path? – Migration of Workforce must be taken seriously: ‘If we were to give any advice to Latvia … it would be to invest in people, and that will pay beneﬁts in the long term’.13 The sustainability of the present pension system is not in question. There has been a remarkable increase in the pensionable age. As a result, there has been a decrease in the number of pensioners in absolute ﬁgures. The new pension scheme costs much less than the previous one. The scheme is selfﬁnancing and stable in the long term. Furthermore, the reform has stimulated the decrease of the so-called grey economy and an increase in tax payments. The share of old age pension expenditure as a percentage of GDP has been constantly decreasing: 6.6 per cent in 2002; 5.5 per cent in 2004; 5.1 per cent in 2005 and 5.0 per cent in 2006. There has been a successful development of the second tier, funded pension scheme. The active position of commercial banks, their aggressive and attractive advertisements contributed a great deal to the number of people who have decided to voluntarily join 341

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the funded pension scheme. The number of participants is growing rapidly: from 64.1 per cent of all employed on 1 January 2005 to 77.8 per cent on 1 January 2006. This business is very attractive for the developed and mature banking system in Latvia. A sum that is equal to 20 per cent of salaries and wages has been transferred to the pension budget. The division of this 20 per cent between the ﬁrst redistributed pension level and the second funding pension level according to the law is under rapid change: in 2006, 18 per cent went to the ﬁrst tier and 2 per cent to the second; in 2007, 16 per cent to the ﬁrst tier and 4 per cent to the second; in 2008, 12 per cent to the redistributive and 8 per cent to the funded scheme; in 2009, 11 per cent and 9 per cent and since 2010 both tiers will get 10 per cent. It means that half of all contributions to the pension scheme will be managed by commercial banks. The process of money accumulation in both levels is quite successful because of the rapid growth of salaries and wages and the active struggle against undeclared and illegal employment. As a result State Social Insurance Agency had a good reserve of money in 2006–2008. It even has lent money to the Ministry of Finance to cover deﬁcit in state budget. The living standard of pensioners is rapidly decreasing despite of indexing. The pension for almost three-quarters of pensioners is below the subsistence minimum. The pension reform has contributed to the process of stratiﬁcation and even polarization among pensioners. Under strong pressure from below and mass mobilization during 2008 authorities implemented incremental changes in the amount of pensions especially favorable for persons with low pensions. Losers in such situation became persons with pension amount equal to 320 EUR and more, because over this ceiling pensions were not covered by indexation at all. The gap between average amount of pension and average wage and salary of civil servants became unacceptable for society. In situation of deep recession government has frozen the existing level of pension money redistribution (12:8) between ﬁrst and second tier. The idea of reducing share of payment for second tier in favour of the ﬁrst tier has returned back on public policy agenda. The process of pension indexation was stopped till end of 2010. Crisis has demonstrated as well that previous steps to cut radically the longevity of unemployment beneﬁt from nine to four months were taken as reaction of short-term conjuncture in the labor market. In the situation of high level of unemployment (around 10% in spring 2009) such approach left young persons dangerely unprotected. Therefore governement has accepted the return to nine months unemployment beneﬁt payments. The main function of social policy in Latvia is to keep stability and to reduce the tension in society. Liberal approach stressing each person’s individual responsibility for own welfare and low level of solidarity and redistribution is a typical feature for policy model. Responsibility is a necessary, but insuﬃcient precondition for success in situation of severe crisis. The divided Latvian society is in special need of mutual trust and support, activity of strengthening and developing social and human capital. Without them the eﬃciency of spending international loans for stabilizing economy and ﬁnancing system will be low.

Notes 1 Social Report about year 2006 (2007) Riga, Republic of Latvia, Ministry of Welfare, p.68; www. lm.gov.lv/text/614 (accessed 30 July 2008). 2 Daly M., Clavero S. (2002) Contemporary Family Policy. A Comparative Review of Ireland, France, Germany, Sweden and the U.K. Dublin: The Institute of Public Administration, pp. 5–6.

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3 The Social Report about year 2006 (2007) Riga, Republic of Latvia. Ministry of Welfare, p. 33; www.lm.gov.lv/text/614 (accessed 30 July 2008). 4 Social Report about year 2006 (2007) Riga, Republic of Latvia. Ministry of Welfare, p. 31; www. lm.gov.lv/text/614 (accessed 30 July 2008). 5 Gauthier A. H. (2005) ‘Trends in Policies for Family-friendly Societies’, in M. Macura (ed.) The New Demographic Regime. Population Challenges and Policy Responses, New York and Geneva: United Nations, p. 98. 6 Social Report about year 2006 (2007) Riga, Republic of Latvia Ministry of Welfare, p. 25. www. lm.gov.lv/text/614 (accessed 30 July 2008). 7 Social Report about year 2006 (2007) Riga, Republic of Latvia Ministry of Welfare, p.114. www. lm.gov.lv/text/614 (accessed 30 July 2008). 8 Joint Memorandum on Social Inclusion of Latvia. www.lm.gov.lv/text/549 (accessed 28 March 2007). 9 Report on the Economic Development of Latvia, (2007) Riga, Republic of Latvia Ministry of Economy, p. 79; www.em.gov.lv/em/2nd/?cat=137 (accessed 31 July 2008). 10 Social Report about year 2006 (2007), Riga, Republic of Latvia, Ministry of Welfare, p. 10. www. lm.gov.lv/text/549 (accessed 30 July 2008). 11 Aasland, A. (2006) ‘Attitudes Towards Latvian Welfare System’, in Rajevska, F. (ed) Socia-la- atstumtıba un socia-la- iekl¸aušana: situa-cijas izve-rte-jums Latvija-. Rı-ga, Latvijas Universita-te, pp. 73–90. 12 Aasland, A. (2006) ‘Attitudes Towards Latvian Welfare System’, in Rajevska, F. (ed) Socia-la- atstumtıba un socia-la- iekl¸aušana: situa-cijas izve-rte-jums Latvija-. Rı-ga, Latvijas Universita-te, pp. 73–90. 13 Woolfson, C (2007) ‘Labour Standards and Migration in the New Europe: Post-Communist Legacies and Perspectives’, European Journal of Industrial Relations, Volume 13 Number 2.

Bibliography Aasland, A. (2006) ‘Attitudes Towards Latvian Welfare System.’ In: Rajevska, F. (ed) Socia-la- atstumtı-ba un socia-la- iekl¸aušana: situa-cijas izve-rte-jums Latvija-. Rı-ga, Latvijas Universita-te. Daly M. and Clavero S. (2002) Contemporary Family Policy. A Comparative Review of Ireland, France, Germany, Sweden and the U.K., Dublin: The Institute of Public Administration. Gauthier A. H. (2005) ‘Trends in Policies for Family-friendly Societies.’ in M. Macura (ed.) The New Demographic Regime. Population Challenges and Policy Responses. New York and Geneva: United Nations. Joint Memorandum on Social Inclusion of Latvia. www.lm.gov.lv/text/549 (accessed 28 March 2007). Report on the Economic Development of Latvia, (2007) Riga, Republic of Latvia Ministry of Economy, p.79; www.em.gov.lv/em/2nd/?cat=137 (accessed 31 July 2008). Social Report about year 2006 (2007) Riga, Republic of Latvia, Ministry of Welfare, p.68; www.lm. gov.lv/text/614 (accessed 30th July 2008).

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Chapter 19

mt The Maltese welfare state Hybrid wine in rightist bottles (with leftist labels)? Charles Pace

Introduction With a population of 404,000 and an area of 315 km2, Malta is the EU’s smallest member. Its population is also the EU’s densest, reﬂecting a history of periods of relative importance and prosperity linked to its ports and mid-Mediterranean position. ‘There is too much charity in Malta’, remarked Royal Commissioner Sir Penrose Julyan (1880), a British nineteenth-century liberal, criticizing the Maltese free medical and apothecary service that had existed before 1450 (Savona-Ventura, 1997: 21, 47). Before the welfare state Ceded to the pan-European knightly order of St John in 1530, Malta became probably the only country ever to be ruled by a former welfare non-governmental organization. Founded as hospitallers for Holy Land pilgrims, these noblemen also became Europe’s military defenders. Though autocratic, they used their wealth to promote hospitals and institutions for the sick, destitute and foundlings, and alms for the poor. Pride of place was their Sacra Infermeria, the best hospital in Europe for its ‘hotel aspect’ (one patient per bed, silver eating utensils, etc.) and medical distinction, which equally welcomed knights, common people and slaves, Catholics, Lutherans and Moslems. When in 1798 the Maltese rebelled against the French occupying army and took charge of Malta, the loss to the poor of the Knights’ muniﬁcence became tangible. And when in response to its request to become a British protectorate Malta became a British colony in 1814, Thomas Maitland, its ﬁrst governor, found Britain had inherited welfare services alien to its usual style. Unused to wide government responsibility for social care and free health, and unsuccessful in trying to inject deterrent features in residences for the young, Maitland soon created the post of Comptroller, more to economize than to in any way develop or change the inherited charities. Patrick More O’Ferrall (governor 1847–51) insightfully accepted the analysis of a visiting liberal economist, William Senior Nassau, who saw that the great dependence on 344

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government that the Maltese had become used to during the time of the knights had not just cultural but deeper economic roots. Top promoter of the British law of 1834 (Pinker 1971: 53–65) that abolished outdoor relief and introduced the workhouse, Nassau, in remarkable contrast, saw (Pirotta, 1995) the conﬁnement of government’s role to ‘the strict duties of protecting its subjects from violence and fraud’ to be insuﬃcient in Malta and called for more intervention by government, the dominant force in economic activity on the fortress island. O’Ferral improved the health services and restored Maltese leadership in public service and commerce. British liberal belief in public hospitals and Maltese leadership conspired to further strengthen the hospital system. Malta later became ‘nurse of the Mediterranean’, with many additional beds to treat casualties of the Crimean War. This gave Florence Nightingale the opportunity to visit and praise the large Maltese poorhouse as a model to be imitated. Between 1880 and 1930 an impressive array of Maltese became founders of residential ‘institutes’ for older people and children, staﬀed by Catholic religious workers (see Grasso 1992, 1995, Bonnici 1988, 1999), many of which are still important today. Three high determinants of Maltese welfare have been a high expectation of state welfare, cash limits and a resistance to taxation by important sections of the middle class. For long periods during British rule, the main tax was on bread and, as such, constituted a higher proportion of income of the poorer sections of the population (Fenech, 2005: 5). Welfare state The Maltese welfare state did not start oﬀ with a big bang similar to the one in the UK in the late 1940s in line with the Beveridge report, but took shape in a more gradual fashion. The switch from ‘just’ state welfare to a welfare state can probably be placed in 1956, with the enactment by the Labour Party of the Social Security and Social Assistance Acts, hot on the heels of the introduction of the ﬁrst taxes on income and on wealth. Free secondary schooling and university education, as well as free hospitalization and increased government intervention in housing and employment, took decades to emerge, and professional social work only got oﬀ the ground in the 1980s (Pace 1993), while the free general practitioner service has remained only basic, overshadowed by private general practitioner practice. Maltese social security was introduced in the Beveridge mould, with modest ﬂat-rate contributions and beneﬁts, both part of national insurance, and modest means-tested noncontributory beneﬁts. Meanwhile, free state health care remained a basically general taxation model, arguably following the British model, but also continuing and gradually expanding the old tradition of substantial free health care. The years 1971–79 were dominated by strong socialist measures introduced by a Labour government that believed in imposition by a working class leadership that clashed with the existing centres of power, whether the opposition, court, Church, professions bodies or rival unions. Income tax was rapidly increased 10-fold, social security beneﬁts about ﬁvefold, while the ratio between the highest and lowest paid public service employee dropped to 3:1 (Kaim-Caudle, 1981). The aggressive leadership of Mr Mintoﬀ achieved, in the post-independence vacuum of power and during a period of international militant socialism, a popularized militant egalitarianism, but at some price to social harmony, civil rights and economic prosperity. The year 1979 indicated a turning point towards more moderate socialism. An earningsrelated pension was introduced, the comprehensive secondary school system was dropped, 345

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and university students’ compulsory annual period of work ceased to have a manual work requirement. The two-thirds (of salary) income-related pension departed from the Beveridgian ﬂatrate and modest rate models. This important departure exempliﬁes an interesting notion for post-colonial countries who inherit a mould which they later ﬁnd does not entirely ﬁt their needs – a case of ‘leftish wine in rightist bottles’ of not abandoning Beveridge’s containing structure to take up a Bismarck or a ‘business’ one. As Labour and Nationalist governments alternated, it became clear that the Nationalists, now identiﬁed as rather left-of-centre Christian Democrats, were also committed to expanding the welfare state (see Schiavone 1991) while the Labour Party, in New Labour style, became equally committed to a more liberalized and competitive economy, in a now shared basic consensus about the balance between welfare and competitiveness. The 1996 election campaign revealed the reality of a gaping deﬁcit, returning Labour to power in 1997. After that, the sure vote catcher ceased to be a promise of the expansion of welfare, but that of moderate improvements amid great care to improve eﬃciencies and reduce waste. When the short-lived Labour government seemed to be considering reducing the stipends or making them means tested, data (Pace 1997) showed that, in 1993, 89 per cent of the self-employed – ‘retailers, importers, lawyers, architects, contractors, doctors, plumbers … ’ – until the age of 45 declared they earned only the minimum wage. This enabled them to make the minimum contribution for most of their career. Then their declared income steeply rose during the last 10 working years, on which their pension was calculated. Many of these self-employed are therefore today enjoying a high pension contributed for largely by people poorer than themselves. Besides causing regressive distributiveness, such a practice threatened to vitiate any attempt to set a reliable means test anywhere above the minimum wage level. Such a means test would signify that the brunt of contributing to the welfare state and to government expenditure is borne by the better-paid employed, but not by the self-employed, which include all the best paid. Meanwhile, under-declaring self-employed people could still be beneﬁciaries by declaring themselves below the means threshold. In fact, in the post-1996 ‘deﬁcit awareness’, means testing was not extended to university stipends, but there was, signiﬁcantly, little or no popular opposition when the returned Nationalist government extended means tests to all to help with housing and for some years of children’s allowances. How far has the Maltese welfare state retrenched through the challenges of deﬁcits and globalization? Besides the above extension of means tests, and the narrowing of the targets for government housing help (already low by EU standards), amid rocketing house prices, there has been a pensions reform and scattered signs of some possible partial government retreat in the health sector, all of which will be touched on below. Beyond that, steady though largely modest growth in health care and social care has been retained, in a context of a slowly growing gross domestic product (GDP). A public service management reform has involved much corporatization of departments, and regulator–provider type decentralizations still within the public service. There have been hardly any privatizations of pre-existing state welfare services but, in the gradualist Maltese manner, new units, such as old people’s homes, have been contracted out to NGOs or private organizations. But the government has rapidly divested itself of industries and utilities that it had under its control, starting oﬀ with the joint manufacturing ventures which grew in the socialist period, then banks and public utilities. The 346

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resulting private monopolies or near-monopolies call for a new capability to regulate, protecting the common good within a small market and easily creating occasions of abuse of market dominance. Meanwhile, accession to the EU in 2004 has exerted a limited but clear direct inﬂuence on social policy, such as incorporating legislation on anti-discrimination, equal rights and health and safety, while also spurring on the government’s divestiture from direct commercial activity and subsidies or protection to local companies. Interestingly, the introduction of market processes and international trade-oﬀs makes questions of the winners and losers of welfare-related reforms more complex to tackle. Posing the ‘overview’ question: What history? What system? What discourse? Maltese popular discourse tends to see their welfare state as rightfully generous, frequently as too lenient, at times as too generous (see Abela 1996). Until the late nineties, votes followed promises of more welfare. Since then, prudent expenditure is widely expected. Widespread solidarity seems linked to (a) Malta’s being a small community; (b) Catholic belief in the value of helping, subscribed to by the Knights Templar and later the major political parties; (c) dependency habits from past paternalistic governments nearly monopolizing the economic initiative. Equally present is the discourse that the Maltese are very hard working, self-reliant and resourceful in the face of a bleak, resourceless landscape. But how can this chapter reach its central aim of giving a valid overall view of Malta’s welfare state, more objective and beyond discourse? Esping-Andersen has pioneered an approach that is simultaneously more historical and more empirical. Though others might quarrel with or revise his content, it is very diﬃcult to quarrel with his ‘model for modelling’, expressed in terms of the following two elements, which we shall take as a basis, namely: 1 the History or ‘historical inputs’: the historical developments that expressed and mobilized cultural, ideological, political and social shaping forces; 2 the System, or the ‘consequent service outputs’ – a description of how the system actually works, both qualitative and quantitative. Here and there we shall also, beyond Esping-Andersen, bring in a third complementary component, namely: 3 Discourse about the system.

Status quo: analysis and political dimensions National priorities An emphasis on old age and survivors at the expense of health care and disability as well as family and especially housing in comparison with other EU countries emerges from a ﬁrst bird’s-eye view (Table 19.1) Malta’s welfare expenditure. 347

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Table 19.1 Social protection beneﬁts in percentage* (2005)

mt Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

100.0 98.8 4.7 7.3 0.9 1.6 32.6 51.8

eu27

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

Area by area description Employment Job security is a key Maltese policy expectation, stoutly defended through the rundown of the military base, and in the subsequent retention beyond productivity of government or dockyard workers, and is very present amid present EU-related restructuring. Policy (see Malta Government 2005, Abela et al. 2003) now emphasizes training (especially focused on IT, technical education, women, young people, and over 40s), and increasing skills while limiting both the growth and the early retirement in public service employment. Economic policy aims to increase market ﬂexibility, the government acting more as a regulator, less as a player in the economy, working for high value-added niches, and reining in debt and deﬁcit in support of Eurozone requirements. Increased market ﬂexibility is reﬂected in more frequent job changes, but expected job security sets a limit, possibly even entailing a lower price tag in privatizations. Malta had the highest EU rise in unemployment in 12 months to 8.3 per cent in April 2006, reaching the EU average, but bounced back to bettering its 2000 ﬁgure with 6.4 per cent in 2007 (Table 19.2). Malta is permitted to monitor and guard employment of EU nationals to defend its small market in case of destabilization. Maltese work among the longest hours in the EU. Malta sees this as essential to its competitiveness, and has wanted an opt-out from the Working Directive to remain in place. African irregular immigrants meanwhile add to the workforce but also ‘do the jobs Maltese won’t do’, while the brain drain among doctors and others is feared. Joining the EU meant a trade-oﬀ: reducing job protection in the hope of better opportunities. Education Over 80 per cent of Maltese schoolchildren receive free education, about a quarter of these in church schools. Malta has abnormally high levels of illiteracy and early school leaving. Issues of education and equality have been tackled in various ways and with diverging results. An eﬀort to turn state schools into comprehensive schools during the socialist heyday was so militantly and badly managed (Zammit-Marmara, 2001) that it created massive and enduring resistance to the idea. However, a reform that started in 348

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Table 19.2 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

mt

eu27

eu15

– – – – – 6.7 7.6 7.5 7.6 7.4 7.3 7.3 6.4

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008).

2007 is activating the comprehensive idea as part of a broader packet of changes that has given occasion to much less resistance. Government now ﬁnances church schools in return for big swathes of church land given to the government at a social price and for social use, but which till 2006 lay largely excluded from building zones. Parent groups that favoured the church in the quarrel it had with the socialist government turned their allegiance to private schools that meet their wish for fee-paying and exclusive education. The Nationalist government recently ﬂinched from converting university student stipends, which had recently enabled a 10-fold increase in student numbers into loans. However, paid third-level education is making inroads, saving on the welfare state but also increasing the opportunities gap between the majority and the more well-to-do. Gender The proportion of working women in Malta, at 36.9 per cent, is only 60 per cent of the European average. Between ages 15 and 24, however, 52.4 per cent are working, or, 25 per cent more than the EU average. Meanwhile, men holding two or three jobs are common. Sixty-two per cent of women (and 3 per cent of men) cite family responsibilities as the reason for not working (Borg 2006; NSO 2005a) while some Church authorities still discourage mothers with small children from working. Encouragement, targeted training and improved access to child care under age three aim to increase the numbers of women at work. Remarkably, Malta is a very rare country in providing free child care from the age of three (but only until 2 pm). Camilleri-Cassar (2005) makes her very complete case in favour of feminist changes against the obstacles of discriminatory social security, sparse supports like child care, and a widespread acceptance of the patriarchal model of husband as earner and woman as carer. Malta’s social security is now largely gender-neutral and only discriminatory in limited aspects (as in reserving care allowances to single women only). But neutrality combined with the prevailing female model role makes most wives de facto dependent on the husband for social security with a far from neutral eﬀect. Camilleri-Cassar advocates national insurance credits plus remuneration for housework. 349

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Malta’s gender pay gap, on the other hand, is the lowest of the entire EU, giving credence to the belief that, barring troubled couples, most Maltese women are not worse oﬀ. The risk of poverty is equal for men and women (Eurostat however, questions this for 2005; see Table 19.7); however, this equality does not apply to impoverished widows and separated women (Abela 2005) or women between 50 and 64 (rather than over 65 as in the EU average). Many statistics are not gender disaggregated, so that disadvantage may remain hidden. NSO (2005a), on the other hand, gives a very rounded picture of a woman’s status in Malta, ranging from lower participation in public life and social activities, through incurring 96 per cent of reported family violence, to a predominating female participation in all university courses except engineering and architecture, generally indicating mounting pressure for a diﬀerent future. Health, social care and the mixed economy of care In 2000 the World Health Organization declared Malta ﬁfth best health system in the world, with high marks for equity (rich–poor, town–country), health status (near the best) and value for money (second best in the world). But Malta’s health is also the ﬁfth (43 per cent of expense) most privatized in Europe (European Observatory, 1999). Private hospitals are only aﬀordable to a small minority, giving complementary, not comprehensive alternative, care. For the majority, medical care and medicines taken outside hospital are what is most privatized and expensive. State specialist care in health centres is clearly a mainstay of health, irreplaceable by private care when interdisciplinary input is needed. Two attempts to incorporate GP care into the free state services failed. The ﬁrst seems to have pre-emptively provoked in 1977 a traumatic industrial dispute with the socialist government and mass exodus of specialists from Malta and the second achieved, after their return and reinstatement in 1987, their full agreement with the Nationalist government ranging on all aspects but foundered on the price. Primary care in health centres is now a solid but basic service that, short of the agreement, is deprived of patient registration and GP continuity of care. Lately it has been hit by dwindling GP numbers. All but the poorest, in fact, tend to turn, for what requires careful attention, to highly trusted private GPs, considered a notable strength in the Maltese health system. There is a symbiosis of private and public, till recently largely a give-and-take between the ﬂat-rates low-paid state hospital service and the better paid fee-for-service ambulatory private practice. Seeing a specialist privately – in monodisciplinary clinics – has long been oﬃcially accepted as a way to choose one’s specialist in the free health service, and many believe this encourages more attention. But now doctors also work in for-proﬁt private hospitals, and are possibly shareholders too. In 2008 state doctors’ pay was vastly improved, partly as a way to combat the escalating brain drain. Private hospitals have been in favour even since 1985, the tail end of the socialist era, as a way of reducing state expense. Calls by doctors’ lobbies for them to move out of the public service structure and to privatize and also for means tests have been a regular feature. However, top authorities state that there will be little room for a purchaser– provider split, and that the free services will remain very substantial. Focus is rather on a regulator–provider split, good management and ﬁnancial management that is attentive to economies and eﬃciencies, helped by the introduction of an additional 3 per cent (from 15 per cent) on VAT earmarked for health. One does sometimes fear that the quality and coverage of the free service might be inching towards destabilization ‘by stealth’, unless it is protected from the tinkering away 350

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of free primary care, the inroads of the proﬁt motive in the absence of boundaries and a level ground between private and public care, and by the middle class moving away from free care. Much social care is provided by the Catholic church, ﬁnanced by fund-raising, fees and low-paid religious staﬀ, and only very partly subsidized by the government. Contractual service purchase has long been commoner in social care than in health; non-church NGOs have lately emerged, funded by both government and fundraising, while the government is now partnering with a for-proﬁt provider for new homes for older people, with clear eﬃciency gains. Partnership-type rather than arm’s-length type competitive contracts predominate, seemingly acknowledging that Malta’s smallness might easily turn competition to cartels or monopolies. By 1996 5 per cent of over-65s received co-paid home help services in Malta. The level in the smaller island of Gozo, at 14 per cent, nearly reached the Scandinavian countries’ 15–20 per cent (see Walker 1988). Locality rates varied wildly, between 0 and 50 per cent. While community resources have increased, the provision of a case management carefully tailored to Malta’s realities (see Pace 2002) has not appeared yet, so as to help meet the so often acknowledged need for reliable coordination. In spite of deﬁcit awareness, the struggle with ﬁnances has resulted in no dramatic retrenchment of social care, while the government has, though slowly, steadily improved social care and social work from often a token to a now solid presence. However, investment in hospital and medical care vastly overshadows that in community or paramedical or psychosocial care. A focus on community care is now promised, but it remains to be seen whether the institutional confusing of this with primary care or the divide between health and social care will be suﬃciently tackled and overcome. Government discourse is in favour of more women working – which mortgage conditions now make less and less avoidable – and greater support of families in their caring role, but it is a challenge to resources and resourcefulness to provide that fast enough. Housing Between 1982 and 2004, couples’ incomes increased threefold (Falzon et al., 2005), salaries doubled (indicating a sharp increase in worked hours), while the price of a terraced house increased ﬁvefold, mostly due to land prices. While originally it cost 8.1 years’ joint income, now it needed 15.5 years’. Flats and maisonettes required half that. Only four out of 19 countries cited by the Economist (2005) exceeded Malta’s 13.2 per cent growth rate (NSO 2005b). Outstanding loans shot up 4.5-fold from 2000 to 2005, rising to 32 per cent of GDP, burdening 15 per cent of households (Central Bank, 2005; see LSE 2005 for international comparisons). The ‘building frenzy’, far outstripping need, with no relenting in price rise to show, marks land as a preferred mode of investment, siphoning oﬀ hard-earned cash into the unproductive speculative economy. As gains from speculation further feed speculation and price rise, they create a black hole with little trickle-down eﬀect, but plenty of shrivel-up consequences on the healthy part of the economy. Though (productive) construction is considered to be the biggest local motor in the vastly open Maltese economy, (non-productive) land is taking the lion’s share of the proﬁts. The media clamour for solutions in two sectors: social housing and rent reform. Social housing is exercised through many valid schemes. Rents frozen by a wartime emergency law at 1939 levels still apply to 10,000 houses, spelling welcome aﬀordability and 351

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intergenerational security of tenure to occupiers, neglect to much housing stock and near-dispossession to owners. A 2008 white paper promises remedies. This twin approach misses a third: regulating the market. State intervention in the market has until recently been limited to capital taxation and environmental laws, often neutral or contrary to aﬀordability. Arguing against a Housing Authority spokesperson that saw price curbing as ‘socialist’ and hurting the investor, Pace (2005) maintained: … problem is: we in Malta see only two alternatives: either socialistic control – where prices are frozen directly in ways that backﬁre on us because they ignore the laws of the market – or a simply unregulated market: a free-for-all where ‘winner takes all’ and no consideration is taken of the public good or of what harms the productive part of our economy. echoing his earlier (Pace 2001): We need not go extreme right wing on the rebound, having burnt our ﬁngers by being too controlling too long. Giving a break to the rental market does not equal or justify cutting the brakes oﬀ the real estate market. Some intervention in line with the above has since taken place. Social housing acquired as from 2005 can no longer be sold on the open market but only resold to the government at its original social price, revised for inﬂation. Capital taxation on sold real estate for the ﬁrst time attempted to distinguish the speculative buyer from the own family use buyer by penalizing short-term reselling (though later revisions of this provision still need to be evaluated). The government has also declared a massive increase in building zones, raising the ire of environmentalists, but justifying it as a way to smooth out curvaceous boundaries that gave many an owner a feeling of being singly excluded. It also signalled the government intention to combat rising prices by putting land on the market, including land ‘inherited’ from the Church. This revision – delayed by EU-level litigation – will be a much-watched test. Which lands go on the market and how it will reﬂect the government’s stance vis-à-vis the three involved interest groups: the big developers, the owner of one or two plots, and the have-nots, will be closely observed. The taxation side of income maintenance In 1997 Malta was, after Cyprus, the most lightly taxed country among the present EU25. Since then, Maltese tax has become the fastest growing among the same group. This has helped lower deﬁcits from 10 per cent to 2.7 per cent. In Malta the overall tax burden, including social security contributions, now stands at 35.1 per cent of GDP, comparable with the average for new member states (33.7 per cent) but substantially lower than the Union average (37.6 per cent) (Eurostat 2005). The increase in taxation has been through a deliberate eﬀort to lower deﬁcits through greater eﬃciency in tax collection, increased VAT from 15 per cent to 18 per cent, taxation of capital accruing from privatizations, as well as through widening the scope of excise taxes as part of harmonization with the EU. Tax evasion at the higher, under-declared income end has received energetic attention, though it is unclear how far it has been reined in. 352

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Malta relies heavily on indirect taxes; within an overall taxation structure that is similar to that in the UK (indirect taxes, direct taxes, social contributions in a rough 2:2:1 ratio) (Eurostat 2005). Within social security contributions, employees contribute somewhat below the European average (Malta 3.1 per cent, EU25 3.5 per cent), while employers contribute less than half the EU25 average (Malta 3.1 per cent, EU25 6.8 per cent) (Tables 19.3 and 19.4). Salary levels Amid this it is interesting to take note of salary levels. The minimum wage is set (2006) at Lm 251 while the average salary is Lm 423. Table 19.5 suggests that the reduction of pay diﬀerentials during the heyday of socialism has stayed more or less until the present or, more correctly, returned. Periodic exercises to increase diﬀerentials are gradually neutralized by an across-the-board ﬂat-rate cost of living increase, which is not popular among private employers. Private pay scales vary more widely.

Table 19.3 Indirect taxes, direct taxes, social contributions, 1998, 2004 (Eurostat)

Indirect taxes Direct taxes Social contributions Total tax

1998

2004

11.8 8.2 6.8 26.1

15.9 12.4 6.9 34.9

Table 19.4 Tax revenue changes as per cent of GDP in 4 countries inﬂuenced by the British system (Eurostat 2005)

Malta Cyprus UK Ireland EU 25

1995

2004

27.6** 26.9* 35.4 33.1 39.7

35.1 34.1 36.0 30.2 39.3

Notes: * Lowest and ** second lowest at the time among EU25

Table 19.5 Comparison between highest and lowest annual salary within the public service

Permanent secretary Labourer Ratio, Perm. Sec./Labourer

1972

1980

1997

1997 in €*

Lm 3060 Lm 512 5.98

Lm 3829 Lm 1164 3.29

Lm 8700 Lm 2500 3.48

€20,270 €5,820 3.48

Sources: for 1972, 1980: (Kaim Caudill 1980; for 1997: Malta Government Estimates) Note: * as pegged since May 2005 at Lm1 = €0.4293 (for comparison only)

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Issues of cash beneﬁts and means testing At 3.1 per cent of GDP, Malta’s means-tested cash beneﬁts are more than twice the EU average. Malta’s non-means-tested cash beneﬁts amount to less than two-thirds of the EU average. The three countries whose cash beneﬁts are proportionately most means tested are respectively Ireland (26 per cent), Malta (20 per cent) and the UK (16 per cent). Social Democratic countries have the lowest proportion, that is 5 per cent, but a notable case is the Netherlands, with a proportion of 11 per cent while being arguably social democratic (is this due to numerous dependent immigrants?). The proportion of means testing is only lightly correlated with lower welfare redistributiveness, the least generous EU countries averaging 9 per cent, the most generous slightly more than 8 per cent. Bismarck is reputed to be more generous than Beveridge, but this seems to be only because Bismarckian countries tend to have higher replacement rates (60 per cent or more) and a longer duration of short-term rates because they rely less on the means test. Once an unemployed Maltese parent of two children moves from low national insurance beneﬁts to means-tested long-term beneﬁts, for example, no drop in income is experienced. Children’s allowances stopped being means tested in 2007, but the resulting lowered percentage of means testing is not yet available (Table 19.6). Pensions and the pensions reform The Malta Council for Economic and Social Development has been created on a rather corporatist model for consultation among government, employees and employers. This includes discussion of the ‘pensions time-bomb’, involving a forecast change in the ratio of contributors to recipients from 4.2:1 to 2:1 between 1994 and 2030. The current scheme had a built-in ceiling that restricted pensionable income to €15,700. As salaries rose and the ceiling remained unchanged, salaries a mere 33 per cent above the average were already being hit by the ceiling. This ﬁxed ceiling would, if unchanged, severely erode the adequacy of pensions by gradually converting an earnings-related pension into a ﬂat-rated one for more and more people, with a tendency towards yielding lower and lower replacement rates for, eventually, everybody. The government has secured in 2007 a reform involving a gradual rise in retirement age to 65, the calculation of the pension emanating from the previously established contributions on a lower basis, and a longer, 40-year, contributing period, against inﬂation prooﬁng of the maximum pension. A second (mandatory) and a third (voluntary) one will be introduced – but only at a later date. The postponement of this unpalatable increase in contributions plus the fact that the unions are not directly involved in its provision and approval was probably what made acceptance in Malta easier than in some Bismarckian countries. Table 19.6 Means-tested proportions among in cash and in kind beneﬁts (Eurostat for 2004)

Cash beneﬁts

All beneﬁts

354

Cash beneﬁts (means-tested)

Beneﬁts in kind

Beneﬁts in kind (means-tested)

EU (25 countries)

Malta

EU (25 countries)

Malta

EU (25 countries)

Malta

EU (25 countries)

Malta

18.1

13.3

1.4

3.1

8.7

5.0

1.4

0.5

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Meanwhile, the stricter link between career-long contributions and what is received curbs abuse by self-employed people. Now the system restricts itself to horizontal redistribution among persons of the same income bracket. It is a sign of the times that, though the government could have opted to manage the second pillar itself as a funded supplement, it intends to look for private provision. Analysis and redistribution issues Indicators of poverty and deprivation Atkinson et al. (2005) report on various indicators of EU poverty. Malta ranks average in purchasing power, and average (thirteenth or fourteenth among the 25) in the number of people at risk of poverty (60 per cent of median income), long-term unemployment and adults living in jobless households. It is the worst performer of all for early school leavers, at the third quartile for youth unemployment (both sexes) and for children in jobless households, at second quartile performer for poverty gap, life expectancy (women) at birth, and a ﬁrst quartile performer for life expectancy (men) at birth. It is the best performer of all for the presence at home of items like television, video recorder, telephone, etc. (Table 19.7). Abela and Tabone (2008), in a study of poor and not-poor mothers with young children, reported poverty to be correlated (at p = or (< 0.05)) with a greater incidence of unhappy marriages, expectation of earlier school leaving, membership of lower streams in school and health problems. There was also, in poor households, however, a high incidence of valuing schooling, helping with children’s homework and studying after school and careful attention to budgeting. Their conclusion was that the dependency theory of poverty, that the poor are poor because they are not self-reliant, does not apply to economically poor Maltese mothers.

Table 19.7 At-risk-of-poverty rates by gender

mt

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– – – – – 15 – – – – 15p 14p

– – – – – 15 – – – – 14p 14p

– – – – – 15 – – – – 16p 14p

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; s Eurostat estimate; p Provisional value

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Still, when asked whether the poor were poor because of social injustice, ill luck, as a consequence of modern progress or ‘laziness or lack of will power’ the Maltese, among new EU members, most frequently (50.6 per cent) chose the last one. Was it out of less tolerance or genuine belief that help was so generous that only the unwilling could remain poor? Overview of the system: calculating the redistributional generosity of the Maltese welfare state Early attempts at comparisons in terms of proportion of GNP spent on welfare have rather conﬁrmed the generosity view, but the data then available were not clearly disaggregated. Anderson (1992) also conﬁrmed the widespread view that Malta was among the higher spenders, relative to its rather low overall GDP. However, his conclusion rested on leaving out the higher spenders from the calculation, and on comparing GDP not with social spending but with the proportion of government spending on welfare. Pace (2002: 62 ﬀ.) could not feature such a calculation, because the National Statistics Oﬃce was then in the process of converting to the ESA (1995) standards, but he attempted to apply Esping-Andersen’s indicators to Maltese welfare. With the indicators for Socialism, Malta came seventh if placed within Esping-Andersen’s list for average beneﬁt inequality. However, on universalism vs means-tested beneﬁts, Malta was the third most liberal, after only the USA and Canada. Malta also scored as second most liberal in private health spending, at 43 per cent. Etatism – the privileging of state employees’ social security – was ambiguous. A second conservative corporatist indicator is plurality of pensions systems. The ‘two-thirds pension’ drove out all other occupational pensions, thereby scoring as least corporatist possible on Esping-Andersen’s indicators (Table 19.8)

Table 19.8 Social protection expenditure

mt

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

433.6 493.4 561.4 593.8 634.3 694.9 746.6 785.5 790.6 826.3 866.6

1170.4 1324.0 1496.1 1572.8 1672.1 1801.2 1899.6 1983.7 1983.6 2059.2 2145.8

15.7 17.1 17.5 17.5 17.3 16.5 17.4 17.5 17.9 18.4 18.3

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007). Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

356

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The conclusion seemed to be that Malta carries clear features of liberalism (on the British model, but also due to relatively low national wealth) even while having a predominantly generous welfare state – ‘leftist wine in rightist bottles’. However, when GDP statistics came back in from the cold, Malta, with a GDP now revised about 30 per cent upwards, turned out to be one of the lowest social spenders (Eurostat): 18.50 per cent compared with the EU25 average of 28 per cent. In fact, Malta was sixth from the bottom, followed only by Slovakia, Ireland and the three Baltic states. Even with respect to a regression line of expected spending plotted against GNP (per capita in purchasing power standards) Malta proved to be spending only 85 per cent of the average for that level of GNP. One must conclude that Malta’s welfare was more a case of right-wing wine in right-wing bottles carrying a left-wing label (of left-of-centre rhetoric). Still, ﬁne-tuned veriﬁcation, such as like-with-like comparison issues where human work is so diﬀerentially priced, is as yet needed. Tackling the ‘overview’ question: what are the salient factors and characteristics in Maltese welfare? Overview of the system: How left? How right? Table 19.9 attempts to summarize left-wing (generally meaning redistributive of power or wealth) or right-wing (the opposite) components. Malta’s social security may have acquired a right-wing character ‘in a ﬁt of absent-mindedness’ – possibly like an anorexic who is driven to thinness out of ‘misinterpreting the mirror’; or simply because bottomheavy tax collection would have overburdened the disproportionately taxed employed. The table highlights the mixed bag that is the Maltese welfare state. Though redistributiveness has clear limits, a general picture of leniency is diﬃcult to escape. Perhaps it is in the sense of leniency that one can today echo Julyan’s (1880) remark that, ‘There is too much charity in Malta’, applying it to scattered under occupied state-employed, upmarket tax evaders, downmarket moonlighters, some highly union-protected job enclaves, cartel-wielders and power-linked land developers. Still, job security, low salary diﬀerences, free hospital health care, (as yet) generous pensions and substantial social care (with massive Church input that calls for quantiﬁcation) undoubtedly do spell high measures of solidarity. Overview of historical model inﬂuences Finally, Table 19.10 highlights the many aspects of dominant European welfare traditions that have inﬂuenced Malta, to make variegation and new mixes much more apparent than ‘pure’ classical models. Components seem to largely relate validly in origin and content to those in classical models, though a plurality of inﬂuences and context speciﬁcities result in novel blends or mixes. The Maltese welfare state helps reﬂect on classical welfare regimes. It would be wrong to attribute to Protestantism the work ethic that inﬂuences far-eastern welfare states because, though similar in content and consequences, they are diﬀerent traditions. However, the inﬂuences we have cited on the Maltese welfare state – socialist, Christian democratic, British structures, etc. – do belong to the same movements that inﬂuenced western capitalist states. Is the Maltese welfare state a hybrid, then? What of? It certainly is a diﬀerent mix largely from the same menu of component inﬂuences (see Pace 2002). But do components 357

Social security except pensions Pensions Government job tenure protection Left wing 1939 rent laws Very left wing Housing market Hospital health Outpatient and primary care health Education selectivity Free vs paid education Regulation where government is directly concerned Low pay diﬀerentials Regulation where government is not directly concerned Anti-fraud in social security, contracts, etc. Encouragement of investment

Left

Left of centre Left of centre Left of centre

Left of centre

Left of centre

Table 19.9 What is (broadly) right wing, what is left wing, in the Maltese welfare state?

Right of centre to liberal

Mildly right wing Mildly right wing

Rather laissez-faire Rather laissez-faire

Laissez-faire

Rather right wing

Right !

Class conservatism Important church role in welfare Sporadic citing of subsidiarity principle Pre-1979-engaged civil servants’ superior pensions Social Security privileges the male-breadwinner family; this is changing

Great protectiveness towards jobs

Christian democrats – Nationalist Catholic social teaching; ‘charity’, subsidiarity; good working conditions An statist inﬂuence? Local family tradition under various inﬂuences

A history of stability; tradition of protectiveness, even dependency, family-breadwinner orientedness British welfare state Labour, socialist and left-of-centre beliefs

Widespread but not universal long hours of work

Traditional middle class and continuing self-employed opposition to taxation and much tax evasion ‘laissez-faire Malta style’ Local family tradition on female role under various inﬂuences

Knights paternalism, richness and tradition of generosity Catholic support of ‘helping the weak’ British pensions system reformed under Labour Party Socialist government

Means-test use (but not so humiliating, as in a Liberal environment) Beveridgian basic structure for ﬁnancing of health and social security

British welfare state

> > > > ;

9 > > > > =

> > ;

9 > > =

Industrial competitiveness needs, widespread single male breadwinner, relatively expensive imports in an unusually open economy, rocketing house prices

Low provision of child care; low proportion of women employed

Tax evasion and inconsistent ‘excesses of generosity’; networked power elite and patronage system

;

9 =

> > ;

9 > > =

9 > > > > > > Health: rather low expense, but high equity re hospital service > > > > = Belief in equality, generous welfare state, interventionist government, low pay diﬀerentials > > > High expectations of help > > > > > > > A single government pensions system predominates ;

System outputs: characteristics of Maltese welfare state

Historical inputs: sources of historical and cultural inﬂuence

Distinctive local realities?

‘Southern European model’

Both Conservative Corporatist and Socialist Socialist

Conservative Corporatist ‘Catholic corporatist’?

Liberal

Which welfare model they seem related to

Table 19.10 Element of ‘The History’ and related elements of ‘The System’ – inputs and outputs in the Maltese welfare state as apparently linked to standard ‘welfare regimes’

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coalesce into regimes because of particular inter-component coherence, or do regimes simply refer to incoherent mixes nominastically, perhaps ethnocentrically, so labelled because they happen to be commoner near home? Most interestingly, broad similarity between Cyprus, Ireland, Malta and the UK has emerged. Still, in fact, no full-blown welfare regime ever landed on Malta, but many a component genuinely did. This makes Malta an authentic hybrid of inputs or components, but very inaccurately a hybrid of regimes.

Outlook and the way forward Dominant discourse likes to aﬃrm that ‘the free market is best’, but there is in all places a plethora of regulation in force, some to make the market more competitive, some to ‘make the country stronger’, some for the common good, some to protect power elites. These are unfortunately often diﬀerentially cited to us in much double-speak and many a sleight of hand to distract us from seeing the rampant over-generalizations. Politically weaker countries and people need to be vigilant in monitoring the eﬀect of the internal market on job market destabilization, the brain drain, land grabs (speculating on land where it is cheaper, making it unaﬀordable to locals), and similar inﬂationary or potentially exploitative practices. The Maltese common good, for example, requires land to be considered a strategic asset to protect from the short-term and narrow interest of power elites (see Pace 2001, 2005) that ignore threats to the birth rate, consumer spending, aﬀordability of living in one’s country and the quality of life of loan-hit couples. Land is as strategic to Malta as oil, airports and armaments are to most countries. Strategic sustainability indicators must be deﬁned and well guarded. Freedom of the market that makes Malta competitive and has a trickle-down eﬀect is good. But any freedom in the market that results in a shrivel-up eﬀect instead must be discerned and curbed. Regulators have now a crucial role. To many in Malta the move into the EU has meant a simple end to any control on pricing and market practices. Bank shareholders have insisted that bank proﬁts are their sole property, medical consultants have retorted in newspapers that they are entitled to charge any price like tradesmen, government spokespersons have defended a laissez-faire approach to house pricing as the only alternative to direct socialist controls. The Central Bank’s governor recently complained that the extension of mortgages by banks from 25 to 40 years may have facilitated the further raising of prices – but the Malta Financial Services Authority reported back that it saw no harm since Maltese couples have always paid up. Regulators did speak up on an issue that threatened the (then) state-owned telecom, or when football fans were going to be deprived of viewing the World Cup ﬁnals. But there are signs that the state is waking up to the need of regulation in many areas where the small Maltese market is threatened by abuse of dominance. Recent dialogue with the importers of pharmaceuticals creates the opportunity of a new paradigm of partnership and transparency. Government rhetoric has promised a more proactive stance in the control of oligopolistic pricing, putting the latter at least on a pre-election agenda. The values underpinning regulation constitute one of the most important current tests of governments, which will determine, everywhere but more so in Malta, how far power elites or the common good will rule, amid the shift to a more globalized world and a Europe liberalized with insuﬃcient discernment. 360

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While the government is pursuing a freer and more competitive economy with a largely continuing generous welfare state, and making uneven headway in the curbing of abusers, free-riders and oligarchs, safeguarding the future requires not only vigilant and deft day-to-day policy making but also a constant critical review of models held locally and supranationally.

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LSE (2005) The Costs and Beneﬁts of Integration of EU Mortgage Markets, Report for European Commission, DG Internal Market and Services, by London School of Economics. August 2005. Malta Government (2004) Pensions, Adequate and Sustainable, White Paper, Malta: Nov 2004 (see www. pensions.gov.mt). —— (2005) A Better Quality Of Life: 2006–2010 Pre-Budget Document (see www.gov.mt). NSO (2005a) News Release National Statistics Oﬃce Library & Information Unit: International Women’s Day. 8 March 2005 (see www.nso.gov.mt). —— (2005b) News Release National Statistics Oﬃce Library & Information Unit: Property Prices Index, 18 May 2005 (see www.nso.gov.mt). Pace, C. (1983) Behind the Tourist Curtain. Social Work Today 29 November 1983. —— (1997) ‘Of Stipends and Welfare: The Means Test, the Mean Twist and the Main Twit’, The Times (Malta) 29 October 1997. —— (2001) ‘What a Future for Malta!’, Sunday Times (Malta), 13 May 2001. —— (2002) Remodelling Service for New Context – A Response to Community Mental Health Need in Malta, Unpublished PhD Thesis. University of Leicester, Faculty of Social Studies. —— (2005) ‘Property Prices: Do we want to do something about them?’, The Times (Malta) 14 June 2005. Pinker, R. (1971) Social Theory and Social Policy, London: Heinemann. Pirotta, G. (1995) The Maltese Civil Service 1800–1940, Malta: Mireva. Pirotta, J. (1987, 1991, 2000) Fortress Colony: The Final Act 1945–1964, Vols 1, 2 and 3 respectively, Malta: MAS, Studia Editions. Savona-Ventura, C (1997) Outlines of Maltese Medical History, Malta: Midsea Books. Schiavone, M. J. (1991) B’Imhabba u b’Solidarjeta’ – il-Politika Socjali tal-Partit Nazzjonalista 1921–1991, Malta: Stamperija Indipendenza. Walker, R. (1988) ‘The Financial Resources of the Elderly’, in Baldwin et al. (ed.) (1988). World Health Organisation (2000) The World Health Report 2000 – Health Systems: Improving Performance, WHO (www.who.int/whr/2000/en/press_release.htm). Zahra, C. (2005) Maltese property market ‘can be a managed market’, Malta Independent on Sunday, 11 September 2005. Zammit-Marmara, D. (2001) ‘The Ideological Struggle over Comprehensive Education in Malta’, in R. G. Sultana (ed.) Yesterday’s Schools: Reading in Maltese Educational History, Malta: PEG.

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nl The Dutch welfare system From collective solidarity towards individual responsibility Wim van Oorschot

Introduction: the development of the Dutch welfare system in historical perspective The start of the modern Dutch welfare system is usually given as 1874, with the implementation of a law forbidding labour by children less than 12 years of age (Kinderwetje van Van Houten). National surveys at the end of the nineteenth century had shown the dire situation of large parts of the population to its full extent. The ‘social question’ concerning large-scale poverty and misery among the working population was much debated in parliament, but it was not before 1901 that the ﬁrst social insurance scheme, the law on work injury beneﬁts, was introduced. After this ﬁrst step and up till the Second World War, further national schemes were introduced, also covering invalidity, including old age, and sickness. Typical for that time, the idea was that the government should intervene as little as possible. Instead of tax-based national schemes (like an old age pension for all), a programme of mandatory, contributory social insurances was introduced. In the pre-war period all schemes were conﬁned to waged workers, based on the principle of the ‘just wage’, which legitimized insurance contributions as part of the normal wage cost. The pre-war schemes were organized at the level of individual (large) companies or separate sectors of industry, as a result of which the welfare system as a whole was patchy and had a limited degree of collectiveness. It also had a limited degree of redistributive solidarity, since the schemes closely followed the logic of private insurance. Generally, beneﬁts were low and in many cases did not reach subsistence level. Large state contributions to the social insurance funds were often necessary to guarantee a certain beneﬁt level, and there were still many claims for poor law support. Cases not eligible for this support had to rely on churches and charities. After the Second World War the Dutch welfare system expanded rapidly. Inspired by the inadequacies of the pre-war system, hope for a new and better society and, not least, Beveridge’s reports, the Van Rhijn Commission presented its blueprint for a new system in 1945. The legitimizing principle for social protection was broadened from the ‘just 363

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wage’ to the idea that ‘society, organized in the state, is liable for the social security and protection against want of all its members, on the condition, that citizens themselves do all that can be reasonably expected in order to acquire such security and protection’ (Van Rhijn, 1945). This principle opened the door for a system that included all citizens, not just waged workers. In the years after the Van Rhijn report a number of so-called ‘people’s insurances’ were introduced by the state, which covered old age, death (survivors) and disability for all citizens. These schemes were highly collective, that is designed and controlled by the state, and highly solidaristic, because bad risks were not excluded and contributions were proportional to income instead of to risk. The new principle also gave way to the construction of a national safety net, or social assistance scheme, which replaced the inadequate poor law and created a national vertical solidarity between richer and poorer people. With respect to workers’ insurances, the new principle broadened the responsibility of the state, leading to a national unemployment insurance scheme for waged workers, as well as to a collectivization and ‘solidarization’ of schemes covering the risks of work injury, invalidity and sickness. The new schemes and regulations mostly took eﬀect in the 1950s and 1960s. They created large-scale horizontal, as well as vertical solidarity in the Dutch welfare system, thus connecting diﬀerent generations, professional groups and social classes. The process of collectivization and solidarization got a strong boost in the 1960s when Veldkamp, Minister of Social Aﬀairs formulated a new and broader legitimizing principle for social protection, holding that ‘every citizen has a right to self-realization and to equality of chances’. It stressed the general, societal character of social risks and the mutual responsibility citizens therefore have for each other’s life chances. It regarded the right to social protection as universal and unconditional, and thus lacked the element of reciprocity, which formed the basis of Van Rhijn’s legitimizing principle. Alongside income beneﬁts, the post-war years saw the introduction of a national health insurance for people on lower income, national school and study allowances, housing beneﬁts for tenants and tax credits for home-owners, etc. However, with the oil price-induced economic crisis of the late 1970s to early 1980s the period of expansion, collectivization and solidarization of the Dutch welfare system came to an end. Since then the history of it can be characterized as one of retrenchment and of adaptation to a series of challenges, the most important of which are high inactivity rates, changes in male and female role patterns, and population ageing, this all in a context of Europeanization and globalization. The emphasis in social protection policies shifted from welfare to work. Income beneﬁts were reduced substantially, while labour market insertion measures and work care reconciliation arrangements were extended. While initially, in the 1980s, policies were mostly aimed at curtailing beneﬁts for citizens and workers, the focus was directed also to employers and administrative bodies in the 1990s. This will all be discussed in more detail later on, but here it is important to note that gradually a new concept of social protection developed, based on a fundamental critique of the model of collective solidarity. After the economic situation had improved from the mid-1980s onwards, there were no longer purely budgetary and economic reasons that legitimized changes in the welfare system, but a wish to entirely change its nature. The main objection against the model regards the moral hazard that is connected to it. That is, the national and collective nature of the system is assumed to undermine feelings of responsibility and to promote calculative behaviour among all actors involved, be it citizens, workers, employers, unions or administrative bodies. Since the collectivity foots the bill, none of the actors has an incentive to limit the system’s use. Based on this diagnosis, 364

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the Dutch government has tried to redirect responsibilities, and now emphasizes that personal responsibility, of all actors, is the ﬁrst priority. This has resulted in various policy measures, such as introducing risk diﬀerentiation, activation, privatization and decentralization. While in the period after the war Van Rhijn’s reciprocity principle was one-sidedly implemented by focusing on government’s duty to take care of its citizens, at present, the ﬂip side of citizen’s responsibility is stressed most. This means that the developments in the Netherlands have a clear leitmotif of a shift from collective to individual responsibility.

Status quo: the present Dutch welfare system The present Dutch welfare system is characterized, ﬁrst, by its comprehensiveness. As in other highly developed European welfare states the government intervenes substantially in nearly all aspects of citizen’s wants, needs and well-being. The main ﬁelds of social policies are health, housing, work and income, while the ﬁeld of education policy is usually seen as separate from this. Table 20.1 shows that of the social policy ﬁelds, as in many European welfare states, old age pensions and health-related spending are the most important areas. With regard to health, the government has organized an all-embracing system of (semi-) public and private health care, with mandatory private health insurance for all. Dutch housing policy is characterized by providing a large stock of ‘social housing’, and by housing allowances for tenants, with tax deductibility of mortgage rent for home-owners. All these ﬁelds have been under reconstruction in the last decades. From a social welfare perspective important changes occurred, for example the inclusion of higher income classes in the national mandatory health insurance scheme in 2006, and a series of limitations of housing beneﬁt. We will not elaborate on health and housing issues here, owing to space restrictions. (For a detailed discussion and evaluation of Dutch health care reforms see Douven et al., 2008; for details on Dutch housing policy reforms see Boelhouwer, 2002.) We will concentrate instead in the next section on the areas of work and income, which generally are seen as the core elements of the welfare system. A high degree of corporatism is the second main character of the Dutch welfare system. That is, in all major socio-economic policy areas the government consults social

Table 20.1 Social protection beneﬁts as a percentage* (2005)

nl Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 93.2p 4.6p 5.5p 1.2p 4.5p 38.0p 39.4p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

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partners, who meet in the Foundation of Labour (Stichting van de Arbeid) and in the Socio-economic Council (Sociaal Economische Raad). Such consultation is highly institutionalized and prescribed in the standard process of social policy making. Where in other countries, such as in Germany, corporatist policy making seems to inhibit drastic changes, in the Netherlands agreements between government and social partners (although not always easily reached) have guaranteed a rather ﬂexible adaptation of the Dutch welfare system. An example is the Agreement of Wassenaar in 1982, when social partners and government agreed on wage moderation and stimulation of part-time work in order to ﬁght unemployment and increase overall employment. The agreement allegedly contributed signiﬁcantly to the so-called Dutch job miracle of the 1990s (see Visser and Hemerijck, 1997). Another aspect of Dutch corporatism is that some areas of social welfare are mostly left to collective labour agreement between the social partners in sectors of industry, such as issues of ﬂexible and part-time work, leaving schemes for worker–carers, top-ups of disability beneﬁt levels, early-retirement arrangements, etc. Typical in this respect is that a majority of over 80 per cent of Dutch workers take part in mandatory, capital-funded, occupational pension schemes, which pay out earnings-related pensions. Because of this, the Netherlands is second after the USA on the list of countries with large degrees of private spending on pensions (Adema and Ladaique, 2005). Social partners used to be heavily involved in welfare administration, especially regarding workers insurance schemes and employment services. This, however, was abolished in recent years, as part of the government’s actions to create an incentive structure less vulnerable to moral hazard. Despite its strong corporatist character, the Dutch welfare system is generally considered to be a ‘hybrid’ between the Esping-Andersen types of conservative/corporatist and social-democratic welfare regimes. This is because its social security system not only contains Bismarckian-type social insurances for workers, but also universal, so-called people’s insurances that cover all citizens. Fiscal welfare plays a relatively small role in the Dutch system of social welfare. There are tax provisions for working people, especially for those who have children, and there are tax provisions for pensioners. The government also facilitated early pension schemes by rendering premiums as tax deductible, but with a view on increasing the labour market participation of older workers, this has been abolished. Welfare society institutions, like charities, churches and claimants’ movements, also play a very marginal role in the Dutch system. A brief description of income and work arrangements In our description of welfare arrangements we will focus on those areas that have been central to the welfare adaptation process of the past two decades. These concern social security beneﬁts, labour market policies and work–care reconciliation. To fully understand the present situation one cannot do without reference to the immediate past, because many of the arrangements have been changed substantially. This is partly reﬂected in Table 20.2, which shows that the Netherlands had an above-average level of social spending compared with other European countries, but at present its spending is level with the European average. A more detailed discussion of policy developments will show that the Dutch welfare system is one where retrenchment and adaptation have gone beyond rhetoric. Basically the Dutch public social security system contains three types of scheme. First, there are the universal, so-called people’s insurances, covering the demographic risks of old age (AOW), survivor pension (Anw) and child beneﬁt (AKW). These national insurances 366

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Table 20.2 Social protection expenditure

nl

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

98010.2 97565.9 97758.0 100040.8 104585.8 110259.0 118610.0 128258.0 134790.0 139214.0 143445.0p

6340.0 6282.2 6262.3 6369.1 6614.3 6923.4 7391.8 7942.2 8307.4 8550.3 8789.6p

30.6 29.6 28.7 27.8 27.1 26.4 26.5 27.6 28.3 28.3 28.2p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro ** in euro

are compulsory, contributory schemes covering all citizens. Waged workers and selfemployed people pay contributions, which are set percentages of income and function as earmarked taxes. Child beneﬁts are a ﬂat-rate, old-age pensions are a ﬂat-rate with a small means-tested component, while survivor pension is fully means-tested. The Dutch people’s insurances are administered by the Social Insurance Bank (Sociale Verzekeringsbank, SVB), which is a semi-public administrative body with an independent board of experts and controlled by the Ministry of Social Aﬀairs. Second, there are the so-called workers’ insurances, covering unemployment (WW), and long-term disablement (WAO). Short-term disablement, or sickness insurance, was part of the worker’s insurances but was privatized in 1997 (see later). Workers’ insurance schemes are compulsory, contributory and cover all those working under a labour contract. Contributions are paid as a percentage of wages, while beneﬁts are partly wage related and partly ﬂat rate depending on the claimant’s age and work record. Worker’s insurances are administered by the Administrative Body for Worker’s Insurances (Uitvoeringsorgaan Werknemersverzekeringen, UWV), which is a public body in the Ministry of Social Aﬀairs. Third, there is the safety net of social assistance (WWB), which is available for all citizens who have little or no income from work or other beneﬁts. Social assistance is non-contributory and paid from general taxation. It is means-tested, with tests on assets and incomes of claimants and their partners. Beneﬁts are subsistence level, which equals the level of the minimum wage. Dutch municipalities administer social assistance. As a rule, Dutch ﬂat-rate income beneﬁts (like, for example, the national pension AOW) pay 100 per cent of the minimum wage level to couples (married or unmarried), 70 per cent to single people, and 90 per cent to single parents with children below 18 years of age. Means-tested beneﬁts (like social assistance) top up people’s incomes at most to these same levels. The earnings-related part of worker insurance beneﬁts (like unemployment and disability insurance) pays 70 per cent of previous gross wages, with a (relatively high) ceiling. 367

W . V AN O O RS C H O T

People’s insurances In the process of adaptation the initially universal people’s insurances have become more selective, as well as more complex. Implementing equal rights for men and women, induced by the third EU Directive on Equal Treatment, under conditions of a ﬁscal crisis, has meant the introduction of means tests in old age and survivor pension schemes. Child beneﬁt is still not means-tested, but now oﬀers less protection, especially for larger families. Survivor pension Anw The reconstruction of the survivor pension insurance was implemented in 1996. The former scheme, dating back to the 1950s and based on the male-breadwinner model, only covered widowhood (not widowers) and married couples. Under the new Anw, men and unmarried couples are entitled to receive beneﬁts, but the population covered by the scheme was otherwise drastically limited. Most important is that only those people who were born before 1950 are entitled now, or have children under 18, or are disabled. Younger survivors are supposed to work and have an income. Furthermore, an income test was introduced, both for cutting back on expenditure as well as to account for the fact that widowhood no longer automatically implies need. With its means test and sharp limitations of the entitled population, the Anw deviates strongly from the traditional Dutch idea of a people’s insurance, which was based on universality and was not means tested. Old age The male breadwinner-based old age pension scheme AOW of 1957 was adapted in the 1980s. First, it was ‘individualized’, which means that partners now each have a right to 50 per cent of the full beneﬁt (instead of 100 per cent for the male partner), married and unmarried couples are now treated equally, and a means test was introduced for cases in which the partner is younger than 65. In such cases the older partner receives 70 per cent of the full beneﬁt, while an additional top-up of 30 per cent depends on the younger partner’s income from labour. In the context of population ageing the AOW scheme is still an object of debate. There are various proposals for its further adaptation, among which increasing taxes paid by pensioners with additional income seems to have the highest chance of being implemented in the near future. Compared with other European countries the pension time bomb is a less serious problem in the Netherlands, because of the substantial coverage and relatively generous beneﬁts of second-pillar occupational, capital-funded pension schemes. Child beneﬁt The child beneﬁt scheme AKW of 1963 has been repeatedly adjusted in various ways. The overall trend has been a reduction of the number of children for which beneﬁts are paid and a reduction of beneﬁt levels, both aimed at a decrease in beneﬁt expenditure. For instance, in 1986 child beneﬁt for children between 18 and 27 years of age was abolished, and beneﬁts for younger (less costly) children have been reduced. As a result, the social protection, particularly of larger families, has diminished quite substantially. Larger families with low income are strongly over-represented in Dutch poverty ﬁgures. 368

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Workers’ insurances In 1985, soon after the economic crisis of the 1980s had reached its deﬁnite peak, the beneﬁt levels of all workers’ insurance schemes (unemployment, disability, sickness) were reduced from 80 per cent of previous earnings to 70 per cent. Since then further measures were taken. Unemployment In 1987 the unemployment insurance scheme of 1949 was replaced by a new law, which introduced more stringent work record requirements as a criterion for assessing entitlement to, and duration of, the beneﬁt. Under the new scheme, entitlement required that one had worked at least 26 weeks in the previous 52 weeks, and the wage-related beneﬁt lasted only six months on principle. This half-year period of the wage-related beneﬁt could be extended as a function of work history, i.e. if people had worked for at least three years in the last ﬁve years. After termination of the wage-related beneﬁt unemployed people became entitled to a ‘follow-up beneﬁt’, which was a non means-tested ﬂat rate beneﬁt of 70 per cent of the minimum wage for one year. Once this had expired, people had to claim means-tested social assistance. Eventually then, all long-term unemployed people end up on social assistance. In 1995, when unemployment ﬁgures had increased again, work history criteria were made stricter. For the short-term beneﬁt one has to have worked 26 out of 39 weeks, and for an extended wage-related beneﬁt one now also has to have worked four out of ﬁve years. The extended period depends on age and is maximally ﬁve years. In 2003 the follow-up beneﬁt was abolished. Because of the revisions, adequate income protection in case of unemployment became more strictly limited to workers with more regular and longer lasting labour market ties. Other groups experience more diﬃculty in being entitled to a wage-related beneﬁt, especially young people, people with ﬂexible labour contracts and people with repeated spells of unemployment. They will have to rely on social assistance instead. Disability In the years of recession in the 1980s the Dutch disability insurance scheme of 1967 (WAO for employees, AAW for self-employed) proved to be too easily accessible and too generous (compared, for example, to unemployment insurance beneﬁt). Employers and employees used it as an attractive route to ﬁre (older) workers, or to exit the labour market on good conditions. From the 1980s onwards various governments have tried to control and limit the inﬂow into the scheme (for details see Van Oorschot and Boos, 2001). In a ﬁrst attempt, aimed at making the beneﬁt less accessible and attractive for employees, replacement rates were lowered from 80 per cent to 70 per cent, partial disabled workers were no longer granted full beneﬁts to compensate for their reduced labour market chances, and stricter assessment rules were implemented. The latter measure was accompanied with a reassessment of all claimants under 50 years of age, as a result of which about a quarter of them lost their disability beneﬁt. Such reassessment of younger claimants was repeated in 1993 and in 2004, with comparable results. The duration and level of beneﬁt was made dependent upon age, reducing attractiveness further. In a second stage, in the 1990s, a number of incentives were introduced aimed at employers. They could get a bonus when employing disabled workers and a ﬁne when 369

W . V AN O O RS C H O T

they ﬁred them, and insurance premiums were partly linked to the number of disabled workers that companies employed. All measures had no substantial eﬀect on the inﬂow in the disability scheme, because the increased labour participation of Dutch women and the ageing of the work force compensated for them. However, with the so-called ‘Gatekeeper Act’ (Wet Verbetering Poortwachter) of 2002 disability ﬁgures started to decline substantially. The essence of this act is that workers with health problems can only enter the disability scheme if in the period of sick pay they and their employers have evidently tried to prevent such access as best as possible. The decline in claimant inﬂow is no reason for the present government to leave the scheme as it is. As from 2006 the WAO scheme will be replaced by the WIA, a scheme that emphasizes the work capacities instead of incapacities of workers with health problems. Its most important features are that workers with less than 35 per cent incapacity will not be entitled to disability beneﬁt, while only those with incapacity of 80 per cent or over are entitled to a wagerelated disability beneﬁt. Those in between have the primary duty, together with their employer, to ﬁnd and accept an appropriate job in or outside the company. If they succeed, the WIA scheme pays 70 per cent of the diﬀerence between the old and the, often lower, new wage. If they do not succeed, the worker may receive a partial disability beneﬁt, on the condition, however, that both parties evidently have done their best to ﬁnd suitable work. In the process of adaptation the AAW, the national disability insurance for self-employed people, has been abolished, leaving the self-employed to insure their risk privately. Sickness With regard to short-term disability beneﬁts, or sickness pay, the adaptation measures taken have been drastic. In a series of steps, the public sickness insurance scheme (Ziektewet, ZW), oﬀering 70 per cent of the wage, has been nearly fully privatized. The ZW still exists for small categories of workers, including pregnant women, (partially) disabled workers, people on temporary contracts and apprentices. For the majority of over 85 per cent of Dutch workers, however, it has been replaced by the employer’s duty to continue to pay wages during sickness leave. Employers now either pay wages for sick employees directly, or, as most of them have done, reinsure the risk with private insurance companies. Reducing sickness absenteeism is now in the employer’s interest. The duration of this privatized sick pay was one year, but has been extended to two years, in order to prevent access to long-term disability beneﬁt (WAO) further. In the ﬁrst year employers may top up the statutory beneﬁt level of 70 per cent to 100 per cent of the wage, but this is not allowed in the second year in order to make sick pay less attractive. Social assistance The social assistance scheme ABW, which took eﬀect in 1965 introduced state-ﬁnanced minimum income protection to the Dutch social security system. Because it functions as a last safety net ABW is means-tested. In 1996, the beneﬁt was adapted. First, the system of beneﬁt rates was simpliﬁed into only three rates: 50 per cent of the level of the minimum wage for single people, 70 per cent for single parents and 100 per cent for couples. Single people and single parents can apply for a 20 per cent supplement, in which case they have to prove that the basic rate is too low for their speciﬁc circumstances. People younger than 21 can only claim in exceptional cases. Second, to be able 370

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to ﬁne-tune beneﬁts to local and personal circumstances, the administrating municipalities have to design and implement a policy for assistance supplements, laying down the rules under which beneﬁciaries can claim supplements to their basic beneﬁt, subsidies for training and education, costs related to part-time work, special needs costs, etc. Third, beneﬁciaries have to be ‘activated’ to participate in the labour market. This policy has been implemented in diﬀerent ways: the standard of ‘suitable work’ has been broadened, implying that clients are expected to accept jobs below their educational level and former job level; for each client with a reasonable chance on the labour market the administration has to design and implement an individual plan for (re-)insertion. This activation trend in the assistance scheme culminated in the new Act on Work and Assistance (WWB), which replaced ABW in 2004. Now municipalities carry the full cost of the beneﬁts, giving them a strong incentive to ‘activate’ claimants eﬀectively, and no exceptions to jobseeking obligations are made anymore for client groups like single parents and older unemployed people. In short, the revision of social assistance has led to a higher municipal responsibility and discretion, as well as to a higher emphasis on getting people (back) into jobs. Labour market policies The steep increase in unemployment at the beginning of the 1980s ushered in a period in which labour market policies became part of the central focus points of the Dutch welfare system. As in many other European countries a shift ‘from welfare to work’ set in. Initially, the high levels of unemployment and the need to cut back on beneﬁt expenditure urged for stimulating the (re-)employment of various groups of jobseekers. At present, with lower unemployment levels, active labour market measures are still needed with a view on population ageing, which in the near future demands an adequately productive labour force, as well as with a view on the labour integration of young unemployed people, older workers and ethnic minorities. The types and numbers of measures Dutch governments have taken in the course of the last two decades are so numerous that it is not possible here to discuss them in detail. The main lines, however, can be sketched, with a distinction being made between macrooriented and micro-oriented policies. Macro-level participation policies aim at creating favourable wider economic, social and institutional conditions for labour participation, while micro policies try to inﬂuence the qualiﬁcations, behaviour and choices of individual actors, be it employers or employees. Among the macro-level policies two stand out for their longer term impact on the Dutch labour market and labour costs: wage moderation and part-time work policies. In the beginning of the 1980s, curtailing wage costs was regarded as the prime eﬀective instrument for stimulating employment. In addition to beneﬁt cutbacks, which resulted in lower contributions and thus in lower wage costs, the main emphasis was put on wage moderation. Under the government’s threat of a national ‘wage stop’, social partners agreed in 1982 on moderating wage increases, which would allow the proﬁtability of industries to recover, with a reduction in working hours, in return for the unions cooperation. This so-called Wassenaar Agreement had no immediate eﬀect on unemployment, but it gave the Dutch economy and labour market a head start from the moment the global economy started to improve in the mid-1980s. In 1992 and 1993 again wage moderation agreements were made between government and social partners. In the eyes of successive Dutch governments, part-time work contributes to several policy goals at once: improving the labour market participation of 371

W . V AN O O RS C H O T

women, thus contributing to their emancipation and economic self-suﬃciency; keeping older employees at work; contributing to a more equal division of paid and unpaid work; and reducing unemployment. Therefore, several governments have actively stimulated the growth of part-time work since the end of the 1970s. With some success, because at present the Dutch labour market shows the highest part-time work rates in Europe, among male as well as among female workers. In the early 1980s, the government paid subsidies to employers and employees for innovatory cases of part-time work. In the 1982 Wassenaar Agreement, social partners also agreed to stimulate the redistribution of work, among other things by means of part-time work. In the mid-1980s, the government subsidized employers’ initiatives for introducing both part-time work and working-time reduction in their ﬁrms on a larger scale. In the same period, working hours and wage level thresholds were removed from social insurances. In 1993, all parttime workers gained a right to the (proportional) legal minimum wage and holiday pay, and from 1994 occupational pension funds could no longer exclude part-time workers. In 1996, the equal treatment of part-time and full-time workers was codiﬁed in the civil code and in labour law, implying that from then on part-timers had equal rights in collective labour agreements concerning, for example, wage levels, wage supplements, reimbursement of expenses, bonuses, occupational social security and pension schemes and training facilities. Wage moderation and part-time work, however, were not suﬃcient to create employment for all jobseekers. In the 1980s and 1990s there were still large segments of younger and older unemployed people, (partial) disabled workers, unemployed people from ethnic minorities and jobseeking housewives. To stimulate the employment of such various groups a plethora of micro-level labour market policies have been applied. Some measures aimed at improving the ‘attractiveness’ of the unemployed for employers, for example by improving their skills and qualiﬁcations, or by subsidizing wage costs directly or indirectly through the tax system. Other measures aimed at stimulating the unemployed to search for and accept jobs, for example through personal ‘reorientation’ interviews, a system of bonuses and penalties, lower beneﬁt levels and extra tax deductions for those in work. And a third type of measure was to create additional labour for speciﬁc categories, such as long-term unemployed people (e.g. through ‘jobpools’) and young unemployed people (e.g. through the Youth Work Guarantee Scheme, JWG). With these measures the activation of beneﬁciaries and social security entitlements became more closely interlinked, and in the mid-1990s work came to be seen as a better means of social protection than beneﬁts. This ‘welfare to work’ perspective is very much a characteristic of the present Dutch welfare state. The eﬀectiveness of the micro-oriented policies is subject to debate. Various evaluation studies are quite critical where they point to ‘creaming-oﬀ’ practices by work reinsertion institutions; to the fact that few people on subsidized additional jobs ﬂow into regular paid work; to the substitution eﬀects of subsidized work; and to the fact that the measures do not succeed in creating equal labour market chances for traditionally vulnerable groups such as younger and older unemployed people, people from ethnic minorities and single parents. In the case of (partially) disabled workers, the conclusion that measures taken are ineﬀective and even counter-productive can be drawn without much reserve. The privatization of sickness beneﬁts and premium diﬀerentiation in the disability insurance scheme have created a remarkable tension between the intended activation impact of these measures and their actual eﬀects, as the incentives for employers are set so that they proﬁt from having a workforce with minimal disability and sickness risk. 372

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Work and care reconciliation With the increasing labour market participation of Dutch women in the 1990s the Dutch welfare system has expanded in the area of facilitating citizens to combine work and care tasks. In 1994 the government adopted a ‘combination’ scenario as its aim for future policies. This scenario describes a situation in which each partner works for 30–35 hours a week (and thereby gains economic self-suﬃciency and independence) and carry out caring tasks for 20–25 hours a week. The government aims to achieve this situation by 2010. At present, it is doubtful that the scenario will materialize: most working women have smaller part-time jobs, especially those with children, and there is no substantive trend among men to participate more in caring for children. Nevertheless, the government has supported the development of child care facilities, and it recently introduced a broader framework Act on Work and Care, which combines several existing and new measures. The Dutch government encouraged the development of public child care facilities in the early 1990s by providing subsidies to municipalities, who are responsible for creating public child care places. In 1995 the government also introduced a tax deduction for parents and employers who make use of or create child care places, and recently the government allocated further subsidies to Dutch municipalities in order to increase the number of available day-care places. In 1999 the government expanded a scheme subsidizing child care for single parents who are looking for a job, have started working or are training to improve their labour market position. These stimulation measures have increased the number of day-care places considerably. Availability of after-school care for older children, however, is still very limited with less than 1 per cent of children using this kind of care. All in all, the Netherlands has been relatively late in introducing and promoting public child care facilities and at present there is still a serious lack. The 2001 Work and Care Act (WAZO) is the centrepiece of the government’s aims concerning the joint scenario. It combines existing and newly introduced measures. In the preamble to the proposal, the government clearly states that the reconciliation of work and care is a shared responsibility of government, social partners and individuals, which emphasizes that most of the measures do not aim to enforce, but to facilitate, matters. As a consequence, much room is left for employers and employees, and collective labour agreements now are important instruments for the extension of standard national arrangements. The existing measures that are incorporated into the new law were mostly introduced in the 1990s and include a part-time leave arrangement for parents of young children, a limited career break scheme, and a measure which gives employees the legal right to adapt their working hours, upwardly or downwardly. Evaluation studies have shown that the take-up of the parental leave scheme is low, especially among men, as well as among women who work in sectors where collective labour agreements do not provide them with (partial) wage payment during the leave. The Work and Care Act also added new measures, such as the legal formalization of maternity and emergency leave (both of which were granted in practice by collective labour agreements), short-term care leave and a leave savings plan. Recently, the government introduced a personal leave savings scheme (Levensloopregeling), which allows workers to save, tax-free, up to 12 per cent of their annual wage per year. The savings can be used to ﬁnance care leave, educational leave and/or early pension leave. In a nutshell, the present-day Dutch welfare system can be characterized as comprehensive, combining corporatist and universalist features, increasingly focusing on work, 373

W . V AN O O RS C H O T

activation and individual responsibility, with less emphasis on income protection and collective solidarity. An interesting empirical question is, of course, whether the general public’s ideas about personal responsibility for social risks are really changing along the lines set out in the reforms. We only have illustrative data, in this respect, which gives some information. A comparison of the results of Dutch surveys in 1995 and 2006 shows that the proportion of Dutch who are of the opinion that having a good job is something that people have personal control over increased over the period from 37 per cent to 62 per cent; the proportion that feels that being unemployed or not is something people have personal control over doubled from 13 per cent to 26 per cent; and, seeing being a single parent on social assistance as something people have personal control over increased from 15 per cent to 25 per cent. In short, the Netherlands seems to have witnessed a clear shift in public opinion conforming with trends in policy reforms.

An analytical evaluation As a main consequence of the revisions of the Dutch welfare system, traditional relations of solidarity have been dismantled. Ties of solidarity between good and bad risks, as well as between higher and lower incomes, have become weaker and less numerous. The system not only has lost part of its solidaristic character, it has also become less collective. Limiting the covered population, beneﬁt levels and duration of beneﬁts, as well as privatization of schemes and labour market (re)insertion, resulted in a higher degree of individual responsibility for all actors involved. This is the case for employers (who have new responsibilities with regard to sickness pay and the prevention of disability), workers (who are less protected by insurance schemes) and citizens in general (for whom entitlements to child beneﬁts, survivor pension and disability beneﬁt were reduced substantially). All in all, a shift has taken place from inclusive solidarity towards the direction of exclusive selectivity, from collective responsibility towards individual responsibility. Initially, this was the unintended outcome of measures taken under the constraints of ﬁscal austerity, at present this shift is explicitly aimed at by government. With the shift the overall level of citizens’ social protection has declined. This loss, however, does not aﬀect everybody to the same degree. Part of the decrease in protection oﬀered by the collective system has been ‘repaired’ for workers in newly bargained collective labour contracts. For instance, in many companies and industrial sectors, social partners agreed to undo the consequences of limiting the duration of the wage-related disability beneﬁt for various age cohorts. Many other losses in protection, however, are repaired through collective bargaining for only small parts of the working population, or are repaired only partly or not at all. In most cases higher paid workers, with permanent jobs and long work histories, proﬁt most from the repairs. The loss of collective social protection is also compensated at the household level, as a result of the increased labour market participation of Dutch women, and the accompanying increase in double income households: more often the misfortunes of one partner can be compensated by the other partner’s means. And third, as Table 20.3 shows, the Dutch welfare state has experienced relatively little unemployment compared with European averages. Clearly, however, those who have lost most of their social protection are people with weaker or no ties to the market for paid labour, which means an increase in the insider– outsider division. Disadvantaged groups include workers on ﬂexible contracts, young workers, workers with repeated unemployment spells, older workers and beneﬁciaries 374

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Table 20.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

nl

eu27

eu15

6.6 6.0 4.9 3.8 3.2 2.8 2.2 2.8 3.7 4.6 4.7 3.9 3.2

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

who have little chance of returning to the labour market, such as pensioners, disabled workers, long-term unemployed people and single parents. Tragically, the measures taken in the ﬁeld of short-term and long-term disability have made employers more careful in hiring workers with health problems. For such jobseekers labour market access has become more diﬃcult. Owing to the retrenchment measures, income inequalities have increased in the Netherlands over the last 20 years, and most recently the proportion of poor households has risen, as well as the proportion of working poor. However, a proper evaluation of developments in the Dutch welfare system cannot fail to mention that in the ﬁeld of work–care combination provisions have expanded. Mostly, policies have followed demand that increased with the growth in labour participation of Dutch women. Yet, a large majority of them is still working part-time. Some see this as proof of what many feel to be the case, which is that there is still a lack of suﬃcient day care facilities and adequate parental leave schemes. In the area of leave schemes for workers, relatively much is still left to collective labour agreement between social partners. It should also be mentioned that, as Table 20.4 shows, despite the drastic policy measures the Dutch welfare state is still able to prevent poverty among its population relatively well, compared with the European average. Low unemployment partly explains this welfare outcome.

Outlook: some comments on the future of the Dutch welfare system As in other European countries, in the Netherlands three issues tend to dominate the debate about the future of the welfare system: globalization, ageing and migrants. Owing to economic globalization it is believed that the Dutch welfare state has to be levelled down further. That is, increased international competition urges the lowering of labour costs, for which reducing entitlements of, and thus contributions to, insurance schemes seems to be a good remedy. Such a further dismantling of collectively organized social protection ﬁts in very easily with the dominant idea that modern citizens can and want to take care of themselves. There are more double income households, people have 375

W . V AN O O RS C H O T

Table 20.4 At-risk-of-poverty rates by gender

nl total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

11 12 10 10 11 11p 11p 11p 12p – 11b 10

eu25 males 11 11 10 10 10 10p 11p 11p 12p – 11b 10

eu15

females

total

males

females

12 12 11 10 11 11p 12p 12p 12p – 11b 10

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 Jul 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate; p Provisional value

become wealthier, and they have more savings in for example occupational pension schemes. However, it is recognized that this does not count for all groups in society. There is consensus that protection at the level of a decent social minimum should stay available for all those who are in real need. Thus far, the ultimate consequence of this focus on individual responsibility while keeping a safety net provision – which would mean reconstructing the Dutch welfare state along strictly liberal lines, and turn it into a residual, mostly means-tested welfare state – has not been propagated by many. On the contrary, it is especially social democrats that increasingly warn against the negative eﬀects such dismantling would have on the social cohesion of society overall. For them, a viable and just welfare state needs the broad middle-class as a major stakeholder. The ageing of the population is a major concern, which has already led to limiting access to and the generosity of early retirement schemes and their functional alternatives. Basically, pay-as-you-go pre-pension schemes have been replaced by variants in which pre-pension is paid from people’s savings in occupational old age pension schemes. In this way, early retirement is still possible, but at personal cost. In addition, ageing is seen as giving extra impetus to the need for activation of the unemployed, the partly disabled and older workers, as well as the need for a further increase in the full-time labour participation of Dutch women. All those who can work, should do so, is the leading idea, in order to enlarge the productivity base from which future pensions and care costs have to be paid. There is a pending discussion about increasing taxes paid by pensioners, and about increasing the standard pension age of 65. It can be expected that both ideas will be implemented in the near future. As for migrants, the general idea at present is that Dutch society has been too lax in recognition of and dealing with the problematic aspects of integrating larger numbers of migrants into society and the labour market. A tougher approach has been adopted, generally, which in a welfare state context gives rise to a debate on how the Dutch 376

N E T H ER L A N D S

welfare state can be made ‘migration proof’. This means a welfare state that oﬀers adequate services and beneﬁts to its mainstream citizens, but which, at the same time, is less attractive for new migrants. New types of welfare policies for this still have to be developed, most probably in combination with a stronger focus on selecting higher educated migrants, but it can be expected that in the near future ‘newcomers’ in Dutch society will have to wait longer before gaining access to full social citizenship.

Bibliography Adema, W. and Ladaique, M. (2005) Net social expenditure, 2005 edition, Geneva: OECD. Becker, U. (2000) ‘Welfare state development and employment in the Netherlands in comparative perspective’, Journal of European Social Policy, 10(3), 219 – 239. Boelhouwer, P. (2002) ‘Trends in Dutch housing policy and the shifting position of the social rented sector’, Urban Studies, 39(2), 219–35. Douven, R., Ligthart, M., Mot, E. and Pomp, M. (2008) Early experiences with the Dutch health care reform, CPB Netherlands Bureau for Economic Policy Analysis: The Hague. Van Oorschot, W. and Boos, C. (2001) ‘The battle against numbers: Disability policies in the Netherlands’, in W. van Oorschot and B. Hvinden (eds), Disability policies in European countries (pp. 343–61), Den Haag: Kluwer Law International. Van Rhijn, A. (1945) Sociale zekerheid: Rapport van de Commissie, ingesteld bij Beschikking van den Minister van Sociale Zaken van 26 Maart 1943, met de opdracht algemeene richtlijnen vast te stellen voor de toekomstige ontwikkeling der sociale zekerheid in Nederland, Deel I en II. London: Waterlow and Sons Ltd. Visser, J., and Hemerijck, A. (1997) A Dutch miracle: Job growth, welfare reform and corporatism in the Netherlands, Amsterdam: Amsterdam University Press.

377

Chapter 21

pl The welfare state in Poland Transformation with difﬁculties Renata Siemien´ska and Anna Domaradzka

Introduction: development of the Polish welfare state in historical perspective The former communist central planning system provided a wide variety of beneﬁts to subsidize citizens of speciﬁc social groups (e.g. low-skilled workers) and to encourage or discourage the activities of citizens in other groups (e.g. intelligentsia). During the late 1980s, Poland spent about 22 per cent of its gross national product (GNP) on social beneﬁts in the form of cash beneﬁts or services. At that time, over 5 million Poles received retirement or disability pensions, and about 100,000 were added yearly to the latter category. Furthermore, in the early 1980s, the number of invalids receiving beneﬁts increased from 2.5 million to 3.6 million. In addition to providing free health care and education, the system also paid beneﬁts to single mothers with preschool children, sickness beneﬁts for workers, income supplements and non-repayable loans to the poor, and education grants for students. As was to be expected, by the mid-1980s most of the state-funded services were being considered for privatization, fees or rationing. A system based on this kind of spending was a great ﬁscal burden, so by the early 1990s it had to be limited and more or less severe cuts were made in some allowances and beneﬁts. During the transition period starting in 1989, Poland’s welfare system underwent substantial decentralization and restructuring. Simultaneously, the percentage of the population that needed welfare services because of high unemployment was growing. In the ﬁrst post-communist years, social support programmes for the unemployed underwent important changes. The initial post-communist policy guaranteed unemployment beneﬁts and retraining regardless of the reason for a person’s unemployed status. Beneﬁts were to be paid indeﬁnitely and were based on previous pay or on the national minimum wage for those who had never worked. Beneﬁts included old age, disability and survivor pensions and compensation for work injuries, sickness, maternity and family-related expenses. Although the system covered both industry and agriculture, enterprises in the industrial sector paid much higher surcharges to the beneﬁt fund (usually 45 per cent of the worker’s salary) than those belonging to such sectors as housing or agriculture. 378

POLAND

In 1991 and early 1992, a series of laws drastically reduced the coverage of the unemployment programme. Under the modiﬁed policies, beneﬁts no longer went to those who had never been employed; a 12-month limit was placed on all payments; and beneﬁt levels were lowered by pegging them at the level of income in the previous quarter rather than of the last salary received. This reform immediately disqualiﬁed 27 per cent of the previous beneﬁciaries, and that percentage was expected to rise in the ensuing years. Those changes caused growth in homelessness and poverty. In Poland, the government expenditure as a share of gross domestic product (GDP) had been declining until 2000, but the level has become stable since then. According to Eurostat, the average in 2005 for EU countries was 27.8 pre cent of GDP and 19.6 per cent in Poland. The high level of Polish public expenditure results from spending on social transfers (Table 21.1). The Polish constitution states that every citizen has the right to social security in case of the inability to work caused by illness or disability and after reaching retirement age. Also, a citizen who is unable to ﬁnd a job and has no other means of survival has the right to social security. In short, the main characteristics of the Polish social security system are: & & &

dominance of the insurance system; weak social aid, underﬁnanced and playing a marginalized role; lack of universal beneﬁts available based on citizenship or place of residence (Raport spoleczny Polska 2005).

In 2005, 12.3 per cent of the population living in households were below the subsistence minimum and 18.1 per cent below the remaining poverty lines. Couples with children

Table 21.1 Social protection expenditure

pl

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – – 36511.5 44524.0 44302.4 40284.3 41034.0 47991.7p

– – – – – 949.5 1164.1 1158.8 1054.4 1074.7 1257.5p

– – – – – 19.7 21.0 21.1 21.0 20.1 19.6p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

379

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and single parents were equally threatened with poverty – 14.3 per cent of people from two-parent families and 14.5 per cent of single parents, i.e. respectively 20.9 per cent below the relative poverty line and 22.3 per cent and 20.7 per cent below the legal poverty line. If the social transfers are included the poverty risk of women in Poland is slightly lower than in Greece, Spain, Ireland, Lithuania, Portugal and Italy when EU state members are compared (Kobiety w Polsce 2007).

Status quo: description and analysis The structure of public social expenditures is diﬀerent in Poland from the average for EU countries (see Table 21.2). Taking into account the already described national priorities, it is not surprising that apart from high spending on pensions for older and sick people, the main types of beneﬁts are family beneﬁts and unemployment beneﬁts. Furthermore, most of the state spending on unemployed people focuses on providing them with revenue without requiring an active job search; it does not necessarily have to be provided to the neediest (OECD 2004). On the other hand, expenditures on health care are relatively low. The main beneﬁciaries of the welfare system are people with Polish nationality, or whole families. The most important target groups are the unemployed, families with children, older and disabled people. To receive beneﬁts and services individuals have to meet the criteria speciﬁc to the kind of beneﬁt applied for, for example age and gender, working years, number of children, marital status or proof of disability. The Polish welfare system is ﬁnanced mainly from taxes, which constitute up to 50 per cent of an average wage. Because labour participation is low and the contribution of some groups to social security (self-employed, farmers) is not at all or only weakly linked to income, the burden of it is borne by a small fraction of the population (OECD 2006: 75). Some of the retirement beneﬁts can now be partly paid by private funds which receive part of the pension contributions. Since Poland’s accession to the European Union some funds have also been obtained from the European Social Fund.

Table 21.2 Social protection beneﬁts as a percentage* (2005)

pl Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 97.6p 4.3p 2.8p 0.6p 1.8p 29.6p 58.4p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

380

POLAND

Beneﬁts for people employed outside the agricultural sector are paid from the Social Insurance Fund managed by the Social Insurance Institution (ZUS). Administration of the farmers’ social security system is within the authority of the Agricultural Social Insurance Fund (KRUS). The state government is the main provider of social services. Most of the payments and some of the services are exclusively under government authority, for example pensions and unemployment beneﬁts. The local and regional government is the second most important provider of welfare beneﬁts. The activity of private-market actors in this sphere is Table 21.3 The welfare system in Poland: target groups, providers, ﬁnancing, types of social beneﬁts and services – summary

Targets

Allocation (providers)

Financing

Examples

Families/children

State government, Local government, Private market actors (child care)

Taxes

Beneﬁts: Maternity beneﬁt Child care beneﬁt Family allowance Carer’s allowance ‘Baby birth bonus’ Maternity leave Child care leave, Care leave Survivors pension Alimony beneﬁt Services: Kindergartens Nurseries

Poor/marginalized

Charity, Local government, NGOs

Taxes

Beneﬁts: Survivor pension Social aid Services: Shelters Food/clothes

Older people

State government, Family, Private market actors, NGOs

Taxes, EU funds

Beneﬁts: Retirement pension Survivor pension Services: Adult care Day care centres

Unemployed

Regional government, NGOs, charity

Taxes EU funds (training)

Beneﬁts: Unemployment beneﬁts Services: Trainings Sponsored work

Disabled/sick

Family, NGOs, Charity, State government

Taxes

Beneﬁts: Disability pension Sickness allowance Services: Adult care Rehabilitation

381

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limited to child care (private kindergartens) and care of older people (care homes for elderly people), and their accessibility is limited because of price as well as popularity. The pension system was also reformed, allowing private funders to collect part of the pension contribution and then to pay retirement pensions from the collected capital. Non-governmental organizations (NGOs) are becoming more important welfare system actors as local governments are beginning to outsource social services. NGOs are also one of the main beneﬁciaries of European funds, which allow them to provide some services for unemployed people (e.g. training) or older people (e.g. third-age universities). They are also among the main providers of services for homeless people, together with local governments. Charity in Poland is strongly connected with the Catholic Church and focused on supporting the poor and homeless by means of material help (food, clothes and shelters). Single mothers and families with many children also receive some help from charity organizations. Table 21.3 summarizes how the welfare system is organized in Poland. The social insurance system Polish legislation provides for mandatory and voluntary insurance, as well as options to continue insurance. Nearly all occupational groups are covered by the mandatory old age and invalidity pension insurance, while not all of them are subject to the mandatory accident and sickness insurance. Those, who are insured, have guaranteed social security in the case of disability, sickness or accident, as well as an old age pension. Obligatory insurance requires a transfer of pension-deducted social insurance premiums by all employees, cottage industry workers, agricultural cooperative members, self-employed people and their co-workers, members of parliament, unemployment allowance recipients, clergy, people taking advantage of maternity leave or maternity allowance, and people providing care for their gravely ill relatives. The level of social beneﬁts received is related to earnings (premium amounts). One of the components of the Polish insurance system is the social insurance ﬁnanced from the Social Insurance Fund, managed by the Social Insurance Institution (ZUS). Social insurance in Poland consists of a pension insurance, a disability pension insurance, sickness and maternity insurances and insurance for accidents at work and occupational diseases. Besides the social insurance system, there is a system of family beneﬁts ﬁnanced by state budget funds and a system of unemployment beneﬁts ﬁnanced from a separate Labour Fund.1 Pension insurance On 1 January 1999, a new pension system was introduced. The authors of the system assumed as a target that the future pensioners would receive their pensions from at least two sources, i.e. from the Social Insurance Institution and from the open pension funds. However, it was decided that only people born after 31 December 1968 would have an obligation to join one of the open pension funds. People born between 31 December 1948 and 1 January 1969 could chose whether they also wanted to pay their contributions to the open pension funds or solely to the Social Insurance Institution. People born before 1 January 1949 would pay their contributions exclusively to the Social Insurance Institution and they would have their pension paid only from this source. A contribution of 19.52 per cent of the basis of contribution rates is paid for pension insurance. Half of it is paid by the insured person, and the other half by the employer. 382

POLAND

Therefore, the possible retirement age varies greatly, depending on age, gender, the year of birth and the evidence concerning the premium payment period. It is not necessary to reach retirement age during employment or an equivalent period, but the old age pension granted may be lower than the minimum old age pension amount. For people born after 1968, the pension will be granted after they reach retirement age: 60 (women), 65 (men), and the amount will depend upon the number of years of employment and the amount of earnings. These people are obliged to join the reformed pension system and they will receive pensions from the ﬁrst (social insurance oﬃce) and the second (open pension fund) pillar of the pension system (Table 21.4).

Table 21.4 The number of pensioners1 and average monthly gross and pensions

Speciﬁcation a: beneﬁt level (in euro)2

19953

2000

2001

2002

2003

2004

Total Persons covered by nonagricultural social security system Old-age pensioners

9085 7036 133 3230 154 2629 108 1150 131 2049 90 1258 93

9412 7525 265 3574 303 2678 217 1273 261 1887 182 1056 191

9311 7469 295 3612 335 2565 241 1292 288 1842 206 1015 216

9237 7439 315 3691 357 2438 257 1310 305 1798 212 975 223

9206 7451 331 3804 375 2323 266 1324 319 1755 220 936 232

9213 7504 346 4012 391 2158 272 1334 330 1709 226 962 238

2002

2003

2004

9237 7439 1039 3691 1177 2438 847 1310 1008 1798 700 975 737

9206 7451 1092 3804 1238 2323 878 1324 1053 1755 727 936 766

9213 7504 1141 4012 1289 2158 898 1334 1090 1709 747 962 785

a a

Disability pensioners a Survivor pensioners a Individual farmers a Old-age pensioners a Speciﬁcation a: beneﬁt level (in zl)2 Total Persons covered by nonagricultural social security system Old-age pensioners

a a

Disability pensioners a Survivor pensioners a Individual farmers a Old-age pensioners a

9085 7036 439 3230 509 2629 357 1150 431 2049 298 1258 307

9412 7525 875 3574 1000 2678 717 1273 860 1887 602 1056 631

9311 7469 972 3612 1106 2565 794 1292 949 1842 6794) 1015 7134)

Notes: 1 annual average in thousands; 2 monthly average; 3 including persons receiving old-age pensions and other pensions, who since 1996 have been included in the group of receiving old age pension and other pension as a result of inability to work or family beneﬁts; 4 including one-off equalling of valorization for 2000 Source: Statistical Yearbook of the Republic of Poland, CSO: 1998, pp. 157, 158; 2001, pp. 173, 174; 2002, pp. 174, 175; 2004, pp. 273–74

383

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Early retirement, under special conditions or of a special nature, is possible for those who have completed the required contributory period and the period of employment under special conditions or of special nature, required for a given position (sector), no later than on 31 December 1998. These people will be able to retire early at the speciﬁed age, ranging from 45 and 55 years for women and 45 and 60 years for men. Beneﬁciaries of pre-retirement allowances and beneﬁts were people dismissed (owing to bankruptcy or liquidation of their workplace, or as a result of employment reduction) with at least 30 years (women) and 35 years (men) of insurance coverage, or, in case of people employed for at least 15 years under special conditions, with 25 years (women) and 30 years (men) of insurance coverage. The pre-retirement allowance amounted to at least 120 per cent of unemployment beneﬁt. Beneﬁts were paid from the Labour Fund but ended in 2002. It is worth stating that the average pension for women is 30 per cent lower than that for men. Meanwhile, the average women’s pension accounts for 55 per cent of the average wage, while for men it is 79 per cent. Among people at the post-productive age, the proportion of women who do not receive any beneﬁts and are supported by others is much higher than men (Jozwiak 2006). The number of people to whom retirement pensions were granted increased considerably between 1999 and 2004, despite the parallel reduction of cohorts attaining retirement age. It means that the percentage of people retiring before the statutory retirement age considerably increased in the period analysed. Early retirement pensions constituted another important component of the social security system that encouraged numerous groups to ﬁnish their economic activity before they reached the retirement age. In other words, both genders commonly take advantage of rights to early retirement pensions as soon as it becomes legally possible, which clearly shows the negative role of the Polish social security system in this regard. Disability pension insurance Under the law, actions on behalf of disabled people are performed by the national government and by local governments. Actions on behalf of disabled people are also performed by non-governmental associations of disabled people or NGOs that act on their behalf.2 The disability pension insurance guarantees cash beneﬁts in the case of loss of cash income by the insured person, relating to the risk of disability (work incapacity or death of the breadwinner). Unfortunately, the imperfection of the system of assignment of disability pensions can lead to a situation in which people able to work get beneﬁts while it is diﬃcult for people unable to work to obtain them despite being insured (Employment in Poland 2005). The disability pension contribution amounts to 13 per cent of the contribution rates. One half of the contribution is paid by the employer while the other half is paid by the employee. Disability pension insurance gives the insured person the right to a pension for work incapacity, a training pension or a survivor’s pension. The number of people classed as disabled in Poland is not signiﬁcantly diﬀerent from the OECD and EU average (OECD 2003), but the percentage of people getting disability pensions in Poland in the late 1990s was clearly the highest among all of the OECD states, which is illustrated by Table 21.5. The decisive factor was the special age structure of pensioners in Poland, according to which the percentage of pensioners in the population increased considerably for those aged 35+, while, in most of the OECD countries, such increase takes place only for people over 55 (Employment in Poland 2005). 384

POLAND

Table 21.5 The number of people on disability pensions per 1,000 people in individual age groups in Poland and OECD in 1999 and 2004

Poland 2004 Poland 1999 OECD 1999* Poland/OECD (1999) (%)

20–34

35–44

45–54

55–59

60–64

8.0 13.4 14.9 90

43.5 61.1 33.8 181

136.9 181.9 72.7 250

240.1 261.8 141.2 185

83.7 130.9 63.2 207

Source: Own calculations for 2004. Transforming disability into ability 1999 Note: * Average for 15 OECD states

There is a signiﬁcant diﬀerence between the level of beneﬁts received by men and women. The average disability beneﬁt for women is around 39 per cent of the average wage, while in the case of men it is over 51 per cent (Jozwiak 2006). Sickness and maternity beneﬁts Sickness and maternity beneﬁts are supposed to substitute income from employment to a person who has fallen ill, given birth to a baby or is bringing up a handicapped child and cannot make a living at the same time. In Poland, workers have the right to: & & & & &

remuneration for the period of illness; a sickness allowance under sickness or accident insurance; a rehabilitation beneﬁt under the sickness or accident insurance; maternity allowance; care allowance.

Farmers, on the other hand, are entitled to sickness allowance and maternity allowance, both paid by KRUS (Agricultural Social Insurance Fund). In Poland, neither students nor the members of the family of a person employed or self-employed have the right to sickness beneﬁts unless they are insured. The insured persons are entitled to the following beneﬁts payable for accidents at work or occupational diseases: & & & & & & &

sickness allowance; health rehabilitation beneﬁt; compensatory allowance’; lump-sum work injury compensation (also for family members); work incapacity pension; training pension; survivor pension.

The labour market policy The employment rate in Poland is lower than in other countries of the European Union, and the unemployment rate is higher (see Tables 21.6 and 21.7). 385

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Table 21.6 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

pl

eu27

eu15

– – 10.9 10.2 13.4 16.2 18.3 20.0 19.7 19.0 17.8 13.9 9.6

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

Table 21.7 Employment rates in Poland, EU15/25 and the new member states in per cent, 1994–2004

1999 2000 2001 2002 2003 2004*

pl

eu15

eu25

new member states

57.6 55 53.4 51.5 51.2 51.7

62.5 63.4 64.1 64.2 64.3 64.7

61.9 62.4 62.8 62.8 62.9 63.3

59 57.4 56.6 55.8 55.9 56

Source: Indicators for monitoring the Employment Guidelines, 2004/2005, The European Commission, Structural Indicators, Eurostat Note: * Preliminary data

Passive labour market policies Passive labour market policies, that is unemployment beneﬁts, pre-retirement beneﬁts and pre-retirement allowances, accounted for the most of the Labour Fund expenses in 2004, accounting for 87.5 per cent of the fund in 2001, and decreasing to 79.3 per cent in 2004. However, the improved structure of the Labour Fund expenses was primarily because pre-retirement beneﬁts and pre-retirement allowances were paid by the fund only until August 2004. As of 1 August 2004, disbursement of these beneﬁts was transferred to the Social Insurance Fund, and their handling to the ZUS. This is due also to the decreasing proportion of people entitled to such beneﬁts. In 2004, the Labour Fund expenses for unemployment allowances were lower than the 2003 level by almost 8 per cent. In 2004, the number of people collecting unemployment beneﬁts fell compared with the previous year, by 39,900 (8.5 per cent). The right to unemployment beneﬁt is granted to a person: & &

386

registered as unemployed; able and ready to take up employment on a full-time basis, according to the working time rate applied in a given occupation or service;

POLAND

&

who has reached the age of 18 years and has not reached retirement age (60 years for women and 65 years for men).

People applying for unemployment beneﬁts cannot own or possess agricultural estates, and they cannot have a monthly income of more than half the minimum pay. They should not be recipients of permanent allowances or permanent compensatory allowances, guaranteed temporary allowances or training beneﬁts. Furthermore, they should not be recipients of a nursing beneﬁt, a supplement to family beneﬁt granted on the basis of the social assistance legislation (Poland 2005). The right to unemployment beneﬁt is granted to people for each calendar day after the ﬁrst seven days of unemployment from the day of registration in an appropriate district (poviat) labour oﬃce, if they have not received any oﬀers of suitable employment, have not been referred to subsidized jobs, public works or additional jobs have been established; and if during the period of 18 months preceding the day of registration, for a total period of at least 365 days, this person had been employed and had earned remuneration at least equal to half of the minimum pay (OECD 2004) (Table 21.8). In Poland, unemployed people are entitled to beneﬁts if they meet two criteria. The ﬁrst pertains to lack of an adequate job oﬀer at the labour oﬃce – appointment for intervention works, public works or for additional workplaces established. The second requirement is related to the minimum employment period during the time preceding registration. The period during which unemployed people are entitled to a beneﬁt varies depending upon the unemployment rate in a given region. If the unemployment rate within the district labour oﬃce area is not higher than that for the entire country, the beneﬁt is paid for six months. In areas where it is higher but does not exceed twice the value for the entire country, it is paid for 12 months. Some unemployed people are entitled to a

Table 21.8 Unemployment beneﬁts as well as pre-retirement beneﬁts and allowances

Speciﬁcation

1999

2000

2001

2002

2003

2004

Unemployment beneﬁt

459 370 154.8 546 15.2 789 459 112 154.8 165 15.2 239

535.3 406 221 595 54.5 985 535.3 123 221 180 54.5 298

552.6 441 287.9 636 90.6 1092 552.6 134 287.9 193 90.6 331

578.1 463 350.7 656 136.6 1119 578.1 140 350.7 199 136.6 339

482.4 484 321 681 188.9 1051 482.4 147 321 206 188.9 318

435.9 494 289.1 665 306.8 948 435.9 150 289.1 202 306.8 287

a b Pre-retirement beneﬁt a b Pre-retirement allowance a b Unemployment beneﬁt c d Pre-retirement beneﬁt c d Pre-retirement allowance c d

Sources: Statistical Yearbook of the Republic of Poland, CSO: 2001, p. 181; 2003, p. 195; Concise Statistical Yearbook of Poland, CSO, 2005, p. 17 Notes: a average number of paid beneﬁts (in thousands); b average monthly gross beneﬁt (in zl); c average number of paid beneﬁts (in thousands); d average monthly gross beneﬁt (in euro)

387

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beneﬁt for 18 months, but only if in a given area the unemployment rate exceeds twice the unemployment rate for the entire country, and they have worked for at least 20 years and are entitled to a beneﬁt or have at least one child of up to 15 years of age who depends upon them ﬁnancially, and the partner of the unemployed person does not receive a beneﬁt because the period of entitlement has ended. In September 2004, 406,000 people were entitled to beneﬁts, which constituted less than 14 per cent of all those registered unemployed (Siemien´ska et al. 2004). As for the structure of spending connected with unemployment, more and more money is spent on pre-retirement beneﬁts. In 2003, approximately 1.5 billion euro (5 billion zl for 500,000 beneﬁciaries) from the Labour Fund was spent on pre-retirement beneﬁts, and another 1.5 billion euro (5 billion zl) on unemployment beneﬁts. Meanwhile, only 390 million euro (1.3 billion zl) was spent on implementing the active labour market policy. Pre-retirement beneﬁts and allowances were introduced in 1997 and replaced the unemployment beneﬁts granted to people at pre-retirement age without any time limit. Abandoning pre-retirement beneﬁts in 2002 was decisive for the drop in the total number of newly granted beneﬁts, but the number of people who acquired the right to pre-retirement pensions or early retirement increased at the same time. Extending the availability of some types of beneﬁts simultaneously with the reduction of other beneﬁts is striking; it resulted in a relative stability of the inﬂow to the social security system and is a symptom of considerable pressure on that system exercised by people below the retirement age in Poland. The inﬂow to the KRUS system decreased between 1997 and 2000, mainly because of the reduction in the number of disability pensions granted, but this trend was reversed later and the number of disability pensions granted increased considerably in 2004 (Employment in Poland 2005). Active forms of combating unemployment The main task of the public employment services, ﬁnanced by the Labour Fund, is the organization and ﬁnancing of programmes for vocational activation of unemployed people and jobseekers. The forms of vocational activation, under the total amount allocated by the Fund for the given county for this purpose, are determined individually by the county administrators as a result of consultations with the county employment councils. These include various forms of training; intervention works and public works; loans (refund of costs) for unemployed people or employers, professional activation of graduates and adolescents, etc. Educational policy Full-time education is compulsory in Poland for people aged 6 to 16, which encompasses one year of pre-school education, six years of primary school education and three years of grammar school. Since 1997, the constitution requires that up to the age of 18 at least part-time education should continue. The actual structure of primary and secondary education was implemented in 1999, delaying the choice of vocation and further education until after grammar school. The total level of expenditure on education in Poland is fairly typical among the OECD countries when measured as a proportion of the GDP; in 2002 in Poland it was 6.1 per cent, in France 6.1 per cent, Germany 5.3 per cent, Hungary 5.6 per cent, Sweden 6.9 per cent, USA 7.2 per cent (OECD 2005). 388

POLAND

At the beginning of the 1990s, as a result of decentralization, the responsibility for provision of compulsory school education was passed to local government, and other education (with the exception of tertiary education) to a higher administrative level (poviats). In 2004, the total expenditure for education amounted to about 30 per cent of local government income. However, they spent up to 20 per cent more from their own resources (OECD 2006). Only a small fraction of children attend non-public preschools, primary, grammar and secondary schools. In 2005, about 30 per cent of higher education students studied in private institutions. The number of students increased between 1991 and 2005 from about 400,000 to nearly 2 million. Only full-time students in state higher education institutions do not pay tuition fees. Those students are usually from more wealthy families, who send children to better schools and are able to pay for their extra-curricular education. Studies show a relation between the educational achievements of children and the material status of families. Students from poor families are granted scholarships from the state budget and from the resources of the higher education institutions; however, their numbers are not large (Siemien´ska 2006a). The cost of training for unemployed people is covered by the Labour Fund and, since Poland’s accession to the EU, from EU funds. Family policy Family beneﬁts include family allowance and various bonuses added to family allowance after the birth of a child, taking care of a child while on child care leave, bringing up a child alone, education and rehabilitation of a disabled child, at the start of the school year and when a child starts education away from the place of residence. The right to these bonuses is granted under the condition that the beneﬁciary is entitled to family beneﬁt, but must be requested by the entitled person. The so-called pro-natalistic policy is a very important trait of Polish welfare policy. It is focused on promoting family development and encouraging reproduction (increasing the birth rate), by prolonging maternity leave and pushing women out of the labour market, rewarding childbearing with a special allowance, and a whole range of ﬁnancial aid for families with children. However, lack of job security and a suﬃciently developed infrastructure supporting the family make the family policy ineﬃcient. Also, because the Polish budget is very tight, the ﬁnancial aid is not suﬃcient to play the role that it should. Maternity leave and beneﬁts When a woman is contracted employee, she is entitled to maternity leave on the birth of a child. If a female employee becomes pregnant, it is the unconditional obligation of the employer to allow her maternity leave. During the last several years, legal provisions pertaining to maternity leave have changed several times. According to current law a female employee is entitled to 16 weeks of maternity leave for her ﬁrst child, 18 weeks for the second child and 26 weeks for each subsequent child. Two weeks of a maternity leave can be used before the expected delivery date. A female employee is obliged to take 14 weeks of the leave. If the female employee takes shorter leave, the father may request the remaining part of the leave to take care of the child. After the birth, the employee is entitled to the part of the maternity leave not used prior to the birth. Maternity leave is still considered as a period of employment when considering general job seniority, which determines some employee 389

R . S I E M I E N´ S K A AN D A . D O M A RA D Z K A

rights (such as vacation leave, service anniversary awards, etc.). It is also considered to be a period for which premiums are paid, when the right to old age and disability pension is granted and the amount of these beneﬁts is determined. For the duration of maternity leave, a female employee is entitled to maternity beneﬁt in accordance with the conditions and rules speciﬁed by separate legal provisions. The monthly maternity beneﬁt amounts to 100 per cent of the monthly remuneration, and the monthly remuneration paid on behalf of the female employee for six calendar months preceding the month, in which the right to beneﬁt emerged, serves as a basis for calculation. Recently, the insured female employee (or any other insured person), who gave birth to a child, is entitled also to a one-oﬀ delivery beneﬁt, amounting to approximately 300 euro (1000 zl). Child care leave and beneﬁts Child care leave is a continuation of maternity leave. The objective of child care leave is to provide employees with advantageous conditions to take care of a child personally, when it is diﬃcult to reconcile the professional obligations with such care. Both parents are entitled to child care leave, even if their relationship is informal, and guardians of children have the right to such leave as well. The term ‘guardian’ is deﬁned by law in a broad sense – it pertains to any employee who has decided to provide a child with full-time care as if they were their own child. The legislative body allows both parents or guardians taking advantage of maternity leave at the same time, but for no longer than three months. According to the Labour Code, child care leave is granted to an employee who has been employed for at least six months; previous periods of employment are included in this period. The employer grants child care leave for the maximum period of three years, or until the child turns four at the latest. An employee caring for a disabled child may get additional leave of up to three years. In this case, the leave period is limited by the date of the child’s eighteenth birthday. During child care leave, the employee is not entitled to remuneration but is entitled to child care beneﬁt. The condition of obtaining such beneﬁt is fulﬁlment of the income criterion. It is necessary to remember that the beneﬁt is meant to provide social support for the family and not to compensate for lost income. According to the act of 1 December 1994 on family, care and child care beneﬁts, a working mother or father is entitled to child care beneﬁt: both parents are entitled to this allowance, but it is only paid to one: the parent who applies for the beneﬁt for a given period. The carer’s allowance is calculated as 80 per cent of remuneration. Main beneﬁciaries of this kind of allowances are families with many children and single mothers (Jozwiak 2006). Institutional child care The number of children attending nurseries and kindergartens is rather low. Particularly visible here are the diﬀerences between urban and rural areas as well as between boys and girls, with the former attending these institutions more frequently than the latter. Approximately one-third of all Polish households receive paid and unpaid child care assistance. Although there are public and private kindergartens and crèches, very few children attend private kindergartens (Siemien´ska 2006b). Non-institutional child care prevails in Poland. 390

POLAND

Table 21.9 Social aid institutions

Total places In houses and centres for old people Sick Mothers with small children and pregnant women Others Number of places per 10,000 people Inhabitants total Number of people awaiting

1990

1995

2000

2002

2003

68020 9110 58730 180

79898 12301 66047 710

81655 13566 63173 1221

88325 14682 66838 1694

92762 16218 67660 2021

–

840 20.7 76487 10453

3695 21.3 80634 9372

5111 23.1 87500 16568

6863 24.3 91824 19813

17.8 65760 13426

Source: Siemien´ska 2006b, GUS 2001, 2004

Nurseries are for children under three years of age, while kindergartens are for children between three and six years old. Between 1990 and 2003, the number of places in nurseries decreased by 75 per cent, and thus the number of children attending fell signiﬁcantly. Private nurseries oﬀer only around 1,000 places. Mostly families in cities take advantage of nurseries. Attending kindergarten (preschool education) is obligatory for six-year-old children. Compulsory schooling starts at the age of seven. Generally, in the case of nursery schools, local government cover the cost of ﬁve hours of child care a day, while the parents have to pay for extra hours and for meals. The fees are established by the local government. Child care fees in nurseries are fully covered by the parents. In the case of non-public institutions, the parents must cover the child care costs for the whole day. The fees are established by the organizations that provide the care (OECD 2004). Adult care services Institutional assistance takes diﬀerent forms: houses for older people, sick people, mothers with small children and pregnant women. The number of beneﬁciaries has been growing steadily since 1990, especially among pregnant women and women with small children. As for older and disabled people, they often live alone or the burden of their care lies with the family. Only 12 per cent take advantage of non-institutional help. More and more households use paid or unpaid help to take care of older and sick members of the family (Siemien´ska 2006b) (Table 21.9). Statistics do not show the real size of the problem of caring for older people and disabled people, which aﬀects many Polish families. It is one of the most important reasons for women to quit their job, as well as one of the most signiﬁcant causes of severe limitation in the mobility and job opportunities of women. Therefore, institutional care services are very important and should be developed. Unfortunately, the Polish welfare system does not encourage the development of the appropriate infrastructure. Poor beneﬁts Social assistance According to Polish regulation the main goals of social assistance are to support families and individuals in overcoming a diﬃcult living situation, to help them gain independence 391

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Table 21.10 At-risk-of-poverty rates by gender

pl

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – – – – 16 16 – – – 21b 19

– – – – – 16 16 – – – 21b 20

– – – – – 16 15 – – – 20b 19

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

and to provide suitable living conditions and a minimum income for those with no income or a very low income level, for example disabled people or people who have retired. It includes such areas of public policy as labour policy, educational policy, family policy, health care policy and social security. Social aid is the last resort for helping the poor. In 2003, approximately 17 per cent of the population was aﬀected by poverty. In the last 10 years, this problem has been steadily growing in Poland (Table 21.10). Under real socialism, social assistance was marginalized mostly for ideological reasons, as a relict of capitalism, unnecessary in a system that was supposed to exclude poverty. Instead of social aid, there was full employment, social assistance in workshops and an extended social insurance system. At the same time, until 1990, the legal regulations from 1923 had remained in force. A new act was established in 1990, and later replaced by an act of 2004. The recent changes were focused mostly on mobilization and promoting independence and self-reliance in overcoming diﬃculties. According to the new act, social assistance is granted in cases of diﬃculty. The list includes poverty, loss of parents, homelessness, unemployment, disability, long-term illness, domestic violence, protection of motherhood, and, in numerous families, helplessness, adaptation to normal life for teenagers from orphanages, refugee integration, re-socialization for prisoners, alcoholism, drug abuse, random events, crises, natural and ecological disasters. The beneﬁt is provided if the income of the beneﬁciary is below a certain level. In 2004 it was 140 euro (461 zl) per month for a single person and 96 euro (316 zl) for a person living in a family. Local government is mostly responsible for providing elementary social assistance. It includes running social aid centres and family aid centres. Some of the obligations are also within the scope of the regional government. Social assistance may have the form of cash and material beneﬁts or services, as well as institutional support (social aid houses, support centres). Material assistance is dominant (Table 21.11). Homelessness is the most dramatic form of social exclusion. It is estimated that in Poland there are 30,000–80,000 homeless people (Ministry of Social Policy 2004). Providing 392

POLAND

Table 21.11 Social assistance beneﬁts1

Types of beneﬁts Total Material assistance of which family and nursing beneﬁt payments Beneﬁt: permanent Permanent compensatory Temporary Targeted Social pension

1999

2000

2001

2002

2003

2004*

a b a b

2091 2932 3086 2646

2144 3107 2875 2802

2149 3294 2721 2990

2549 3834 3285 3535

2640 3726 3350 3424

2410 4915

b a b a b a b a b a b

61 183 70 173 649 577 860 313 153 563

140 69 228 83 217 556 426 895 351 179 692

160 71 283 100 280 268 180 949 399 206 865

168 74 293 116 350 470 310 1036 466 231 1005

153 70 291 140 413 348 197 1107 500 252 8463

552 254 1608 491 239 1368

1999

2000

2001

2002

2003

2004*

a c a c

2091 888 3086 802

2144 942 2875 849

2149 998 2721 906

2549 1162 3285 1071

2640 1129 3350 1038

2410 1489

c a c a c a c a c a c

61 55 70 52 649 175 860 95 153 171

42 69 69 83 66 556 129 895 106 179 210

48 71 86 100 85 268 55 949 121 206 262

51 74 89 116 106 470 94 1036 141 231 305

46 70 88 140 125 348 60 1107 152 252 2563

Types of beneﬁts Total Material assistance of which family and nursing beneﬁt payments Beneﬁt: permanent permanent compensatory temporary targeted Social pension

1652 125 471

501 125 143 0 552 77 1608 149 239 415

Notes: a beneﬁciaries (in thousands); b beneﬁts granted (in zl mln) c beneﬁts granted (in million euro); 1 organized and rendered by government administration and local self-government entities; 2 beneﬁciaries may be recorded several times as regards the division by beneﬁt form; 3 data concerns the period 1I-30IX; * MPS data

shelter, meals and clothes to those lacking elementary means of survival is the responsibility of local government. Shelters are run by local governments as well as by NGOs. Housing and other welfare beneﬁts Housing beneﬁts are paid by the local authorities to low-income households. A single person must have a gross income under 160 per cent of the minimum retirement pension 393

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and families must have gross income equal to less than 110 per cent of the minimum retirement pension per capita. All beneﬁts are withdrawn if income exceeds these limits. Housing beneﬁts are not part of the social assistance system (OECD 2004), but they are a part of the local welfare system. To receive a welfare beneﬁt, one has to have insuﬃcient means of living under the income criteria and to meet the social criteria (as mentioned above). Simultaneously, the right to permanent and temporary allowances is granted only to speciﬁc kinds of beneﬁciaries. In other cases, there is discretional periodic assistance (cash). It includes purpose beneﬁts (e.g. to cover the cost of food, medicines and treatment, fuel, clothing, daily necessities, minor apartment and damage repairs or funeral costs) (OECD 2004). According to the study conducted on a national representative sample in August 2008 (CBOS News July 2008) the number of respondents stating that not enough people are getting support in the form of diﬀerent transfers decreased: 42 per cent of respondents in 2008 and 56 per cent in 2004. In the same period the number of people who believed that too many people are getting support increased from 16 per cent to 20 per cent. Only 14 per cent of respondents in 2004 and 2008 stated that the support is suﬃcient. The distribution of answers in 2008 was almost the same as it was in 1998. It means that despite changes in opinion, a large part of society still remains dissatisﬁed with the actual types and amount of the distributed beneﬁts. In a nutshell, the welfare system in Poland can be characterized as based on the transfer of cash beneﬁts to families as a way of covering risks and social gaps. This policy has very limited eﬀectiveness while it strengthens the passive attitude of social aid beneﬁciaries and generates further social and budgetary costs. Very little emphasis is put on welfare as a method of opening up opportunities, which manifests in a low number of aﬀordable kindergartens as well as undeveloped methods of activation of unemployed and marginalized people.

Outlook The consequences of the disintegration of the communist social security system are still very well visible in present-day Polish society, making it diﬃcult to create a modern welfare system. The Polish social assistance system has many weaknesses. The most signiﬁcant ones include a lack of long-term strategies and solutions and insuﬃcient diagnosis of the situation and social needs. All the social changes taking place in Poland over the past several years have inﬂuenced the speciﬁc situation of poor and disabled people and the functioning of social aid institutions. Newly emerging problems require new solutions adequately adjusted to the current situation, especially the ever-rising percentage of marginalized older and disabled people within the population and the medical, social and individual consequences that accompany this phenomenon. The situation requires not only ﬁnancial expenditure, but also new strategies in social policy, a new legal framework and numerous organizational changes. A new system of assistance and assurance for needy people is crucial, and it requires decentralization of the support system, delegating the associated responsibilities to local and self-governing bodies and mobilizing social initiatives while ensuring consistency of speciﬁc elements of the system. The ultimate goal should be societal and occupational integration, allowing poor, disabled and marginalized people to lead a life as normal as possible. Social policy should 394

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therefore provide solutions to problems resulting from limited access to economic and cultural goods by minimizing its consequences (Zolkowska, Kasior-Szerszen 2002). Unfortunately, nowadays, Polish welfare can be described as providing money in the form of various allowances and beneﬁts instead of services. Another important trait is the lack of a rational policy towards poor and unemployed people. The social policy is based on redistribution of small amounts of money without a wider strategy to prevent growing poverty or to enable reintegration of unemployed and marginalized people. Workplaces for unemployed people are not being created, but the money is being spent on unemployed beneﬁts that in fact preserve poverty and passiveness instead of promoting activity and limiting marginalization. On the other hand, the dominance of passive beneﬁts adds to low activity of beneﬁciaries, while the prevalence of cash beneﬁts over services strengthens the attitudes of taking assistance for granted. Furthermore, because of the constant lack of ﬁnancial resources, the cash beneﬁts provided are so low that they should be treated as symbolic rather than real help. Additionally, nearly 55 per cent of all beneﬁciaries of poor beneﬁts are women, most of them under 40. The average age of men is higher, and two-thirds of all men in this group are older than 40. Women aged 30–49 receive social assistance beneﬁts much more often than others (Jozwiak 2006). Another problem is the fact that taxes are paid only by a small part of the society. Others are unemployed, retired (very often they beneﬁt from early retirement), disabled or belong to some social groups (e.g. farmers, miners) that are not obligated to make payments as they are strong pressure groups. All these problems, including veriﬁcation of criteria that entitle individuals or groups to special support, should be revised and solved in future. However, it is necessary to be aware of the political context in which Polish reforms of public policy have been taking place since 1990. Public opinion, diﬀerent socio-occupational groups, trade unions and political parties play an important role in any negotiations. The change of demographic structure, because of the low birth rate and lengthening life expectancy, and social structure due to economic transformation has created new challenges to the social policy. Among the population in the post-working age the predominance of women in the group maintained from work or dependents has decreased since the early 1990s. Also, in the working age population the proportion of dependent women dropped between 1988 and 2005 from 75.9 per cent to 56.0 per cent (Kobiety w Polsce 2007). The same was visible in the case of men. In this period there was a radical change in the structure of sources of maintenance. The percentage of people relying on paid work for income, especially outside agriculture, clearly dropped, most visibly among men. It was accompanied by a rapid growth in the share of people with non-earned sources of maintenance, including those living oﬀ retirement pay: about 31 per cent of women and 24 per cent of men. Poland, compared with other EU states, has the lowest number of working people in relation to people living from non-earned sources, and it has the youngest pensioners. This is the result of the above-mentioned factors and of political decisions of all governments after 1990. The governments independently of their right and left orientation made decisions which were congruent with the demands of diﬀerent socio-occupational groups to provide them with increasing beneﬁts. The goal of governing political parties was to get support in the next elections. For the same reason political parties in opposition used to support any demands of their potential supporters in future elections. All governments were lacking in courage and strength to make decisions incongruent with the demands of the strong trade unions. Bargaining with employers’ organizations and the huge number of trade unions is very 395

R . S I E M I E N´ S K A AN D A . D O M A RA D Z K A

diﬃcult. Actually, expenditure for diﬀerent beneﬁts is too high in comparison with the state budgetary means. The current government must urgently implement reforms cutting the privileges of diﬀerent occupational groups and reviewing the size and criteria of availability of diﬀerent beneﬁts provided by the state. The expanded privileges introduced after 1990, such as easy opportunities for early retirement, generous acceptance of diﬀerent types of disabilities, were also expected to diminish unemployment characteristic for transforming the economy. According to the planned reforms people are expected to cover, at least partially, the costs of, for example, medical care and education at higher education institutions themselves. They are also encouraged to pay individually for their future pensions as a supplement of pensions obligatory paid by employees and employers when they are working. For several years the government has attempted to get social acceptance for the introduction of the same retirement age for women and men, i.e. 65 years of age instead of 60 for women as it is now, but this is strongly opposed by a large part of society. In reality people retire much earlier than the oﬃcial age; the mean age of retirement for men is actually 57 and lower for women. Another aim is to decrease the number of occupational groups entitled to earlier retirement because of the character of the performed work (e.g. miners, teachers). At the beginning of 2008 the government proposed to limit this privilege to 51 groups. In current negotiations (August 2008), the government, under pressure from the trade unions, is ready to extend the list to almost 300 groups, which means higher expenditure for the budget and an unsolved problem. The Polish Peasant Party and peasants as such oppose the introduction of a pension insurance which would be paid by them. Up to now, members of this social group have not had to pay this insurance, however large a farm they have. The cost of their pensions is paid from the state budget. The retirement reform is the most urgent task, but it is not the only unresolved or poorly solved problem. It is necessary to modify the relationship between salaries and pensions to make working longer a rational choice for individuals. It is necessary to facilitate decisions on having children by the creation of institutional support for families with small children and by increasing beneﬁts for those who have children, providing support until the child reaches the age of 18 for example. The introduced ‘baby birth bonus’ (see description above) is in reality a waste of money without being any help to the families with children. Another issue still unsolved is a way of covering the cost of health care: how much should be covered by insurance and how much by individuals. The reform prepared recently by the governing party coalition (Civic Platform and Polish Peasant Party) was rejected this year by parliament, public opinion and also physicians as challenging their interests. The people share the opinion that the total cost of medical treatment should be covered by insurance contributions paid by them and employers, while medical staﬀ demand better ﬁnancial remunerations and oppose the reform of the health service and its privatization which would decrease the budgetary costs. Also the ﬁnancing of education needs to be reformed and a way of supporting youngsters from poor families must be found. But again any reform including the conception of paid higher education in public higher education institutions is strongly opposed by the general public, the majority of political parties and trade unions. The list of unsolved problems is much longer. In general, we may say that transformation of the welfare system is diﬃcult for several reasons, and some of them have been mentioned above. In this point we also have to remember about the expectations of a society accustomed to many types of beneﬁts under communism which are dysfunctional in an era of market economy; however it is very diﬃcult to withdraw or modify them. 396

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Notes 1 Ministry of Social Policy, http://www.mps.gov.pl/index.php?gid=381. 2 Ministry of Social Policy, http://www.mps.gov.pl/index.php?gid=385.

Bibliography Jozwiak J. (2006) Raport 8 Zabezpieczenie spoleczne [Report 8 Social Security], in Krajowy System Monitorowania Rownego Traktowania Kobiet i Mezczyzn [National Equal Treatment Monitoring System], Warszawa: Scholar. Siemien´ska R. (2006a) Raport 6 Edukacja [Report 6 Education], in Krajowy System Monitorowania Rownego Traktowania Kobiet i Mezczyzn [National System of Monitoring of Equal Treatment of Woman and Man], Warszawa: Scholar. —— (2006b) Raport 9 Zarzadzanie czasem – budzet czasu [Report 9 Time budget], in: Krajowy System Monitorowania Rownego Traktowania Kobiet i Mezczyzn [National System of Monitoring of Equal Treatment of Woman and Man], Warszawa: Scholar. Siemien´ska R., Domaradzka A. and Raciborski F. (2004) Gender In/Equality and Quality of Work in Labour Sector in Poland: changing or stable situation after 1990? unpublished report. Zolkowska T., Kasior-Szerszen I. (2002) ‘Poland: New Vocational Rehabilitation Policies, “Disability World”’ 14/2002.

Reports CBOS News 7/2008, CBOS, Warsaw 2008. Employment in Poland 2005 (2005). Bukowski M. (ed.), Warsaw: Ministry of Economy and Labour, Department of Economic Analyses and Forecasts. Kobiety w Polsce – Women in Poland (2007). Warsaw: Central Statistical Oﬃce. OECD (2003) Transforming Disability into Ability. Policies to Promote Work and Income Security for Disabled People. OECD (2004) Economic Survey – Poland 2004. OECD (2005) Education at a Glance: OECD Indicators. OECD (2006) Economic Survey of Poland 2006. Poland 2005. Report Labour Market (2005) Warsaw: Ministry of Economic Aﬀairs and Labour, Economic Analyses and Forecasting Department. Raport spoleczny Polska 2005. [Social Report Poland 2005] (2005) Golinowska S. (ed.), Warszawa: Fundacja im. Friedricha Eberta. Ministry of Labour and Social Policy 2004 website: www.mps.gov.pl

397

Chapter 22

pt The Portuguese welfare system From a corporative regime to a European welfare state José António Pereirinha, Manuela Arcanjo and Francisco Nunes

Historical perspective The origins of the Portuguese welfare system date back to the beginning of the twentieth century, just after the Republican revolution (1910), with the creation of the Ministry of Labour (1916) and the approval, by Parliament, of social insurance schemes (1919) that followed a Bismarckian orientation. But for political and economic reasons these decisions did not come into force, so that the eﬀective creation of the welfare system only happened after the revolution of 1926 that instituted the Estado-Novo, a dictatorship regime with a corporatist ideological orientation that shaped the characteristics of Portuguese social security (Previdência Social). Following the new approved Constitution and the Estatuto do Trabalho Nacional (1933), a founding ideology of the new regime, Law 1884 was approved in 1935, which created the foundation for the Portuguese welfare system. It was composed of welfare institutions (Caixas de Previdência) intended to protect the working population from social risks associated with the labour market (mainly old age, disability and unemployment), ﬁnanced by employers and contributions from workers. These institutions were either of a corporative (Caixas Sindicais de Previdência, with a trade union and ﬁrm organization basis) or non-corporative origin (Caixas de Reforma ou Previdência). Those occupational or ﬁrm-based institutions were given an important impetus from the government (until the Second World War) with the aim to extend population coverage. The period from the Second World War until the early 1960s saw the extension of the material coverage of risks, with the creation of monetary family allowances (abono de família) in 1942 (Decree Law 32192, 13 August) with later developments, and the creation of health care units (serviços medico-sociais) in 1946 (Decree Law 35611, 25 April) (Pereirinha and Carolo, 2006). The period from 1962 saw great changes in the welfare system (Law 2115, 18 June 1962) that have continued to the present day. The reorganization of the welfare institutions that occurred contributed to progress towards the uniﬁcation of the diﬀerent social security regimes. The personal extension of the social welfare system and of the scope of 398

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social risks protected was another characteristic of this reform, which continued after 1969, in the context of a light refreshment of the political regime. The revolution of 25 April 1974 instituted democracy in Portugal. In a rather diﬀerent political context, egalitarian reforms introduced important Beveridgian oriented policy changes, correcting social inequalities and of universal character in coverage (e.g. the creation of a universal and free national health service). A new social welfare law was approved in 1984 (Law 28/84, 14 August), which really shaped the present major characteristics of the Portuguese social security system, though it kept many of those structural elements that were inherited from the social security reform of 1962. The changes that occurred thereafter, either in 2000 (Law 17/2000, 8 August), in 2002 (Law 32/ 2002, 20 December) or, more recently, in 2007 (Decree-Law No.220/ 2006, 3 November), did not change the major characteristics but instead were mainly focused on ﬁnancial sustainability. Portugal joined the EU in 1986 and, after that, changes occurred in Portuguese social policy to bring it closer to the European social model (Pereirinha and Nunes, 2006): the context of social policy-making gains new supranational dimensions; it changes its scientiﬁc and policy content, becoming more activation-oriented and with a bigger focus on relational dimensions, beyond those of distributional content; and new policy orientations were introduced, with distinct policy options, new instruments and processes of social intervention. The present conﬁguration of the Portuguese social welfare system is then a mix of characteristics that result from corporative inﬂuences inherited from the Estado-Novo regime (1935–73), the egalitarian orientation after the democratic revolution (1974) and the European inﬂuence that originated from the accession to the European Union (1986). Given its trajectory, the Portuguese welfare state has been characterized as a less developed conservative regime (European Commission, 1993; Vogel, 2003; Powell and Barrientos, 2004) since it shares the main characteristics identiﬁed by Esping-Andersen (1990): a large number of diﬀerent social insurance schemes for diﬀerent occupational groups (with special schemes for civil servants); the rules of entitlement are based on the history of paid contributions and the levels of beneﬁts are mainly earnings related; collective schemes are ﬁnanced through compulsory contributions and private provision plays a marginal role. According to the typology of Ferrera (1996), it is integrated in a southern group, along with Spain, Italy and Greece, with distinctive characteristics such as a polarized system with strong gaps in protection for those outside the labour market, the centrality of family as a safety net, a national health services based on universalistic principles as well as clientelism in public administration. The ﬁrst two characteristics do not justify an autonomous cluster: the polarization of material cover can only be explained by the lower development of the system while the dominance of the family has also been recognized by Esping-Andersen (1999). According to Arcanjo (2006: 13), the fact that the two systems – health and social security – are governed by diﬀerent principles might eﬀectively represent an important element of diﬀerentiation but Ferrera’s reﬂection on political clientelism appears to be a forced generalization on the domain of social security. Up to 2000, the Portuguese welfare system followed an expansion path. Since then, in parallel with the overall international trend and supported by the same basic principles, social policy reforms have implemented according to cost containment for social security pensions, unemployment protection and health care. 399

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The present Portuguese system The basic reference to analyse the present content of the Portuguese welfare system is the Portuguese Constitution set up in 1976 just after the 1974 Revolution, in which social rights of a rather progressive character were established. Universal unconditional rights involve the following domains: social protection (social transfers covering the most relevant social risks), health care (a free universal national health service), education (universal right to basic education) and employment (right to a job and fair wage, supported employment policies, vocational training and minimum wage). In addition, categorical social policies are addressed to social groups and problems (such as women, ageing population, immigrants, handicapped people, family), by stressing the cumulative character of social rights, which are transversal to various social groups of population. We adopt here a narrow policy deﬁnition of the welfare state, i.e. social transfers and services. Thus, the Portuguese welfare system means here the beneﬁts provided by the State in the case of old age, disability, sickness, unemployment (passive and active policies), and so forth, and services in the area of health, child care and so on. However, our analysis is restricted to ﬁve policy ﬁelds: old age pensions, unemployment, family, health and long-term care, and minimum income. Institutional set-up and ﬁnancing Since 1979, the social security system and the health system have been autonomous organizations with respect to legal and administrative rules. The social security system is supervised by the Ministry of Labour and Social Security. According to the Framework Law 32/2002 (20 December),1 the system is made up of three systems: the public social security system; the social action system; and the complementary system. The ﬁrst one comprises three diﬀerent subsystems according to their aim and their ﬁnancing source: the insurance-based subsystem (subsistema previdencial), the subsystem of solidarity (subsistema de solidariedade) and the family protection subsystem (subsistema de protecção familiar). The insurance-based subsystem covers private-sector workers (employees and selfemployed) and it is aimed at ensuring protection against a loss or reduction of earnings in case of sickness, maternity (paternity and adoption), unemployment, occupational disease and employment injury, disability, old age and death.2 This subsystem comprises two schemes (a general scheme, which is by far the most important, and a voluntary insurance scheme) and provides earning-related beneﬁts.3 It is funded by social contributions from workers and employers. In 2004, contributors or active beneﬁciaries amounted to 4.7 million (86.6 per cent of active population). The subsystem of solidarity provides minimum protection to people not covered by the insurance-based subsystem and who are suﬀering economic hardship. This subsystem comprises the non-contributory scheme as well as some low contribution schemes.4 The beneﬁts (social pensions, social unemployment beneﬁt and insertion social income) are means-tested and ﬂat rate. This subsystem is ﬁnanced from tax. The family protection subsystem aims to guarantee compensation for family charges as well as provide protection in cases of handicap or long-term care. This subsystem covers all residents and is funded by social contributions and tax. The amounts of beneﬁts depend on the level of income and type of household. 400

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The social action subsystem aims at preventing and combating poverty and social exclusion. It is also aimed at ensuring protection for more vulnerable groups of the population – children and young people, handicapped and older people. This subsystem is ﬁnanced by tax and provides mainly beneﬁts in kind (social services and establishments) which can be carried out directly by the public institutions, namely autarchies, or by legal agreements with private social solidarity institutions. Over and above those activities, the regional oﬃces participate in the implementation of programmes (national and/ or corresponding to the EU Poverty Programme). A three-pillar model emerged in this new framework law which also includes a complementary system composed of mandatory funded pension schemes as well as voluntary private or public pension funds. However, these complementary schemes are underdeveloped and are usually pension funds managed by private institutions.5 Civil servants are covered by special schemes and have their own speciﬁc organizations which are supervised by the Ministry of Finance. Contributors numbered 737,355 in 2004 (13.4 per cent of active population). The pension beneﬁts are managed by the Caixa Geral de Aposentações (CGA); the government funds the diﬀerence between receipt of employees’ social contributions and pension expenditure. Medical assistance is managed by the Assistência na Doença aos Servidores do Estado (ADSE), which is funded by a social contribution based on the gross wage. Family beneﬁts are similar to those provided by the insurance-based subsystem. Health care is provided by a national health service, which was instituted in 1979 (Law 59 of 19 September) and it is supervised by the Ministry of Health. The national health service is universal in coverage. There are several health insurance subsystems, which cover around 25 per cent of the population, and provide additional coverage to the national health service (Oliveira and Pinto, 2004). The largest special occupational insurance is that of civil servants and their dependents, covering 15 per cent of the population. Social expenditure In 2004, social protection expenditure accounted for about 27.3 per cent of gross domestic product (GDP) in the European Union (EU25). Portugal shows a percentage of 24.7 per cent, slightly below the EU median. However, this proportion has been quite stable in the EU since the early 1990s (even considering the EU25 from 2000 onwards) while in Portugal the weight of social expenditure related to GDP, historically, has increased about four points since 1995 to the present (see Table 22.1). This displays a strong social eﬀort in the last decade to enlarge and improve the Portuguese welfare system. Disparities between Portugal and the EU25 arise when we look at the social expenditures in per capita terms, measured in euros: in 2004 the social expenditure per capita in Portugal is only about 50 per cent of the same indicator in the EU25. However, this diﬀerence would be less pronounced using the same indicator but expressed in terms of purchasing power standards (PPS) (Eurostat, 2006). Analysing the social expenditure by social expenditure function, old age and survivor beneﬁts accounted for the largest share in the majority of European countries and the case of Portugal matches that evidence: in 2004, 44.1 per cent of total beneﬁts were devoted to the payment of old age and survivor pensions (44.2 per cent in the EU27). Looking at Table 22.2, we can see that the social eﬀort on family support and on social exclusion and housing beneﬁts remain, in Portugal, markedly below the EU25 average, despite the implementation of the GMI (guaranteed minimum income) (a non-contributory 401

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Table 22.1 Social protection expenditure

pt

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

18289.5 18728.3 20095.9 22140.6 24397.7 26574.2 29411.3 32043.0 33330.0 35544.0p –

1823.4 1862.1 1991.4 2185.8 2398.5 2598.7 2857.4 3090.5 3192.2 3384.5p –

21.0 20.2 20.3 20.9 21.4 21.7 22.7 23.7 24.1 24.7p –

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 22.2 Social protection beneﬁts in percentage* (2004)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

pt

eu27

eu15

100.0p 93.3p 5.0p 5.3p 0.0p 0.9p 38.1p 44.1p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: No data available for 2005; e Estimated value; p Provisional value; * % of total social protection expenditure

beneﬁt aiming to tackle poverty and social exclusion) at the end of the 1990s in this member-state. The proportion of social expenditure on health care/sickness beneﬁts is a little above the EU27 average, which is much correlated with the universalistic nature of the Portuguese national health service, covering the majority of people in their health care needs. In recent years, Portugal has beneﬁted from low levels of unemployment, which may explain the small slice of resources devoted to cover that social risk, even knowing the relative generosity of Portuguese unemployment protection rules, when compared with other European member-states. The share of social expenditure with disability beneﬁts was higher in Portugal than in the EU25 (10.4 per cent of total beneﬁts in Portugal, 402

P O R T UG A L

against 8 per cent in the EU). Expenditure with housing and social exclusion functions remains at the margin of the Portuguese social protection proﬁle. In Portugal, as in Europe generally, the social beneﬁt expenditure is dominated by incash beneﬁts, compared with those delivered in-kind. In 2003, cash beneﬁts accounted for 66 per cent of all social protection beneﬁts in Portugal (67.5 per cent in EU25). As a counterpart, in this country, beneﬁts in-kind (which reﬂects the use of services and provision of goods across all social protection functions) are mostly concentrated on the health care system. Policy ﬁelds Old age pensions The Portuguese old age pension system is highly related to the Bismarckian model and can be characterized as having a predominant ﬁrst pillar that is divided into three diﬀerent provisions: the general scheme for private sector workers (employees and selfemployed people), the special scheme for public servants (both military and civil) and the non-contributory scheme. The general scheme (insurance-based system) is run by the Ministry of Labour and Solidarity. It is ﬁnanced by contributions paid by employees (11 per cent of earnings), employers (23.75 per cent of payroll) and self-employed people (25.4 per cent of reference income) and operates on a PAYG basis.6 Under this mandatory scheme, an earnings-related pension is provided for all people aged 65 with a minimum period of 15 years of insurance.7 A new pension formula has been established under the new Social Security Framework Law (Law 23/2002): the reference earnings is the average monthly wage over the entire contribution period limited to 40 years (the formula applied during the period 1994–2001 considered the average salary of the best 10 out of the last 15 years); the annual accrual rate varies from 2 per cent to 2.3 per cent and is regressive with reference earnings (the old ﬂat accrual rate of 2 per cent is still applicable for people with a number of contributions years equal or less than 20 years). The new formula is gradually being introduced between 2002 and 2017.8 The amount of statutory pension may be less than 30 per cent of the reference earnings (minimum pension) or greater than 80 per cent of this reference (maximum pension for a full career of 40 years). For low statutory pensions, a complementary payment from the non-contributory scheme is granted in order to bring it up to the minimum pension level. The 2002 law has also introduced a contributory ceiling but this reform is still to be deﬁned. Under this scheme, early retirement had been possible for people aged at least 55 with a minimum of 30 years of contributions but the amount of the pension is reduced by 4.5 per cent for each year of anticipation. However, in 2005 (Decree-Law 125/2005 of 3 August) early access to retirement pensions has been suspended. Bank and telecommunications employees are covered by mandatory occupational schemes, established through collective agreements. These schemes exist as substitutes for the general scheme and cover 4 per cent of employed people. The non-contributory scheme is ﬁnanced through taxes and is also run by the Ministry of Labour and Solidarity. This scheme provides a means-tested and ﬂat-rate pension (social pension) to people aged 65 or over in a situation of economic need and not 403

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entitled to a pension from the general scheme.9 Its amount is always under the minimum pension of the general scheme. The special scheme for public servants is under the supervision of the Ministry of Finance. It is a mandatory scheme ﬁnanced by social contributions paid by employees and employers and operates on a PAYG basis.10 Until 2005 public servants who started working before 1993 had more generous retirement conditions than workers in the private sector: the old age pension may be claimed before the age of 60 with a period of insurance of at least 36 years; because the reference earnings were the last monthly wage public servants with a complete career have a replacement rate of 100 per cent.11 The gradual harmonization of this scheme with the general scheme is now being implemented: raising of the retirement age to 65 (six months a year in the next ten years); raising the insurance period up to 40 years (six months a year until 2016); the reduction of the amount of pension in cases of early retirement; and the inclusion of all new public servants in the general scheme from 2006 onwards. During the last years, the major concern has been to decrease the incidence of poverty among older people since their ‘level of risk of poverty’ is high (29 per cent), and is related to the signiﬁcant proportion of the population with low insurance contributions or with very low insured earnings (European Commission, 2006: 236). Concerning the adequacy of pensions, two important measures have been taken recently. According to the framework law of 2002, the level of minimum pensions under the insurance-based subsystem has been increased over the period 2003–6 with the aim of bringing it to the net minimum wage (reduced by 11 per cent of social contribution). In 2006, the government instituted the Solidarity Supplement for the Elderly (Decree-Law No. 232/ 2005 of 29 December) for people aged 80 and over, and by 2009 it will cover all persons aged 65 and over. Three conditions of access have been established: age 65 or over; residence in Portugal for at least six years; and an annual income below 4,200 euros. The annual amount of the supplement is the diﬀerence between the claimant’s income and that amount. In terms of coverage, there are signiﬁcant diﬀerences among the schemes. In 2004, old age pensioners under the general scheme and public servant scheme amounted to 1.3 million and 368,000, respectively (66 per cent and 18 per cent of total of old age pensioners); the number of pensioners covered by the non-contributory scheme and by the Special Social Scheme for Agricultural Activities (RESSAA) amounted to 72,000 and 259,000, respectively (3 per cent and 13 per cent of all old age pensioners).12 Unemployment Since 1985, Portugal has operated a dual system, i.e. a combination of an insurance scheme with compulsory membership (insurance-based subsystem) with an assistance scheme (solidarity subsystem).13 The insurance scheme covers employees in the private sector who fulﬁl the following qualifying conditions: 540 days of earnings in the 24 months before unemployment; registration at an employment oﬃce; involuntary unemployment; the person must be capable of, and available for, work. Payments are stopped if beneﬁciaries do not fulﬁl their duties (for example, looking for jobs and participating in training programmes). Beneﬁts are earning-related (65 per cent of average earnings during the 12 months preceding the two months before unemployment) and not subject to taxation. There is a minimum and a maximum limit (equal to the minimum wage and equal to three times 404

P O R T UG A L

the minimum wage, respectively). Until 2006, the duration of payment was calculated according to the age of the insured person. The assistance scheme aims to protect unemployed people when they are not eligible for insurance beneﬁt or have exhausted their entitlement to insurance beneﬁts. The qualifying conditions are similar to that of insurance scheme, with the exception of the work condition: 180 days of earnings in the 12 months before unemployment. The beneﬁt is means-tested and ﬂat-rate: 80 per cent of the minimum wage if single and 100 per cent if the claimant has dependents. The duration of payment is also calculated according to the age of the claimant.14 Since 1991, there has been a pre-retirement beneﬁt with the aim of encouraging older workers to free up jobs. This measure was clearly inspired by labour market considerations and has been limited to unemployed people over the age of 55 having a contributory period of 20 years. The beneﬁt is paid until age of 60, when unemployment beneﬁt is converted to old age pension. Between 1995 and 2001, the Portuguese unemployment rate had shown a downward trend in line with a higher real rate of growth of GDP (see Table 22.3). However, from 2002 onward the labour market experienced a new deterioration resulting from the national and international economic crises. This situation explains the reforms of 2003 and 2006. Employment and Social Protection Programme was approved in 2003 which included a set of temporary and special measures aiming to improve the social protection for the beneﬁciaries of unemployed people insured under the general scheme. The programme included a reduction in the work condition as well as an increase in the amount of beneﬁt in cases where the household income did not exceed more than 1.5 times the minimum wage. A new reform of the unemployment protection system came into force on 1 January 2007 (Decree-Law 220/2006, 3 November). Under the new legislation, eligibility has been tightened by a stricter deﬁnition of availability for work regarding active job search and acceptance of job oﬀers. The duration of payment is now related to age and to insurance contributions. The minimum duration (270 days) is now applied to unemployed people aged under 30 with an insurance period of two years while the maximum duration (720 days) is applied to unemployed people aged 45 or above with an insurance Table 22.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

pt

eu27

eu15

7.1 7.2 6.7 4.9 4.4 3.9 4.0 5.0 6.3 6.7 7.6 7.7 8.0

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

405

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period of ﬁve years. The new rules are more generous for older unemployed people with greater insurance contributions. The reform also established another important change: companies will be prevented from dispensing with older workers at the cost of the insurance-based scheme. The theme of returning to work for the unemployed people has also been important for the Portuguese authorities. Labour market policy (LMP) interventions have been reinforced from 2003 onwards. According to the Eurostat database, Portuguese public expenditure in LMP measures and support has increased (in nominal terms) 85 per cent between 2000 and 2006. However, the number of participants experienced a signiﬁcant decrease (around 27 per cent) between 2003 and 2006. Family policy Since the introduction of the Framework Law on social security no. 17/2000 of 8 August15 there has been an autonomous family protection subsystem which, in addition to common family beneﬁts, includes protection for handicapped and dependent people. The Decree-Law no. 176/03 of 2 August has established and regulated the new family beneﬁts scheme. Most family beneﬁts processed by this social security subsystem have a monetary nature. In this subsystem there is a distinction between family allowances (the purpose of which is to oﬀset the costs incurred by families feeding and raising children) and maternity beneﬁts (which are intended to compensate for the loss or reduction of income from work during pregnancy, childbirth, adoption or absence from work to care for sick or handicapped children). Under the Decree-Law cited above, and opposite to the former legal framework (where the allowance was dependent of the professional status of beneﬁciary, or insurance-based), family beneﬁt is now deﬁned as the right of children or young people and is no longer subject to contributions from parents. Since 2003, family beneﬁt is a universal right granted to children and young people living in Portugal. The amount of beneﬁt, which includes a positive discrimination criterion in favour of both large and poor families, is assessed according to six levels of income, indexed with reference to the national minimum salary and established according to the level of income of the family, which is used as a reference.16 In 2006, the allocation of family beneﬁt to children and young people – the major item of expenditure of family beneﬁts in Portugal – is deﬁned by the scheme set out in Table 22.4 (monetary values expressed in monthly terms). There are a number of complementary family cash beneﬁts covering some population subgroups statistically less representative, like handicapped children and young people.

Table 22.4 Allocation of family beneﬁt to children and young people

Income level/age of the child

Up to 12 months

Level 1 reference income up to 0.5 times the minimum wage Level 2 reference income between 0.5 and 1 times the minimum wage Level 3 reference income between 1 and 1.5 times the minimum wage Level 4 reference income between 1.5 and 2.5 times the minimum wage Level 5 reference income between 2.5 and 5 times the minimum wage Level 6 reference income of the family above 5 times the minimum wage

126.69 31.67 105.58 26.40 84.46 24.29 52.43 20.97 31.46 10.49 No child beneﬁt is paid

406

Over 12 months

P O R T UG A L

With the Decree-Law 176/03 the funeral grant became a universal right, regardless of the history of insurance contributions of the beneﬁciary. In Portugal, the family allowance system does not provide beneﬁts in-kind. Within Portuguese solidarity and social security framework beneﬁts in-kind aimed at supporting families with long-term needs comes under the domain of social action. Such support, assessed under casuistic terms, takes the form of a network of facilities and services, as permanent homes, residences for permanently handicapped persons aged more than 16 years, centres for older people or temporary homes for children aged between 6 and 16 with some kind of handicap (MISSOC, 2004). Improving and providing family services such as child care services and facilities and other support services is seen as an important way to increase the participation of women in the labour market, giving them better opportunities to manage their careers and to equalizing the time allocation within household, historically and culturally unfavourable to the women. To achieve these objectives it is necessary, for example, to introduce ﬂexible opening hours for child care facilities by changing the habits strongly rooted among institutional (both public and non-proﬁt) providers of child care services. Important labour law measures have been recently established in the ﬁeld of maternity and paternity leave with a view to reconciling family and professional life which beneﬁt any employee covered by an individual contract. There is a number of complementary measures to this legal framework to promote family welfare: assistance for sick people; assistance for people with chronic illness or a handicapped minor child; parental leave to care for a child under six years; the father or the mother have the right, alternately, to parental leave of three months, or to work half time, during six months. In the case of the birth of a third child (or more), the leave period may be extended up to three years. It is important to note that labour legislation guarantees the return to employment once the periods of leave and absence from work are over (Missoc, 2002, 2004). Given the tendency towards the universalization of family beneﬁts, the largest part of beneﬁts for families and children described above are ﬁnanced by taxation. Health care and long-term care The NHS provides primary care, hospitalization, complementary diagnostic and therapeutic services (MCDT) as well as a contribution to the cost of medicines, which are dispended from private pharmacies. The NHS comprises all the public bodies responsible for the development of promotion, prevention and treatment within the ﬁeld of health and all the private organizations and professionals that have contracts with the NHS. The system is mainly ﬁnanced out of general taxation. However, there are patient contributions through co-payments. In 2005, the cost of care charged to patients represented only 1 per cent of the NHS budget (overall expenditure was 6,750 million euros, representing 8.3 per cent of GDP), while patients contributed around 50 per cent of the cost of medicines – through a sliding scale – in ambulatory care. Several groups are exempt from co-payment (for example children under 12, and people with chronic diseases or handicaps, pensioners whose pension is equal or less than the minimum wage). Overall, over 50 per cent of patients are exempted. In regards to the institutional structure, the NHS is organized on the basis of the division of the country into ﬁve Health Regions which, in turn, are divided into several subregions. These administrative units coordinate the Health Centres (Centros de Saúde) and hospitals of the respective municipalities. 407

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Primary health care services are provided at Health Centres, where each beneﬁciary is entitled to register with a family doctor. These doctors may advise consultations with specialist doctors at a public hospital or a private doctor or clinic contracted to work for the NHS. In general, the Health Centres have emergency services to attend events along with hospitals emergency units if necessary. Hospital emergency units receive all patients suﬀering an accident. Patients contribute to health care funding in various ways. They contribute co-payments to the various ambulatory care services,17 even though there are a number of exemptions regulated by law, as described above. On the other hand, patients’ contribution to the cost of medicines requiring medical prescription, range from 0 per cent to 80 per cent on a sliding scale according to the socio-economic characteristics of the patients. There are 30 categories and clinical circumstances for which the cost of medicines is exempt. In the last few years several measures have been introduced towards reducing the charges for medicines, namely through commercialization of generic medicines. The Portuguese NHS is now subject to a set of reforms aimed at achieving more eﬃcient management of the resources available by cost containment measures and seeking better coordination of the various primary care networks. Plans for introducing private management of some health units as well as new forms of public–public and public–private partnerships to provide care services are examples of novel strategies to improve the health care system. At the level of provision of care services, the organization of long-term care in Portugal is characterized by a strong interdependency between health care and the public family welfare subsystem18 on one hand and a multiplicity of non-proﬁt organizations19 on the other hand. By Framework Law no. 32/2004, under the Family Protection subsystem, the need to create a speciﬁc branch of protection oriented to dependency was recognized.20 However, given the high complexity of the institutional web involved, it will take some time until adequate regulation is provided. So, at the present time, there is diverse legislation governing this sector: (i) related to the public social security system (comprising all cash and in-kind beneﬁts supporting any situation of dependency); (ii) legislation in force within health sector related to the use of health public equipments, facilities and medical treatments and rehabilitation. Since the middle of the 1990s, the network of equipment and services allows for a number of in-kind beneﬁts essentially structured on a ‘combined domiciliary services’, through ‘combined support units’ (which in most cases prevent unnecessary stays in hospital), which are eﬀectively implemented by the IPSS under a coordination process with Local Social Security Centres and the relevant Regional Health authorities. There is a high heterogeneity of cases and social responses delivered to the dependent population which poses several problems of eﬃciency and eﬀectiveness in this ﬁeld. So, it has been recognized that the improvement in combined action of the social aid and health sectors is required to set out an objective for implementing health policies, as part of the National Health Plan, and adequate social security policies (involving an adequate covering of new social risks mainly amongst dependent older people) which, together, enabling to develop actions better targeted and a more eﬃcient intervention within the long-term care sector. A distinctive characteristic of the welfare system in Portugal is that long-term care provision yields informal careers at the level of the family, and it is considered important to develop a global strategy in this sector. However, there are not suﬃcient economic and legal incentives to recognize an alternative to caring for dependent people in their own homes by close relatives who would be disposed to perform such care. 408

P O R T UG A L

In parallel with the partnership of the public entities with non-proﬁt organizations, which dominate the supply side of long-term care, the private sector has been growing by reinforcing the supply of domestic support services, sheltered accommodation, nursing homes and convalescent homes. The quality (and quantity) of provided services has been under scrutiny, in particular the growing demand for better qualiﬁcations and training for a variety of professional careers that are required in the long-term care sector. In the near future, the need for qualiﬁed care workers and household help will increase, in particular in countries with high growth rates of older people, as is the case in Portugal and many other EU member states. In terms of ﬁnancing, maintaining and running social services, such as investments for building or acquiring installations, is supported by transfers from State budget. However the ﬁnancial burden is shared by IPSS, which provides long-term care services as well. These institutions maintain annual protocols with social security entities aiming at determining the amounts to transfer. There is a non-trivial contribution from beneﬁciaries too, which varies according to income and, in some cases, that of their families. Regarding cash beneﬁts speciﬁcally devoted to long-term care needs, if the beneﬁciary is, for instance, a pensioner from the general social security regime, beneﬁts are ﬁnanced by contributions of employees and employers; if the beneﬁciary comes from the non-contributory regime, as well as beneﬁts granted to disabled dependent children, the beneﬁts are ﬁnanced by general taxation. Social security provides ‘dependency supplement’, a cash beneﬁt for pensioners (from both regimes but with diﬀerent amounts according to the pension regime),21 and on two levels: (1) people who are unable to deal with normal and daily activities; and (2) people severely limited in their mobility and are conﬁned to bed. In conclusion, facing increasing needs of the dependent population, reinforced by the ageing population,22 Portugal has been concentrating on the long-term care sector in order to improve the coordination between care providers, through the creation of a well-structured and regulated care network combining the national health and social security systems and families. In addition, these networks will facilitate the support of new care units and professional teams to provide adequate action based on public and private partnerships. Minimum income The GMI was created by Law 19-A/96, 29 June, as a social security transfer of the noncontributory regime plus a social integration programme intended to ‘ensure to people and their households resources which contribute to satisfying their basic needs and promoting gradual social and professional integration’ (art. 1). It came into force in July 1997. This programme was modiﬁed later in 2003 (Law 13/2003, 2 May), with the new designation of Social Insertion Income Programme (Rendimento Social de Inserção). This policy measure followed the principles agreed on 24 June 1992, under the Portuguese presidency of the European Union, in the Council Recommendation on common criteria concerning suﬃcient resources and social assistance in social protection systems (92/441/EEC). The Portuguese GMI is a social policy measure that recognizes the personal right to a minimum subsistence income for those who do not have resources, irrespective of having or not having paid contributions to the social security system. Moreover, it makes this right conditional on the eﬀort of social insertion, with the state being engaged in the design of programmes for individual or family insertion. Beneﬁciaries 409

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Table 22.5 At-risk-of-poverty rates by gender

pt total 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

23 21 22 21 21 21 20 20p 19p 20b 19 18p

eu25 males 21 20 20 19 19 19 20 – – 19b 19 18p

eu15

females

total

males

females

24 22 23 22 22 22 20 – – 22b 20 19p

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate; p Provisional value

must be 18 or over, being resident in Portugal and have an income below a threshold indexed to the amount paid by the social pension (non-contributory social security regime) and varying according to the composition of the household. The creation of the GMI has generated a reduction in the poverty gap and of the severity of poverty in Portugal, but has had a rather modest eﬀect on the number of poor people (Pereirinha, 2006). The poverty threshold approved as a reference income for the beneﬁt is very low, that is about 50 per cent of our estimate for the absolute poverty line. So, the total number of GMI beneﬁciaries is less than 5 per cent of the Portuguese population, while the proportion of poor people in the last ten years has been around 20 per cent of the total population, permanently above the average at-risk of poverty rate in the EU (see Table 22.5). The low take-up of this policy measure is another factor for the low eﬀectiveness: a study by Rodrigues (2004) estimated that 28 per cent of households entitled to the GMI do not apply. But positive eﬀects can be found in the integration dimension of this policy, having facilitated professional integration into the labour market by many beneﬁciaries. The partnership between the social actors is an important dimension of this policy, and is crucial for its eﬀectiveness. The experience gained during the 1990s from the National Programme against Poverty has created a culture of participation among social actors and innovative forms of institutional cooperation. However, weak participation by institutional partners is a reason for the still limited success of this policy with regard to its labour market integration component (Pereirinha, 2006: 134–37). Evaluation Regarding the level of generosity as well as the incidence of poverty among old age pensioners, there are signiﬁcant diﬀerences between the various regimes. 410

P O R T UG A L

If we take the average old age pension of new pensioners each year, it is obvious that the civil servant scheme has been much more generous than the general regime (insurance-based scheme). Despite the generosity of the beneﬁt formula under the general scheme the average monthly new pension in 2004 was 424.44 euros, which represented 1.16 times the minimum wage (365.6 euros) and only 33.3 per cent of the average new pension under the public servant scheme (1,275.42 euros, corresponding to 3.5 times the minimum wage). There are a number of reasons for this. First, the diﬀerences between the pension rules described above. Second, and more important, the short contribution career and the low reference income of retired people under the general scheme.23 Another way of analysing the diﬀerences between the contributory schemes is to look at the number of old age pensioners by level of monthly pension: in 2004, a pension of 500 euros (1.4 times the minimum wage) or less was granted to 60 per cent of pensioners under the general scheme, while this rate shifted to 25 per cent under the public servant scheme. In nominal terms, minimum and social pensions have been increased signiﬁcantly. All pensions have been adjusted once a year (in December) with regard to inﬂation but different rates have been applied to diﬀerent pensions, with lower pensions getting a higher increase. However, the value of pensions is still relatively low in 2004 compared with the minimum wage: the minimum pension under the contributory regimes reached 55 to 96.5 per cent, depending on the contributory period.24 Social pensions and pensions granted by RESSA amounted to 34 per cent and to 56 per cent of the minimum wage, respectively. Owing to short contributory careers and very low reference earnings, the minimum and social pensions have been the most representative old age beneﬁts under the Social Security System: in 2004, around 68 per cent of all pensioners received an amount equal or less than the minimum pension of the general scheme.25 Under the public servant scheme, only 2 per cent of all pensioners received the minimum pension. Portugal is then a good example of a less mature welfare state and low wage economy. Both factors (less mature welfare systems plus low wages) may explain why the high generosity of the welfare system (high replacement rates of income) co-exists with low pensions. The existing welfare gaps are not explained by deﬁcits in social rights but, instead, by the weak economic basis that support its realization. According to the Eurobarometer, the Portuguese have a critical opinion about their social welfare system, with coverage a particular issue: in the inquiry of November–December 2006, only 10 per cent of Portuguese said that it was suﬃcient, compared to 51 per cent at the EU25 level (European Commission, 2007). This negative view may be explained by the climate of welfare system reform, namely in health care, that was happening in Portugal at that time. In this context, the need of welfare reform has a diﬀerent meaning and content when compared with other European countries, with higher wages, more mature welfare systems and where population ageing is a more acute problem.

Actual development The Portuguese authorities face a major challenge: improving the adequacy of the social protection system and ensuring, at the same time, its ﬁnancial sustainability (European Commission and Portuguese Government, 2005). Recently, the adjustment to ageing of the pension system has been a priority. In January 2007, Parliament approved a new Social Security Law (Law No.4/2007) which introduced 411

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two important measures: the pension formula has now a new determining factor i.e. an annuity factor depending on the average life expectancy for a cohort; early adjustment of pensions became dependent on a factor for expected development of the economy. Further structural measures are now to be discussed, such as the abolition of the special schemes, incentives for later retirement, new tax beneﬁts aiming to promote complementary schemes. The recent social policy reforms (pensions, unemployment, health care and minimum income) have been designed as an answer to four social and economic problems: population ageing (not as serious as in other European countries), structural characteristics of labour market; high and persistent poverty rates; and sustainability of public ﬁnances. The Portuguese authorities face important challenges resulting from the development of those reforms and from traditional welfare gaps. Four major themes can be identiﬁed: eﬀorts to reduce poverty; labour market inclusion; guarantee of equality in health outcomes; improving coverage of social services in support of family life.

Notes 1 This law replaces the Framework Law No. 17/2000 (8th August). 2 Protection in cases of occupational disease is managed by a speciﬁc organization: the National Centre for the Protection of Occupational Risks (Centro Nacional de Protecção contra os Riscos Proﬁssionais). Insurance for employment injuries is provided by insurance companies which are supervised by the Ministry of Finance. 3 The voluntary insurance scheme provides protection to people not compulsorily covered by the general regime (for example people who work abroad and housewives). 4 There is also a special scheme for agriculture (RESSA) which provides old age, invalidity and survivor pensions and family allowances. This regime was closed in 1986. 5 Private pensions (individual, voluntary and funded) are mainly represented by life insurance schemes and pensions funds. Its growth has been encouraged by tax incentives. 6 These global rates of contribution cover the ﬁnancing of all beneﬁts included in the ﬁeld of application of the general regime. 7 Retirement age equality was gradually introduced under the decree-law of 25 September 1993, which came into force on 1 January 1999. Before this, the retirement age was 62 years for women and 65 years for men. 8 A transitional period has been established (until 2017) during which the most favourable method is applied (the former method, the new method or a combination of the two). 9 The monthly income cannot exceed 30 per cent of the minimum wage for a single person or 50 per cent for a couple. 10 The Central Government is an exception: it only makes transfers to cover the annual deﬁcit. 11 Since 1993, all new public servants have been under the same retirement conditions as private sector workers. 12 The number of pensioners covered under these two regimes have shown a signiﬁcant decline since 1994 (34 per cent and 41 per cent, respectively). 13 Until then the unemployment beneﬁt’s conception was predominantly one of assistance. 14 Same period as unemployment insurance; when unemployment assistance is granted after the exhaustion of insurance beneﬁt, the payment is reduced to half of the period. 15 Lately updated by the Framework Law 32/2002 of 20 December, which was enforced in 2006. 16 The income taken into account in order to determine the level of income at which family beneﬁt will be set is the result of dividing the total earnings of all family members by the number of family members plus 1. In each level, the allowance depends on the age of the child. The allocation of beneﬁt is normally granted to children (i) up to age of 16 years; (ii) until 18, 21 or 24 years if they are registered for secondary education or vocational training, according to the situation; (iii) between 21 and 24 years if they follow a higher education course or equivalent; and (iv) up to 24 years in the case of handicapped children.

412

P O R T UG A L

17 Patients make a co-payment (values in 2005) of 2 euros for consultations in health centres or by approved health care providers; 2.70 euros for emergency consultations in health centres and 6–10 euros for emergency consultations in hospitals. 18 This corresponds to the Local Social Security Centres. 19 This comprises Private Social Solidarity Institutions (IPSS – Instituições Particulares de Solidariedade Social) and non-governmental organizations (NGOs). 20 A dependent person, regardless his/her age, is deﬁned as ‘any person who cannot perform essential everyday activities independently – in particular domestic tasks, moving around and personal hygiene – and who needs permanent care from another person’ (as deﬁned under the decree-law no. 265/99 of 14 July). 21 Both beneﬁts are indexed to the social pension (in 2006 the amount of social pension was 171.73 euros). Pensioners from the general social security regime at the ﬁrst level receive 50% of the reference amount; second level, 90%. Pensioners framed by the non-contributory regime receive, respectively, 45% and 85% of the amount of social pension. 22 In the next 20 years the population aged 80 or more will increase enormously in most of European countries (Comas-Herrera and Wittenberg, 2003). 23 The Portuguese social security scheme (established in 1935) only became universal after 1974. Maturity will be reached after 2015. 24 A scale for minimum pensions (general scheme and public servant scheme) has been in place since 1 January 1999 in accordance with the contributory career. 25 This rate includes pensioners under the special social scheme for agricultural activities (RESSAA) and the non-contributory scheme.

Bibliography Albuquerque, P., Arcanjo, M., Escária, V., Nunes, F. and Pereirinha, J. (2006) ‘Retirement and the Poverty of the Elderly in Portugal’, ISEG, Technical University of Lisbon, discussion paper WP 15/ 2006/DE/CISEP. Arcanjo, M. (2006) ‘Ideal (and Real) Types of Welfare State’, ISEG, Technical University of Lisbon, discussion paper WP 06/2006/DE/CISEP. Carolo, D. (2006) ‘A institucionalização do Estado-providência em Portugal: da reforma da Previdência Social de 1962 à actual Reforma da Segurança Social’, paper presented at the XXVI Encontro da APHES, Ponta Delgada, 17–18 Novembro 2006. CGA (2004) Relatório e Contas, Caixa Geral de Aposentações, Lisboa: Ministério das Finanças. Comas-Herrera, A. and Wittenberg, R. (2003) ‘European study of long-term care expenditure’, Report to the European Commission, Employment and Social Aﬀairs DG, Grant number VS/2001/0272, PSSRU Discussion Paper 1840, February. DGSSS (2005) Relatório Nacional de Estratégia sobre o Futuro das Pensões, Direcção Geral da Solidariedade e Segurança Social, Ministério do Trabalho e Segurança Social, Lisboa. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Oxford: Polity Press. —— (1999) Social Foundations of Post-Industrial Economies, Oxford: Oxford University Press. European Commission (1993) Social Protection in Europe, Brussels. —— (2005) Health Care and Long Term Care – Preliminarey Report. Portugal: Ministry of Health and Minstry of Labour and Social Security. —— (2007) European Social Reality, Special Eurobarometer Report, 273; country report: Portugal. —— (2006) Adequate and Sustainable pensions – Synthesis report 2006, Brussels. European Commission and Portuguese Government (2005), National Report on Strategy for Social Protection and Social Inclusion, Portugal 2006–2008. Ferrera, M. (1996) ‘The “southern” model of Welfare State in Social Europe’, Journal of European Social Policy, 6(1): 17–37. INE (2005), Anuário Estatístico de Portugal, Instituto Nacional de Estatística, Lisboa. MISSOC (2006) Social Protection in the EU Member States and the European Economic Area. Situation on 1st 2001 and Evolution, European Commission, Brussels.

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MISSOC-Info 01/2002 Family beneﬁts anf family policies in Europe – Portugal, Eurostat. 01/2004 Between restruturation, rationalization and solidarity, Eurostat. ——03/2002 Health care in Europe – Portugal, Eurostat. ——01/2006 Evolution of Social Protection in 2005, Eurostat. ——02/2003 Evolution of social protection of the EU and EEA member states, Eurostat. ——02/2005 Health care: user charges, Eurostat. ——02/2006 Long-term care in Europe – ‘Introduction’ and ‘Portugal’, Eurostat. Oliveira, M.D. and Pinto, C.G. (2004) ‘Reviewing evidence on the Portuguese NHS experience’, discussion paper WP N.2/2004, Associação Portuguesa de Economia da Saúde, Lisboa. Pereirinha, J. (2006) ‘Poverty and anti-poverty policies in Portugal: the experience of the Guaranteed Minimum Income’, in M. Petmesidou and C. Papatheodorou (eds) Poverty and Social Deprivation in the Mediterranean – Trends, Policies and Welfare Prospects in the New Millennium, London/ New York: Zed Books. Pereirinha, J. and Carolo, D. (2006) ‘Construção do Estado-Providência em Portugal no período do Estado-Novo (1935–74): notas sobre a evolução da despesa social’. ISEG, Technical University of Lisbon, discussion paper WP 30/2006/DE/CISEP. Pereirinha, J. and Nunes, F. (2006) ‘Política Social em Portugal e a Europa, 20 anos depois’, in ROMÃO, A. (ed) A economia portuguesa 20 anos depois, cap. 7, pp. 283–326, Coimbra: Almedina. Petrášová, A. (2006) Social Protection in the European Union. Statistics in Focus, Population and Social Conditions, 14/2006, Eurostat. Powell, M. and Barrientos, A. (2004) ‘Welfare Regimes and Welfare Mix’, European Journal of Political Research, 43, 83–105. Rodrigues, C. F. (2004) ‘The redistributive impact of the guaranteed minimum income programme in Portugal’, ISEG, Technical University of Lisbon, discussion paper WP9/DE/CISEP. Vogel, J. (2003) ‘Welfare State’, Social Indicators Research, 64, 373–91.

414

Chapter 23

ro The Romanian welfare state Changing and developing Suzana Dobre

Introduction The Romanian welfare system was consolidated during communism, although its basis was set before. During communism the welfare state was deﬁned by two essential features: maximal centralization and the link to employment. The state took care of social protection completely (Naumescu, 2000), from beneﬁts and housing to job placement. Full employment was promoted for ideological rather than economic reasons (Mihut and Lauritzen, 1999), maximizing the income from salaries, minimizing the income from property and eliminating income from proﬁt. Because of full employment, public social insurance provided a large coverage for several beneﬁts such as pensions, family allowances, sickness and maternity leave – yet they were not universal. Among the uncovered groups were people employed in agriculture and cooperative workers who were not part of the public insurance schemes. Unemployment was not oﬃcially recognized and therefore there was no beneﬁt for such a risk. In fact, unemployment as a phenomenon existed (Zamﬁr, 1999), but there are no accounts on its dimension. Free education and health services were available for everybody, but, especially for health services, the quality was poor. Housing policy was developed to support the economic expansion. Thus the public housing stock, which comprised most of the new constructions, was managed by the state enterprises. Several new communities were created in the vicinity of the industrial giants, especially in mining or heavy industry. Such mono-industrial localities have faced major challenges during the transition period, when the large companies had to resize or went bankrupt. Family policies were developed with the aim to support full employment, providing care facilities with a good coverage and also modest child beneﬁts. However, a new aim to boost demography was brought on the agenda in the 1960s and Romania constructed a pro-birth policy that evolved into extreme measures. Divorced and non-married people were discouraged publicly, facing diﬃculties in career advancement and also paying higher taxes. Ceausescu banned abortion, and pro-birth policies reached paroxysmal levels intruding into the privacy of women (Muresan et al., 2008). Coercive medical check-ups for pregnancies were taken at the workplace regularly to prevent 415

S . D OB R E

illegal abortions and any sign of recent pregnancy could have resulted in criminal indictment. The eﬀects of such an aggressive policy were reﬂected in very high birth rates, but they also risked women’s health because of illegal abortions, and a very high number of abandoned children were institutionalized in huge and insalubrious institutions. Although the problem of abandoned children was not publicly admitted, it became one of the most important challenges when reforming the system after the fall of communism. Abortion became legal immediately after the revolution. Poverty is also a signiﬁcant issue for Romania, which was completely neglected during communism because of ideological reasons. There was no recognition of poverty and therefore no support. Some authors (e.g. Zamﬁr, 2001) estimate that 7 per cent of the population were poor in 1989. However, especially in the last decade before the fall of communism, a much generalized phenomenon of very poor living conditions aﬀected most of the population. Shortages and rationalization of food, poor housing and energy cuts – electricity, gas and heating – aﬀected the life of most people, making even those who earned average or even higher incomes de facto poor. After the fall of communism, poverty became widespread in the context of economic transition and reached about 44 per cent of the population in 2000, while about 16.6 per cent lived in severe poverty in 1999 (Tesliuc et al., 2001). Disability was also poorly covered by communist policies. If the disability was acquired during working life, the person could beneﬁt from an invalidity pension. Those born with disabilities faced major diﬃculties because of lack of ﬁnancial support, access only to segregated education or no access at all. The care was undertaken by the family and the only alternative oﬀered by the state was institutionalization in ghastly conditions, especially for those with mental disabilities or psychiatric disorders. During the transition period, Romania faced probably the worst situation in the region. Political isolation, economic ineﬃciency, poverty and a reluctance to reform extended the period of transition to more than a decade. In analysing the content of social policies, Naumescu (2000) ﬁnds three main periods during transition. The ﬁrst period was characterized by an explosion of more or less appropriate social measures, such as the restitution of ‘social parts’ paid by the entire population, increase in salaries and beneﬁts, generous special beneﬁts for particular groups, etc. The eﬀect was the exhaustion of the public budget in a period when economic reforms and budgetary tightness would have been probably more appropriate. The second period that lasted until 1997 was called the period of ‘indexation’ when social policy consisted mainly of small increases in passive beneﬁts only to hamper the eﬀects of hesitant economic reforms. Despite the lack of eﬃciency in social reforms and overspending, the ﬁrst two periods brought some progress mainly with regard to employment, e.g. the introduction of unemployment beneﬁts, minimum wages and new arrangements for social dialogue. Only after 1997, governments committed themselves to substantial economic and social transformations. The economic changes taking place during the 1990s created high rates of frictional unemployment with workers moving from old jobs in declining sectors to new jobs in expanding sectors. Owing to political risks, Romania was not attractive for investments and thus the rate of new jobs creation was smaller than the rate of job destruction. The number of (oﬃcially registered) employees decreased abruptly throughout the decade and stabilized after 2000 at just 50 per cent of the starting level. The size of the active workforce declined throughout the whole period of the 1990s. Yet despite that fact, Romania experienced relatively low unemployment rates (see 416

R O M AN I A

Table 23.1) compared with neighbouring countries. This can be explained by the absorption of the industrial workforce oversupply in the small, subsistence agricultural farms and by the intensive use of early retirement. Romania has the largest proportion of people employed or self-employed in agriculture throughout Europe, namely around 30 per cent compared with 3 per cent in the EU. However, agriculture contributes a mere 5 per cent to the gross domestic product (GDP). The intensive use of early retirement led to a diﬃcult situation in public pension schemes, as the ratio of contributors to pensioners reached about 1:1 (Dobre, 2006). In terms of social security, Romania followed the existing trails after the fall of communism. Some beneﬁts such as child beneﬁt remained universal but most of them kept the connection to work. Health care shifted from universal to insurance based. Social insurance, covering pensions, unemployment beneﬁts, disability pensions and maternity leave, was managed exclusively by the state. Because of the limits in coverage of social insurance, the Romanian government also introduced means-tested income support beneﬁts. Social services had to be completely reinvented in Romania. During communism, the only social services were the large-scale institutions for children, disabled or older people. Even for quite a long time after the revolution, the state proved incapable to reform the old institutions and create new ones both in terms of will and funds. In this vacuum, the international organizations stimulated local non-governmental initiatives. Practically, most of the ﬁrst decade after the fall of communism, charities were the sole providers using exclusively foreign aid. The drawback of this situation was obvious: fragmentation of services, insuﬃcient coverage, lack of control for quality and diﬃculties in ﬁnancial sustainability. Only after 1998 did the government create a scheme of grants for social services providers, develop standards of quality and accreditation procedures and start to reform its institutions. Although the reforms were slow, underpaid and still too often ineﬃcient, the Romanian welfare state had its transition, diversifying and adjusting to the new needs of society. This transition has been made in the shadow of the economic one, with the bare scope of easing the social impact of economic restructuring.

Table 23.1 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ro

eu27

eu15

– – – – 7.1 7.3 6.8 8.6 7.0 8.1 7.2 7.3 6.4

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 25 Jul 2008)

417

S . D OB R E

Status quo The level of social spending in Romania is low compared with the European average (see Table 23.2). Romania spends only 14.2 per cent of its GDP on social protection, while the EU25 spend 27.4 per cent on average. However, such a low level is not unique as neighbouring countries (Bulgaria) have similar levels. Pensions The Romanian pension scheme is a three-pillar system with a large public pillar managed by the National Insurance House, a governmental body. The ﬁrst pillar, which has more than 4.6 million beneﬁciaries and an equal number of contributors, is a pay-as-you-go compulsory social insurance scheme. The contributions paid by both employers and employees are collected into a separate fund that provides the funding for old age pensions, anticipated pensions and invalidity pensions. Although there is a connection to the contributions made during working life, the value of the beneﬁt and the conditionality are subject to governmental decisions. The reforms of the pensions system have been debated for years because of the particularly poor situation of the public pension scheme. Yet only recently has a three-pillar system been set up. Starting in 2008, a second pillar was established with individual accounts and deﬁned contributions. A small percentage of contributions to public social insurance are directed to private managers according to the preference of the contributor. A third pillar of voluntary private pensions, opened to individual contributions (but not yet to employers), is complementing the system.

Table 23.2 Social protection expenditure

ro

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– – – – – 5341.3p 5909.9p 6503.5p 6628.2p 9168.3p 11264.2p

– – – – – 244.0p 270.4p 298.3p 304.9p 422.8p 520.7p

– – – – – 13.2p 13.2p 13.4p 12.6p 15.1p 14.2p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Estimated value; * in million euro; ** in euro

418

R O M AN I A

Employment The Romanian employment policy has a strong legacy of passivity, so in practice it has been a policy dealing with unemployment rather than employment and aiming just at easing the social impact of industrial transformations. Now, with the economic conditions changed, the policy has shifted from beneﬁt provision to support for ﬁnding new jobs. Without its own philosophy, the government (Romanian Government, 2006) borrowed the priorities of the Lisbon Agenda: to attract and maintain more workers in the labour market (young and older workers are considered priority), to improve the adaptability of ﬁrms and workers and to invest in human capital. Employment polices are centralized, as the government and its decentralized oﬃces share the responsibilities, while local administration and social partners have little say. The funding comes from the social insurance budget and is complemented by ﬁnancial support from the European Social Fund, especially for active measures (Table 23.3). Unemployment beneﬁt depends on previous contributions regarding both the value of the beneﬁt (up to 85 per cent of the minimum gross wage) and the period of eligibility (up to 12 months). In case of closure or resizing of large enterprises, dismissals were accompanied by compensatory payments. In some instances considered risky in terms of social restiveness, as for example the closure of mines, these payments have been very generous. The active measures are counselling and placement, referral to trainings, mobility grants and special subvention schemes for young graduates and older workers. Social support: minimum income guarantee and tax deductions The minimum income guarantee (MIG) makes a distinct note in the Romanian system, which is built on social insurances and universal beneﬁts. MIG is one of the few meanstested beneﬁts and while most beneﬁts are individual, MIG is targeting at the household. The programme reaches about 300,000 households and about 900,000 people, being a medium-sized programme in terms of coverage, but small when looking at the budgetary allocations. MIG is a combination of social assistance, negative income tax and workfare. The beneﬁt is deﬁned considering the size and composition of the household and provides the diﬀerence between the actual incomes and the threshold. Eligibility for MIG provides entitlement for other beneﬁts such as heating support during winter and health insurance. Jobless, working-age people have to prove that they are registered at the Employment Agency and have not refused a job placement. Unless employed or disabled, working-age recipients

Table 23.3 Labour market indicators on age groups (2006)

employment rate

activity rate

unemployment rate

15-64 15–24 25–54 55–64 15–64 15–24 25–54 55–64 15–64 15–24 25–54 55–64 RO 58.8 EU8+2 61.9 EU15 66.0

24.0 27.3 40.1

74.7 78.7 78.8

41.7 41.5 45.3

63.6 67.4 71.6

30.6 33.3 47.8

79.9 85.0 84.6

42.8 44.0 48.3

7.6 8.4 7.8

21.4 18.2 16.1

6.7 7.4 6.9

3.9 6.6 6.1

Source: World Bank, 2007 Notes: EU8+2 comprises the new member states

419

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have to undertake community work or they risk losing the entitlement, although the rest of the household can still receive it. Participation in the labour market is encouraged as a working member in the household increases the entitlement by 15 per cent. However, this bonus is awarded only once no matter how many of the members are working and any increase in employment income results in a decrease in the overall household income (DFID, 2004). Thus, MIG cannot avoid the poverty trap common for such forms of social assistance, although some authors (SAR, 2002) argue that MIG pushes the recipients towards the informal market rather than just making them idle. Romania has the highest rate of people active in the informal sector in comparison to Western Europe and also its neighbouring countries from central and eastern Europe (Stanculescu, 2004). This points to informality as an important strategy to cope with poverty, which is at a higher level than the EU mean (see Table 23.4). The MIG is administered by local governments. They determine the eligibility using nationally deﬁned criteria, allocate and supervise community work. Funding is provided from the state budget, but local governments are expected to contribute to ﬁnancing from their own resources. The ﬁscal system also provides income tax deductions for lower incomes, taking into account the number of dependents and if any of them has a disability. Income tax is a ﬂat rate of 16 per cent, but deductions are progressive with large coverage from aboveaverage salaries. The highest deduction for employees with more than four dependents reduces the base for income tax by 60 per cent. However, the most important burden on salaries are the contributions to social insurance, where no such deductions apply. Disability beneﬁt The disability beneﬁt eligibility is contingent on an evaluation conducted by a socio-medical commission that decides on the degree of impairment (severe, accentuated and moderate).

Table 23.4 At-risk-of-poverty rates by gender

ro

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– – – – – 17 17 18 17 18 18 19

– – – – – 17 17 18 17 18 18 18

– – – – – 18 17 18 18 18 18 19

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

420

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The beneﬁts available to people with disabilities are disability allowance and personal budget allowance, both of them non-contributory and non-means-tested. Those in need of permanent attendance can opt between receiving professional service or an attendant allowance so they can purchase the care services themselves. The receipt of these beneﬁts is totally independent of the employment status of the disabled person. All these beneﬁts are funded from the national budget and managed by the local administration. People who became disabled during their working life are entitled to invalidity pensions within the social insurance system, which are also awarded after an evaluation of a medical commission. The conditionality refers to the total or partial loss of the capacity to work (at least 50 per cent). The pension provided depends on the previous contributions record amounting to between 50 and 70 per cent of the reference earning. A long-lasting debate concerns the permeability of the evaluation system for invalidity pensions to freeloaders, although the phenomenon is insuﬃciently documented. The suspicions are based on a 30 per cent increase in the number of recipients during the last seven years. Family policies Family beneﬁts aim at reducing the costs of bringing up a child and can only indirectly inﬂuence fertility (Ghetau, 1997). Romanian family policies are based on a mixture of universal beneﬁts and social insurance. Children’s allowance is a modest beneﬁt with universal coverage. Also on a universal basis, the state provides a cold meal per day to all children in pre-school and primary education. Maternity leave and child care are conditioned by previous contributions to social insurance. Maternity leave is available if the women had worked for at least six months prior to the birth of the child. It is provided for 126 days and represents 85 per cent of previous earnings. Child care leave is paid for two years to either parent. The condition is that the parent has worked at least 12 months before the birth of the child. The leave used to be related to previous earnings, but currently the beneﬁt is a ﬂat rate of approximately 60 per cent of the average net salary. However, the amount is losing real value as inﬂation increases to a rate faster than government indexation, not to mention salaries. The government also provides a premium for parents who return to work before the two-year entitlement for child care leave ends. As Muresan (2008) points out, the two-year child care leave was used as a buﬀer for female unemployment during the transition period. All changes in recent years have aimed at encouraging a faster return to work for parents by decreasing the incentives to take up child care leave, especially for people with higher income. The current set-up beneﬁts people with fewer than four children; this discrimination aﬀects in particular Roma people who tend to have larger families. The provision of public pre-school care is the responsibility of local authorities (for children under two years of age) and the Ministry of Education (for children aged three to ﬁve). For children aged less than two years, the communist regime provided a large number of places in crèches. Now the number of children attending these institutions decreased by 90 per cent, mainly due to the child care leave available to parents for the ﬁrst two years of the child. Actually, crèches are the only option for working parents with low income who cannot aﬀord to stay at home or to purchase baby-sitting services (Stativa and Anghelescu, 2004). Pre-school education for children aged three to ﬁve is oﬀered by both public and private providers. The services provided by public providers 421

S . D OB R E

are funded almost entirely by the Ministry of Education, the parents also contributing modestly. Pre-school education has a good coverage as about 72 per cent of the children aged three to ﬁve attend kindergartens (Ministry of Education, 2008). In urban areas the enrolment rate is about 12 per cent higher than in rural areas, although the number of kindergartens is higher in rural areas (albeit not covering isolated areas). In urban areas three-generation households are more common and the informal support provided by relatives plays an important role. Health services The public health system is insurance based. The Health Fund is managed by the National Health Insurance House (NHIH) and is formed by contributions of both employers and employees. The registered unemployed and the recipients of income support are also covered by the insurance. In this contributory set-up, health insurance has a good coverage, with approximately 96 per cent of the people living in urban areas and 89 per cent in rural areas (NHIH, 2006). Despite the relatively good coverage, in terms of morbidity and mortality, Romania is lagging behind other European states, especially regarding infant mortality (CASPIS, 2002). A signiﬁcantly lower coverage can be noticed for Roma population (Ionescu and Cace, 2006). The system is supposed to be gate-kept by general practitioners. Indeed most of the patients approach the general practitioner, but for more complicated illnesses they go directly to specialists or hospitals, surpassing the primary level (CPSS, 2006). The eﬀect is low eﬃciency of the cost control role of general practitioners. Most of the budget for health services is allotted to hospitals, while general practitioners receive relatively low allocations. The reforms tried also to decrease the hospitalization costs by encouraging community health services. Despite the rhetoric, the funds allotted to community services amount to approximately 1 per cent of the health services budget, which indicates the extreme underfunding and low coverage of community services. Health insurance also provides free medicines for children and compensates the costs of medicines for all those insured. As the health authorities are trying to contain the costs for free and compensated medicine, accusations of monopolistic or monopsonistic positions ﬁll public discussions between authorities and providers. Education All successive governments have declared education a national priority, given its importance both for economic development and for protecting vulnerable groups from poverty. However, their commitment has not been matched by funding. Data from Eurostat show that Romania has one of the lowest shares of GDP attributed to education among all European countries (3.48 per cent in 2005 compared with 5.03 per cent in EU27). The lack of resources has a corresponding lack of eﬀectiveness. International evaluations (PISA, TIMSS and PIRLS) place the performance of Romanian students well behind other countries in Europe, including neighbouring countries. The overall enrolment rates are also lower than European averages, while the drop-out and early school leaving rates are among the highest (Ministry of Education, 2007). School education is compulsory for the ﬁrst 10 grades. It is formed by pre-school, primary school (four years), secondary school (two years) and college and vocational school (four years, only two of which are compulsory). Education is funded by the 422

R O M AN I A

Ministry of Education (human resources) and the local government units (infrastructure), but there are discussions to decentralize the ﬁnancing to the local level. Higher education is provided in approximately 50 public universities as well as a large number of smaller private ones. The number of graduates of higher education is increasing fast, reaching about 37 per cent of the age group (Ministry of Education, 2007). Despite the desired universality of education, the system creates large misbalances between urban and rural areas (Report of Presidency Commission on Education, 2007). Only 24.54 per cent of children from rural areas attend college and the incidence of poor results to literacy, maths and science is about six times higher in rural areas than in urban areas. Furthermore, the Roma population is facing major disadvantages as only 64 per cent of Roma children are registered in primary education compared with the national average of 98.9 per cent. Also, about 38 per cent of Roma are functionally illiterate and approximately 80 per cent of the youngsters without any education belong to this ethnic group. Social care services Social services are that part of the welfare system whose development was most aﬀected by the lack of ﬁnancial resources. The system inherited from communism was formed exclusively of large institutions where abandoned children, people with disability or older people lived in very poor conditions. After the change of regime, the lack of resources and political will delayed the creation of a modern public system. It was mainly the nongovernmental sector that took over this responsibility, in most cases with private funding (Ilie and Vonica, 2004). After accession to the European Union, foreign donors withdrew and the main source of funding disappeared. Currently, most of the accredited providers (meeting the required quality standards) are private non-proﬁt organizations (Rusu, 2007) and the government is considering a law that allows social services to be purchased from private providers. The provision of social services is very unequal in the country, depending on the existence of private entities to assume the role of providers and on the ﬁnancial capacities of the local administration, responsible for purchasing. In many places, especially in rural areas, informal care is the only form of care available. Compared with all other parts of the welfare system, in which the state plays a central role, social services must be built as a mixed economy of welfare, both in terms of funding and provision, but they still have to go a long way until providing reasonable coverage. Analysis: ﬁnance and provision of welfare services Most of the cash beneﬁts are conditioned by participation in the national insurance schemes, but with a large coverage of the population. The system was inherited from communism, when because of full-employment the beneﬁts linked to work had almost universal coverage. Family and disability beneﬁts comprise both contributory and noncontributory conditionality, but those linked to insurance are more generous than the universal ones. The only beneﬁt that breaks the pattern is the income support scheme, but the overall budget of the means-tested beneﬁts is very low. Looking to the shares in the social protection budget (see Table 23.5) it is obvious how important the position of the insurances and the policy ﬁelds covered by them is in the Romanian welfare system. The state is the main manager of the insurance schemes. Romania accepted private insurances only recently and only in the area of pensions. Private health insurance is not 423

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Table 23.5 Social protection beneﬁts as a percentage* (2005)

Total expenditure Social protection beneﬁts Family/Children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

ro

eu27

eu15

100.0p 98.2p 10.0p 3.2p – 2.1p 42.4p 40.6p

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 29 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

yet regulated. Unlike many countries in western Europe, social partners are not involved in the management of the insurance, the Romanian system being very centralized with three main agencies – National House of Pensions and Social Insurance, National Health Insurance House and the National Employment Agency. Although it is a system based on insurances, the contractual ties are frail as the government has a strong position that permits discretionary decisions at the level of contributions, conditionality and the level of beneﬁts. The work conditionality brings considerable disadvantages for vulnerable groups, especially for the Roma population, which has a rate of formal employment lower than the national average, and especially for Roma women. These disadvantages can be noticed for universal services as well. For example, child beneﬁt is more favourable for families with fewer than four children, while Roma families tend to be larger. Access to education and health services is also more diﬃcult for them. Special programmes have been initiated to deal with these problems, but their eﬀectiveness remains to be seen. Social services are funded by local governments and from private sources, and the lack of nationwide vision is reﬂected in the unequal and sometimes absent development of such services (Rusu, 2007). Bucharest and large cities, with better ﬁnancial capabilities for both authorities and beneﬁciaries, can oﬀer both public and private services to meet most of the needs, while rural areas rely much more on informal care. The emergence of new democracies in central and eastern Europe raised the question of ﬁtting them (or not) to the welfare regime typology. Deacon (1992) argued for a new type of welfare state, ‘post-communist conservative corporatism’, including Romania, Bulgaria, Poland, Serbia and USRR. Romanian welfare was deﬁned by low economic development, high class mobilization, absolutist or authoritarian legacy and little or no inﬂuence of Catholicism on policy. Esping-Andersen (1996) reviewing the welfare typology dismissed the argument for a new cluster considering that the existing diﬀerences of the Eastern block are only transitional. Rys (2001) also rejects the idea of a distinctive post-communist welfare type pointing to the high diversity within the region. Later Deacon (2000) distinguished diﬀerent paths of the welfare states in the Cental and Eastern European (CEE) block, placing Romania among the countries that ‘appear to conserve state and workplace beneﬁts in the face of declining resources, possibly leading 424

R O M AN I A

to imminent collapse of the old welfare system and the subsequent residualization of the social policy’ (Deacon 2000: 150). Other authors also notice that Romania and Bulgaria have followed a diﬀerent path from the rest of central and eastern Europe (Sotiropoulus et al., 2003). Both countries preferred in the ﬁrst instance to preserve a high level of protection and only later to take measures to meet the rising social costs. Recently other studies (Fenger, 2007) using cluster analysis have found evidence for a European welfare typology comprising six groups, with three new groups brought about by central and eastern European countries. The author identiﬁes a former USSR type (including the Baltic countries and Belarus, Russia and Ukraine), a post-communist European type (Bulgaria, Czech Republic, Hungary, Poland, Slovakia) and a developing welfare states type (Georgia, Moldova and Romania). Romania therefore is lagging behind the rest of the European Union in terms of maturity of its welfare system, when considering the level of social spending (total, health and education), social situation variables (especially life expectancy and infant mortality) and political participation.

Outlook The main challenge of the Romanian welfare system is shared by all system based on social insurances. Although on average the population of Romania is still younger than in western Europe, the advantage is quickly vanishing because of a combination of demographics and the eﬀects of unwise social policies during transition that encouraged early retirement. The demographic changes are very dramatic with a sudden and very high decline in birth rates, which led to modiﬁcations in the age pyramid (Ghetau, 1997). In 2005, Romania faced an excess of death over birth (negative natural growth) of 2.1 per thousand (Eurostat) and the forecasts are not encouraging either. UN Population Projections estimate a decrease of almost 2 million people by 2025 and a 25 per cent shrinking of the population of Romania by 2050. Although population decline is a widespread problem throughout Europe, Romania is one of the few countries that experience both a negative natural growth and a negative migration balance (Muenz, 2007). The shortening of working lives and the weak dependency ratio between beneﬁciaries and contributors put additional pressure on the social insurance schemes, especially on the PAYG public pillar of the pensions (Dobre 2006). Future misbalanced ﬁnances, leading to a change in the paradigm of the public pillar, with loose or no links between contribution and beneﬁts is a scenario that cannot be excluded. Although not a homebred objective, but borrowed from the European level, the focus on employment seems to gain more and more ground as the excess workforce is turning into labour shortages (Manpower, 2008). Dealing with it is not easy as it means a change from passive beneﬁts to active policies. The government identiﬁes as priority groups the young and older workers (Romanian Government, 2006), but dealing with unemployment or low employment rates for these groups needs to integrate employment policies with education, life-long learning and reform of social security. The drain of the workforce to western European countries is considerable as about one-third of the households in Romania (2.5 million households) have a person that has worked or is working abroad (Sandu, 2006). As the gap in incomes is closing, especially in dynamic economic sectors facing severe labour shortages, the mobility of Romanian workers is likely to decrease (Sandu, 2006). Romania also needs to address the low participation rate in oﬃcial employment as it has high rates of informality and underemployment in subsistence agriculture. 425

S . D OB R E

Other sectors of the welfare state, such as education, health and social services need to develop further, but catching up with the other EU countries only in terms of spending will not suﬃce if it is not matched by a signiﬁcant increase in performance. Coverage of rural and poorer areas as well as excluded groups are important issues that need to be tackled if the Romanian state is to claim it truly provides welfare to its citizens.

Bibliography CPSS (2006) Barometrul de Opinie privind Serviciile de Sanatate Realiza in Randul Populatiei din Romania, Bucharest: CPSS. Deacon, B. (1992) ‘The future of social policy in Eastern Europe’, in B. Deacon (ed.), The New Eastern Europe: Social Policy Past, Present and Future, London: Sage. —— (2000) ‘Eastern European welfare states: the impact of the politics of globalization’, Journal of European Social Policy 10 (2):146–61. DFID (2004) Evaluation of the Implementation of the Minimum Income Guarantee (Law 416 and 2001), Assistance to Social Sector Development – Romania, CNTR 01 2921, Bucharest. Dobre S. (2006) ‘Early Retirement, the Disease of the Romanian Pension System’, Policy Warning Report 20, Bucharest: Societatea Academica din Romania. Esping-Andersen, G. (1996) ‘After the Golden Age? Welfare State Dilemmas in a Global Economy’, in Welfare States in Transition. National Adaptations in Global Economies, edited by G. Esping-Andersen, London: Sage. Fenger, H. J. M. (2007) ‘Welfare regimes in Central and Eastern Europe: Incorporating post-communist countries in a welfare regime typology’, Contemporary Issues and Ideas in Social Sciences, August. Ghetau, V. (1997) ‘Are nevoie Romania de o politica demograﬁca?’, Populatie & Societate 3: 2–8. Ilie, S. and Vonica Radutiu, S. (2004) ‘Romanian Minimum Income Provision as a Mechanism to Promote Social Inclusion’, Occasional Papers in Public Administration and Public Policy, no 1, winter 2004, NISPAcee. Ionescu, M. and Cace, S. (2006) Politici Publice pentru Romi. Evolutii si Perspective, Bucharest: Expert. Manpower (2008) 2008 Talent Shortage Survey Results, Manpower. Mihut, L. and Lauritzen, B. (1999) Modele de politici sociale, Bucharest: Editura Didactica si Pedagogica. Ministerul Educatiei si Cercetarii (2008) Strategia convergenta privind dezvoltarea timpurie a copilului, MEC. —— (2007) Starea Invatamantului din Romania, MEC. Muenz, R (2007) Aging and Demographic Change in European Societies: Main Trends and Alternative Policy Options, SP Discussion Paper 0703, World Bank. Muresan, C. (2008) ‘Romania: Childbearing metamorphosis within a changing context’, Demographic Research, vol 19, article 23, pp. 855–906. National Health Insurance House (2006) Annual Report 2005, NHIH. Naumescu, V. (2000) Politici sociale in Europa postbelica, Cluj-Napoca: EFES. Presidency Commission on Education (2007) Romania educatiei, Romania cercetarii, Report of the Presidency Commission on Analysis and Public Policy on Education. Societatea Academica din Romania (SAR) (2002) ‘Striving to Deliver’, Early Warning Report Romania, issue: 01/2002, pp. 4–11. Romanian Government – CASPIS (2002) National Anti-poverty and Social Inclusion Plan, CASPIS Commission Report. —— (2006) Planul national de actiune in domeniul ocuparii, Government Decision 970/2006. Rusu, O (coord.) (2007) Locul si rolul organizatiilor neguvernamentale pe piata de servicii sociale din Romania, Bucharest: FDSC. Rys, V. (2001) ‘Transition countries of central Europe entering the European Union: Some social protection issues’, International Social Security Review 54 (2–3), pp.177–89. Sandu, D. (coord.) (2006) Locuirea Temporara in Strainatate – Migratia Economica a Romanilor: 1990–2006, Bucharest: Open Society Foundation.

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Sotiropoulos, D., Neamtu, I. and Stoyanova, M. (2003) ‘The Trajectory of Post-communist Welfare State Development: The Cases of Bulgaria and Romania’, Social Policy and Administration 37 (6), 656–73 Stanculescu (coord.) (2004) Saracie urbana si saracie rurala, Bucharest: ICCV. Stativa, E. and Anghelescu, C. (2004) Studiul National asupra Educatiei Timpurii in Crese – 2002, Bucharest: UNICEF. Tesliuc, C., Pop, L. and Tesliuc, E. (2001) Saracia si sistemul de protectie sociala, Bucharest: Polirom. World Bank (2007) Labor Markets in EU8+2: From the Shortage of Jobs to the Shortage of Skilled Workers, World Bank. Zamﬁr, C. (ed.) (1999) Politica Sociala in Romania, Bucharest: Ed. Expert. —— (coord.) (2001) Poverty in Romania: Causes, Anti-Poverty Policies, Recommendations for Action UNDP, IQL.

427

Chapter 24

se The Swedish welfare state A model in constant ﬂux? Sven E. O. Hort

What we’re doing is taking responsibility for the Nordic Welfare State, but putting it in the context of a new era. (Fredrik Reinfeldt, the Swedish Prime Minister as of 5 October 2006, International Herald Tribune, 12 September 2006)

Introduction Where is the model welfare state standing, in time and space? After a period of soulsearching, initiated by political and social forces during the great recession of the 1990s, when it was virtually bankrupt, but with visible roots in the international, neo-liberal challenges of the late 1970s and early 1980s, is it back on track? Or have the changes during the 1990s in particular given rise to a new artifact fundamentally transformed by the forces of the world to come? With the redrawing of the world next door – the fall of the Berlin Wall, the break-up of the Soviet empire, and the enlargement and deepening of ‘Europe’ – and the arrival of a new global set-up, what are the mechanisms that make a welfare state in one form or another still tick, and what are the mechanisms by which various ‘vested interests’ exert control over the (more or less national) welfare state? The Swedish or Scandinavian and Nordic welfare model has from the start been a societybased but state-centred approach that has gradually become more and more decentralized and in the last decades even somewhat privatized. Still, it is a society-based but state-centred approach truly ‘embedded’ in society showing signs of disintegration and fragmentation (Olofsson 1999). The church-administered poor relief system of the old semi-peripheral nation-state was, after the take-oﬀ of a fast-growing semi-urban industrial economy, step by step replaced by an encompassing social service system of education, health, and income maintenance run by secular local authorities. It was founded by well-organized social forces outside the state – the popular social mass movements: initially the freethinkers against religious state monopoly, and the teetotalers against cheap liquor; later also the workers against ‘free’ cheap labour, and at the end of the day the farmers against 428

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free (world) markets – who conquered the central state from the old regime (l’ancien régime) of monarchy, nobility, clergy, and oﬃcialdom (Olsson-Hort 2001). Thus, the welfare system was set up as part of the emerging popular, democratic institutions in a country with a fairly homogenous population with only tiny ethnic, regional and or religious minorities.

Historical development Already in 1913, a universal pension system was established almost unanimously by the political and social forces including the conservative right. From the 1930s, a coalition of workers and farmers formed the basis of national government that paved the way for further enlargement of the welfare system during the early postwar decades. In the 1970s, Sweden was on the road towards guaranteed basic income for all adults with high-quality educational, medical, and social services to most residents. Few were left behind, although it was always possible to point at pockets of poverty. For more than a decade, full employment had been achieved for men as well as for women (though mostly part-time in the latter case) – a civilized version of gendered workfare. Simultaneously, a major decade-long social housing programme had wiped out overcrowding in dilapidated downtown housing areas and provided aﬀordable and decent shelter in the new suburbs for the newly arrived migrants as well as the majority of the marginalized few (Sinti and Romanies and some heavy substance abusers were partly excluded). Deinstitutionalization of caring meant that a managed capitalism with a human face was the hoped for – stakeholder – society among the dominant social forces and movements of the time. The belief in a worldly better future was as yet unbroken. Still, it was a class society where homophobia was on the decline while gender divisions were increasing, the reappearance of feminism, and ethnic cleavages slowly emerging. Even the population in the far north, the Sami, had their social and cultural rights recognized, though not without – continuing – political conﬂicts (Olsson and Lewis 1995). Within comparative welfare state research of the time, this national model became known as the ‘institutional’ welfare model or regime type (Olsson 1990). In a nutshell, Beveridgean universalism and social citizenship rights preceded a Bismarckian focus on work- and earnings-related cash beneﬁts. Sweden is a welfare system that had the great fortune to be built and rebuilt under peaceful conditions throughout its history, as Sweden has not been directly involved in any war since Napoleonic times.

Status quo: outline, analysis and political dimensions For most of the years after the institutionalization of political democracy, Sweden had a representative of the working class movement at the helm of the cabinet (1920; 1921–23; 1924–26; 1932–76; 1982–91; and again 1994–2006). Thus, although it is at least partially a misnomer, it is no coincidence that this regime type is known as the social democratic welfare state (Esping-Andersen 1990; see also Sassoon 1996). After another 12 years of Social Democrats in power (1994–2006), the question can be raised whether it is still the archetypical regime type of comparative welfare state research when it enters the third phase (1976–82; 1991–94; and since 2006) of non-social-democratic rule during the postwar era. Currently the ‘big’ welfare state provides services in kind and cash before the cradle and almost to the grave. This is also reﬂected in the comparatively high expenditure ﬁgures for social policy (see Table 24.1). 429

S V EN E . O . H OR T

In a life cycle perspective, population policy is no longer a label in use although the majority of present-day services were outlined in a famous blueprint for the welfare state from the mid-1930s (Myrdal and Myrdal 1934). Instead, family policy including early childhood measures is a top priority, although in no sense the sole prime policy area (Myrdal 1969). Also education, environment, health, housing, income maintenance, and workfare policies are part and parcel of welfare state activities as is the anti-discriminatory promotion of gender and ethnic ‘mainstreaming’ (see Table 24.2). However, in recent decades priorities have shifted away from, for instance, housing policy. Instead, other policy areas such as disability, metropolitan, and social integration

Table 24.1 Social protection expenditure

se

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

65698.1 72252.1 71991.2 71275.2 75415.2 80670.4 77239.3 83371.6 89512.7 91849.1 92176.4p

7442.9 8172.4 8138.2 8052.8 8513.9 9092.6 8682.5 9341.4 9992.2 10212.8 10208.3p

34.3 33.6 32.7 32.0 31.7 30.7 31.2 32.2 33.2 32.7 32.0p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 24.2 Social protection beneﬁts as a percentage* (2005)

se Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 96.4p 9.5p 6.0p 1.7p 1.9p 38.3p 39.0p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

430

SW ED EN

have seen the light of day. The enlargement of the welfare state is also reﬂected in the construction of new central welfare bureaucracies as well as the emergence of new welfare state professions. Attempts have been made to integrate hard and soft ministries and policy areas in order to increase competitiveness and promote a more growth-oriented welfare or ‘Schumpeterian workfare’ model (Benner 1997). Not least the new non-social democratic government of 2006 encourages the latter approach. Outline: the four pillars of the welfare state Today, a hundred years after the foundation of this national welfare system, it consists of four basic pillars: (1) active labour market measures to make all and everybody in the working age cohorts wage-earners and thereby also consumers and tax-payers – the ‘work ﬁrst’ or ‘right to work’ principle; (2) a supplementary universal income maintenance system mainly for older people, but also for working-age adults and their families as well as those with unstable or no market incomes; (3) free or highly subsidized national systems of education, health, and social services; and, ﬁnally, (4) all these systems are supported by a domestic tax system (see Olsson 1986–87). Although employment and social security as well as the tax collection system are run by nation-wide central state agencies, the bulk of the welfare system – i.e. education, health, and other personal social services – are under the auspices of roughly 310 local public authorities (municipalities and county councils, constitutionally on equal status). Thus, most people working for the welfare services are employed by local government, and taken together they make up almost one-third of the labour force. However, this is a system under fragmentation as new private welfare entrepreneurs have entered the ﬁeld more and more actively in recent years. The labour market system The labour market is of course a market with private or individual buyers and sellers. Nonetheless, the state is heavily involved as an actor of last resort and has been for almost a century. As a social citizenship right, the right to work is an ‘aim’ according to the lawmakers, not a fundamental right enabling the private citizen to press speciﬁc claims for remedies before a court of law. Nevertheless, full employment has been a top national priority for more than half a century. The National Labour Market Board and its local employment agencies throughout the country are the guardians and implementers of active labour market policy, and providers of employment services to all those on the fringe of the labour market. Almost from the start, it was a public but tripartite set-up with the national organizations of employers and employees actively involved under state tutelage. But the gravidity, birth and period of growing up were rather painful as the central state sided with employers while urban local authorities mainly endorsed trade union cooperation. Its international success – the Organisation for Economic Co-operation and Development (OECD) slowly adopted the approach during the early postwar decades – dates to the 1960s and 1970s. The basic idea behind the Swedish labour market policy, the Rehn–Meidner model of full employment developed by two trade union economists in the 1940s and 1950s, accepts the closing of ineﬃcient industries and branches in exchange for high salaries and active state intervention to promote growth through modern and more proﬁtable industries and employment opportunities. For three 431

S V EN E . O . H OR T

decades, this model had not only the backing of the unions, but also big business and the centralized employer association strongly supported it. During these decades the unemployment rate hovered around 2 per cent. From the 1980s, however, the employers partially withdrew their support, but the dissent created did not stop the Board and its agencies from continuing its operations in more or less full scope. In more recent times, the agency has been criticized on and oﬀ as ineﬀective by trade unions and employer associations. Since the 1990s, a higher unemployment level – 4 per cent – than previously has been tolerated by government. Actually, during most of the period the unemployment rate has been higher than that (see Table 24.3). Thus, this agency has continued to oﬀer a variety of programmes to compensate for loss of jobs and prepare for future jobs (employment guidance, training and retraining programmes, on-the-job-training, jobseeking courses, etc.). Depending on the business cycle, between 2 and 4 per cent of the workforce are in this type of programme for short periods. Since the great recession of the 1990s, the municipalities are also ﬁrmly involved in labour market training programmes for those the state authority considers nonemployable or not yet employable. In particular, newly arrived non-Swedish men with a residence permit are in such municipal programmes (while female labour force participation is much lower in this group). Thus, there is great concern about the creation of ‘permanent refugee camps’ – ghettoization – with an informal grey or black non-taxed economy of ‘outsiders’ and a new mix of class, gender, and ethnic cleavages in certain suburban areas in the metropolitan centres. Deindustrialization of remote areas is another highly visible concern. Thus, measures by public authorities are taken to promote ‘job activation’ and the reactive ‘work ﬁrst’ principle. To conclude, unemployment insurance is second to active labour market measures by the National Labour Market Board and its local subsidiaries, the employment exchange oﬃces (see below). Furthermore, the idea is that the tax base of the Swedish welfare state is secured through full regular employment. Outsiders – in particular young adults and the newly arrived – should become insiders on the labour market, i.e. taxpayers.

Table 24.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

se

eu27

eu15

8.8 9.6 9.9 8.2 6.7 5.6 4.9 4.9 5.6 6.3 7.4b 7.0 6.2

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008) Note: b Break in series

432

SW ED EN

The income maintenance system Concerning the budget, social insurance – composed of pensions, sickness, family support, etc. in (Table 24.2) – is the main component of central state social welfare policy. Since 2005, it is under the auspices of the reorganized central state Insurance Oﬃce with some 400 local oﬃces around the country. PENSIONS

The pension system is the most important part of the income maintenance system and covers all those aged 65 and above who have a residence record of 40 years – or more – in the country (before 1993 only ﬁve years). For years to come, Sweden will have two, later on even three parallel public pension systems (Hort 2008). Those born before 1937 will receive a pension according to the rules governing the old system. The old beneﬁtdeﬁned pay-as-you-go system consists of two parts: a basic minimum pension and an earnings-related supplement. The consumer price indexed minimum beneﬁt is paid out of the state budget and covers basic needs apart from housing (a supplement is granted to those who have low or no supplementary pensions). To be eligible for a supplementary pension, a work record – with a wage ﬂoor as well as ceiling – of at least three years and 30 years at maximum, is necessary. In the old supplementary pension system, the individual beneﬁt is based on the average of the best 15 years of earned income and consumer price indexed. The ‘normal’ replacement rate of the two parts of the pension system together is roughly 65 per cent of previous earnings. Adding to this the payout from negotiated occupational pension schemes and the replacement rate for the average wage earner in this system, it generally reaches 75 per cent. This – public – system was considered too costly by the great majority of the organized political and social forces (if not always their members) and has been gradually phased out since 2000. However, most retirees still receive a pension beneﬁt according to this system. Following a major reform of the system in the late 1990s, however, pensions will for the foreseeable future be based on contributions over the entire work life cycle. Moreover, complementary pension schemes that promoted early retirement have partly been scrapped. The disability pension has been transformed and transferred to the sickness insurance system (see below). Thus, the main idea is to decrease state pension expenditure, increase work incentives and make the new system more actuarial and less redistributional. Still, the state budget-ﬁnanced minimum beneﬁt will guarantee a basic income for everybody in old age, for those with low or no earnings over the life-course. In the new system, wage earners and their employers pay a contribution – 18.5 per cent of the wage – to the state insurance fund, which however operates on a pay-as-you-go principle. Depending on how much is paid in, an indexed (according to earnings, not consumer prices) and demographically weighted cash beneﬁt will be paid out. With increasing longevity, the demographic component makes pension payouts lower. Furthermore, 2.5 per cent of the individual contributions are set aside to a premium reserve scheme, which make possible for individual investments in market funds operated by private investors (merchant banks, insurance companies, etc.). Thus, payouts from such individual funds will top up the indexed earnings-related pension beneﬁt. Since 2001, newly retired people have received their pension beneﬁt from a mixed system that combines the old and the new schemes. The ﬁrst pensions completely relating to the new system will not be paid out before 2020. The impact of the mixed system on the standard of 433

S V EN E . O . H OR T

living among the retirees is a drawn-out process, and so far, no major diﬀerences compared with the old system have been visible. SICKNESS INSURANCE

Second largest among the social insurance provisions is the sickness insurance system, which covers the entire workforce. It oﬀers daily cash beneﬁts for those temporarily ill as well as a number of other beneﬁts in cash and kind. During the ﬁrst two weeks, it is the obligation of the employer to take care of daily payouts. After this period, the Insurance Oﬃce takes over, although the employer is obliged to contribute to the rehabilitation of the employee. This is only one of many attempts to encourage an early return to wage labour. However, this system also includes compensation for long-term illness (up to one year), participation in labour market rehabilitation programmes and beneﬁts payable to expectant mothers who are unable to work during pregnancy. The general replacement rate is 80 per cent of earned income with a wage ceiling, but most wage earners are reimbursed closer to their salary following negotiated agreements between the partners on the labour market. Hence, the public system is coordinated with negotiated occupational beneﬁt schemes to prevent overcompensation (above 100 per cent). Linked to the sickness cash beneﬁt system is also a ‘temporary’ disability beneﬁt, which has replaced the former disability – or, partly, unemployment – pension system. The replacement rate in the new disability system, however, is 65 per cent lower both in relation to the former disability pension system and the new sickness beneﬁt system. This encourages a bureaucratic transfer of beneﬁciaries, who are hard to rehabilitate, from the more to the less generous system. Since the mid-1990s, growing numbers of people relying on sickness and disability beneﬁts have caused much alarm and as of 2005, some policy measures were taken to make the system stricter and less generous. In 2008, the new non-social democratic government introduced even harsher measures, including a shorter duration of beneﬁts, and among representatives of local authorities there is a fear that the new rules will cause growing outlays on targeted social assistance. FAMILY SUPPORT

Family policy is another national top priority (Kravchenko 2008). Thus, other parts of the income maintenance system are parental insurance and other family beneﬁts including housing allowances under the auspices of the central state Insurance Oﬃce. In the past two decades, a number of social welfare reforms have been introduced with the view to giving both women and men the opportunity to combine work with parental responsibilities. Thus, parents are entitled to an earnings-related parental leave beneﬁt for a period of 480 days during the ﬁrst years of the life of a child to be divided between the parents (60 days are non-transferable between the parents). The intention is to make a special ‘daddy period’ possible. In addition, all fathers are entitled to a 10-day leave of absence after the birth of their child. Single parents are allowed to take the full parental leave themselves. The latter beneﬁt and 390 days of the former 480 are compensated at 80 per cent of previous earnings, the remaining days at a lower ﬂat-rate level. Either parent or another insured person may also take temporary parental leave with compensation for loss of income (again 80 per cent) when a child is sick (120 days per year and child) until the child is eight years old. There have been discussions about the complete individualization of parental insurance – i.e. to split the beneﬁt in two equal halves – to 434

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encourage further male participation, but so far no decision is in sight. Furthermore, parents of children under the age of eight are also entitled to reduce their working time by two hours per day, with a corresponding non-compensated reduction in pay. Other family beneﬁts in the Swedish welfare system include a ﬂat-rate universal child allowance (up to the age of 16), a complementary study allowances for those aged 16–20 in secondary schools (the extended general child allowance), and a housing allowance for low-income earners with children. UNEMPLOYMENT INSURANCE

Finally, organized by voluntary unemployment beneﬁt societies but ﬁnanced mainly through contributions from employers are (trade union) funds that reimburse unemployed members of the labour force. This system forms part of the active job creation and protection system described above, but has been shaken by measures introduced by the new national government in 2007. In particular, this was the abolishment of tax deductions for individual membership fees. Still, to become eligible for a beneﬁt, an employee must have been a member of such a society for 12 consecutive months and have had a regular job during a similar amount of time but spread out over a longer period. Rules are set by the state and also include a waiting period before a beneﬁt is paid out. The replacement level is somewhat lower than in the sickness daily beneﬁt scheme and in particular the wage ceiling is much lower. The intention is to cover for short-term unemployment and the aim is to encourage the unemployed to seek new regular employment. Those who are long-term unemployed may receive a public job oﬀer to qualify for continuing membership in the unemployment funds, and thus be eligible for a further period of compensation. There is no end to this type of continuation except ordinary retirement. For those who do not qualify, there is a temporary ﬂatrate beneﬁt. In most cases, however, these recipients have to rely on means-tested municipal social assistance. Thus, for the insiders on the labour market – those in the work force – the social insurance system together with the residual social assistance forms a work-enforcing version of an ideal basic income system. Education, health and care: personal social services run by local authorities The welfare state is larger than ‘pure’ social security or income maintenance. At the heart of Swedish welfare are the local authorities, the municipalities and the county councils. They are indispensable in an understanding of the workings of the welfare system (Hort 2006). HEALTH

From a life cycle perspective, a cradle to grave approach is characteristic of the Swedish welfare system, but actually it starts even before the cradle is set in motion with sexual health guidance and prevention centres – for instance, free abortion through a strong adherence to a secular pro-choice approach – as well as maternity clinics oﬀering parental education and regular check-ups of expectant mothers, which are free of charge during the entire pregnancy. Child delivery and midwife services are free of charge as well, and so are vaccinations, health check-ups, and consultations to all children below school age. For school age children, there are also health services available: apart from regular school nurses and doctors, publicly employed district nurses give medical treatment as well as 435

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advice and support. All medical including dental treatment for children and young people below 20 is free of charge, and raising this age limit is under consideration. No decision has been taken yet, though. Every adult has the right to choose their dentist and general practitioner, but in the sparsely populated areas in the north and inner parts of Sweden, there is of course limited market choice. However, following national legislation the county councils are obliged to organize primary care clinics. In addition to public services, private doctors also provide publicly funded, highly subsidized primary care. County councils also run hospitals with advanced medical care and technology either alone or in cooperation with each other. Thus, there are both cooperation and competition within the public health system. Attempts are made at national policy coordination but the county councils are to a large degree independent of central government dirigisme. These hospitals are also heavily subsidized out of general income taxation but a fee is charged for a stay at a hospital. Hence, all residents of Sweden regardless of citizenship as well as patients seeking emergency attention from EU membership countries and a few other countries with which Sweden has special agreements are entitled to use the Swedish health services at subsidized prices. During the last decade, competition and private alternatives have increased in the Swedish health sector. New private hospitals have opened up and private insurance companies have also oﬀered ways to bypass queuing in the subsidized system. Still, ﬁnancially it is basically a public health system and private practitioners are mainly funded by public sources. EDUCATION

The basic educational system was from the start a mixed central–local government aﬀair. Since the early 1990s, most of it has been under municipal auspices and mostly funded out of local income tax. There are fees for pre-schools, child day care and after school activities although most of the costs are funded through the municipal budget. Every child above the age of one year has the right to a place in a pre-school or child day care centre, and an obligation from the age of seven to go to primary and secondary basic education. Compulsory schooling is nine years, though in practice 12 years with few dropouts before upper secondary education. Basic education is free of charge and guided by national legislation. In many municipalities there are also private schools ﬁnanced out of the public purse through vouchers, which has been rather controversial and part of the decentralized privatization of the welfare state. In recent years, the central state has provided special grants to schools in geographical – mainly suburban – areas with poor school results to promote further studies and prevent school dropout. Tertiary education is still solely a central state activity, and has expanded considerably since the 1990s. No tuition fees exist in academic education as yet, and there is a mixed grant and repayable loans system available for students to cover basic amenities. PERSONAL SOCIAL SERVICES

While the medical health and educational system has for long been heavily regulated and coordinated from top to bottom, local government traditionally had more leeway in organizing care of older and disabled people. With an ageing population, an increase in female labour force participation, and an emphasis on the idea of independent living, services to older and disabled people have become much more of a public concern, in 436

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particular for individual customers as well as the municipalities. The latter authorities are responsible for domestic care of older and disabled people, although such services, for instance a nursing home, can be contracted out to private providers. The municipalities also provided services for vulnerable individuals in need or at risk: preventive health, family therapy and counselling, alcohol and drug treatment, shelter for the homeless, women and children under the threat of (domestic) male violence. In later decades, the municipalities have also become responsible for the integration of newcomers to Sweden, whether refugees or other forms of migrants. Some of these services are provided by voluntary welfare organizations – secular philanthropy as well as religious charities – partly on contract and with the support of tax money. The municipal public housing companies oﬀer rental apartments to almost one-ﬁfth of the population. Moreover, the municipalities with altogether over half a million people on their payrolls are the biggest employers in Sweden. Most of them work either in schools or as care workers. County councils are the second largest employer (300,000 employees in the medical health sector). In all, local government is the backbone of social provision, and has to ﬁnance the main part of it through income taxation. The ﬁnancing of the welfare system Who pays, and who beneﬁts? These are fundamental questions of eﬃciency and legitimacy for every welfare system, also for a large one like the Swedish. Since its inception, the Swedish welfare state has ﬁrst of all been ﬁnanced by direct income taxes. They were supplemented by indirect taxes on goods and later also services, most notably VAT. Social contributions or a payroll tax have become the third element in the Swedish tax structure, each contributing roughly a third of public revenues. Wealth and property tax has played a minor economic role. While income taxes nowadays go to the coﬀers of local governments, indirect taxes and social contributions mainly go to the central state purse for further distribution. The administration of tax collection is extremely simple: the National Board of Taxation and its local oﬃces act as coordinating collector of all kinds of revenues. In 1990, after years of political calculations and deliberations, an almost unanimous parliament reformed and simpliﬁed the tax system. Their intention was to improve the performance and eﬃciency of the overall Swedish economy. Thereby, marginal tax rates were lowered and income taxation became almost solely a municipal prerogative as the progressive income tax was abolished for most citizens. However, this trend was reversed as part of the austerity package in the mid-1990s, as a special tax to secure the strength of a welfare state saddled with heavy ﬁnancial commitments was imposed by the Social Democrats in cooperation with the Centre Party. Moreover, since the mid-1990s there has been a cap on municipal spending. Thus, local government budgets should be ‘balanced’, while parliament cannot take decisions with ﬁnancial implications without indicating which other budget items should be cut. Hence, in terms of spending central government has got the upper hand. The redistributive eﬀects of the welfare system are contested terrain. Time and again it has been argued that a targeted welfare system is more redistributional than a big welfare state. However, research into the outcome of Swedish eﬀorts point in the opposite direction. In the big welfare state, there is a lot of inter- and intra-generational transfer going on as well as some transfer of income, resources and wealth between the sexes, from rich to poor as well as, in the latter case, in the opposite direction (Palme 2006; see 437

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Table 24.4 At-risk-of-poverty rates by gender

se

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

– – 8 – 8 – 9 11b – 11b 9 12

– – – – – – – 10b – 10b 9 12

– – – – – – – 12b – 12b 10 12

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

total s

17 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

males s

16 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

females 18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

also Korpi and Palme 2003). This is also reﬂected in comparatively low poverty rates (see Table 24.4). Given the largesse of redistribution, it is almost impossible to sum up its speciﬁc ratio. Here and there, its eﬃciency is questioned by beneﬁciaries as well as by benefactors, but there is still a strong support among the great majority for the universality of the system, and this support has not weakened during the turbulent decade of the 1990s – rather the contrary (Kumlin and Rothstein 2005; Svallfors 2004). Analysis: the political dimensions or controlling mechanisms The welfare state that was ﬁrmly established in the early postwar decades gradually approached new opportunities and impediments, and with the economic recession of the early 1990s, its capacity to solve societal problems came into question. Despite rather successful adaptations to new circumstances, the question whether it had become a problem rather than a solution was more often heard. Had the welfare state reached its limits to growth? The answer is yes, and no. Throughout the 1980s, neo-liberal approaches to the delivery of welfare services were rejected by the electorate. However, the former Conservative, renamed Moderate, Party grew in strength within the opposition to the right of Social Democracy. Also within the governing party a change of course was visible. In particular the fall of the Berlin Wall and the emergence of new neighbouring nation-states on the eastern shores of the Baltic Sea were the background to the swift change in the attitude towards Europe. In June 1991, the Swedish government applied for membership of the European Union, although the Social Democratic party internally was severely split on this issue. Furthermore, the Bank of Sweden became more independent of government to pursue monetary policy. Social Democrats at the start of the 1990s made ﬁghting inﬂation a top priority at the cost of full employment, thereby causing a rift with the trade union movement. 438

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When a new interlude of non-social democratic government, this time under the ﬁrst moderate-conservative prime minister for 60 years, occurred during the great recession of the early 1990s, a ‘new course for Sweden’ opening up a market for welfare entrepreneurs was staked out by the incoming rulers. However, the new prime minister had to abandon major concessions to pro-market forces particularly because of the welfare universalism of the Liberal party, but with support from other pro-welfare state supporters such as the Centre Party and the new social-conservative Christian Democratic party. He thus instead made a bipartisan agreement with the Social Democrats in (temporary) opposition (“Postscript’ in Olsson 1993). The non-social democratic government of the early 1990s opened up more competition between public and private providers, and made it possible for local authorities to provide vouchers to individual beneﬁciaries as well as to opt for outsourcing of services. Most important perhaps, housing subsidies were scrapped causing a major downturn in domestic construction industry (Carson 2005). Nevertheless, the ﬁnancial problems of the welfare state continued, and in 1994 the Social Democrats returned to power on a tight reconstruction programme, including cuts in cash beneﬁts. This belt-tightening was carried out in cooperation with the Centre party, although the Social Democrats later on sought new coalition partners to the left, in particular the Green party. An important example of system change is the new pension system described above, which was achieved by a broad consensus. Whether with the support of the centre-right parties, or the Greens and the Left party (former Communist party), the Social Democrats have stuck to its slimmed down version of welfare provision. With the advent of a third non-social democratic government era, several right-of-centre local authorities have taken the opportunity to further outsource previously public welfare services. Throughout the 1990s and early 2000s, welfare state construction and reconstruction has taken place at various levels of government, and aimed at diﬀerent social risks and categories. The expansion of the upper level or tertiary educational system is but one example, another is the continuous eﬀorts to improve services to disabled people. Social integration of foreignborn and recently arrived migrants is moving up the political agenda. Urban policy has gained more attention as the status of the new metropolitan suburbs has been deﬁned as a social problem in dire need of political action. Welfare policy has become more selective, though it is still a universal welfare model. However, the loopholes in the system have become more apparent. The stitches/meshes in the welfare safety net have created space for a return of civil society organizations and associations at a time of increasing social inequalities. Where public authorities have abdicated, charity gets a role. The state church has become the ‘free’ Lutheran Swedish Church, the largest voluntary membership association in the country with some 60 per cent of the population. In most municipalities, its welfare services to the youngest as well as to the oldest and most disabled people supplement public services. Homelessness has become a matter for philanthropic organizations such as the Salvation Army and the Lutheran Stockholm City Mission. Other churches make an eﬀort to help, for instance, heavy substance abusers. Overall, there has not yet been enough research into the importance of such outlets as the Catholic, Orthodox, and Islamic as well as non-religious voluntary associations (see Emami 2008; Papakostas 2008). Résumé Hence, the making of the Scandinavian welfare states has its own peculiarities. In contrast to neighbouring Bismarckian Germany it was not the monarchical state but the new social and political forces that came to make its imprint on the social policy institutions 439

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and programmes. At the forefront of the construction of the welfare state were the popular social mass movements of teetotalers, Christian revivalists, and working people, later also farmers, politically organized in social-liberal, social democratic and social conservative parties. In particular from the 1930s, trade unions and employer associations became crucial cooperating players on the labour market, while the Social Democratic party together with the Farmers’ League (later the Centre Party) formed the backbone of government coalitions at the central as well as at the local levels, thereby taking the lead in the development of social policy. Moreover, the Social Democratic party became the ‘national party’, which has dominated Swedish politics since the 1930s. Together with the closely aﬃliated blue-collar Trade Union Congress (LO) they became dominant within the working class movement. This was the background to the consensus established on the labour market between the union movement and big business through the centralized employer association of the latter. Until the late 1980s, these organizations deﬁned policy developments within this ﬁeld. Later, it was the rather short-lived, non-socialist coalition government – including the Centre Party – of the early 1990s that opened up the privatization of previously public services in the ﬁeld of education, health, and personal care. Initially, this government also had to confront the crisis of the early 1990s. However, it was the cooperation between the Social Democratic and Centre (previously Farmers’ League) parties during the most crucial years of the crisis – 1996–98 – that paved the way for a remaking of the welfare state and avoiding national bankruptcy. While the organized employers favoured an outright neo-liberal agenda, the trade unions became ardent defenders of the old and more generous welfare system. This clash was part of a breakdown of a long-established consensus, but for a long time it was the left-centre that came out of this dissent victoriously, though at a price. At the political level, the Social Democrats and the Centre Parties jointly administered an austerity package including cutbacks in cash beneﬁts that its purely non-socialist predecessor cabinet had abstained from executing. In the late 1990s, the Social Democrats again started to raise beneﬁt levels but not to former levels. During the ﬁrst decade of the 2000s, there is more of a consensus in social policy and the non-socialist opposition, in particular the former Conservative party – the Moderates or ‘the new Moderates’ (even the ‘new workers’ party’) – has abandoned its former neoliberal approach. In the run-up to the 2006 elections, the opposition criticized various shortcomings of the existing system while simultaneously promising to keep it as it was. This is one key to the success behind the shift of government and the formation of a new four-party coalition cabinet dominated by the new Moderates in September 2006. The ‘bourgeois’ coalition, the Alliance of Moderate Conservatives, Liberals, Centre and Farmers, and Christian Democrats became a trustworthy pro-welfare alternative emphasizing the ‘work ﬁrst’ principle (see above). During the economic boom of its ﬁrst years in power (2006–8) managing the welfare state has characterized the new government. So far, its ability to run the system in hard times has not been tested. The Swedish welfare system is basically a public system and will most likely remain that way for years to come. However, the delivery of various educational, health, and other social services has gradually become more privatized since the 1990s. Thus, the Swedish model is both changing and stable, moving and shaking (Rothstein 1998; see also Olsson-Hort and Cohn 1995). Hence, it is fair to say that this universal or encompassing welfare system has been challenged, but not completely overmastered by the global ‘neoliberal turn’ in recent decades (Hort 2005a). Moreover, after the fall of the Berlin Wall and the break-up of the Soviet empire, Sweden became a member of the European 440

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Union only in 1995, and its welfare system had to comply with the acquie communitaire (Hort 2002). Still, it remains ﬁrmly situated within the conﬂuence of its founding moment according to its friends as well as to its foes (Hajighasemi 2004; Rojas 2001).

Outlook Is there a future for the welfare state in a globalized world? This is a crucial question of the new Millennium (see Hort and Kuhnle 2008; Hansen et al. 2007). The institutional welfare model has withstood the crisis and cutbacks of the 1990s, but not without signiﬁcant modiﬁcations and adaptations. Indeed, it is probably fair to say that it has been transformed: at present, there is a silent surrender of public responsibility as for-proﬁt private providers have entered the scene competing with non-proﬁts and traditional public ones (Gilbert 2002). In Sweden, old state welfare monopolies such as the State Pharmacy Company and the National Liquor Retail System are on the verge of marketization or have been sold-out (Liquor Production Monopoly, or Absolut). Furthermore, selectivity – targeting – has increased at the expense of universality (Hort 2000). It is a slimmed down, less security- and more growth- or competitiveness-oriented version of the old model that exists today. Thus, it is a slightly less civilized version of workfare, where full employment as a policy goal is redeﬁned as 4 per cent unemployment with 80 per cent gainfully employed. In comparative perspective, it is a ‘big’ welfare state intervening in social relations between the social forces and social institutions of society as well as in the actual lives of its citizens. This welfare model has at least to some extent succeeded to overwinter in a globalized world (Hilson 2008; see also Hort 2005b). In terms of actual human welfare, homelessness in the metropolitan areas bears witness of the return of open poverty in an otherwise aﬄuent consumer society. At the workplace, mental stress and physical hardship are again major concerns. On the labour market, the employers have the upper hand, not the trade unions as during most of the second part of the twentieth century. Still, there are many occupational welfare schemes that compliment the public ones, although purely individual packages are more common today than before. Social justice and gender equality are still upheld as major public policy goals while social ‘equality’ – or a move towards a classless society – is toned down or absent. Rhetorically, diversity – and social inclusion – is gradually promoted and residential segregation – or social exclusion – fought against. Likewise, disabled people have become more visible and well organized, but various services intended for such groups are still gradually broadening and improving. In terms of social actors, the movements of disabled people and retirees are more powerful than before, while the national inﬂuence of the associations of ethnic immigrants is still in its infancy. Hence, the social forces and movements behind the welfare state are still signiﬁcant, but also much more divided and fragmented than 30 years ago. However, gays and lesbians are on the road towards full citizenship rights, but unemployment, xenophobia, and ghettoization are considered major threats to the normative foundations of the welfare state. Membership in the European Union is looked upon with great scepticism among the great majority of the population and belief in a better future global world much more uncertain. In a market-driven competitive world, this partly new welfare system is characterized by a neo-liberalism with a statist and communitarian Swedish–Nordic accent. The rationalization of tax and pension schemes, and the decentralized privatization of welfare services are typical examples of this mode of operation. The Scandinavian welfare model is situated – 441

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and hibernates – within the context of ‘Social Europe’ whether Blairite or not (Hilson 2008; see also Therborn 1997, 2006). The borders of Europe are in ﬂux, and so are its welfare states. So far, this ‘world of welfare’ has not disappeared but is encroaching eastwards (Aidukaite 2004), in an optimistic endnote, towards the world of classical enlightenment?

Bibliography Aidukaite, J. (2004) The Emergence of the Post-Socialist Welfare State – the Case of the Baltic States: Estonia, Latvia and Lithuania, Huddinge: Södertörn University Press. Benner, M. (1997) The Politics of Growth – Economic Regulation in Sweden 1930–94, Lund: Arkiv. Carson, M. (2005) ‘Paradigm drift in the Swedish welfare state’, in N. Kildal and S. Kuhnle (eds) Normative Foundations of the Welfare State – the Nordic Experience, London: Routledge. Emami, A. (2008) ‘Patterns of organizational adaptation: Iranian voluntary associations in Sweden’. Huddinge: Södertörns högskola (ms under review). Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Cambridge: Polity Press. Gilbert, N. (2002) Transformation of the welfare state: the Silent Surrender of Public Responsibility, New York: Oxford University Press. Hajighasemi, A. (2004) The Transformation of the Swedish Welfare System: Fact or Fiction? Huddinge: Södertörn Academic Studies (no 22). Hansen, H., Hort, S. E. O. and Kuhnle, S. (2007) ‘Globalization and the Scandinavian Welfare Model’. Paper presented at workshop ‘Governing Global Social Policy and East Asia’, Sung Kyun Kwan University, Seoul, Korea Jan 25–26th. Hilson, M. (2008) The Nordic Model – Scandinavia Since 1945, London: Reaction. Hort, S. E. O. (2000) ‘Sweden: From a Generous to a Stingy Welfare State?’, in N. Gilbert and R. Van Voorhis (eds) Targeting Social beneﬁts. New Brunswick: Transaction. —— (2002) ‘Back on track – to the Future? The Making and Remaking of the Swedish Welfare State in the 1990s’, in N. Gilbert and R. Van Voorhis (eds) Changing Patterns of Social Protection, New Brunswick: Transaction. —— (2005a) ‘After Equality? Normative innovations from Lindbeck to Svegfors – towards a dynamic conservatism?’, in N. Kildal and S. Kuhnle (eds) Normative Foundations of the Welfare State-the Nordic Experience, London: Routledge. —— (2005b) ‘The Geography of Welfare State Research: A Comment’, in Global Social Policy, vol 5, no 1, pp. 14–17. —— (2006) ‘Islands of Welfare’, in A. Ekström (ed) Digital Welfare, Stockholm: Global Challenge. —— (2008) ‘Banging on Death’s Door – Aging and the Welfare State?’, in A. Walker and C. Aspalter (eds) Securing the Future for Old Age in Europe, Hong Kong: Casa Verde. Hort, S. E. O. and Kuhnle, S. (2008) ‘The Coming of East and South East Asia welfare states’, in S. Leibfried and S. Mau (eds) Welfare States: Construction, Deconstruction, Reconstruction, Cheltenham: Edward Elgar. Kangas o and Palme, J. (eds) (2005) Social Policy and Economic Development in the Nordic countries, London: Palgrave. Korpi, W. and Palme, J. (2003) ‘New politics and class politics in the context of austerity and globalization: welfare state regress in 18 countries 1975–95’, American Political Science Review, vol 97, pp. 425–46. Kravchenko, Z. (2008) Family (versus) Policy – Combining Work and Care in Russia and Sweden, Huddinge: Södertörns högskola (diss.). Kumlin, S. and Rothstein, B. (2005) ‘Making and Breaking Social Capital – the Impact on Welfare State Institutions’, Comparative Political Studies, vol 38 no 4, pp. 339–65. Myrdal, A. (1969) Equality, Stockholm: Tiden. Myrdal, A. and Myrdal, G. (1934) Kris i befolkningsfrågan, Stockholm: Bonniers.

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Olofsson, G. (1999) ‘Embeddedness and Integration’, in I. Gough and G. Olofsson (eds) Capitalism and Social Cohesion, London: MacMillan. Olsson, S. E. (1990) Social Policy and Welfare State in Sweden, Lund: Arkiv (2nd ed 1993). —— (1986–87) ‘Sweden’, in Flora, P. (ed) Growth to Limits – the West European Welfare State Since World War II, vols 1, 2 and 4. Berlin and New York: Walter de Gruyter. Olsson-Hort, S. E. (2001) ‘La Société civile, l’Etat, et la sécurité sociale en Suède: centralisation et décentralisation dans le modèle sociale scandinave’, in Un siècle de protection sociale en Europe’, Paris: Association pour l’étude de l’histoire de la Securité sociale. Olsson-Hort, S. E. and Cohn, D. (1995) ‘Sweden’, in N. Johnson (ed) Private Markets in Health and Welfare, Oxford: Berg. Olsson, S. E. and Lewis, D. (1995) ‘Welfare rules and indigenous rights: the Sami people and the Nordic Welfare states’, in J. Dixon and R. Scheurell (eds) Social Welfare with Indigenous Peoples, London: Routledge. Palme, J. (2006) ‘Income Distribution in Sweden’, in The Japanese Journal of Social Security Policy, vol 5 no 1. Papakostas, A. (2008) ‘The rationalizations of civil society’, Huddinge: Södertörns högskola (ms under review). Rojas, M. (2001) Beyond the welfare state: Sweden and the quest for a post-industrial welfare model, Stockholm: Timbro. Rothstein, B. (1998) Just Institutions Matters: The Moral and Political Logic of the Universal Welfare State, Cambridge: Cambridge UP. Sassoon, D. (1996) One Hundred Years of Socialism: The West European Left in the Twentieth Century, London: I. B. Tauris. Svallfors, S. (2004) ‘Class, Attitudes and the Welfare State: Sweden in Comparative Perspective’, Social Policy and Administration vol. 38 (2) pp 119–38. Therborn, G. (1997) ‘Europe in the Twenty-ﬁrst century’, in P. Gowan and P. Anderson (eds) The Question of Europe. London: Verso. —— (ed) (2006) Inequalities in the World. London: Verso.

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Chapter 25

si The Slovene welfare system Gradual reform instead of shock treatment Zinka Kolaricˇ , Anja Kopacˇ and Tatjana Rakar

Through the former socialist societies’ speciﬁc circumstances of development, a special type of welfare system evolved. Notably, this was a state socialist welfare system, in which the state had the dominant role. The state was the owner, ﬁnancer and controller of all the institutions and organizations that provided services or paid for the provision of social protection and the welfare of its citizens. Yet the means and services ensured by the state, together with those that were statutorily provided by enterprises for their employees, were not suﬃcient to satisfy individual needs. Therefore, informal social networks, mainly kinship, carried a large burden of the provision of social protection and welfare of their members. Citizens had few opportunities to ensure means and services from the other two spheres, i.e. from civil society (private non-proﬁt voluntary organizations) and from the market (private for-proﬁt organizations). The role of private nonproﬁt voluntary organizations was a weak one. This can be traced back to certain formal obstacles to citizens’ organizations, and most of all to limitations of the social/charitable role of the Church.1 In the sphere of service provision, neither the market nor social insurances formally existed. Furthermore, in the whole system there was embedded an intention to dismantle the market in general, including the labour market. Thus the system was based on a silent partnership between the working class and the ruling Communist party nomenclature (Županov in Svetlik 1992). The latter assured the working class lifelong employment and the resultant social protection in exchange for political legitimacy. These circumstances did not diﬀer considerably from those of Bismarck’s when introducing the social insurance systems. Hence it is not very surprising that both Bismarckian principles, the contributory principle and the equity principle, were introduced into the social protection systems. The structural patterns we have described were introduced in all former socialist societies, although there were major diﬀerences in the development levels of individual structural elements, They concerned the public/state sector, but also the potential of the informal sector and non-proﬁt or voluntary organizations and associations. These diﬀerences did not only result from diﬀerent levels of the individual societies’ economic development, but also from cultural and religious diﬀerences, as well as from the kind 444

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of social policy measures, with which the state regulated the development of individual sectors and inter-relations between them.

A short history of the Slovene welfare system In Slovenia, the former Yugoslavia, we can identify three stages in the development of social policy (Kolaricˇ 1992: 15–18). In the ﬁrst stage, up to the mid-1950s, social policy decisions were taken within the state communist party summit at federal state level. They should provide a collective system of social protection, with a uniform system of compulsory social insurances (for the case of disability, old age and sickness), free education, and the state taking over some functions of the family (by establishing crèches, kindergartens, dormitories for pupils and students, school canteens, children’s holiday resorts, etc.). In the second stage, up to the end of the 1960s, the republic’s administrations decided on social policies and implemented them. Primarily, they developed and modernized public institutions and organizations in the public and state sector. The basis for this development and modernization was high levels of economic development, as well as earmarked and distributed ﬁnancial means from the diﬀerent social policy ﬁelds (health care, education, social security, etc.). In the third stage, the 1970s and 1980s, social policy decisions were taken and implemented at municipality level and within enterprises. These decisions were aimed at developing ‘local self-suﬃciency’, and creating a dense network of public institutions in local environments. At the same time, individual social policy decisions increased the ability of families to take care of their members (child allowances), as well as the chances to develop voluntary organizations and associations (1974 law on associations). The speciﬁc structure of the Slovene welfare system emerged as a result of these developments. It was a ‘tripartite system’, with the following constitutive elements (Kolaricˇ 1992: 19–20). 1 The primary sector of the Slovene welfare system comprised a well-developed and regionally dispersed network of public/state organizations and institutions, with the formally organized and professionalized provision of services, including the distribution of ﬁnancial compensation (for pensions, disability, illness and unemployment) and ﬁnancial assistance. Moreover, an important segment of this primary sector was the formally organized and professionalized provision of numerous services within enterprises (e.g. hot meals, recreation, holidays, child care and health care, education and training for the employed). 2 All those services not or insuﬃciently provided by the primary, public sector of the welfare system had to be provided through self-help and mutual aid by family members, kinship networks, neighbourhoods, circles of friends, etc. These were voluntary and unpaid service provisions within the informal sector, which the state, with its social policy measures, had ignored. 3 Intermediate between the two basic structural elements of the Slovene welfare system – the public/state and the informal sector – there were partly formalized and partly informal, half professional and half non-professional, partly paid and partly unpaid, half legal and half illegal provisions of services. More precisely, in 445

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connection with the public/state sector, there was the persistent ‘grey’ provision of all types of services by individuals employed in public institutions and organizations who oﬀered services to users for direct payment. This provision of services was illegal, but tolerated by the authorities, since it compensated for shortcomings of the public sector. In ﬁnancial terms, the three-tiered welfare system was based on compulsory contributions of employees and enterprises. They paid contributions not only for the four risks of income loss – disability, old age, sickness and unemployment (from the 1970s onward) – but also for education, child care, care of older people, care for people with special needs, etc. These contributions were earnings related, while services and beneﬁts were distributed to the rightful claimants partly on the basis of the ‘Bismarckian equity principle’, and partly on the basis of the ‘Beveridgian principle of universalism’. Funds were raised by special institutions; in the second half of the 1970s and in the 1980s, these institutions were self-managing communities of interest organized on the national and local levels for individual ﬁelds (education, health care, social services, etc.). These institutions were the framework for the direct (i.e. without interference from the state) contact and realization of the interests of both service providers and users of services. Cash beneﬁts (transfers) were paid from their budgets to eligible claimants (individuals and families), and (as a rule) annual grants were awarded to voluntary organizations and associations. These ﬁnancial means were not very high, yet they made the basic functioning of organizations and associations possible and served as an instrument of state control (via annual reports).

Status quo: the Slovene welfare system The Slovene political elite decided to introduce gradual reforms in the individual social policy ﬁelds. In the ﬁelds of employment policy and provision of social protection for the unemployed, there was a shift from a passive employment policy, based on the rights deriving from compulsory insurance against the risk of unemployment, towards an active employment policy. The principle of activation was carefully used, above all, for the unemployed and also for others entitled to social assistance. In the ﬁeld of family policy, some positive measures were introduced (e.g. paternity leave, additional family beneﬁts) that contributed to an easier reconciliation of work and family life. This reconciliation has a long tradition in Slovenia, because of the high level of employment among women, and is not restricted to the post-socialist period. In the ﬁeld of disability and old age pension policy, which is based on a compulsory insurance system, the ﬁrst reform (1992) introduced minor changes within the existing system. With the second reform of 1999, a three-pillar system was introduced, in which the second and the third represent a complement, but not a substitute for the ﬁrst pillar (compulsory insurance). In the ﬁeld of health care policy, which is also based on compulsory insurance, the privatization of health care services and the introduction of supplementary private insurance within for-proﬁt insurance agencies were initiated. In the ﬁeld of education policy, which is based on the principle of universality, reforms of the curricula were implemented, while the system of public educational institutions 446

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remained practically unchanged at all levels. This does certainly not mean that the formal obstacles for the establishment of private educational institutions (by private natural and legal persons such as, for example, the Catholic church) were not removed. However, private educational institutions can only complement, but not substitute for public educational institutions. Only in the ﬁeld of housing policy, a truly paradigmatic shift took place at the beginning of the 1990s. The entire social/public/state housing sector was transformed into a private sector, and the state has only gradually created the conditions for the construction of rental for-proﬁt and non-proﬁt apartments (Tables 25.1 and 25.2).

Table 25.1 Social protection expenditure

si

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

– 3882.2 4268.5 4656.9 4988.4 5197.1 5565.2 5985.4 6106.2 6336.6 6622.4p

– 1952.2 2149.4 2350.0 2515.5 2613.0 2793.7 3000.9 3059.6 3173.0 3310.4p

– 24.1 24.5 24.8 24.8 24.6 24.8 24.8 24.1 23.7 23.4p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

Table 25.2. Social protection beneﬁts in percentage* (2005)

si Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 97.9p 8.4p 3.2p 0.1p 2.8p 39.9p 43.5p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

447

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In the following, the social policy ﬁelds we have discussed above as well as the indicated changes are depicted. Unemployment Unemployment beneﬁt The unemployment insurance scheme has been revised and amended several times;2 the most important changes came into force in October 1998, when the activation principle was introduced (i.e. rights became more closely related to obligations) (Kopacˇ 2007). In 2006, the activation principle was further strengthened and connected with ﬁnancial curtailment. The reform abolished the unemployment assistance (income-based UA) to which unemployed people in need were entitled after the expiry of their unemployment beneﬁt (earnings-related UB). Unemployed people register at the employment oﬃce, and are therefore entitled to unemployment beneﬁt and to a mobility allowance and have the right to participate in active employment policy programmes and the right to health, pension and disability insurance. The unemployment insurance scheme covers all employees who have signed an employment contract and who are working a minimum of 20 hours. All these employees are compulsory insured. The self-employed can be insured against unemployment on a voluntary basis. There are no speciﬁc provisions for separate occupational groups regarding their unemployment insurance conditions and cash beneﬁts (Kopacˇ 2007). The basis for calculating a person’s UB is the average monthly gross wage in the 12 months prior to their unemployment. The UB amounts to 70 per cent of this amount in the ﬁrst three months, and 60 per cent thereafter. However, the amount may not be below 45.56 per cent of minimum wage and cannot be three times higher than the lowest possible amount. The duration of UB depends on both the working/insurance record and the age of the claimant. It is paid from three months up to two years. The UB is (partly) ﬁnanced from the compulsory contributions paid by employees (0.14 per cent of gross wages) and their employers (0.06 per cent of gross wages). However, the social contribution funds cover only about 18.9 per cent of the expenditure related Table 25.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

si

eu27

eu15

– 6.9 6.9 7.4 7.3 6.7 6.2 6.3 6.7 6.3 6.5 6.0 4.9

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

448

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to the payment of unemployment cash beneﬁts. The rest is covered by the state from the national budget (ESS 2005). The number of unemployed people receiving cash beneﬁts is relatively low – only every fourth registered unemployed person (see Table 25.3) is entitled to UB. This is mainly because the labour market is becoming more and more ﬂexible (i.e. the number of ﬁxed-term contracts is growing), while the social security system remains the same as it was a century ago – i.e. resting on full-time, permanent employment. The concept of ﬂexicurity has not being properly introduced yet. At the moment, labour market reforms are more concerned with ﬂexibility, and less with security. Within employment policy, the active dimension (i.e. active labour market programmes) is becoming more and more important. The entitlement to cash beneﬁts depends upon the readiness of the unemployed to become (re-)employed or participate within active labour market programmes. Minimum resources/(ﬁnancial) social assistance Unemployed people may also receive non-contributory (ﬁnancial) social assistance. The general social assistance scheme provides a beneﬁt for people in need who permanently reside in Slovenia. The aim is to alleviate the situation of those individuals who do not have the essential means to support themselves. The assistance is means-tested and applies to families. The more recent reforms, especially those introduced after 1998 (i.e. so-called activation reforms), which abolished UA and tightened the conditions for entitlement to UB, caused a rise in the number of unemployed receiving (ﬁnancial) social assistance. In July 2007, around 70 per cent of all recipients of ﬁnancial social assistance were unemployed (MLFSA 2008). The nature of passive and active employment policy, as well as social policy, has changed considerably during the last few years, e.g. rights have become more closely related to responsibilities, the subsidiary nature of cash beneﬁts is strongly emphasized, and the emphasis is on active/activating rather than passive measures (Ignjatovic´ et al. 2002). The activation principle (mainly implemented as ‘work-oriented’ policy and less as ‘participation-oriented’ policy) introduced within European employment and social policy has had, in this respect, an important inﬂuence. Meeting the Lisbon targets became a clear policy priority. Reconciliation of work and family Social policy measures related to the family and the high labour market participation of ˇ ernigoj Sadar 2005: 236). women have more than a half-century tradition in Slovenia (C Their progress was sustained by the development of a widespread network of child care services (i.e. kindergartens), the introduction of insurance-based social security schemes in the case of maternity (i.e. maternity/parental leaves) and other family-related beneﬁts (e.g. child beneﬁts). Additionally, an individual tax system was established. However, this political shift in women’s role in society was not reﬂected in actual practice, where patriarchal relations and ‘traditional’ images of motherhood were (to an important degree) preserved. Women became full-time employees and at the same time did most of the child care and typical household/family tasks (i.e. informal/unpaid domestic work). The unequal gender distribution of labour in the private sphere placed a double 449

Z . K OL A RICˇ , A . K OP A Cˇ A N D T . R A K A R

burden on women. This problematic is becoming more and more acute in the era of (global) intensiﬁcation of work (Kopacˇ 2005). In Slovenia, the most common strategy women use to reconcile work and family obligations is to stay at home for one year after childbirth and return to full-time work afterwards (Kanjuo Mrcˇ ela 2005). For this strategy, the provision of publicly subsidized child care services and paid leave arrangements are crucial. Child care services In Slovenia, there is a widespread network of publicly subsidized child care services, enabling parents (especially mothers) to reconcile (full-time) work with family obligations. Child care services are widely available and relatively aﬀordable. In 2007/2008 68 per cent of all children of the appropriate age were enrolled in kindergartens (SORS 2008). Pre-school child care institutions are funded by the municipalities from fees paid by parents (depending on the income per family member and family property), the sale of services and products, donations and other sources. Parents contribute from 10 per cent to 80 per cent of the programme costs for the ﬁrst child, while for the second child (attending the institution at the same time as the ﬁrst) parents do not need to pay anything. In recent years, the average parental contribution has been about 25–30 per cent of the programme costs (Kanjuo Mrcˇ ela 2005). Paid leave arrangements Since 20013 there have been four types of parental leave: maternity leave, paternity leave, leave for nursing and caring for a baby, and adoption leave. All forms are ﬁnanced from the public social security system, which collects contributions paid by employees and their employers. They are insurance-based rights enabling beneﬁciaries (mainly women) to maintain their social position (i.e. earningsrelated beneﬁts). The major eligibility condition is that the potential beneﬁciary is insured (i.e. employed) on the day before the parental leave starts, and has been insured for at least 12 months during the three previous years (Kopacˇ 2005). Maternity leave is the exclusive right of mothers (only exceptionally of fathers) to 105 days of paid leave (100 per cent income replacement rate), which must be used at least 28 days before giving birth (or on medical reasons, 45 days prior to birth). After the expiry of maternity leave, one of the parents is entitled to 100 per cent paid leave for nursing and caring for the baby for 260 days. This leave can be taken as full-time or parttime absence from work. In the latter case, the duration of the leave is prolonged to 520 days, or it can be used in diﬀerent time sequences, or even as a lump sum for certain purposes deﬁned by law (e.g. payment for child care, rent, resolution of housing problem). However, leave for nursing and caring for a baby is mostly used by mothers as a full-time (one-year) absence from work. In 2001, paternity leave as a non-transferable right of the father to a 90-day absence from work was introduced with the aim of encouraging men to take a more active role in child care. At least 15 days must be used during the ﬁrst six months and the remainder before the child’s third birthday. However, only 15 days of paternity leave oﬀer 100 per cent wage replacement, while for the rest the state only covers the social security contributions (based on the minimum wage). The latest data from the Ministry of Labour, Family and Social Aﬀairs shows that 15,289 fathers used paid paternal leave in 2007 (approximately 77 per cent of all eligible fathers) 450

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(MLFSA 2008a). And ﬁnally, adoption leave is deﬁned as the right of adoptive parents to 150 days (for a child aged from one to four) or 120 days (for a child aged from four to 10) of 100 per cent paid absence from work (Kopacˇ 2005). Additionally, insured parents have the right to work part-time (in agreement with their employers) until the child’s third birthday, or sixth birthday in the case of two children. During this period, the parent’s wage depends on actual hours worked, while the state makes up for the social contributions (up to full-time). In addition, a parent who leaves the labour market to care for four or more children has the right to state payment of social security contributions based on the minimum wage until the youngest child has reached 10 years of age. This option was introduced in 2006. In addition to these various types of parental leave, employees also have the right to a leave of absence (up to 15 working days per year) to care for a sick child/family member at 80 per cent wage replacement (Kopacˇ 2005). Family beneﬁts Additionally, families may be entitled to other family beneﬁts (ﬁnanced from the state budget), such as child allowance (means-tested); assistance for a newborn child (universal); large family allowance (universal); allowance for nursing a child who needs special care and nursing (universal); partial payment for lost income when one parent stops working or starts to work part-time in order to care for a severely physically or mentally handicapped child; and parental allowance (universal). The child allowance, which is a supplementary family beneﬁt to partially cover the costs of supporting a child, is most widely used. It is means-tested and targeted at middle-income families (90 per cent coverage of children) (Kanjuo Mrcˇ ela 2005). It can be increased by 10 per cent when a child lives in a one-parent family and by 20 per cent if a pre-school child does not attend kindergarten. The parental allowance is a lump sum (181.46 euro in 2008) payment to parents who are not entitled to insurance-based parental leave. Slovenia has rather generous public policies related to the reconciliation of work and family obligations, but they are not supported at the enterprise level. The enterprise environment/culture often has a negative impact on the use of statutory deﬁned rights, due to employers’ tendency to perceive long parental or sick leave as their indirect cost ˇ ernigoj Sadar and Kersnik 2004). Such an attitude often leads to discriminatory prac(C tices against women (and parents). Reconciliation policy needs to be supported at the individual and organizational level by measures to stimulate more active parenting by fathers, and by changing stereotypical gender roles (i.e. socialization model) (Kopacˇ 2005). Pensions In response to demographic and economic trends, Slovenia undertook two pension reforms in the 1990s: the Pension and Disability Insurance Act (PDIA) of 1992 and PDIA of 1999.4 Both reforms were good examples of a gradualist approach to reforming the social protection system (Stanovnik 2004). The main changes were a gradual rise in the retirement age; a reduction of the diﬀerences in retirement requirements for men and women; a strengthening of the link between beneﬁts and contributions (increasing the period for which the highest average earning is calculated from 10 to 18 years, lowering the annual accrual rates, etc.); and a combination of various types of pension scheme ﬁnancing (pay-as-you-go and funded schemes) (MLFSA 2005). 451

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The reforms introduced a three-pillar system, where the leading role is still played by the ﬁrst, public pillar. Changes in the ﬁrst pillar (e.g. introduction of full pensionable age at 63 for men and 61 for women, related ‘penalties’ and ‘bonuses’, abolition of early retirement, new state pension, etc.), although substantial, were introduced gradually and with numerous exceptions. The ﬁrst pillar is (still) mandatory and covers the risks of old age, disability and survivors. Social contributions are collected and distributed by the (public) Institute of Pension and Disability Insurance (IPDI). The current rate is 8.85 per cent of the gross wage from employers, and 15.5 per cent of the gross wage from employees. The second pillar was introduced in 1992 for the ﬁrst time, but it became relevant only after the second reform in 1999. The latter introduced a secondary pillar on a voluntary basis, in the form of collective and/or individual pension schemes. The pillar is managed by pension funds or insurance companies. For some occupations, where employers are obliged to pay higher contributions in order to ﬁnance early retirement, the second pillar is a mandatory supplementary pension scheme. In 2007, there were 525,130 people included in this pillar, which is about 55.19 per cent of all insured persons within the ﬁrst (public) pillar (MLFSA 2008b). Owing to tax incentives (i.e. premiums are exempt from corporate income tax, social security contributions and personal income tax), employers are strongly motivated to enrol their employees in collective pension schemes. Individual pension schemes are rare, since premiums paid by individuals are exempt only from personal income tax (Stanovnik 2004). The third pension pillar consists of voluntary individual savings for old age, mainly in the form of life insurance administered by insurance companies or banks. The rights provided under the compulsory insurance scheme (ﬁrst pillar) include: & & & & & & &

old age pension; disability pension; survivor pension; family pension; partial pension; rights from disability insurance (right to occupational rehabilitation, disability beneﬁt, reassignment, part-time work, others) and to reimbursement of travel expenses; right to supplementary beneﬁts (e.g. assistance, attendance and disability allowance; and other rights, such as to a transitional allowance, maintenance allowance and annual allowance).

In addition, there is also a state pension for people aged 65 and over who are not entitled to a pension from a public scheme and who have no income, but have at least 30 years of residence. This is actually a social assistance beneﬁt, which is regulated by the PDIA. Most of the rights and especially pensions (i.e. old age, disability, survivors and partial) are earnings-related, while some supplementary beneﬁts are means-tested and targeted at low-income pensioners. Such examples are the supplementary allowance,5 which is an additional beneﬁt paid to pensioners in need, and the solitary pension allowance,6 paid this year due to high inﬂation. Both beneﬁts are paid from the state budget. There is also one universal beneﬁt, i.e. an annual allowance, which is deﬁned on two diﬀerent levels. Beneﬁts which are earning-related are subject to taxation, while this is not the case with the means-tested beneﬁts. The pension reform of the 1990s succeeded in stabilizing public pension expenditures as a percentage of GDP. After the introduction of the 1999 PDIA, the actual retirement 452

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Table 25.4 Pension expenditures, replacement rates and actual retirement age, period 1992–2002

Year

1992 1994 1995 1997 1999 2000 2001 2002

Pension expenditure (% of GDP)

Average replacement rate* (%)

Actual retirement age (years, months) Men

Women

11.41 11.84 12.23 12.13 12.09 12.16 11.92 11.85

77.8 75.4 76.2 74.3 75.8 75.3 73.2 72.8

56.2 57.7 57.6 58.3 58.2 59.2 59.3 59.11

52.6 53.2 53.1 54.11 54.10 55.5 55.5 55.6

Source: Stanovnik, 2004: 326 Note: * Ration of the average old age pension to the average net wage

age started to increase, and the ratio of the average old-age pension to the average wage started to decrease (Table 25.4). However, further reforms will be required to assure the ﬁnancial sustainability of the system. The ratio of contributors to pensioners has dropped from 1:2.3 in 1990 to 1:1.62 in 2007 (ZPIZ 2008). According to the Ageing Working Group (AWG) projections of 2005, public pension expenditure is projected to increase to 18.3 per cent of the gross domestic product (GDP) in 2050. The future challenge will certainly be to assure the ﬁnancial sustainability and adequacy of the pension system. Long-term projections show that the gross replacement rate of the ﬁrst pillar will decline from 64 per cent (in 2005) to only 39 per cent in 2050 (EC 2006). Employment injuries and occupational diseases The risk of employment injuries and occupational diseases is covered by the pension and disability insurance and the health insurance. Some additional speciﬁcations are provided within the Health and Safety at Work Act (1999),7 especially with respect to the rights and obligations of employers and employees for ensuring safety at work. All people covered by social (health, pension and disability) insurance are insured. In addition, pupils, students and mentally handicapped children during internship and similar employment are covered, as well as other categories (e.g. disabled people, unemployed people, volunteers, etc.) engaged in certain occupations. In case of occupational disease or employment injury, insurants are entitled to medical treatment, rehabilitation services and wage compensation (100 per cent of the average monthly salary), if the personal physician approves sick-leave. In case of long-term, health-related absenteeism (longer than one year), a disability pension is considered. Health care Unlike pension reform, where there were virtually no institutional changes (except a change in name), the health insurance reform of the 1990s introduced far-reaching changes to the system8 (Stanovnik 2004: 327). 453

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According to Stropnik et al. (2003), the Slovenian health care system is in general quite transparent, well-structured and ﬁnancially more stable than in some other postsocialist countries. Funding, purchasing and delivery are under government supervision. The Ministry of Health is responsible for health policy and legislation, while an independent public Institute for Health Insurance of Slovenia (IHIS) is responsible for the compulsory health insurance (CHI) and handles all individual cases related to health care. Health care coverage applies to persons covered by compulsory health care insurance (CHI) and their family members. The health-related social security schemes are therefore insurance schemes. They are uniform for the whole working population and their family members. Contributions do not depend on the number of insured family members. Despite the contribution system, coverage is almost 100 per cent. The important characteristic of the Slovene health care system is that entry is insurance based, while rights are universal and based on the principle of equity. The system is based on the principle of solidarity, as the funds are redistributed from the rich to the poor, from the healthy to the sick, and from the young to the old. Health care services and beneﬁts disbursed by the IHIS are mainly ﬁnanced from social security contributions by employers, employees, self-employed, farmers and others, such as professional sportsmen and artists (approximately 80 per cent of revenue). Employers and employees each contribute 6.36 of gross wages, and employers additionally pay 0.53 per cent for professional diseases and injuries at work. These contributions are in a fund controlled by the IHIS. A much smaller source of revenue (approximately 18 per cent) for the IHIS stems from transfer payments from other social security funds, community and state budget. Non-tax revenue, capital income and received donations comprise the remaining 2 per cent of the IHIS income (Stropnik et al. 2003). In addition to compulsory insurance, a voluntary health insurance (VHI) was introduced under the auspices of the IHIS. This later evolved into an independent mutual insurance association and, soon after, two private insurance companies entered the ﬁeld. VHI covers payments for health services above the share covered by CHI. Incomes from voluntary insurance are oﬃcially deﬁned as private sources. It should be noted that VHI could be regarded as compulsory, since the majority of the population cannot aﬀord not to be insured. Hence, most of the population in Slovenia is ‘voluntarily’ insured. Furthermore, especially poorer population groups are forced to pay for VHI, since the outof-pocket payments in case of sickness represent a considerable burden for them. Therefore, VHI has been criticized for increasing social inequality in Slovenia (Stropnik et al. 2003). Consequently, the state recently introduced state coverage of VHI for the poorest population. In addition to the voluntary insurance for co-payments in obligatory health insurance, a supplementary insurance for better services is available, but not very common. As regards the provision of health care services, most health care providers – hospitals and health clinics – are state-owned. On the other hand, the privatization of health care services has been gradually increasing. The number of private doctors, particularly specialists, dentists and general practitioners, has been growing slowly and there are also some private hospitals. Most of the private provision in health care is carried out in the form of private non-proﬁt organizations operating on the basis of concession agreements with the government. This means that they are tied to the public health care system by the way of ﬁnancing; the proportion of their incomes deriving from direct payments is relatively small (Stropnik et al. 2003). Despite the increase in the private non-proﬁt provision of health care services, its share in the structure of the private non-proﬁt sector 454

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is very small. Only 2.1 per cent of private non-proﬁt organizations in Slovenia are active in health care (Kolaricˇ et al. 2006), which is substantially lower than in other European countries, as well as other post-socialist countries (Salamon et al. 2003). The issue of centralization/decentralization is not very important in Slovenia, because of its smallness. Apart from the comprehensive net of primary-level health care centres, each major region has a regional hospital. Hospitals are approximately equally developed and equally ﬁnanced. Additionally, there are two major tertiary medical centres. As regards ﬁnancing, so far a relatively stable and balanced funding has been ensured for the health care system in Slovenia. The proportion of public expenditure on health care has been stable at around 7 per cent of GDP. Of these 7 per cent, the majority of resources came from CHI, approximately 0.20 per cent came from the state budget, including investments in the sector, while sources from community budgets are less than 0.10 per cent. The level of private funding from VHI has been rising since 1992 and accounted for 1.28 of GDP in 2001. The total proportion of health care funding from private funds (including VHI, self-payment of services and medicines, and other health care expenditure) is around 20 per cent and thus similar to other EU countries (Stropnik et al. 2003). However, in the future, the health care system in its current form, according to Stropnik et al. (2003), is not ﬁnancially sustainable. Financial sustainability being further exacerbated by unfavourable demographic trends, and the preservation of the principle of solidarity, will be the main issues that need to be addressed in future reforms. Education Since the beginning of the 1990s, an important educational reform has been prepared. The most important changes were introduced in the second half of the 1990s. The conditions of carrying out educational activity, the methods of administration and funding of education are regulated by the Organization and Financing of Education Act (1996).9 Separate acts further regulate individual areas of education.10 Structure of the educational system Basic education (which combines primary and lower secondary level of education) is compulsory and was recently extended from eight to nine years. At the secondary level the supply of education programmes has been mostly enhanced. Students can opt for three-year educational programmes (short-term or secondary vocational education) and four-year programmes of technical education and secondary general education at high schools. As a new option, vocational high schools were introduced. Secondary education is free, and includes students between 15 and 19 years of age. Around 98 per cent of students continue their education immediately after basic education: Approximately 40 per cent opt for high schools, others for technical or shorter vocational studies (Eurydice 2005). Successful attendance at these schools qualiﬁes students for higher education. The educational system reform and the curriculum reform also addressed the issue of early school leavers. The drop-out has decreased from 9.2 per cent of pupils in compulsory education in the school year 1995/1996 to 4.4 per cent in the school year 2000/ 2001 (MLFSA 2002). Furthermore, the level and quality of education as well as the ability of schools to adjust their curricula to the changing demands of society and the labour market have been addressed. A tendency in the direction of lifelong learning can be noticed (Kopacˇ 2005). 455

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At the university level there has been a split between academically and practically proﬁled programmes. Faculties and art academies oﬀer both types of programmes, while professional colleges provide only professionally oriented programmes. The current reform of higher education involves the implementation of the Bologna process. There are no tuition fees for graduate courses in public institutions and private institutions with a concession. Full-time students in other private higher educational institutions, part-time students and post-graduate students pay a tuition fee. There are government subsidies for tuition fees for part-time studies and post-graduate studies that meet the relevant criteria. There are two types of scholarship: a means-tested one, and the so-called Zois scholarship for gifted students, which can be awarded already at secondary level. In the academic year 1999/2000 a system of student loans was introduced as a form of government ﬁnancial assistance to students (Eurydice 2002). In the last 20 years the number of students in tertiary education has increased by 83 per cent (ﬁrst degrees by 64 per cent, master’s and doctor’s degrees by 388 per cent) (Bevc 2002 in Stropnik et al. 2003: 95). However, a considerable increase in the number of students in tertiary education will result in an improved educational attainment of adults only if wastage in the system (drop-out and repetition rate), which is still very high, decreases (Stropnik et al. 2003: 95). Administration, funding and provision of education The educational system in Slovenia is highly centralized as regards ﬁnancing and administration. Only pre-school education and basic education is administrated at the local level. Funds for ﬁnancing public education (payment of salaries, indirect labour costs and investments) are provided from the state budget for all levels of education. Municipalities are only obliged to provide funds necessary for investments in and the maintenance of pre-school institutions and primary schools (where they also cover some of the indirect labour costs and pupils’ transportation). The level of public ﬁnancing of education has been relatively stable in the whole transition period and gradually increased from 5.1 per cent of GDP in 1992 to 6.02 per cent of GDP in 2002, decreasing again to 5.83 per cent of GDP in 2006.11 The large majority of the educational institutions in Slovenia are public, established by the state, or in the case of pre-school and primary education, by local communities. Private schools are not very common, although they are entitled to public ﬁnancing of 85 per cent per student in a corresponding public school and, if granted, a concession, even of 100 per cent. The development of private education was the most extensive in the case of pre-school education, followed by higher education, while in primary and secondary education it was almost negligible (see Rakar 2005). To conclude, the Slovene education system is based on the principle of universality (the right to education is a universal right applicable to everyone on an equal basis) and the protection of the public school sector, while private schools complement the public sector, but cannot substitute for it. However, recent public debates about future steps in education policy within the framework of the proposed liberal reforms are much more in favour of privatization at all levels of education. Housing policy Housing policy can be seen as an underdeveloped and marginalized part of the welfare system in Slovenia. The reasons for this can be attributed to the privatization of social 456

S L O V EN I A

housing that transformed many post-socialist countries into societies with predominantly home ownership and a marginalized rental sector, and a huge deﬁcit in social and nonproﬁt rental housing (see Cirman 2004; Sendi 1999). The data for 2001 reveal that a very small percentage of households live in the socially rented sector (5.2 per cent) and the privately rented sector (2.4 per cent), while the homeownership rate is very high (83.1 per cent).12 Social housing and ﬁnancial assistance (subsidies and rent allowances) are the main instruments of social policy relating to housing and are based on very restrictive meanstested criteria, which do not correspond to needs. Social assistance beneﬁciaries who rent an apartment are entitled to an allowance up to the level of the non-proﬁt rent in social housing, but it cannot be higher than 25 per cent of the basic amount of the minimum income. The number of beneﬁciaries (about 2,500 in recent years) is very low (Stropnik et al. 2003: 99), which shows that housing allowances are virtually non-existent in Slovenia. Housing subsidies usually take the form of controlled (below-market) rents for non-proﬁt and social tenancies (Stanovnik, 2004). Priority in social housing is given to vulnerable groups such as families with many children, families with a small number of employed, young families, disabled persons and families with disabled members. The so-called object subsidies related to the construction and renting of apartments were implemented in 1999. Public housing loans have been disbursed by the National Housing Fund to non-proﬁt housing associations for the construction of non-proﬁt rentals. In the period 1999–2001, approximately 1,350 non-proﬁt apartments were constructed; yet about 6,000 non-proﬁt apartments and 7,000 apartments in social housing are still needed (Stropnik et al. 2003). The housing policy in Slovenia can be described as pro-ownership. Hence, the pressure for home ownership is very high, since this is seen as the only option for independent housing. As Cirman (2004) puts it: given the highly restrictive qualiﬁcation criteria, the government’s low housing priorities and the unattractive conditions for private capital to invest in the provision of non-proﬁt housing, we cannot expect renting to become an appropriate substitute to home ownership in the near future. This will become one of the main problems in the future, since the aﬀordability of owner-occupied housing in Slovenia is very low. The price-to-income ratio has reached seven, which is one of the highest in the transitional countries. Therefore, the current high rate of home ownership is unsustainable in the long run (Cirman 2004: 2, 20). The described changes introduced through the reforms in the individual ﬁelds of the Slovene welfare system during the last decade cannot be labelled as paradigmatic. The structure of the system can therefore be described through the following elements. 1 The foundations of the whole system are compulsory social insurance systems based on social partnership. This instrument complements the social assistance, which is becoming more and more linked to the principle of activation. 2 In the ﬁeld of pension and health care insurance, along with compulsory insurance schemes, supplementary private insurance schemes are developing. 3 The network of public/state institutions still holds its central place in the provision of diﬀerent services, which are accessible to all citizens on equal terms. However, in the complementary relation to the public sector, the importance of private non-proﬁt organizations is growing. 457

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4 Private for-proﬁt organizations are emerging through the process of privatization in certain ﬁelds, especially health care. 5 The family as the most important unit of the informal sector still carries a very important share of the burden in the provision of social protection and welfare for its members, and its role is supported by positive family policy measures. This structure of the Slovenian welfare system incorporates the principle of social justice (in the sense of equal opportunities to access certain levels of social protection, certain amounts and types of services), but upgraded with a meritocratic principle, as well as the principles of solidarity or equality. The low poverty rates (see Table 25.5) may be a result of this basic orientation. The principles named above are widely accepted by the citizens and are in accordance with their value orientations.

Future trends In the context of the transition from a socialist to a post-socialist society, the Slovene welfare system ‘got rid of its particularity’. In the ﬁrst half of the 1990s, it was constituted as a dual model in formal terms, combined of elements that are on the one hand the basic constitutive elements of the conservative-corporatist and on the other hand of the social-democratic welfare system. First of all, the compulsory social insurance systems, which are based on social partnership and are as such the basic constitutive element of a conservative–corporatist welfare system, became fully transparent and the primary instrument for the provision of social protection for employees and their family members. On the other hand, the strong public/state sector maintained the status of the main service provider of all types of services to which all citizens are equally entitled. Gradually a complementary relationship between public/state and the non-proﬁt voluntary sector

Table 25.5 At-risk-of-poverty rates by gender

si

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– – – – – 11 11 10 10 – 12b 12

– – – – – 11 10 9 9 – 11b 10

– – – – – 12 12 11 11 – 14b 13

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 14 Dec 2007) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

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was established, as well as state support for the informal sector, which is to the family in the sense of reconciliation of work and family life. All the above-mentioned characteristics are distinctive elements of social-democratic welfare systems. The formation of such a dual model of the welfare system was based on the decision of the Slovene leftist oriented political elite to (contrary to political elites in the majority of other former socialist societies) reject measures and recommendations for reforms based on the principle of shock treatment that were advocated by experts from international monetary institutions. These recommendations related to the earliest possible privatization of the economy, deregulation of markets, including the labour market, the privatization and commercialization of public/state sector and to the retrenchment of public/state social expenditure on the provision of social protection and welfare of the citizens. The withdrawal of the state should have been substituted on the one side by private insurance schemes and by private non-proﬁt organizations as providers of numerous services on the other. The implementation of these recommendations from the domestic political elites would have meant the transformation of the former socialist welfare system into a liberal welfare system (Ferge 2001). This does certainly not mean that further reforms in the Slovene welfare system are not necessary. On the contrary, through our analysis we identiﬁed problems in each ﬁeld of social policy. In seeking appropriate solutions, we should take into account previous experience with the gradual and well considered approach to the introduction of reforms. However, taking into account the currently proposed reforms by the ruling rightist political elite, this statement sounds like a pious wish. The planned reforms oﬀer the Slovene citizens not only the same package of neo-liberal reforms that were proposed by experts from the World Bank and the International Monetary Fund in former socialist countries at the beginning of the 1990s, but their implementation with a shock treatment. The resistance of large parts from the public sector and especially intense opposition from the trade unions blocked the implementation of the proposed reforms. Hence, the central question for the future development of the Slovene welfare system should not be how to replace one instrument for the provision of social protection with another, or one principle of social justice with another, but how to combine and bind together diﬀerent instruments, sectors and principles. Only by this can we avoid reducing freedom to freedom of choice (among competing providers of services and insurance systems) and solidarity to charity (of individuals and church organizations).

Notes 1 In the framework of the socialist welfare system, the Church was formally not allowed to engage in social activities or to found its own organizations. However, this does not mean that this did not occur. During the whole period, the Church and especially orders of nuns were ‘publicly invisibly’ taking care of children, helping the ill, older and handicapped people, running shelters for the homeless and abandoned, usually in close cooperation with social work centres in local environments. In parishes, there were numerous activities run by lay persons from which self-help and mutual aid groups were formed (Kolaricˇ 1994: 147). 2 Zakon o zaposlovanju in zavarovanju za primer brezposelnosti (1991, 1992, 1993, 1994, 1997, 1998, 2001, 2002, 2004, 2006, 2007). 3 Zakon o starševskem varstvu in družinskih prejemkih (2001, 2003, 2005, 2006, 2007, 2008). 4 Zakon o pokojninskem in invalidskem zavarovanju (1999, 2000, 2002, 2003, 2004,2005, 2006, 2007, 2008). 5 In 2008 it was separated from other rights provided under the compulsory insurance scheme and deﬁned within the separate Supplementary Allowance Act (10/2008). It is ﬁnanced from the state budget.

459

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6 Zakon o enkratnem pokojninskem dodatku (2008). 7 Zakon o varnosti in zdravju pri delu (1999, 2001). 8 The legal basis for health care reform is the Health Care and Health Insurance Act (Zakon o zdravstvenem varstvu in zdravstvenem zavarovanju) (1992), Health Care Services Act (Zakon o zdravstveni dejavnosti) (1992) and rules of the Institute for Health Insurance of Slovenia (IHIS) on compulsory health insurance. In subsequent years, all of these acts were amended several times, the last amendments being in 2008. 9 Zakon o organizaciji in ﬁnanciranju vzgoje in izobraževanja (1996, 1999, 2000, 2001, 2003, 2005, 2006, 2007, 2008). 10 Zakon o osnovni šoli (1996, 2000, 2001, 2004, 2005, 2008, 2007), Zakon o gimnazijah (1996, 2001, 2006, 2007), Zakon o poklicnem in strokovnem izobraževanju (1996, 2000, 2004, 2006), Zakon o izobraževanju odraslih (1996, 2000, 2004), Zakon o visokem šolstvu (1993, 1995, 1998, 1999, 2001, 2003, 2004, 2006, 2007, 2008), Zakon o višjem strokovnem izobraževanju (2004). 11 Statistical Oﬃce of the Republic of Slovenia (www.stat.si). 12 Household Consumption Survey, Statistical Oﬃce of the Republic of Slovenia, 2003 in Cirman (2004).

Bibliography Cirman, A. (2004) ‘Modelling Housing Tenure Preferences: The Case of Slovenia’, paper presented at the ENHR Conference, Cambridge, July 2004. ˇ ernigoj Sadar, N. (2005) ‘Labour Market integration of women and childcare in Slovenia’, in B. PfauC Eﬃnger and B. Geissler (eds.) Care arrangements and social integration in European Societies, Bristol: The Policy Press. ˇ ernigoj Sadar, N. and Kersnik P. (2004) ‘Parents experiences in the workplace’, in I. Svetlik and C J. Nadoh (eds.) Human Recourse Management in a Knowledge-based Economy, conference proceedings, Ljubljana: Faculty of Social Sciences. EC – European Commission (2006) ‘Synthesis Report on adequate and sustainable pensions. Country summaries’, http://ec.europa.eu/employment_social/social_protection/docs/2006/rapport_pensions_ ﬁnal_en.pdf (accessed 24 July 2008). ESS – Employment Service of Slovenia (2005) ‘Annual Report, 2004’, (www.ess.gov.si/eng/Annaul Report/lp05/index.htm) (accessed 24 July 2008). Eurydice (2002) ‘The Education System of Slovenia’, www.eurydice.org/Eurybase/Application/frameset. asp?country=SI&language=EN (accessed 15 April 2006). —— (2005) ‘National Summary Sheets on Education Systems in Europe and Ongoing Reforms – Slovenia’, www.eurydice.org/Documents/Fiches_nationales/en/frameset_EN.html (accessed 23 April 2006). Ferge, Z. (2001) ‘Welfare and “Ill-Fare” Systems in Central-Eastern Europe’, in R. Sykes, B. Palier, and P.M. Prior (eds.) Globalization and European Welfare States, Challenges and Change, Hampshire, New York: Palgrave. Ignjatovic´, M., Kopacˇ , A., Svetlik, I. and Trbanc, M. (2002) ‘Slovenia’s navigations through a turbulent transition’, in J.G. Andersen, J. Clasen, W. Oorschot, and K. Halvorsen, (eds.) Europe’s New State of Welfare. Unemployment, Employment policies and Citizenship, Bristol: The Policy Press. Kanjuo Mrcˇ ela, A. (2005) ‘Reconciliation of work and private life in Slovenia’, External Report commissioned by and presented to the EU Directorate-General Employment and Social Aﬀairs, Unit G1 ‘Equality between women and men’, photocopies. Kemeny, J. (1995) ‘From Public Housing to the Social Market: Rental Policy Strategies in Comparative Perspective’, London: Routledge. Kolaricˇ , Z. (1992) ‘From socialist to post-socialist social policy’, in I. Svetlik (ed.) Social Policy in Slovenia – Between tradition and innovation, Avebury: Aldershot, Brookﬁeld USA, Hong Kong, Singapore, Sydney. —— (1994) ‘Neproﬁtno volonterske organizacije v Sloveniji’ (Nonproﬁt Voluntary Organisations in ˇ asopis za kritiko znanosti, vol. 22, no. 168–69, 143–50. Slovenia), C

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ˇ rnak-Meglicˇ , A., Rihter, L., Boškic´ R. and T. Rakar (2006) ‘Velikost, obseg in vloga Kolaricˇ , Z., C zasebnega neproﬁtnega sektorja v Sloveniji’ (Size, Scope and Role of the Private Non-proﬁt Sector in Slovenia), Raziskovalni projekt v okviru CRP – Celovita analiza pravnega in ekonomskega okvirja za delo nevladnih organizacij, Ljubljana: FDV. Kopacˇ , A. (2005) ‘Increasing the employment of women through ﬂexible work arrangements. Statements and Comments – Slovenia’, http://pdf.mutual-learning-employment.net/pdf/norway%2005/ SI_Kopac.pdf (accessed 24 July 2008). —— (2007) ‘Contribution to EIRO comparative study on social partners and the social security system – case of Slovenia’, www.eurofound.europa.eu/eiro/2005/09/study/si0509202s.htm (accessed 25 July 2008). MLFSA (2002) ‘Izvajanje strategije socialnega vkljucˇ evanja s porocˇ ilom o uresnicˇ evanju programa boja proti revšcˇ ini in socialni izkljucˇ enosti’ (Implementation of the Strategy of Social Inclusion with the Report on the Realisation of the Programme of the Fight against Poverty and Social Exclusion), www. mddsz.gov.si/ﬁleadmin/mddsz.gov.si/pageuploads/dokumenti – pdf/Strategija_socialnega_vkljucevanja. pdf (accessed 12 April 2006). —— (2005) ‘Republic of Slovenia National Strategy Report on Adequate and Sustainable Pensions’, http://europa.eu.int/comm/employment_social/social_protection/docs/2005/si_en.pdf (accessed 14 April 2006). —— (2008) ‘Število izplacˇanih denarnih socialnih pomocˇi za mesec glede na status vlagatelja’ (The number of paid (ﬁnancial) social assistance by the status of applicants), www.mddsz.gov.si/si/statistika/denarna_ socialna_pomoc/stevilo_izplacanih_dsp_za_mesec_glede_na_status_vlagatelja/ (accessed 25 July 2008). —— (2008a) ‘Family beneﬁts – parental leave’, www.mddsz.gov.si/si/statistika/druzinski_prejemki/ (accessed 25 July 2008). —— (2008b) ‘Število vkljucˇ enih v prostovoljno dodatno pokojninsko zavarovanje’ (The number of participants within the voluntary supplementary pension and disability insurance)’, www.mddsz.gov. si/si/statistika/dodatno_pokojninsko_zavarovanje/ (accessed 24 July 2008). Rakar, T. (2005) ‘The Role of the Roman Catholic Church in the Service Provision of Education in Slovenia and Hungary’, Social Compass 52(1): 83–101. Salamon, Lester M., Sokolowski, S. Wojciech and Regina List (2003) ‘Global Civil Society. An Overview. The Johns Hopkins Comparative Non-proﬁt Sector Project’, Baltimore: Centre For Civil Society Studies, Johns Hopkins University. Sendi, R. (1999) ‘Housing Construction in the Transition Period: Slovenia’s Non-starter Situation’, Housing Studies, vol. 14, no. 6, 803–19. SORS – Statistical Oﬃce of Republic of Slovenia (2008) ‘Kindergartens, Slovenia, school year 2007/ 2008’, (www.stat.si/eng/novica_prikazi.aspx?id=1579 ) (accessed 25 July 2008). Stanovnik, T. (2004) ‘Social Sector Development’, in M. Mrak, M. Rojc and C. Silva-Jauregui (eds) Slovenia. From Yugoslavia to the European Union, The World Bank: Washington, D.C. Stropnik, N., Stanovnik, T., Rebolj, M. and Prevolnik-Rupel, V. (2003) ‘Study on the Social Protection Systems in the 13 Applicant Countries – Slovenia, Country Study’, http://europa.eu.int/comm/ employment_social/soc-prot/social/slovenia_ﬁnal.pdf (accessed 13 March 2004). Svetlik, I. (1992) ‘Changing Labour Market and Employment Policies’, in I. Svetlik (ed.) Social Policy in Slovenia – Between tradition and innovation, Avebury: Aldershot, Brookﬁeld USA, Hong Kong, Singapore, Sydney. ZPIZ – Zavod za pokojninsko in invalidsko zavarovanje (2008) ‘Insured persons’, www.zpiz.si/src/ predstavitev/zavarovanci.html (accessed 24 July 2008).

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Chapter 26

sk The Slovak welfare system Neo-liberal nightmare or welfare pioneer of middle-eastern Europe? Olaf Wientzek and Hendrik Meyer

Introduction Since Slovakia gained its independence in 1993, the country’s economy and social policy have experienced troubling developments often lacking in continuity. Internationally the Slovak transformation process gained certain popularity in 2004, when the governing liberal-conservative four-party coalition1 under Premier Mikulas Dzurinda decided on a ﬂat-rate tax of 19 per cent and various retrenchments in social services. Among the consequences were riots by the Roma population in Eastern Slovakia, which was hit especially hard by these laws. At the same time Slovakia – partly due to the public approval of the World Bank and the International Monetary Fund – became the symbol of a ‘wild capitalism’ and ‘minimalist welfare state’ of central-eastern Europe. Under the current left-national coalition on the other hand, some modiﬁcations have been made in order to reverse certain parts of this reform. Furthermore, the Slovak example shows how low the hurdles for a transformation of the welfare state can be under certain circumstances and how a social-political turnaround can be accomplished within a few years’ time. One might expect strong corporatist inﬂuences in the Slovak welfare system due to the relatively powerful position of the Catholic Church and as a counter-reaction to the communist past (Deacon 2000: 151–54). The numerous social–political reforms, however, show an inconsistent picture in this respect. All the more, the Slovak Republic provides a perfect example of how international organizations can implement welfare concepts of their own. Since the foundation of the Czechoslovakian state in 1918 and until 1992, the development of the Slovak welfare system was identical with that of the Czech Republic.2 Despite this shared legacy, the Slovak welfare state faced its own challenges in 1993. Within Czechoslovakia, the Slovak part of the country had always been the poorer one. Furthermore, the heritage of socialism was especially visible in the Slovak Republic: 90 per cent of the workforce was employed in collective plants (Waltraut 2006: 58). Thus a majority of the workers was highly specialized and more or less unprepared for an 462

S L OV A K I A

economic market. Accordingly long transition periods and high unemployment rates had to be allowed for (see Table 26.1). Another important aspect for the formation of the Slovak welfare state is the high percentage of Roma population.3 These people had been discriminated against for decades, were often low skilled and living in territorial seclusion (Filadelﬁová et al. 2007: 37–40). In addition to these varying economic and social–political preconditions of the Czech and the Slovak parts of the country, the diﬀerent opinions of the heads of state at that time – Vaclav Klaus and Vladimir Meciar – on the preferable speed of reform was yet another reason for the separation of Czechoslovakia. Slovakia altogether faced strong challenges in 1993. In the ﬁrst instance, the consequences of an economic transformation had to be coped with. At the same time a new market-oriented welfare system had to be implemented, which quickly found itself confronted with far-reaching problems due to the socialist past of the country. In addition to the double-digit unemployment rate, incentives for early retirement led to a high number of pensioners and an accordingly big ﬁnancial burden. Thus the pressure for reform was high right from the beginning of the Slovak welfare state, which has undergone multiple and wide-ranging changes since 1993. In a sometimes authoritarian style of governance, Meciar erected a paternalistic-conservative welfare state, whose construction had neither regarding the health care system (because of its insuﬃcient privatization), nor had social assistance been completed when his term of oﬃce ended in 1998 (Brocka 2002: 83). Yet Meciar implemented a welfare state that rested on the insurance principle and had the state as its dominant actor (Cerami 2008: 8–10, Barancová 2000: 147–48). The succeeding coalition of Liberals, Christian-Democrats and Social-Democrats under Premier Mikulas Dzurinda further developed the rudimentary welfare system of Meciar’s time between 1998 and 2002. The representative participation of other social–political players was expanded and eﬀorts for privatization were exerted to establish stronger marketability. The four-party coalition of the centre-right led by Dzurinda (2002–6) pulled comprehensive reform programmes through parliament in 2003 and 2004. These reforms shape the current structure of the Slovak welfare state, although the left-national government led by Robert Fico (since 2006) has so far implemented or tried to implement modiﬁcations, particularly in the health system. Nonetheless, the Slovak welfare

Table 26.1 Social protection beneﬁts as a percentage* (2005)

sk Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

eu27 p

100.0 97.0p 11.0p 4.2p – 3.1p 37.5p 41.2p

eu15 e

100.0 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; p Provisional value; * % of total social protection expenditure

463

O . W I EN T Z E K A N D H . M E Y ER

system, although not the neo-liberal nightmare, as which it is often described, is activating, still closer to the market than to the state and representing a workfare approach.

Status quo of the Slovak welfare system The low employment rate was one of the main problems of the Slovak welfare state. It can be traced back to the incentives for early retirement from Czechoslovakian times and to the high unemployment rates as a result of the reordering of the economic system. The Roma population is particularly concerned by exclusion from the labour market. Its share of the (long-term) unemployed and the welfare recipients is over-proportionally high. In the face of the relatively high proportion of (early) retirees, unemployed and welfare recipients, the pension systems and social assistance are of outstanding importance within the welfare system, while the health system remains an over-proportionally strong cost factor (see Table 26.1). Furthermore, the decommodiﬁcation index lay relatively high until 2003. This posed a double challenge on the Slovak welfare state: on the one hand eﬀorts were undertaken to contain the costs resulting from the pension and social assistance payments – not at least with a view to the Eurozone membership aimed for 2009. On the other hand, the high numbers of (long-term) unemployed needed to be (re-) integrated into the labour market, which is why not only the pension and social assistance systems are prominent parts of the Slovak welfare system. Labour legislation has to be taken into account as well. In addition to the endeavours for cost minimization and employment-related measures, health care insurance has been introduced. It oﬀers protection against basic risks, while supplementary beneﬁts may be obtained through a voluntary

Table 26.2 Social protection expenditure

sk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

2771.4 3244.4 3735.0 3995.0 3868.4 4273.6 4463.9 4951.4 5328.8 5860.4p 6436.1p

516.9 603.8 693.8 741.1 716.9 793.1 829.9 920.5 990.6 1088.8p 1194.8p

18.4 19.3 19.6 20.0 20.0 19.3 18.9 19.0 18.2 17.3p 16.9p

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p Provisional value; * in million euro; ** in euro

464

S L OV A K I A

private insurance. Informal payments were – at least before the reform of 2004 – widely applied in the health care system4 and continue – though to a lesser extent to hamper the performance of the health system (World Bank 2007b: 44–45). Family policy plays equally an important role for the analysis of the Slovak welfare system. Right after the fall of Communism, Slovakia had a relatively high female employment rate. As is typically the case in socialist countries, the child care system was also relatively well developed. After the breakdown of the socialist system, however, the trend has been towards a more traditional model of child care (Saxonberg and Sirovátka 2006: 185–86). More recently, education policy has been evaluated as a relevant welfare policy ﬁeld: Until now, education policy has rather failed to open opportunities for marginalized groups (World Bank 2007d: 8–10) (Table 26.2). Beneﬁts: target groups and funding Old age and invalidity pensions With the pension reform of 2005, the pension scheme was ultimately transformed from a traditional pay-as-you-go system into a model resting on three pillars. The ﬁrst pillar consists of a compulsory pay-as-you-go insurance. The second, completely funded insurance is compulsory as well and quite prominent in international comparison. Paid pension contributions run in equal shares into the ﬁrst and second pillars of the scheme (Mathernová and Jurajda 2005: 13). Contributions for the invalidity and old age pensions together make up 28.75 per cent of the gross wage. The employer here pays 21.75 per cent, while the employee pays 7 per cent.5 The high costs caused by the transition from a pure pay-as-you-go scheme into a three-pillar-model are paid by the state – among others from selling formerly state-owned enterprises (Zachar 2006(a): 61). The third pillar is a voluntary private insurance. The old age pension from the ﬁrst pillar is calculated from the average wage of the last 10 years and rises according to the years of contribution. Compared with the pension scheme existing before 2003, the current system is only modestly redistributive and much more orientated towards maintaining the income distribution. The funded second pillar was liberalized in 2003 and is now characterized by its relatively high marketability. Not only public providers may administrate the pensions of the second pillar, but also private for-proﬁt ﬁnance companies with a capital stock of at least 300 million Slovak crowns (SKK; about 7.8 million euro6). Yet there are several factors that diminish ﬁnancial risks of the capital market: on the one hand, in the case of illiquidity of a pension insurance company, the state guarantees full replacement. On the other hand, all corporations have to oﬀer several funds, which diﬀer in their risk grade. There are conservative ﬁxed-term deposits, equalization funds (50 per cent capital at risk) and growth funds (80 per cent capital at risk). One may change from one fund to another on a yearly basis exempt from charges. No taxes are raised on the accrued dividends from the second pillar and the contributions into the pension funds have been tax deductible since 2005. With rising contribution years and approaching retirement age, a higher percentage is automatically distributed to the ﬁxed-term deposits. Fifteen years before retirement, no more money goes into growth funds and seven years before no more money goes into equalization funds. In 2005 and 2006 entrance into the second pillar was still voluntary yet irrevocable. Fifty per cent of the Slovak working population already changed from the pure pay-as-you-go into the new scheme within the ﬁrst 12 months 465

O . W I EN T Z E K A N D H . M E Y ER

after the second pillar had been introduced. The second pillar is already compulsory for those who have paid their ﬁrst pension contributions since 1 January 2005 (Golias 2005: 11). Although this system has not been changed fundamentally, several attempts have been taken by the new government to weaken it: during the ﬁrst semester of 2008 the second pillar has been reopened in order to enable people to change back into the ﬁrst pillar and the state insurance. This move has been strongly suggested to the population by a governmental campaign. During this period, about 76,000 people (overwhelmingly over 45 years old) seized the occasion to leave the second pillar (Hospodarske noviny, 27 June 2008, Druhý pilier opustilo vyse 76-tisíc sporitel’ov). The third pillar is a voluntary one. The above-mentioned ﬁnancial service providers are also responsible for the administration of this pillar. There are ﬁscal privileges and tax deductions of up to 10 per cent with a maximum of 12,000 SKK for contributions into this pillar and for life insurances. Since 2005, the oﬃcial retirement age has gradually been raised to 62 years for both sexes (from formerly 60 years for men and 53–57 years – according to the number of children – for women).7 There is a new rule since 2003 that ought to ﬁght the low employment rate, which can be traced back to the incentives for early retirement. It states that the original pension sum is reduced by 0.5 per cent for each month of earlier retirement. This also holds true the other way round: for each month the retirement is postponed, 0.5 per cent is added to the original pension (Zachar 2006b: 64). Health care The main problems of the Slovak health care system until 2003 were the ﬁnancial overload plus the high percentage of ‘informal payments’ (see Hlavacka et al. 2004: 46–49). In 2002, even before the reform and implementation of a supplementary insurance, 85.9 per cent of the health costs were paid by the health insurances.8 A total of 3.2 per cent was ﬁnanced from taxes, the rest (around 11 per cent) by additional contributions from the patients. Eventually with the health care reform of 2004, a two-tiered insurance scheme was introduced. On the one hand there is compulsory health insurance, which covers the basic risks according to a beneﬁts catalogue determined by the Ministry for Health. On the other hand there is a voluntary supplementary insurance. The number of health insurances has also been reduced from 13 to ﬁve (two of which are under state control) in the context of rearranging the Slovak health care system. A majority of the insured belongs to the state-controlled corporations which are public service agencies and not joint-stock companies. The dominance of the state insurances has been recently strengthened by the new government, which limited the distribution of proﬁts from health insurance companies to shareholders and also by the operational costs to 3.5 per cent of the overall budget. This is a heavy burden especially for smaller insurance companies (Pazitny, Szalay 2008: 1). The patients may freely choose between the insurances, yet they are not allowed to decline such protection. The insurances are bound to preserve an equal treatment irrespective of the paid contributions. The contribution rate is 14 per cent of the basic wage.9 Four per cent of the average income is paid by the state for people who are not actively participating in the labour market (unemployed, pensioners, students, welfare recipients, etc.). Altogether the beneﬁts of the health care systems have been temporarily reduced (with exception of children under the age of six, chronically ill people and disabled people). 466

S L OV A K I A

Since 2003 a number of additional, but low payments by the patients have been agreed on, e.g. for the consultation of doctors and medical specialists, for clinical treatment, prescriptions and transport10 and medical operations (Nemec 2005: 3). Yet a legal amendment of 2005 introduced maximum amounts for additional payments for medicine, clinical treatment and home care. The new government abolished the co-payments for hospital care and doctor visits and reduced those on drugs in 2006 (Gunnarson et al. 2007: 4). The compulsory health insurance protects most of the needs according to the beneﬁts catalogue of the Ministry for Health, nevertheless private supplementary insurance is often recommended (especially in the ﬁeld of dental care). Unlike in many countries, long-term care is not a separate pillar, but integrated in the health care system. Nursing care is deﬁned as a sub-category of health care and to a large extent included in the beneﬁt package (World Health Organization 2007: 53–55), special long-term care institutions are also free of charge. A further reordering of the health care sector was its decentralization in 2003. Today most of the hospitals are run by municipal, regional and – to a lesser extent – private institutions. The pharmaceutical sector and the supply of minor medical services have been fully privatized. Wage continuation in the case of illness has been re-regulated as well. The net payment of 70 per cent during the ﬁrst days and 90 per cent after (temporally unlimited), which was in force until 2003, led to employees not being ﬁred in cases of ﬁnancial shortages in their companies, but being counted among the number of staﬀ on sick-leave at public expense (World Bank 2005: 25). The new regulation allocates part of the responsibility to the employers, who are now to pay the wage continuation during the ﬁrst 10 sick days. At the same time, the employer may visit and check his employees on sick leave. Unemployment beneﬁts and social assistance The high unemployment rate presents a lasting burden for the Slovak welfare state, although because of the economic policies and reforms it has been reduced signiﬁcantly during the last years (see Table 26.1). A signiﬁcant number of the unemployed keep this status over a long period without being reintegrated into the labour market.11 It makes sense to examine unemployment beneﬁts and social assistance in the same chapter here, because the period covered by unemployment beneﬁt has been reduced from nine months to only six months. Subsequently, social assistance has to be applied for. Employees and employers both contribute merely 1 per cent of the gross wage to unemployment insurance (World Bank 2005: 61). Unemployment beneﬁts, which account for 50 per cent of the former gross wage, are paid for a period of six months. Only those employees qualify for beneﬁts, however, who can verify to have worked three of the previous four years. Between 2006 and 2007 the number of beneﬁciaries decreased due to sinking unemployment and due to the tightening of eligibility, by 17.4 per cent to 22,300, the average monthly beneﬁt (June 2008) being 6,713 SKK (222 euro) (Table 26.3). Social assistance thus plays a decisive role within the Slovak welfare systems due to the exceptionally high unemployment and long-term unemployment rate, by which the Roma minority is hit over-proportionally hard. Social assistance is granted to anybody whose income lies below the poverty level. There has been an upper limit for receivable social beneﬁts since 2003. Families with many children, where both spouses are unemployed, suﬀer the most from this new regulation.12 The overall level of social assistance is contingent on several preconditions: the 467

O . W I EN T Z E K A N D H . M E Y ER

Table 26.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

sk

eu27

eu15

– – – 12.6 16.4 18.8 19.3 18.7 17.6 18.2 16.3 13.4 11.1

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 July 2008)

base rate is income related and dependent on the household size (Gyarfasová et al. 2006: 27). Furthermore there is a housing allowance, but social housing policy still remains a rather negligible part of the welfare system (Lux 2001: 202–5 and see Table 26.1). Following the example of an activating welfare system, there are incentives to look for a job. If one of the parents is gainfully employed, a tax credit is accredited (Waltraut 2006; Moore 2005). There also is an activation bonus, if the unemployed is actively seeking a job, i.e. applying to the local employment centre every two weeks. The activation bonus is also paid, if the job seeker does further training or performs non-proﬁt work for the public sector. Long-term unemployed, who ﬁnd a job, do not lose their entire social assistance immediately, but the payment is continued up to six months. Moreover, should a long-term unemployed person (at least 12 months registered unemployed) be employed, their wage is subsidized up to 25 per cent by the state. Further bonuses may be applied for in case of irregular expenditures, grave illness or in terms of pupils’ or students’ assistance. In the spirit of a ‘making work pay’ a number of programmes have been drafted together with the EU in order to promote reintegration of Roma into the working market: a social development fund was created in 2004, whose projects are characterized by their high degree of local ownership. The main programmes supported are capacity building, small social infrastructure and social work (World Bank 2007c: 34). Furthermore, so-called social companies have been created by the new government which employ 30 per cent of disadvantaged workers and which are co-funded by the state (Slovak Spectator 22 October 2007). Despite these supplementary beneﬁts provided by the social assistance system, the 2002 reform generated severe cutbacks (Moore 2005: 27, 36; World Bank 2005: 21). Family policy There are diﬀering models of ﬁnancial assistance for families within the Slovak welfare state. Child beneﬁt – which is not income related – accounts for 582 SKK per month. Furthermore, there is a lump sum at childbirth (around 20,000 SKK for the ﬁrst child, signiﬁcantly lower for subsequent children) and a family allowance until the child is three years old (or six years, if the child is disabled). Parental leave may be taken for a period of 468

S L OV A K I A

three (six respectively) years. The Slovak labour law replaced the terminus ‘maternal leave’ by ‘parental leave’ and thus explicitly addresses fathers to take responsibility. The wage replacement during that time is about 90 per cent of the subsistence level independent of the previous income. Parental leave is rarely taken by fathers, because the income of men is signiﬁcantly higher than that of women.13 This solid wage diﬀerential between men and women conﬂicts with the formal gender equality. The parental leave may be requested for a period of 28 to 37 weeks. In addition to these ﬁnancial transfer beneﬁts, the Slovak welfare state provides the infrastructure for child care. It must be diﬀerentiated between day-care facilities for children and kindergartens. Only 5 per cent of one- to three-year-olds attend day-care facilities, while 80.1 per cent (2002) of four- to six-year-olds attend the kindergarten (Saxonberg and Sirovátka 2006: 190–98). Up until recently, a change of policy could be observed in that matter and the introduction of free pre-school education is envisaged for 2008, which is supposed to be especially beneﬁcial for the Roma population (Carey 2007: 17), although the present institutional network does not seem suﬃcient to cope with the demand. Educational system Only recently, the educational system has been discovered as a welfare tool and its role is to be strengthened in order to avoid social stratiﬁcation. Given the strong social segregation of the Roma, education might be a tool to open new opportunities for this group. Until now, education policy has either not or rather poorly been used as a welfare tool: the Slovak educational system is highly stratiﬁed and favours rather than reduces social stratiﬁcation (Carey 2007: 6–7). For tertiary education, special social scholarships exist, but they have a rather low coverage rate (Lajcakova 2007: 70). For 2008, the government plans to extend meanstested social stipends in scope and amount; until now only 10 per cent of Slovak students enjoyed a scholarship that was attributed mostly according to academic results (World Bank 2007a: 10). On the other hand, students are mostly free from tuition fees if they are full-time students. The modest performance of the educational system to act as an instrument of social cohesion is also due to the few possibilities of life-long learning provided. Reform of the labour law Labour law is an important instrument of employment policy and it takes a prominent role in the current Slovak welfare system because of the high unemployment ﬁgures. The new labour legislation elaborated in 2003 was accompanied by strong protest of the political opposition and the trade unions. It was designed to provide the supply of manpower that was needed as a result of recommodifying social policy. It provides for a ﬂexible regulation of overtime work, rest periods and the distribution of working hours. There are also several models for part-time work, which will make it easier for students or (early) pensioners to participate actively in the labour market. Nonetheless, the share of part-time or ﬂexible-work contracts is still signiﬁcantly lower than in the EU (Hanzelová 2007: 54–59). On the other hand, recent reforms grant more power to trade unions, limiting overtime work, toughening conditions of ﬁxed-term employment contracts and limiting the use of trial periods. 469

O . W I EN T Z E K A N D H . M E Y ER

The organization of labour is rather decentralized according to the labour legislation. Work councils have temporarily been put on a par with trade unions. This is of particular importance for foreign investors, because trade unions are rarely represented in their companies (Mathernová and Jurajda 2005: 23–25). Nonetheless, the renewed Labour Code of October 2007 arranges for a signiﬁcant up-valuation of the trade unions, limiting the power of the work councils and granting several privileges for the trade Unions representatives (§§230, 240 of the Slovak Labour Code). Like in many other European countries, the minimum wage is a further important aspect of the current labour legislation. It accounted for 8,100 SKK per month in 2007. Actors in the Slovak welfare system Two elementary levels will be distinguished in the following. On the one hand, the international and national actors who are responsible for the negotiation of welfare arrangements will be introduced. On the other hand, the eﬀective providers of welfare beneﬁts will be analysed. Relevant international and national actors of the welfare state As a rule, all relevant actors in the welfare state are national actors. When reforming the Slovak welfare state, however, international actors played a decisive role as well. Meciar’s policy led Slovakia into international isolation, which also made it impossible to beneﬁt from the European aid programmes. This resulted in severe ﬁnancial and economic problems. At the same time, comprehensive reforms were nowhere to be seen. All this increased the pressure for reform and brought in international organizations. Both the World Bank and the Organisation for Economic Co-operation and Development (OECD) provided ﬁnancial assistance to some degree (Mathernová 2002: 55). Even more important, they participated in political consultation for the construction of a welfare state of western imprint. The World Bank in particular emerged as a prominent actor, because a small group of experts around Vice Premier (1998–2002) and later Minister for Finance Ivan Miklos (2002–6) was ideologically close to this organization. The group however had rather little support within the ﬁrst government (1998–2002) except from Premier Dzurinda (Moore 2005: 25). Still, the pension reform bears great resemblance of the measures already suggested by the World Bank in 1997 (Wagner 2005: 35). The reforms conducted since 2003 have followed the ideas of the World Bank and the International Monetary Fund rather closely. Hence Slovakia has been praised by these institutions as a pioneer of successful transformation. The European Union is an actor as well. Not only did the European Commission link their aid programmes to Slovak reforms. It also contributed to the scheme on social inclusion of the Roma population under the government of Dzurinda from 2004 to 2006 and remains an actor in the ﬁght against social exclusion. While the inﬂuence of international actors on the design of the Slovak welfare system has been signiﬁcant, but is currently declining, national actors are still decisive for formulating and conducting social policy. A prominent example is the Tripartita (tripartite council, similar to that of the Czech Republic), which was introduced by law in 1999. This is an institutionalized council with employer, employee (or trade union) and government representatives. The main task of this council is to give advice, but during the zenith of reform in 2003 and 2004 the council did not conjointly arrange for and launch 470

S L OV A K I A

reform projects (like it did, for example, in the Netherlands). This may be explained by the temporary weakness of the trade unions, which were experiencing a period of change. They had lost many members because of the privatization measures which had been brought along after the transition. These people were now more likely to be organized in one of the work councils, which had until recently been put on a par with the trade unions. Furthermore, the Slovak left was experiencing a crisis between 2000 and 2004, and thus a representative party was lacking. Only in 2004, the trade unions gained a new mouthpiece in the newly founded Smer party. The KOZ SR (Konfederácja odbodovych zvazov Slovenskej Republiky, Confederation of Trade Unions of the Slovak Republic), the biggest association of trade unions, incorporates the majority of the labour unions. Hence it has become a relevant actor again. The associations of entrepreneurs became relevant opponents to the trade unions only in 2001 (Schröder 2004: 7). Before 2001, the so-called ‘early winners’ were dominant among the employers. They had emanated from the former communist elite and were hardly interested in any far-reaching reforms. This was also the case for a great deal of the administration, as its personnel had not been exchanged under Meciar. Nevertheless, the tripartite council is currently witnessing a revaluation under the new Premier Fico (Smer). The new labour law eﬀective since October 2007 provides for an explicit strengthening of the labour unions. Yet the employers’ resistance to the scheduled redemption of the reforms (labour legislation and health insurance) shows that the trade unions have to bargain for a counter-balance in the tripartite council as well. Since 2007 the tripartite council has been the battleﬁeld for several conﬂicts between trade unions and the state on the one hand and the employers’ associations on the other. There is no oﬃcial consensus on a welfare route among the Slovak parties. One of the most important cleavages of the Slovak party system is the welfare one. While the parties participating in the governing coalition under Dzurinda from 2002 to 2006 represented the vision of an activating, decentralized welfare state, the Smer party, but also the nationalist SNS (Slovenská národná strana, Slovak national party) and Meciar’s HZDS-LS (L’udová strana – Hnutie za demokratické Slovensko – People’s party, movement for a democratic Slovakia) oﬃcially emphasize a strong role of the state and the advantages of the ‘Scandinavian model’ of welfare. Providers of welfare beneﬁts The central state and its ministries were the outstanding welfare actors before 2003. Ever since, reforms and eﬀorts for decentralization have ampliﬁed the roles of the market and of regions and municipalities as welfare actors (Hlavacka et al. 2004: 40). Especially in the health sector, authorities have shifted to regions and municipalities. Formerly state-run hospitals have been taken over by municipal, regional or private carriers since 1999. The privatization of the pharmaceutical sector has been almost completed in the meantime. The introduction of a second and third pillar into the pension system by the new pension law and their strengthening in comparison to the ﬁrst pillar were moves towards the market. This is fortiﬁed by the facts that the providers are private enterprises and that one may transact risky investments within the second pillar as well. Health insurances show a similar pattern, where three out of ﬁve companies are joint stock companies working for proﬁt. They distribute their spare revenue to the shareholders. Nonetheless, the state remains an important actor in the Slovak welfare system. Despite its decreased signiﬁcance in the pension ﬁeld, it guarantees for a compensatory 471

O . W I EN T Z E K A N D H . M E Y ER

payment in case of insolvent insurances. It also shoulders the ﬁnancial burdens caused by the restructuring of a pure pay-as-you-go system into a three-pillar scheme. In the health sector, the state plays an even more important role. The insurances here are working for proﬁt, but they are still subordinated to a public supervisory body, which holds responsibility for the allocation of licences. Moreover, the by far most important providers are under the control of the state. The public supervisory body also examines the composition of the beneﬁts catalogue. Providers of voluntary supplementary health insurance are supervised by the ‘Financial Market Authority’ (since 2002), which monitors movements on the capital market. Furthermore only 11 per cent of expenses are covered by private actors. Given the high rate of welfare recipients and the resultant prominence of social assistance within total expenditures (see Table 26.4), the state remains an important actor. Nevertheless, proﬁciency levels have been reduced and numerous activation bonuses have been introduced. Thus the state does not guarantee a suﬃcient income independent of the market. Hence the state is active in the ﬁeld of social services, but pressures recipients to participate in the labour market. The family is a welfare actor as well, yet a noticeably weaker one. For married couples the social assistance sum aﬀects not only the individual, but the familial setting as well. The family thus appears less an actor than a recipient of welfare beneﬁts. Yet the still insuﬃcient care infrastructure for up to age three has, in combination with low wage replacement beneﬁts during parental leave, led to families being a relevant welfare actor in the ﬁeld of child care. Yet normally the higher income of men leads to women (temporarily) stepping out of the labour market (Saxonberg and Sirovátka 2006: 192), although the eﬀect has been weakened by the high male unemployment (Scharle 2007: 171). Some mechanisms supporting the male-breadwinner model, however, have been abolished, for example the statutory retirement age of women has been lifted to that of men (with a transition period until 2015).

Table 26.4 At-risk-of-poverty rates by gender

sk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

– – – – – – – – – – 13b 12

– – – – – – – – – – 13b 12

– – – – – – – – – – 13b 12

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

472

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Analysis What are the principal problems of the Slovak welfare state now? On the one hand its funding, especially the health care system and on the other hand its social stratiﬁcation, reinforced by the social assistance’s strict obligations. Given the two-digit ﬁgures of unemployment, an activating employment policy poses the threat of intensifying precarious living conditions. The national labour market is not capable of integrating all people with low qualiﬁcations, even if they are willing to work. The diﬃcult transformation of a pure pay-as-you-go system into a three-pillar-scheme will also have consequences for years to come. The problem of the health sector is of a diﬀerent kind. Short-term funding is secured here, but severe ﬁnancial problems may arise in the future. Informal payments have been dammed up to a certain extent. Yet especially in the primary health care, the quality of service is still perceived as unsatisfactory. Bad remuneration of health personnel is one explanation (Hlavacka et al. 2004: 104–8). Reforms implemented under Dzurinda have managed to ﬁght oﬀ the ﬁnancial collapse which threatened the Slovak welfare state after Meciar’s legislative period. Yet to ensure an enduring consolidation of the pension funds, the statutory retirement age of 62 – which is relatively low by European standards – would have to be lifted in the medium term. Consequences of reform also appear in the social budget (that has been readjusted at least in the short run), in rising employment ﬁgures14 and in the constant inﬂow of foreign investors. The last one is a consequence of the renewed labour legislation, which has been straightened and simpliﬁed. In the short and medium terms, the problem of a relatively inﬂexible division between the welfare system’s insiders and outsiders remains virulent. The Roma population is conspicuous in the group of potential losers of welfare state reform – especially those who are living in closed, ethnically unblended settlements. On the one hand, many families are hit by cutbacks in social assistance and children’s allowances. On the other hand, the activating employment policy is of limited eﬃciency. The Roma population can only beneﬁt to a minor degree from a more ﬂexible labour market, since their skills are substandard and they are still victims of hidden discrimination in numerous companies. Furthermore, the inﬂuence of the OECD and the World Bank is decreasing since the reforms were carried out and Slovakia is on the upswing. This is why among the international actors the EU is now taking a key role, e.g. its collaboration with the Slovak government for a Roma action schedule. A majority of the unqualiﬁed population (especially the Roma) could be permanently counted among the losers, since the state no longer ensures suﬃcient income, and the labour market shows little demand for these workers. Furthermore the activation policies, although having a positive score on the ﬁnancial site, have until now failed to reintegrate greater cohorts of long-term unemployed into the labour market (European Roma Rights Centre 2007: 57–58). Moreover, the workfare approach is sometimes accused of being particularly painful for the weakest parts of society instead of helping them to reintegrate (Gerbery 2007: 402–5). The birth-rate has been declining ever since the 1980s (from 2.3 to today 1.17 children per woman), which will pose a grave problem to the welfare state in the long run. Pressures on the pension system will intensify, when those from the baby boom years are entering the schemes. An occupational career is still relatively diﬃcult to combine with family life and this keeps the birth-rate problem acute. Public opinion varies in support of every individual reform: the ﬂat-rate tax is quite popular and such is the (initially) voluntary drawing on the second, totally funded pillar of 473

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the pension insurance. According to an opinion poll conducted by the think tank IVO in 2005, 12 per cent of the population supported the tax reform, 49 per cent describe it as ‘good, but in need of reﬁnement’ and 23 per cent disapprove of it. Nine per cent of the population fully approve of the pension reform, 44 per cent assess it as ‘good, but in need of reﬁnement’ and 35 per cent dislike it. Eight per cent of the population supported the reform of social assistance, 41 per cent called it ‘good, but in need of reﬁnement’ and 42 per cent disapproved of it. Finally, the health system seems to be extremely unpopular. Only 2 per cent approved of the reform, 19 per cent described it as ‘good, but in need of reform’ and 74 per cent disliked it [Inštitút pre verejné otázke (Institute for Public Aﬀairs), www.ivo.sk]. All in all, the Slovak welfare state covers all basic risks, although relying on the welfare state is not a mid- or long-term alternative to participation in the working market, which is shown by the high popularity of activation programmes. Therefore the Slovak welfare system can be described as activating. Owing to the reforms the ﬁnancing is assured, although the health sector is an exception in the medium term.

Current developments and outlook Since the left-national coalition under Robert Fico came to power, it has been anxious to reduce the marketability of the welfare state and integrate the state and the trade unions more strongly. This was primarily achieved on an institutional level. The new labour legislation provides for stronger participation by the trade unions in the decision-making process. The tripartite council’s role is strengthened as well, which beneﬁts the trade unions in particular. Further changes have been seen with regard to the health insurances where the proﬁt orientation was limited. Legislation favourable to the strong stateowned health insurances has led to a stronger control of all cash ﬂow in the health care sector and thus largely revokes the move towards the market implemented by Dzurinda. The opening up of the second pillar in the pension system has shown the reluctance of the ruling government towards the strong market-based solution, but neither a diﬀerent weighting of the pillar nor a fundamental change have taken place. The ﬂat-rate tax and the three-pillar pension scheme will be retained. All in all, the new government cannot clear the line in revoking the reforms – not beyond the argument of transition costs. The inﬂuence of international organizations is dwindling, because political consulting and ﬁnancial support by the World Bank or the IMF is no longer demanded. Yet the European Union’s role is going to strengthen. It can be concluded that the Slovak welfare system has experienced comprehensive transformations within a rather short time: it has become the ‘laboratory for reforms’ (Mathernová and Jurajda 2005: 22). This has been rendered possible by a number of factors. These were the high pressure for reform due to delayed reforms, the candour towards international organizations (which materialized liberal approaches) and the lack of institutional interdependencies through welfare arrangements. The last one of course is due to the welfare state being in a phase of formation. Further reasons were the crisis of traditional welfare actors like labour unions and social-democratic parties. The integration of parties of diﬀerent liberal and Christian-democratic worldviews may be named as an additional reason. One should also pay attention to the size of Slovakia (5.4 million inhabitants) and its economy. Their development might be evidence for the ‘size matters’ theory: in smaller states there are fewer barriers to reform. At the same time, we have been experiencing a period of change during the past years. Trade unions reorganized and found a political 474

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mouthpiece, the inﬂuence of the ‘early winners’ on the employer side faded, the party system is stabilizing, and the pressure for reform is reducing due to the rapid economic growth and the reforms of the two previous governments, which have been classiﬁed as successful. At the same time, transition costs for a revocation of Dzurinda’s comprehensive reforms have increased (through already contracted payments and arrangements); while the present government has made steps away from marketability towards the state, these changes are rather a deformation in practice than fundamental change. Still, the Slovak welfare state can be described as an activating welfare state. As the welfare divide is a strong cleavage between the political parties (Haughton and Rybar 2008: 238–40) certain changes can be expected after future government changes. All governments though will have to face a comprehensive restructuring of the health care sector. It can be concluded that the current Slovak welfare system faces several problems, which aﬀect in particular the lower income brackets and the inactive population. This is where the need for social–political action is highest. Only if future governments succeed in integration of the lower social classes and particularly the Roma population might the Slovak welfare system become a welfare model in the region. In this context the role of education policy as part of the welfare state will become increasingly important.

Acknowledgement Translated into English by Sonja Blum.

Notes 1 For an overview of the Slovak party system see Haughton and Rybár 2008. 2 For an overview of the historical development of Czechoslovakia compare the chapters by Petr Fiala and Miroslav Mares in this volume. 3 The oﬃcial percentage of Roma population is 1.7 per cent (Census 2001, Statisticky Urad Slovenskej Republiky). Independent estimations speak of at least 7 to 8 per cent. 4 The signiﬁcance of informal payments (bribes) within the Slovakian health care sector should not be underestimated, yet precise data are diﬃcult to obtain. A poll conducted by the World Bank in 1999 estimates that about 30 per cent of the patients pay these bribes. A poll conducted immediately after the reform of the health care insurance in 2004 states that the number dropped to 15 per cent of the patients (see WHO 2005: 46–49). 5 Of the 21.75 per cent paid by the employer, 14 per cent go into the old age pension scheme, 3 per cent into the invalidity pension scheme and 4.75 per cent into an extra fund. Of the 7 per cent paid by the employee, 4 per cent go into the old age pension scheme and 3 per cent into the invalidity pension scheme. 6 The following exchanges can only be approximated values due to the varying exchange rate. 7 For women these new rules are applied only gradually until 2015. 8 36.6 per cent, however, were indirectly paid by the state, which took over the contributions for unemployed people. 9 Employers pay 10 per cent of this contribution rate and employees pay 4 per cent. 10 Mostly the additional payments in this ﬁeld reach from 20 to 50 SKK (65 cents to 1.60 euro). 11 With 8.3 per cent Slovakia has the by far highest long-term unemployment rate in the EU (EU27 average: 3.0 per cent, Eurostat); over 70 per cent of unemployed people are long-term unemployed. 12 Previous to the reform, assistance grew proportionally to the number of children. 13 In 2005, women on average earned 24 per cent less than men did (Eurostat, gender-related wage diﬀerential); a disadvantaged position for women can also be observed in the poverty rate, which is slightly but constantly higher for women (see Table 26. 4). 14 2002, 56.8 per cent; 2006, 59.4 per cent (Eurostat).

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Bibliography Barancová, H. (2000) ‘Das System sozialer Sicherheit in der Slowakei’, in T. Tomandl and W. Mazal (eds) Soziale Sicherheit in Mitteleuropa, Orac, Wien. Bednarik, R. (2007) ‘Vplyv dôchodkovej reformy na starších l’udí’, Family and Labour (Rodina a práca), 7: 1–34. Brocka, J. (2002) ‘Social development in Slovakia’, in J. Figel and W. Roth (eds.) Slovakia on the road to EU membership, Nomos-Verlag, Baden-Baden. Carey, D. (2007) ‘Improving Education Outcomes in the Slovak Republic’, in OECD Economics Department Working Papers No. 578, OECD Publishing. Cerami, A. (2008) ‘The politics of reforms in Bismarckian welfare systems: The cases of Czech Republic, Hungary, Poland and Slovakia’, in B. Palier (ed.) A long good-bye to Bismarck, Amsterdam University Press, Amsterdam. Deacon, B. (2000) ‘Eastern European welfare states: the impact of the politics of globalisation’, Journal of European Social Policy, 10: 146–61. European Roma Rights Center (2007) ‘Labour market measures do they reach Roma?’, European Roma Rights Center Research Papers, 1: 55–58. Filadelﬁová, J., Gerbery, D. and Skobla, D. (2007) ‘Report on the living conditions of Roma in Slovakia’, Friedrich-Ebert Stiftung (ed.), UNDP, Bratislava. Gerbery, D. (2007) ‘Princip aktivácie v sociálnej politike a jeho vzt’ah k zmiernovaniu chudoby a sociálneho vylúcenia’, Sociológia – Slovak Sociological Review, 5: 383–408. Golias, P. (2005) ‘Pension reform in Slovakia’ Inštitut pre economicke a sociálne reformy, INEKO, Bratislava. Gunnarson, V., Lugaresi, S. and Verhoeven, M. (2007) ‘The health sector in the Slovak Republic: Eﬃciency and Reform’, IMF working paper, International Monetary Fund, Washington, DC. Gyarfasová, O., Brutovska, G., Filadeliﬁova, J. and Sekulova, M. (2006) ‘Evaluation of the social inclusion policy aimed at reducing long-term unemployment – Survey Report’, Bratislava: Institute for Public Aﬀairs. Hanzelová, E. (2007) ‘Neštandardné formy zamestnanosti v Slovenskej republike’, Family and Labour (Rodina a práca), 6: 49–72. Haughton, T. and Rybar, M. (2008) ‘A Change of Direction: The 2006 Parliamentary Elections and Party Politics in Slovakia’, Journal of Communist Studies and Transition Politics, 24: 232–55. Hlavacka, S., Riesberg, A. and Wagner, R. (2004) ‘Health care systems in transition – Slovakia’, WHO Regional Oﬃce for Europe on behalf of the European Observatory on health systems and policies, Copenhagen. Karpis, J. Durana, R., Durana, R. and Jelenciak, M. (2006) ‘Analýza sociálneho systému SR’ Institute of Economic and Social Studies (INESS, ed.), Bratislava. Lajcakova, J. (2007) ‘The uneasy road towards remedying the economic and cultural disadvantage of the Roma in Slovakia’, International Journal on Minority and Group Rights, 14: 59–83. Lux, M. (2001) ‘Social Housing in the Czech Republic, Poland and Slovakia’, European Journal of Housing Policy, 1: 189–209. Mathernová, K. (2002) ‘A reformer’s lesson learned: The case of the Slovak Republic’, Law in Transition, EBRD, autumn: 49–57. Mathernová, K. and Jurajda, S. (2005) ‘How to overhaul the working market’, Background paper prepared for the World Development Report, World Bank, Washington, DC. Moore, D. (2005) ‘Slovakia’ s 2004 tax and welfare reforms’, IMF working paper 133/05, International Monetary Fund. Nemec, J. (2005) ‘Reforms of health care delivery in Slovakia and their impact on performance of hospitals: quality of services and quality of ﬁnancial management’, Matej Bel University, Bratislava. Pazitny, P. and Szalay, T. (2008) ‘EZP: a victim of PM Fico’s health care reform’, Health Policy Institute Newsletter April 2008, Health Policy Institute, Bratislava, p. 1. Saxonberg, S. and Sirovátka, T. (2006) ‘Failing family policy in Post-Communist Central Europe’, Journal of Comparative Policy Analysis, 8: 185–202.

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Scharle, A. (2007) ‘The eﬀect of welfare provisions on female labour supply in Central and Eastern Europe’, Journal of Comparative Policy Analysis, 9: 157–74. Schröder, W. (2004) ‘Arbeitsbeziehungen in Mittel- und Osteuropa: Weder wilder Osten noch europäisches Sozialmodell’, in Europäische Politik, Politikinformation Osteuropa 6/2004; Friedrich-Ebert-Stiftung, Bonn, pp. 2–15. Wagner, H. (2005) ‘Pension reform in the new EU member states. Will a three pillar pension system work?’, Eastern European Economics, 43 (4): 27–51. Waltraut, P. (2006) ‘Die arbeitsmarkt-und sozialpolitischen Reformen in der Slowakischen Republik in IW-Trends’, Köln 33 (2): 58–72. World Bank (2005) ‘The quest for equitable growth in the Slovak Republic – a world bank living standard assessment’, Report no. 32433-sk, Washington. —— (2007a) ‘Higher education ﬁnancing in the new EU member states – Leveling the playing ﬁeld’, World Bank working paper no. 112. —— (2007b) ‘Health care spending in the new member states – controlling costs and improving quality’, World Bank working paper no. 113. —— (2007c) ‘Social assistance in the new EU member states – Strengthening performance and Labor Market incentives’, World Bank working paper no. 117. —— (2007d) ‘Policy challenges for education and economic growth in the Slovak Republic’, Report no.40193, World Bank document. World Health Organization (2007) ‘Financing long-term care programs in health systems – with a situation assessment in selected high-, middle-, and low-income countries’, Discussion paper number 6. Zachar, D. (2006a) ‘Reformy na Slovensku 2003–4’, Inštitut pre economicke a sociálne reformy (INEKO, ed.), Bratislava. —— (2006b) ‘Reformy na Slovensku 2005’, Inštitut pre economicke a sociálne reformy (INEKO, ed.), Bratislava.

Websites Inštitút pre verejné otázke (Institute for Public Aﬀairs), www.ivo.sk. Štatisticky úrad Slovenskej republiky (Statistical Oﬃce of the Slovak Republic) http://www.statistics.sk/.

Newspaper articles Hospodarske noviny, 27.06.2008, Druhý pilier opustilo vyse 76-tisíc sporitel’ov. Slovak Spectator: Debate on healthcare temporarily suspended, 19 May 2007. www.slovakspectator.sk/clanok-27694.html. Companies for at-risk employees? 22 October 2007. www.spectator.sk/articles/view/29534/3/.

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Chapter 27

uk The British welfare system Marketization from Thatcher to New Labour Lavinia Mitton

Introduction The foundations of the British welfare state are often traced to the Liberal government of 1905–15, which introduced many welfare measures such as free school meals, old age pensions, national insurance and national health insurance (Barr, 1998: 21). Even though the beneﬁciaries were limited to the relatively poor, these were incredibly popular because they were separate from the stigmatized social assistance known as the Poor Law (Timmins, 1996: 13). The second watershed in the development of the British welfare state came with the wide-ranging reforms which took place in a space of a few years after the Second World War. Then came a period of relative complacency in which it was believed that the welfare state had eﬀectively ameliorated social problems (although Townsend (1979) and Abel-Smith and Townsend (1965) were notable critics). The third turning point was those changes initiated by the Conservative governments (1979–97) and subsequently built on by New Labour (1997–), in which the recurring themes are a greater than ever role for the private sector while at the same time increasing centralized control. The creation of the ‘welfare state’ owed much to the inﬂuence of the landmark Beveridge report on social insurance of 1942. It became a major wartime propaganda weapon, with both major political parties committed to its introduction and promising all-embracing state welfare provision to replace the piecemeal provision of before the war. In summary, the main reforms which followed were free education up to age 15; a National Health Service (NHS) free at point of use; government commitment to securing full employment; public housing for rent; and social security beneﬁts including national insurance (NI), social assistance and family allowances. The British welfare state after the Second World War is commonly characterized as comprehensive in approach. However, these measures grew out of the situation which existed in 1939 (McKay and Rowlingson, 1999: 57). Although there was much consolidation of limited and local pre-war coverage, the form of the ‘welfare state’ was constrained by path dependence and based on a haphazard collection of measures delivered at central and local levels. The social policies introduced at this time have also been described as 478

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‘universal’ (Barr, 1998: 33). Yet in some senses the Beveridge scheme for NI was not ‘universal’. For example, the economically inactive were excluded. Since the early 1980s, there have been a series of radical changes in the arrangements for the delivery of welfare services inﬂuenced by the aim to restore Britain’s international economic competitiveness. The Conservative governments were committed to rolling back the state, and, in their later terms in oﬃce, the welfare state in particular. Irrespective of whether welfare spending actually does hamper competitiveness and create a ‘dependency culture’, the government believed it did, and acted accordingly to trim the welfare state. Under the Thatcher (1979–90) and Major (1990–97) governments, the inﬂuence of the private sector in welfare provision was extensive. ‘Marketization’ of welfare involved two strands. One was encouraging individuals to ﬁnance their own welfare, by saving for their own pension, or taking out private health insurance, for instance. The other element was ‘contracting out’ the provision of publicly ﬁnanced welfare services to commercial or voluntary not-for-proﬁt suppliers. Social policies were devised that encouraged the intermeshing of the ‘public’ and the ‘private’ in the welfare ﬁeld, involving new forms of welfare state organization: markets for public services, decentralized systems, networks of multiple welfare providers, and new roles for commercial and voluntary providers (Timmins, 1996: 475). ‘Quasi-markets’ were introduced, especially in health (Le Grand, 1990: 351). Provision was increasingly residual in nature because the government wanted cost control and was prepared to accept the price of increased inequality. Some observers accused the government of ‘selling oﬀ’ the welfare state. Public service workers came to be condemned as bureaucrats who failed to promote the public’s interests. The quasi-monopoly which local councils had in the delivery of social welfare came under attack. For example, their traditional role as ‘front line’ delivery agencies of education, housing and social care services was challenged. These developments were elements of the so-called New Public Management. In his premiership, Majors badged these policies the ‘Citizen’s Charter’. A private sector ethos of customer service and choice was promoted, which was thought to result in a service more accountable and sensitive to users. As part of this drive, professional control, such as that held by teachers, was attacked. This involved target setting and performance management as a means of trying to raise standards. When Blair became Labour leader in 1994 he began a policy review. Most strikingly he achieved the replacement of Clause IV of the party constitution, which had called for ‘common ownership of the means of production, distribution and exchange’. This signalled a move to the centre ground and led to the renaming of the party as New Labour. He rejected both right-wing pro-market approaches and old left support for public ownership of state services in favour of a Third Way, not based on either ideology and located between the state and the market (Blair, 1998). There has been much debate about the extent to which the Third Way is a new philosophy, or just a pragmatic approach in which what matters is ‘what works’. In practice, the New Labour governments made no commitment in their 1997 and 2001 election manifestos to reverse the reforms of the previous 20 years. Instead they have built on them with ‘partnership’ with the private sector, regulation of the public sector where free markets do not serve public interest, and eﬀorts to increase support for welfare services by ‘empowering’ service users and involving the public in service planning. A key part of Blair’s New Labour agenda was welfare reform and that beneﬁt recipients should pull their weight, and certain groups have been required to enter work or 479

L . M I T T ON

retraining rather than remain on beneﬁts. A strong economy creating plenty of jobs helped. Another part of the New Labour welfare agenda is to tackle the ‘social exclusion’ of disadvantaged groups such as the homeless and young adults with troubled lives, who lack not just income, but access to social institutions. There have also been area-based initiatives, for instance the Sure Start programme aimed at families with children under four in low-income areas. Finally, Chancellor Brown eﬀected ‘redistribution by stealth’ by increasing beneﬁts to poorer families in work through a system of tax credits. He hoped to radically reduce the amount of child and pensioner poverty. Although there has been some progress in this area, poverty rates have not fallen as fast as the government hoped. The UK has a highly centralized system of government, and the powers of local government are very limited. Central government exercises considerable controls over local action, a situation dating back to the 1980s when the Conservatives embarked upon a sequence of measures which reduced the status of local government. The New Labour government has taken some measures to revitalize local government. For example, it has introduced directly elected Mayors of local councils whose role is to give overall political direction to the Council and choose a cabinet. However the impact of this development on social policy is negligible. An important policy development aﬀecting governance after 1997 is the increased devolution of some aspects of social policy to the ‘home countries’: England, Wales and Scotland. The result is policy divergence. Notably the countries have gone their own way in health policy (Greer, 2004) and education. For brevity, this chapter will focus on England. As departure from a national policy continues, there will, in future, be a need for internationally comparative research at the level of the home countries. Another policy context is developments at the supra-national level. Engagement with the EU has forced the introduction of social legislation such as the Working Time

Table 27.1 Social protection expenditure

uk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

eu25

eu15

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

total*

per inhab.**

% GDP

244681.5 262859.7 322286.1 342014.1 362819.6 423136.1 440899.4 439622.9 423863.9 458582.6p 484435.3e

4217.3 4519.1 5526.5 5847.7 6182.8 7184.9 7459.1 7410.1 7115.5 7658.4p 8043.6e

28.0 27.8 27.3 26.7 26.2 26.9 27.3 26.2 26.2 26.3p 26.8e

– – – – – 2425663.3 2540368.4 2660344.1 2740335.4 2861956.8p 2980157.1e

– – – – – 5358.7 5595.0 5834.8 5981.7 6216.0p 6441.9e

– – – – – 26.6 26.8 27.1 27.4 27.3p 27.4e

1860703.2 1966657.7 2040845.4 2102553.6 2207666.1 2351348.4 2454324.1 2567478.3 2648832.7 2766391.6p 2871381.2e

4991.9 5262.1 5447.4 5599.2 5862.3 6220.1 6463.7 6726.4 6898.9 7161.3p 7390.5e

27.7 27.9 27.5 27.1 27.0 27.0 27.1 27.4 27.8 27.7p 27.8e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: No data available for eu27; e Estimated value; p provisional value; * in million euro; ** in euro

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Directive and anti-discrimination legislation. The macro-economic context for social policy is also aﬀected by the enlargement of the EU and globalization generally. Generating employment and economic growth by public spending are no longer options, thus constraining policy options. Provision of social welfare puts up wages and taxes, and employers can easily move their production elsewhere (e.g. eastern Europe). The UK has responded in two ways: ﬂexible labour markets achieved by keeping down social security beneﬁts and opposing any extension of workers’ rights, and prudence in macro-economic management. As can be seen from Table 27.1, social expenditure per head in the UK is signiﬁcantly higher than the EU average. As outlined above, the overarching theme of British social policy for the last 20 years has been the encroaching ‘marketization’ of welfare services. The government has been interested in market forces and use of the private sector as a way of improving public policy and squeezing out better value for money. The other key motifs of the current welfare system are a diversity of autonomous providers at the same time as central regulation and performance targets, and ‘choice’ and ‘voice’ for service users. The welfare system will be considered in order according to the amount of public expenditure on various services, as follows: social security (including pensions and employment policy), health services, education, housing (including Housing Beneﬁt), and social services, and these recurring themes will be drawn out in each case.

Status quo: analysis and political dimensions Cash beneﬁts: social security and tax credits The UK social security system consists of contributory and non-contributory beneﬁts. Eligibility for contributory beneﬁts is dependent on having paid suﬃcient NI, essentially an employment tax. Examples include the State Retirement Pension, and Contributionbased Jobseeker’s Allowance. However, these are not true insurance schemes organized on actuarial lines as there is no promise of future beneﬁts, which are subject to political change. Non-contributory beneﬁts can be further subdivided into means-tested beneﬁts and contingency beneﬁts. Receipt of means-tested beneﬁts depends on a claimant’s income and assets. The largest of these beneﬁts is the social assistance safety net, called Income Support. Examples of contingency beneﬁts are those for children and certain disability beneﬁts. The UK social security system has limited in-kind beneﬁts, such as means-tested free school meals. Most beneﬁts are administered nationally. The exceptions are help with rent (Housing Beneﬁt) and the rebate for local property tax (Council Tax Beneﬁt), which are administered by local authorities. Statutory Maternity Pay and Statutory Sick Pay have to be paid by the employer. The diﬀerence between the tax and beneﬁts system has become more and more submerged, as the responsibility for more and more ‘social security’ beneﬁts has been transferred from the Department for Work and Pensions (DWP) to the tax oﬃces – HM Revenue and Customs. Pensions The ﬂat-rate State Retirement Pension is a NI beneﬁt. Pensioners who have no income other than the State Retirement Pension can claim means-tested beneﬁts: the state 481

L . M I T T ON

pension alone is not enough to live on. Occupational pensions, sometimes referred to as superannuation, are operated by a former employer. Recently, some employers have closed their occupational pension schemes on the grounds that they cannot aﬀord the onerous pension payout. The other type of private pension is the personal pension, a money purchase scheme in which only the employee makes contributions. These developed little before the 1980s, when they started to be promoted by government. However, the public lost faith in them when it became apparent that the pensions industry was driven by the need to sell their products, rather than the best interests of the customers. A key element in New Labour’s attempt to overcome these problems with private pensions has been a public–private partnership initiative, stakeholder pensions (DSS, 1998b). They are designed to be easy to understand and meet regulated standards on charges, access and terms and are intended to be ‘safe’ provision for the less well oﬀ who are unable to aﬀord independent ﬁnancial advice. Unfortunately, take up has been lower than the government envisaged. As can be seen in Table 27.2, despite the public perception that there are high numbers of unemployed and lone parents claiming beneﬁts, expenditure on these groups is dwarfed by that spent on pensioners and the sick and disabled. Employment policy A persistent theme in current social security policy is the centrality of paid employment (Deacon, 2002), reﬂected in the phrase ‘work for those who can, security for those who cannot’ (DSS, 1998a). The social security beneﬁt speciﬁcally for the unemployed is Jobseekers’ Allowance (JSA). Over time, income-related beneﬁts have become a more important part of the system for supporting the unemployed because the time limit for receipt of contributory beneﬁts has been cut, more people are long-term unemployed so exhaust the time-limited contribution beneﬁt, and more people have never worked enough to build up contributions. The government believes that the social security system must be designed in such a way as to keep the UK ahead in the global economic system. This requires ﬂexibility in the labour force, achieved by a relatively low replacement ratio. Thus the UK has moved to a system which ensures a minimum level of income, rather than earnings-related income replacement. Table 27.2 Social protection beneﬁts in percentage* (2005)

Total expenditure Social protection beneﬁts Family/children Unemployment Housing Social exclusion n.e.c. Sickness and disability Old age and survivors

uk

eu27

eu15

100.0e 98.1e 6.2e 2.5e 5.5e 0.7e 39.2e 44.1e

100.0e 96.2e 7.7e 5.8e 2.2e 1.2e 35.2e 44.2e

100.0e 96.2e 7.7e 6.0e 2.2e 1.2e 35.1e 44.0e

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 20 Jul 2008; last update: 14 Dec 2007) Notes: e Estimated value; * % of total social protection expenditure

482

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The New Labour approach to employment and unemployment is known as ‘welfareto-work’, based on the belief that work is the surest way out of poverty (DSS, 1998a). This has two strands: ﬁrst, the ‘stick’ of compulsion to seek work and increase one’s employability; and, in return, the ‘carrot’ of ‘making work pay’ through relatively low beneﬁts for those out of work, but a national minimum wage, and in-work beneﬁts to top up low wages. New Labour’s welfare reforms have attempted to create a new contract between the state and the citizen in which more emphasis is placed on responsibilities (to look for work) and less on rights (to beneﬁts) (Hyde et al., 1999; White, 2001). The current regime faced by unemployed people – the New Deal – can be understood within this wider context. It involves requirements to participate on subsidized employment or training placements by young and long-term unemployed people. As Table 27.3 shows, unemployment under New Labour has consistently been less than the EU average. It is often assumed that employment represents the best safeguard against poverty. Yet in the past, low pay has meant that millions of workers, full-time as well as part-time, had incomes below the poverty line. New Labour has focused on two types of solution to this problem, namely the setting of national minimum wage levels and the provision of in-work beneﬁts called Working Tax Credit. In consequence, there are now very few people who would not be ﬁnancially better oﬀ working. However, there may be other barriers to work such as unavailability of suitable child care. The family and lone parents Tackling child poverty is a central policy goal of the New Labour government. All parents receive Child Beneﬁt regardless of income, an example of a universal beneﬁt. Families on low incomes can get Child Tax Credit on top, which includes some help with child care costs. For the purposes of social security in Britain, a dependent child is aged up to 16, or 17–18 years and in full-time education. This reﬂects an assumption that parents will be responsible for the support of their children up to this age, but not beyond. Lone parents are not eligible for higher beneﬁts than couples. The justiﬁcation for this is to support children, regardless of their parental situation. Lone parents claiming beneﬁts have to use the Child Support Agency (CSA), which seeks to recover maintenance payments Table 27.3 Harmonized unemployment rates (annual average)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

uk

eu27

eu15

8.5 7.9 6.8 6.1 5.9 5.4 5.0 5.1 5.0 4.7 4.8 5.4 5.3

– – – – – 8.7 8.5 8.9 9.0 9.0 8.9 8.2 7.1

10.0 10.1 9.8 9.3 8.6 7.7 7.2 7.6 7.9 8.1 8.1 7.7 7.0

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 17 Jul 2008)

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from the absent parent. Refusal to cooperate can result in social security beneﬁt being denied. At the time of writing a review of the future of the failing CSA had been announced. There are also initiatives to get lone parents into work such as the New Deal for Lone Parents. Families with children are also supported by beneﬁts in kind such as free school meals for some children and area-based services such as Sure Start. Beneﬁts for people caring for their own children are not developed, as child care is seen as a private issue. The main concession is Home Responsibilities Protection, which enables women to be credited with some NI contributions while out of the labour market. Disability beneﬁts There are far more people of working age on disability beneﬁts than on unemployment beneﬁts. Beneﬁts policy has been led by fears of excessive demand, driven by a belief that the numbers of people claiming sickness and disability beneﬁts had increased so rapidly that it could not be explained by a decline in health. Yet it has proved diﬃcult for successive governments to reduce expenditure on them because disabled people have a high level of public sympathy. There are two types of social security beneﬁts: beneﬁts to meet extra costs and beneﬁts to replace lost earnings. Beneﬁts to meet extra costs are non-contributory and not means tested. Disability Living Allowance is for people under 65 and Attendance Allowance is the equivalent beneﬁt for people over retirement age. Applicants ﬁll in a lengthy selfassessment form, or complete it over the phone. The earnings replacement beneﬁt, Employment and Support Allowance, is a beneﬁt for people of working age unable to work for long periods because of ill-health or disability. Although the rules regarding eligibility have been made more restrictive since 1999, it is not time limited, is a higher amount than JSA, and may be received until retirement age. It is thought that these features are discouraging recipients from attempting to move back into work in case they have their beneﬁts taken away. Carer’s Allowance is for those caring over 35 hours a week for someone receiving a disability beneﬁt, but payment works out at an hourly rate below the National Minimum Wage. Health services The British public show enduring loyalty to the principle of a National Health Service (NHS), free at point of use. The NHS can be divided into a number of diﬀerent branches. Primary care is that provided by a general practitioner (GP, family doctor), dentist, optician or pharmacist. Community nursing, occupational therapy, NHS Walk-in Centres, and the phone helpline NHS Direct are also branches of primary care. If a GP cannot deal with a problem themselves, they refer a patient to a hospital consultant with specialized knowledge. In Britain a patient must always be referred by a primary care practitioner before attending hospital as an inpatient or outpatient (except for emergencies). In this way, the foundation of cost control in the NHS has always been the GP, who acted as ‘gate-keeper’ to limit access to the rest of the NHS. The bulk of expenditure on the NHS goes on hospitals, although general practice deals with the vast majority of reported illness. The current trend is for hospital treatment to be minimized with a preference for ‘care in the community’. In order to understand the NHS today, it is necessary to revisit the 1980s. Initially, the NHS had a traditional model of state ﬁnance and provision and a monolithic bureaucracy 484

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ran all aspects. Reforms by the Conservatives were based on the belief that the NHS would be more cost eﬃcient if it was organized on more market-like principles. Hence the NHS experienced the most signiﬁcant reform since its inception with the introduction of the so-called internal market. The key reform was a split between purchaser and provider, so that more eﬀective control over costs could be exercised. After the establishment of the internal market, ‘purchasers’ (health authorities and some family doctors) were given budgets to buy health care from ‘providers’ (hospitals, and even private providers). As ‘providers’ in the internal market, NHS hospitals became independent trusts, with their own managements, competing with each other. Commentators credit the internal market with improving cost consciousness in the NHS, but not without negative consequences: the competition it encouraged between ‘providers’ saw unnecessary duplication of services (e.g. provision of screening equipment). New Labour claims to have removed the internal market. Its approach aims to build on what had worked previously, but discarding what had failed by moving away from outright competition to a more collaborative approach. Cash comes from the centre, which the primary care services use to buy hospital care. However, the prices they pay – for a piece of surgery and so on – are determined by a national tariﬀ. In theory this provides a ﬁnancial incentive for hospitals to attract patients through improved quality and shorter waiting times, and to boost ‘surpluses’ by reducing costs below the nationally ﬁxed price. Underlying this policy is a recognition of the power of market forces, while attempting to avoid the earlier problems. At the same time, national targets for waiting times and quality now permeate the sector. There is also a highly centralized process of audit and performance review. Hospital performance is rated by a star system, while in response to ‘postcode prescribing’ national minimum standards are now in place throughout the service for some client groups. A ﬁnal notable development is patient involvement through ‘choice’ and ‘voice’. Patients needing elective surgical treatment are oﬀered a choice of up to four or ﬁve hospitals once their GP has decided that a referral is required. This, it is argued, is a way of making the NHS more responsive to its users. Where choice is not feasible, there are also new mechanisms for making the voice of the patient and public heard, such as local forums. The NHS complaints procedures have also been strengthened. ‘Empowering’ patients in these ways is seen as a means of promoting service improvement. Education Education is seen by the government as a way for Britain to keep ahead in the global economic system (Hulme and Hulme, 2005: 34). Their belief is that Britain cannot compete internationally on the basis of low wage rates because there are other countries, with lower living standards (e.g. in eastern Europe), which are able to undercut wage levels. Instead, the argument goes, the country should compete on the basis of the superior skills of British workers. It is also seen as a way to raise the prospects of marginalized groups, and this is especially noticeable in the policy to increase participation in post-16 education. It was anticipated that much of the extra intake would be ‘non-traditional’ students from less privileged backgrounds. As vocational education has not had the same ‘parity of esteem’ as academic qualiﬁcations, it has not been supported by parents, pupils or employers, who all want to see ‘standards’ maintained. 485

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Attendance at early years education before age 5 is voluntary. However, the government is promoting it and local authorities have to provide places for all 3 and 4 year olds who want to attend. Yet public nursery provision is still far from comprehensive: many young children go to private nurseries or are cared for at home. School education is compulsory from age 5 to 16. Higher education (HE) is provided in about 100 universities and colleges of higher education. The numbers of students in HE has been growing to reach 40% of school leavers. School education is ﬁnanced and administered locally by Local Education Authorities (LEAs), which are departments of local government. In the 1990s schools were given the opportunity to ‘opt out’ of LEA control and receive their funding directly from central government. There are now proposals to remove the role of the LEAs completely and to give all schools their funding directly and let them run themselves independently, placing control of the school in head teacher’s and parents’ hands. The advantage of this would be to introduce some elements of the free market by encouraging a diversity of schools which specialize in certain subjects or carry the values of a certain faith (Hulme and Hulme, 2005: 33). This would produce competition between schools and enable successful schools to expand. There are also private schools outside of the state system, which charge fees. There has been long-running concern about ‘standards’ in education. The solutions adopted have involved greater central control and inspection. For example, a national curriculum which imposes certain obligatory subjects was introduced in 1988, shifting control from teachers to the government. National testing of school pupils with performance targets was also introduced in England and Wales as a way for the centre to try and raise and monitor standards. These developments are in uncomfortable tension with the diversity and choice agenda. Housing In the UK, owner occupation is the most important form of housing tenure; private renting accounts for less than 10 per cent of the market; and there is also a ‘social housing’ sector. Under the Conservative governments, the role which the local authorities had in the management of so-called council housing came under attack. They undertook determined steps to do away with the ‘quasi-monopoly’ of local government and to get voluntary and private providers involved. Owner occupation was promoted through opportunities for council tenants to buy their homes at discounted prices, through right-to-buy measures. The management of much remaining council housing was transferred to registered social landlords (RSLs). Social housing has acquired a residual role, and proﬁle of tenants has a high representation of the poor, disabled, minority ethnic groups, unemployed and unskilled. The main problem facing housing policy is a shortage of aﬀordable housing. House prices have risen much faster than earnings, a problem especially for ﬁrst-time buyers trying to get on the property ladder. There are few alternatives as there is also a shortage of privately rented homes. More young people are having to live with their parents for longer than in the past. The New Labour government assists people to buy their own home through special schemes for ‘key workers’ and by ‘shared ownership’, in which a fraction of a property is mortgaged and rent is paid on the other portion. The then chancellor, Gordon Brown, wanted to increase home ownership towards 75 per cent for three reasons: he believes 486

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estates dominated by publicly owned housing are socially undesirable; he wants to help poorer people accrue wealth; and he wants to help those who help themselves. However, house prices in many parts of Britain are so high that those on modest incomes may face diﬃculty in servicing even a partial mortgage. Social care services Social care services cover both social work and care services which fall outside the remit of health services. They are administered by the local authority and combine responsibilities: they assess care needs; use public money to commission (buy in) private and voluntary sector care; and they operate as care providers themselves. Social services departments meet a wide variety of diﬀerent social care needs. They support older people who are no longer able to care for themselves without home helps or residential care; people with physical, mental or learning disabilities; and children who would otherwise be at risk of neglect or abuse with fostering and adoption services. Social workers have compulsory powers such as over removal of children into care and detention under the Mental Health Act. They also have an important role in coordinating the whole range of services, such as health and housing, on which their users also depend. The Thatcherite agenda deﬁned a new role for local authorities: they were to become purchasers in a mixed economy, ensuring a plurality of suppliers across the private and voluntary sectors and moving local authorities away from provider role. At the same time, the policy of moving people from institutions (long-stay hospital or large homes) to supported housing in the community displaced much social care support to family carers. The election of the New Labour government with an apparent interest in ‘partnership’ rather than competition between providers seemed to some to suggest a change of direction. However, the market reforms of the previous two decades have stayed in place. Linked to wider modernization agenda are standard setting, inspection and regulation as tools to improve quality of services. A new regulator for social care, Commission for Social Care Inspection (CSCI), was launched in April 2004. The CSCI publishes star ratings indicating the performance of local authority services. As with the NHS, there is more user involvement and the complaints procedure has been strengthened. Finance and distribution of welfare services Social spending in Britain accounts for one-quarter of national income (GDP) (Hills, 2004: 127). The value of these public services is substantial in relation to people’s cash incomes, especially in the poorest households. As well as direct spending, the state also contributes to social provision through various tax reliefs and allowances. The sources of ﬁnance for public services are hugely varied. They include income tax, NI contributions, borrowing, charges, taxes on commercial proﬁts and sales of licences. Although there is a local tax – the council tax – most of the funding from local authorities comes from a central government grant. It has been argued, though not without controversy, that in some areas such as education, the middle class derives disproportionate beneﬁt from the welfare state (Le Grand, 1982; Le Grand, 1987). Yet a study by Sefton(2002) examined the distributional impact of welfare spending and found that on average, individuals in the bottom two-ﬁfths of income distribution receive around twice the value of beneﬁts in kind as those in the top 487

L . M I T T ON

ﬁfth. The eﬀect of in-kind beneﬁts has become gradually more pro-poor. However, this does not necessarily reﬂect conscious attempts to redistribute in favour of lower income groups, but largely by-products of other government policies, in particular the ‘residualization’ of social housing, which has led to an increasing concentration of social-sector tenants at the bottom end of income distribution. As Table 27.4 shows, poverty is somewhat higher in the UK than the EU average, even though the New Labour government has been committed to lowering poverty and social exclusion, among children and pensioners. In the following section the distribution of the various welfare services are considered separately, while noting the conceptual diﬃculty in doing this and the nuances which consequently must be glossed over in this chapter (see Barr, 1998; Hills, 2004: 184–86). Diﬀerent types of redistribution will be considered: vertical, horizontal, lifetime income smoothing. The particular focus will be on the eﬀects of the welfare state in ameliorating disadvantage based on income and gender. Cash beneﬁts: social security and tax credits Eligibility for NI beneﬁts is contingent on having made suﬃcient contributions while in employment. Contributions are compulsory for all workers with more than a speciﬁed income, including the self-employed. For the vast majority of beneﬁts, payment rates are national and set by central government, although not according to any deﬁned principle. However, there are also limited discretionary beneﬁts, of which the best known is the Social Fund. The state retirement pension is a pay-as-you-go scheme which redistributes from current workers to current pensioners. Since NI contributions are progressive, there is some vertical redistribution. As with all pensions, the state retirement pension also redistributes across an individual’s life course and the majority of redistribution achieved is life cycle

Table 27.4 At-risk-of-poverty rates by gender

uk

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

eu25

eu15

total

males

females

total

males

females

total

males

females

20 18 18 19 19 19b 18 18 18 – 19b 19

19 16 16 17 18 16b 17 17 17 – 19b 18

22 20 19 21 21 21b 19 19 19 – 19b 20

– – – 15s 16s 16s 16s – 15s 16s 16s 16s

– – – 14s 15s 15s 15s – 14s 15s 15s 15s

– – – 16s 17s 17s 17s – 16s 17s 17s 17s

17s 16s 16s 15s 16s 15s 15s – 15s 17s 16s 16s

16s 15s 15s 14s 15s 15s – – 14s 15s 15s 15s

18s 18s 17s 16s 17s 16s – – 17s 18s 17s 17s

Source: Eurostat, http://ec.europa.eu/eurostat (date of extraction: 21 Jul 2008; last update: 16 May 2008) Notes: Cut-off point: 60% of median equivalized income after social transfers; No data available for eu27; b Break in series; s Eurostat estimate

488

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income smoothing. In Barr’s (2001) phrase, the welfare state acts as ‘piggy bank’, rather than as ‘Robin Hood’. This, and other employment-related beneﬁts, operates not only to address, but also to create forms of income inequality. For instance, unpaid work generates welfare, but the social security system hardly recognizes this: Home Responsibility Protection is only available until the children are 16. The concentration of women, the disabled and minority ethnic groups in part-time, insecure or low-paid jobs presents a problem for building up an adequate NI contributions record and a good occupational or private pension, and increases the likelihood that they will depend on means-tested social assistance in later life. Private pensions are received by those whose former employer ran an occupational pension. Those who beneﬁt the most from these schemes are high earners in permanent employment in a ﬁnal salary scheme (i.e. not money purchase). People who changed jobs and therefore have small contributions in several occupational pensions do not fare so well. This has resulted in a growing trend for increased inequality among the incomes of pensioners. Incapacity Beneﬁt was more generous than the corresponding beneﬁts for unemployed people because there has, until recently, been no expectation to return to work and so less worry about disincentives. The disabled also have high levels of public sympathy. As it is a contributory beneﬁt it is not available to everyone, including people disabled since childhood. Non-contributory social security is targeted according to income and assets (means tested) or according to category (e.g. being disabled, having children). The government has deﬁned its principle as ‘progressive universalism’, which involves ‘delivering help for all families and more help for those families who need it most’ (HM Treasury, 2004: 23). Thus, the great majority of families are entitled to the Child Tax Credit, but low income families for a higher amount. The hope is to build support for measures that help the poor in a way that a wholly means-tested system will not (Kemp, 2005: 19). Overall, the tax–beneﬁt system has a large equalizing eﬀect (Hills, 2004: 90). However current government policies do not counteract the forces of the labour market. Health services The NHS is often believed to serve all citizens. However, the NHS rations resources according to priorities. There are waiting lists, and people with quite serious needs may be denied treatment because the cost is greater than the NHS is ready to bear. In response an independent body called the National Institute for Health and Clinical Excellence (NICE) was established, which provides guidance to encourage ‘evidence-based’ prescribing. The Department of Health (central government) sets overall policy and locally based Primary Care Trusts (PCTs), which are separate from local government, run the NHS in their areas. There is a small but growing role for private providers. Where waiting lists are long, the NHS may use public ﬁnance for a patient to be treated faster at a private hospital. Another feature is that investment in new hospitals is now paid for by the private ﬁnance initiative (PFI), in which the private sector builds facilities which are then rented by the NHS. In sum, the central government pays, but does not necessarily provide. The distribution of health is a diﬀerent concept from the distribution of health care and the relationship between the payers for and receivers of health services is complex because of diﬀering needs. The equalizing eﬀect of the NHS is contentious; however, Sefton (2002) ﬁnds it to be pro-poor, although there is an unexplained bias against potential users in the bottom ﬁfth of the income distribution, who report using fewer 489

L . M I T T ON

services in relation to needs than individuals in higher income groups. The pro-poor bias also derives from the source of ﬁnance – progressive general taxation – and is reinforced by the use of private medicine by the better oﬀ, although in the late 1990s only 11 per cent of the population had private health insurance (Barr, 2001: 300). Education Education in state primary and secondary schools is free and is funded out of general taxation. Some schools are ﬁnanced and administered locally by LEAs. Other state schools receive their own funding direct from central government. The Conservatives tried to introduce business funding into schools. However, the proportion of private funding was much less signiﬁcant than originally anticipated, though it has not been negligible. Most school building projects are now funded by the PFI, where a private sector ﬁrm pays for construction and is repaid by the public sector. Private schools, which 6 per cent of pupils attend, have charitable status which gives them tax advantages, eﬀectively a subsidy from the public purse. In higher education universities can charge up to £3,000 a year in tuition fees. Students do not pay upfront fees, but repayments are made starting when the graduate earns £15,000. The poorest of students receive a non-repayable grant and universities also have to have bursaries to encourage disadvantaged students. Nevertheless, most of the universities’ teaching income comes from the government. Most education services are pro-poor (Sefton, 2002). But there are some oﬀsetting factors. For example, it is important to New Labour to retain middle class use of state schools, because if the middle class migrated to private schools, support for the state system would be threatened, so it is argued. This may explain why middle England has beneﬁted so much from New Labour policies of diversity and choice in schooling. In addition, participation rates in post-compulsory schooling and higher education for young people from poorer households are lower, although there is some evidence that the gap has been closing. Therefore post-16 education is ‘pro-rich’ if spending is allocated to students’ parents (Sefton, 2002). In addition, fees ﬁnanced by loans redistribute over a person’s lifetime rather than at point of entry (Barr, 2003). The regressivity of university ﬁnance is compounded if one takes into account the eﬀects of intergenerational social mobility. Housing Social housing is provided by local authorities and Registered Social Landlords (RSLs). The shortage of aﬀordable housing in many parts of the country means that not everyone who needs or wants a home in the social sector can readily access one. Local authorities operate waiting lists – legally known as housing registers – as a means of governing access to social housing in their area. Under such schemes they have a duty to ensure that people in housing need, for example people with children living in overcrowded accommodation, get preference. Many RSLs make most of their lettings to people on the council lists. The allocation of social housing is strongly ‘pro-poor’ (Sefton, 2002), reﬂecting its residual nature. Yet overall, housing policy is sharpening the division between the ‘haves’ and ‘have-nots’ according to tenure. This is because home ownership is a form of saving and home owners (insiders) have made huge capital gains as house prices exploded, at the 490

U N I TE D K I N G D OM

expense of those not on the property ladder (outsiders). The eﬀect on inequality impacts most through inheritance: owner-occupiers’ children are also more likely to inherit a valuable asset whereas children of tenants are excluded from housing inheritance. Further, local authorities administer a cash beneﬁt to help with rent – Housing Beneﬁt. This aspect of housing policy is ultimately regressive as the money is transferred to a landlord or RSL. Social care services Publicly ﬁnanced community and residential care is far from universal as service users have to go through rigorous assessment of social need and ﬁnancial means before help is available from the public sector. Local authorities are generally free to determine their own level of provision so considerable variation exists between one authority and another. Provision is by the public, private and voluntary sectors, even where there is public ﬁnance. In fact, not-for-proﬁt providers are more important providers in the social care sector than any other covered here (Glennerster, 2003: 83). There is also a private market for those ineligible for state help. The eﬀect is a hump-shaped distribution, favouring those in the middle income distribution (Sefton, 2002). This is because there is an unexplained bias against potential users in the bottom ﬁfth of the income distribution who report using fewer services in relation to needs than individuals in higher income groups. The role of family is most evident in social care: there are an estimated 5.7 million unpaid carers, saving the state billions of pounds. Analysis In the traditional understanding of the welfare state in Britain, it was assumed that the state would provide the ﬁnance and act as the front-line delivery agency. Now the state also regulates and buys in services, and so has been termed the ‘enabling state’. The dayto-day management of welfare services is partly in the public sector and partly in the hands of commercial and not-for-proﬁt voluntary organizations. To the extent that most of the welfare state is funded out of general taxation (even beneﬁts for which eligibility depends on contributions), the risk pool consists of the entire population, rather than a restricted group. As Pierson (2001) asserts, oﬃcials tend to adapt welfare policies in piecemeal fashion to current circumstances. According to this model, Blair was constrained by the actions of his Conservative predecessors and today’s policies can therefore be seen as the cumulative result of decades of modiﬁcation and tinkering, which therefore do not reﬂect any one set of practical concerns or values. The upshot has been measures which could be described as ‘limited universalism’, or – the government’s own preferred term – ‘progressive universalism’. These measures are as follows: & & &

universal – health, education, social security, child beneﬁt; employment based – contributory NI social security beneﬁts; residual – social housing, social care services, means-tested social assistance.

Accordingly there is no one ideology which can describe the system and the criticisms of policy are diﬀerent in each category of welfare service. In each case, entitlement is solidaristic, not contractual in nature, because even with contributory beneﬁts, the terms of the scheme are not binding on the government and may change according to political whim. 491

L . M I T T ON

The services which receive the highest levels of funding are also those which the middle class use, namely education and health. Pensioners are also becoming a more important lobby group. Those services used predominantly by those from low income groups have the lowest levels of funding and lowest political proﬁle: social housing and means-tested social security beneﬁts. But overall, British policies are more based around the ‘general interest’ than in most countries in western Europe. Summary In a nutshell, the welfare system can be described as mainly public ﬁnanced while moving towards private suppliers in a bid to lower costs by bringing in free market inﬂuences. These inﬂuences can be divided into, ﬁrst, a search for eﬃciency and, second, consumer orientation. The desire for eﬃciency has involved a new role for private sector ﬁnance and splitting the role of purchaser and provider of welfare services by contracting out services to a diversity of private and voluntary providers. Consumer orientation is achieved by treating service users as ‘consumers’, oﬀering them choice and involving (‘empowering’) service users and the public in service planning where choice is not viable. Within the mixed economy of welfare in contemporary Britain, we can observe a ‘hollowing out’ – a term coined by Rhodes (1994) – of the welfare state with increasing attempts to give institutions such as hospitals and schools a new autonomy and their own budgetary control while simultaneously, and in tension with these developments, the drive towards an ‘audit society’, ﬁrst described by Power (1997), in which the centre seeks to check and regulate by setting standards and targets but not deliver services directly.

Outlook The main struggles facing the British welfare state, in common with many other countries, are an ageing population and shortening working lives, and the consequences of these for ﬁnancing pensions, health care and social care services. The future ﬁnance of pensions has already begun to be addressed. Following the report by the Pensions Commission (2005) the government has issued a White Paper (DWP, 2006b). There will be a compulsion to save into Personal Accounts, which will overcome the problem of the complexity of the pension system inhibiting voluntary saving. Another new measure is moving towards a citizenship-based pension in which fewer National Insurance contributions are required in order to overcome the dependence on means-tested beneﬁts in old age of those with a broken work history. A related issue is that of shortening working lives. The lengthening of youth transitions to adult independence and early retirement, whether through choice, redundancy or ill health, all contribute to the growing dependency ratio. In response the state pension age is due to rise to 66 in 2024 and to 68 by 2044. The 2006 age discrimination legislation in Britain is another major development, which it is hoped will extend working lives. However, if work is to be rewarding, action will be required on a number of fronts: on ﬁnancial incentives and in the attitude of employers and workers themselves (OECD, 2006: 81). It appears that another focus of future policy will be on getting the inactive back into work (DWP, 2006a). Although unemployment rates among the age 50 to state pension 492

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age (SPA) group are low (2.3 per cent by the ILO deﬁnition), 27.0 per cent are inactive ‘hidden unemployed’, many of whom are experienced and would like to work (DES, 2003: 5; DWP, 2006c: 8–9). At present, take-up of back-to-work support is voluntary for workers aged 50–59. The government is keen that more of this group take advantage of advice on working, training and planning for retirement. A total of 14.2 per cent of people aged 50 to SPA are in receipt of incapacity beneﬁts (DWP, 2006c: 10). With current government ambitions to move incapacity beneﬁt claimants into work, the division of recipients those who ‘can’ and those who ‘cannot’ is proving problematic, as this group often face multiple barriers to working again. The arrival of Third Way policies, public–private partnerships and a ‘what works rather than who does it’ approach means that there will be further blurring of the boundaries of the public sector. Market-inﬂuenced policies will continue. One such is that of oﬀering choice in welfare services. Yet in education, oversubscription to the most popular schools is likely to mean that although parents can express a preference, choice is not necessarily achieved (Hulme and Hulme, 2005: 41). Choice also forms a key element of government health policy. From December 2005, all patients referred by their GP for a specialist consultation at a hospital were oﬀered a choice of at least four hospitals, both NHS and private. Yet, arguably what British citizens want is to be treated by skilled doctors, without a long wait and reasonably close to home. Some observers doubt that greater choice will make these things happen. The choice agenda raises numerous issues. In order for it to really work, consumers need to know what is best for them. But do they? Rational consumer-patients will need access to information and advice on which to base their choice. Worrying early research ﬁndings are that in the NHS: ‘There is a parallel with schools with middle classes tending to gravitate towards what they perceive as the better schools. If this happens in health care we could see potentially a widening of health and health inequalities between those with formal education qualiﬁcations and those without.’ (Professor John Appleby, BBC News, 2006). Thus the diversity and choice agenda is likely to lead to inequality in access to services as this form of individualization spreads. It must be disappointing for the government that despite the refurbishment of schools and the drop in waiting times for NHS treatment, the public complain as if little has changed.

Bibliography Abel-Smith, B. and Townsend, P. (1965) The Poor and the Poorest, London, G Bell and Sons. Alcock, P. (2003) Social policy in Britain (2nd edition), Basingstoke, Palgrave Macmillan. Barr, N. (1998) The Economics of the Welfare State (3rd edition), Stanford, CA, Stanford. —— (2001) The Welfare State as Piggy Bank: Information, Risk, Uncertainty, and the Role of the State, Oxford, OUP. —— (2003) ‘Financing higher education in the UK: the 2003 White Paper’, Paper presented for the House of Commons Educations and Skills Committee, Session 2002–3’. BBC News (2006) ‘NHS choice “worsens inequalities”’, 31 May 2006. Blair, T. (1998) The Third Way, London, Fabian Society. Carmel, E. and Papadopoulos, T. (2003) ‘The new governance of social security in Britain’, in J. Millar (ed.), Understanding social security, Bristol, The Policy Press. Deacon, A. (2002) Perspectives on Welfare, Buckingham, Open University Press. DES (Department for Education and Skills) (2003) Challenging Age: Information, Advice and Guidance for Older Age Groups, London, Third Age Employment Network.

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DSS (Department of Social Security) (1998a) New Ambitions for Our Country: A new contract for welfare, London, The Stationery Oﬃce. —— (1998b) A New Contract for Welfare: Partnership in pensions, Cm. 4179, The Stationery Oﬃce (TSO). DWP (Department for Work and Pensions) (2006a) A New deal for Welfare: empowering people to work, Cm 6730, Norwich, The Stationery Oﬃce (TSO). —— (2006b) Security in Retirement: Towards a new pensions system, Cm. 6841, Norwich, The Stationery Oﬃce (TSO). —— (2006c) Older Workers: Statistical Information Booklet: Autumn 2005, London, Department for Work and Pensions. Glennerster, H. (2003) Understanding the ﬁnance of welfare, Bristol, The Policy Press. Greer, S. (2004) Territorial Politics and Health Policy, Manchester, Manchester University Press. Hills, J. (2004) Inequality and the State, Oxford, Oxford University Press. HM Treasury (2004) Child Poverty Review, London, HM Treasury. Hulme, R. and Hulme, M. (2005) ‘New Labour’s Education Policy: innovation or reinvention?’ in M. Powell, L. Bauld and K. Clarke (eds), Social Policy Review 17: Analysis and debate in social policy, 2005, Bristol, The Policy Press. Hyde, M., Dixon, J. and Joyner, M. (1999) ‘“Work for those who can, security for those who cannot”: the United Kingdom’s new social security reform agenda’, International Social Security Review, 52, 4, 69–86. Kemp, P.A. (2005) ‘Social security and welfare reform under New Labour’, in M. Powell, L. Bauld and K. Clarke (eds), Social policy review 17: analysis and debate in social policy, 2005, Bristol, The Policy Press. Klein, R. (2005) ‘Transforming the NHS: the story in 2004’, in M. Powell, L. Bauld and K. Clarke (eds), Social policy review 17: analysis and debate in social policy, 2005, Bristol, The Policy Press. Le Grand, J. (1982) The Strategy of Equality: redistribution and the social services, London, George Allen and Unwin. —— (1990) ‘The State of Welfare’, in J. Hills (ed.), The State of Welfare: The Welfare State in Britain since 1974, Oxford, OUP. —— (1987) ‘The Middle Classes and the Welfare State under Conservative and Labour Governments’, Journal of Public Policy, 6, 399–430. McKay, S. and Rowlingson, K. (1999) Social Security in Britain, Basingstoke, Macmillan. OECD (2006) Live Longer, Work Longer, Paris, OECD Publishing. Pensions Commission (2005) A New Pension Settlement for the Twenty-First Century: The Second Report of the Pensions Commission, London, Pensions Commission. Pierson, P. (ed.) (2001) The New Politics of the Welfare State, Oxford, Oxford University Press. Power, M. (1997) The Audit Society: Rituals of Veriﬁcation, Oxford: Oxford University Press. Rhodes, R.A.W. (1994) ‘The Hollowing Out of the State: The changing nature of the public service in Britain’, Political Quarterly, 65, 138–51. Sefton, T. (2002) ‘Recent changes in the distribution of the social wage’, CASE Paper 62, London, Centre for the Analysis of Social Exclusion, London School of Economics. Timmins, N. (1996) The Five Giants: A biography of the welfare state, London, Fontana. Townsend, P. (1979) Poverty in the United Kingdom: A survey of household resources and standards of living, Harmondsworth, Penguin. White, S. (ed.) (2001) New Labour: The progressive future, Basingstoke, Macmillan.

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Chapter 28

eu European Union social policy Towards a post-national welfare state? Wolfram Lamping

Is the glass half full or half empty? The question as to whether EU social policy has ceased to fulﬁl merely the function and status of a ‘handmaiden to economic objectives’ (Hantrais 2000,18) is not an easy one to answer. The answer is not only in the (normative) eye of the beholder, but has also been the focus of much controversial academic debate. The origins of this dispute lie not only in the fact that the position and role of this particular ﬁeld of politics on the European stage is largely unclear, but also in the peculiarities of policy production at the supranational level which reﬂect the many virulent conﬂicts involved. Less controversial, however, is now the argument that Abram de Swaan’s (1992, 33; 1994) claim ‘welfare states are national states’ can no longer be so apodictically formulated in light of the increasing trend towards European integration. The constant processes of ‘boundary shifting’ (Ferrera 2003 and 2005) have now breached the national social welfare territories, formerly sealed oﬀ from each other, and have thus disrupted the traditional norms of social policy isolation and exclusiveness. The national social welfare states, with their enormous institutional architecture, still appear to a large extent national, autonomous and sovereign. However, in reality they are increasingly caught up in a process of transformation and partial re-establishment as a consequence of European integration. This process has led to a new, complex and often contradictory overlapping of responsibility and jurisdiction between the national and supranational levels. The main argument of this chapter is therefore as follows: the EU’s genuine legal and political opportunities for action in the area of social policy are limited (although often considerable in certain outlying areas of social policy), but a cross-level social law and social policy compound with plural locations of decision-making and jurisdiction has nevertheless developed, although thus far in a relatively discontinued and often coincidental manner. Within this compound, a kind of rights-based ‘European social citizenship’ community without trans-national solidarity is emerging. In many policy areas, both a fragmented institutionalizing of a social security regime at the EU level and a segmented, sectoral Europeanization of national welfare states can be observed. It is meanwhile legitimate, therefore, to speak of ‘European welfare without a European welfare state’ (Kleinman 2002, 225) in which the direct focus on work is gradually being discarded. 495

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Ironically, it is not primarily the genuine social policy mandates of the Union which have led to the construction of regulative social welfare regimes at the supranational level, thus restricting the autonomy of the member states in this area, but rather diverted and contractually outsourced jurisdiction which has proven to be eﬀective and has since been used as a springboard for further Europeanization initiatives. There is reason to argue that social policy at the EU level has been scattered to date, consisting of ‘what seem at best loosely connected ﬁelds’ (Daly 2007, 1) mirroring what is politically possible, not what might be normatively desirable. Yet though it is a faltering, discontinuous, patchy and sometimes accidental process of EU-level capacity-building, the argument in what follows is that we are undoubtedly witnessing a sort of ‘incremental social supranationalism’ (Ferrera 2005, 239). At the same time, we can observe that the tug-of-war between the EU and the member states is becoming increasingly intensive as European integration, the European Commission and the European Court of Justice (ECJ) close in on the inner core of national social welfare structures. The self-interest of the member states, which is as legitimate as it is pronounced, the governability crisis following the unsuccessful referenda on the European constitution, and the virtually insurmountable diﬃculties for the further integration of social policy following the extension of the EU all point to the improbability of such optimistic visions as a ‘European social welfare state’.

The social policy of the EU: high expectations but moderate results? The self-descriptions and stated plans of the Union seem, at ﬁrst, to contradict those whose expectations of a ‘social Europe’ have been disappointed, for whom the EU continues to bear the imprint of the speciﬁc circumstances that attended its creation in the 1950s. These include a focus on a speciﬁc set of issues, mainly linked to the labour market, and an ambiguity about whether social policy is an important policy area in its own right or should be considered mainly as an adjunct or facilitator of economic integration (Kleinman 2002, 102). Some authors, such as Habermas (1999), harshly judge that the EU has, at best, a ‘social dimension’ or, as Carmel (2003, 2) claims, ‘a relatively narrow vision of “the social”’ in order to stress that its social policy regime is inadequate, inconsistent and limited, and that it reminds one of a ‘frozen social policy landscape’ (Carmel 2003, 2). In fact, the Community Charter of Fundamental Social Rights for Workers, founded in December 1989 by 11 EC member states (not including the UK) but never made legally binding, called in its preamble for ‘social policy questions ( … ) to be given the same importance as economic questions’ and for social policy to be seen as an essential part of the integration process. Article 2 of the Treaty of European Union (TEU)1 declares that the objective of the Union is ‘to promote economic and social progress and a high level of employment’. To the same eﬀect, Article 2 of the Treaty establishing the European Community (TEC)2 states that ‘the Community shall have as its task ( … ) to promote throughout the Community ( … ) a high level of employment and of social protection, equality between men and women, ( … ) and economic and social cohesion and solidarity among Member States’. Article 3 of the TEC speciﬁes the aims and areas of community 496

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action, such as the ‘promotion of coordination between employment policies of the Member States’, ‘a policy in the social sphere comprising a European Social Fund’, ‘the strengthening of economic and social cohesion’, and ‘a contribution to the attainment of a high level of health protection’. The former draft Constitutional Treaty,3 into which the Charter of the Fundamental Rights of the European Union has been incorporated (an interesting document for the ﬁeld of social policy, especially for jurisprudence), merged the provisions of the EU and EC Treaties and added that the Union shall work for the sustainable development of Europe based on ( … ) a highly competitive social market economy aiming at full employment and social progress while combating social exclusion and discrimination and promoting social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. (Art. I-3) The ceremonial claims of these treaties go far beyond the boundaries of what constitutions are traditionally prepared to postulate in terms of social policy, and an overview of the treaties reveals that the liberal grammar of integration in fact considerably limits the freedom of the EU to implement ‘positive’ social policy mandates for action. For decades, born of necessity, the process of European integration concentrated purely on the development of the internal market and its related requirements, while treating social policy largely as a market-enabling or market-ﬂanking area of politics (‘politics for markets’; van Kersbergen 2000, 27) rather than deﬁning it as an autonomous political branch in the context of integration. Moreover, as a deliberate step away from ‘politics against markets’ (Esping-Andersen 1985), the current European priority of ‘politics for markets’ is intensiﬁed by the fact that the EU continues to be deprived of the classical tools of social policy, while member states are steadily seeing their options for social protection policy reduced, both legitimately (Lisbon Strategy, single market project, market liberalization, etc.) and practically (supranational self-bindings, restricted social policy decisionmaking parameters at the EU level, etc.). This is compounded by the fact that social welfare contributions, employment policy, wage standards and tax levels have all become major variable factors in regional and global competition for economic locations (Lamping 2008a). The dynamics of regulatory competition within a liberalized market, so a popular argument goes (see Scharpf 1999), forces member governments into a downward spiral with regard to a competitive lowering of social standards: given the fact that there is hardly any option for the EU to engage in top-down harmonization in the core areas of the welfare state, there is the possibility for member states to take advantage of the single market in order to attract foreign investment and increase competitiveness. An examination of the treaties also reveals that the space which the EU social policy can claim as its own remains limited, but that the EU has gradually been successful in softening both its suspected legislative subsidiarity in this area and the close connection between important European social policy initiatives and questions of internal market integration (mobility of production factors, smoothing out of unequal conditions of competition, etc.). This narrow deﬁnition of social policy as an ‘aiding’ or ‘supporting’ branch of politics in the sense of market ﬂanking is of some importance and in some cases the only ‘gateway’ to an otherwise insular political ﬁeld. However, this subordination of social policy to market economics is also the reason behind the fundamental employment rights and employment policy leanings of EU social policy initiatives. 497

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While the Treaty of Rome (Treaty establishing the European Economic Community of 1957) initially left social policy in the hands of member states and saw a functioning, undisturbed common market as the primary source of wealth and growth, since the 1990s this branch of politics has seen a rise in contour and scope at the EU level. The series of treaty revisions since the Treaty of Rome have been successful in extending the range of political ﬁelds over which the EU wields authority, while also adding each time to the number of previously restricted ﬁelds, in which unanimity in the council would, at least theoretically, allow decisions to be made at a European level, or in other areas reducing the requirement of unanimity to one of qualiﬁed majority. This mode of decision increases the political possibilities of the Commission to manoeuvre around political blockades and to build coalitions of support among the governments of the Council. Qualiﬁed majority decisions especially allow more room for measures which have no direct connection to market development or market opening, but rather have a social policy character. Meanwhile, the EU adds a social policy regime to the national welfare states which, with regard to genuine social-policy treaty bases, encompasses strong legal authorizations, institutional procedures and vague declarations of intent, such as: & & & & &

& & &

far-reaching anti-discrimination policies (art. 13 TEC); an elaborate system of coordinating national social security provisions necessary to provide freedom of movement for workers (art. 42 TEC); the development of a coordinated strategy for employment (art. 125–34 TEC); collective agreements within the framework of the European Social Dialogue (art. 138–39 TEC); the explicit assignment to the Commission of encouraging cooperation between member states and of supporting and complementing their activities in all social policy ﬁelds under the Treaty, not least in matters relating to employment, labour law and working conditions, social exclusion and social security (art. 136–37; 140 TEC); the promotion of gender equality (equality between women and men in matters of employment and occupation (art. 141 TEC)); redistributive EU action via the European Social Fund, primarily as part of the European Employment Strategy (art. 146–48 TEC) the establishment of a supranational public health mandate, which shall respect the formal responsibility of member states for the organization and delivery of health care (art. 152 TEC).

The contractual and decision-making dominance of market development over market correctional politics, along with the limited genuine social policy jurisdiction of the Union, contribute to the impression of a deﬁcient and rudimentary EU social policy, especially when measured (unfairly) according to the standards of well-established national welfare states of the continental or northern European model. However, this view contains two fundamental errors: ﬁrst, key dimensions of European integration in the ﬁeld of social policy are not taken into account when examining the genuine social policy mandates of the treaties alone (EU social policy), and one loses sight of the fact that, as Falkner (2007) argues, the EU has several paths and possibilities for social policy action on a number of levels over and above the narrow legal and political basis set out in the treaties, with which the EU has been able to develop its own social dimension to the integration process and exert inﬂuence over the social policy of the member states. European social policy is, for the most part, a question of establishing common ground 498

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with other areas of politics. To put it strongly: the logic and rationality of the social policy integration processes can only be suﬃciently understood if one does not take the social policy jurisdiction norms of the EU Treaty into account as the driving force behind the process. A social dimension to European integration becomes apparent for the most part beyond the oﬃcial legal social policy jurisdiction of the EU – by way of transferred topics and borrowed legitimization from other treaties (‘treaty base game’, Rhodes 1995), creative opportunism and policy entrepreneurship on the part of the European Commission (Lamping 2007)4 and the ‘serendipity’ (Randall 2000) of ECJ jurisdiction. Part of this development of European social policy can be explained from a neo-functional perspective as ‘spillover’ from other areas of politics. EU social policy, therefore, as Daly (2006) also argues, follows a particular logic and has a speciﬁc integrity. Second, an over-hasty judgement of EU social policy as being deﬁcient overlooks the large hurdles which face all social policy initiatives. EU initiatives which aﬀect social transfers (social security), social services and action programmes (for example in the ﬁeld of employment policy) have thus far been met with considerable national irritation and resistance. The political boundaries obviously set up against a possible advance of the integration process in the ﬁeld of social policy are clearly visible both in the European Constitution, signed in Rome in 2004, and in the Treaty of Lisbon, which in terms of social policy – even in comparison to the Treaty of Nice (2001), which can hardly be called innovative on social policy – brought little or no noteworthy progress. In contrast to the pathos and passion expressed in political debates, in its ﬁnal report, the European Convention Working Group XI on ‘Social Europe’ went no further than to state that: On the competences of the Union in the social ﬁeld, the Group considers in general that the existing competences are adequate. However the Group suggests that these could be further clariﬁed, and that action at a European level should focus on issues related to the functioning of the single market and/or areas with a considerable cross-border impact. [Therefore a] considerable number of Group members expressed their support for the limits placed on action at European level. In particular, they emphasized that these were areas in which the speciﬁc features of each Member State are very important. (CONV 516/1/03)

The dynamics of integration and the Europeanization of social policy The integration of social policy is a complex phenomenon that takes place on various levels, in diﬀerent forms, and with diﬀerent eﬀects. Leibfried and Pierson (Leibfried 2005; Leibfried and Pierson 2000) distinguish between three diﬀerent ‘pressures’ through which European integration aﬀects the national social welfare states. These include (a) the ‘direct pressures of integration’ in the form of ‘positive’ EU initiatives aimed at developing uniﬁed social standards at the EU level, (b) the ‘direct pressures of integration’ in the form of ‘negative’ integration policies aimed at creating and implementing internal market compatibility, and (c) the ‘indirect pressures of integration’ as ﬂexible alignment measures on the part of the national welfare states undertaken in order to accommodate the (feared or actual) wide-ranging eﬀects of economic integration (single market; intra-European competition) and the Economic and Monetary Union (ﬁscal 499

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self-bindings, etc.).5 A fourth category should also be included at this point: (d) the Open Method(s) of Coordination (OMC), the Europeanizing eﬀects of which are clearly different from the other three ‘pressures’, and which open up explicit ﬁelds of operation for the EU beyond the treaty mandates. (a) The ‘direct positive pressures’ result from political decision-making at a supranational level. In this area of genuine EU social policy, one can see the ‘regulatory state’ (Majone 1993) in action, which, in this case, can boast a very respectable record of achievement. Although the greater part of this EU policy ﬁeld is explicitly directed towards limiting or correcting market eﬀects, the goals pursued as well as the operational legitimization are for the most part economic, i.e. based on market ﬂanking or market creation policies. The member states are required to implement these binding, regulative policies, which are backed by national and European courts. There are numerous examples of European requirements which exceed existing national standards, thus enabling the Union to force member states to adjust ‘upwards’. In the area of ‘positive’ integration, the Commission has also been able to make use of the gradual extension of qualiﬁed majority decision-making (Community method), thereby conﬁrming its role as a selfinterested and ambitious political driving force. In this way, the Commission has repeatedly been able to force through legal measures, often controversial, without initial majorities in the Council or Parliament. In the ﬁeld of employment law and employment organization, minimum standards were successfully established for employee working conditions, for example in the form of regulations for the establishment of European work councils (94/45/EC; 2006/109/ EC), for collective redundancies (98/59/EC), for informing and hearing employees (2002/14/EC), for ﬁxed-term contracts (99/70/EC), for dispatching workers (96/71/ EC), for part-time employment (98/81/EC) or for procedures in the case of employer insolvency (2002/74/EC). Special attention was also given to the area of health and safety at work, in which the Union, since the 1987 Single European Act (art. 118a in relation to art. 100a; now art. 137 TEC), has been able to create a large body of rights on the basis of qualiﬁed majority decisions, none of which can be criticized as being overly oriented towards minimum standards. These go as far as regulations (minimum standards) for the planning of working hours (also branch-speciﬁc) and the deﬁnition of working time caps (e.g. 93/104/EC, 2003/88/EC), for working with display screen equipment (90/270/ EEC), for the protection of pregnant workers (92/85/EEC), for youth protection (94/ 33/EEC), and various regulations for the protection of technical workers. This extensive and often controversial application of treaty mandates in the ﬁeld of employee rights since the 1990s has been possible partly because ‘the wording and the deﬁnition of key terms in Article 118a were somewhat vague’ (Falkner 2007, 274), which has allowed the Commission to interpret the mandate very broadly. Legitimization has been taken from the argument that these policies essentially complete the internal market and provide equal conditions of competition (see Eichener 1997). In doing this though, the European Commission has often had to create compromise packages and accept opt-out clauses from individual countries in order to push through controversial measures following year-long stalemates (such as in the area of working hours). Alongside the implementation of numerous action programmes in the ﬁeld of employee rights (such as COM 2007/62), the Commission has also been able to extend its activity in this area with the institutionalization of the European Foundation for the Improvement of Living and Working Conditions (EUROFOUND). The principle of equal treatment of men and women has been enshrined in the EC Treaties since the establishment of the European Economic Community in 1957. Gender equality 500

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has become one of the Union’s success stories in social policy. It has been implemented in a number of ﬁelds by EU legislation and, in particular, developed by ECJ case law. The area of gender equality shows that originally, ‘like all European Community social policy, the policies on the equality of women have been substantially conﬁned to measures essential to the making of the common market and the restructuring of labour markets’ (Hoskyns 1996, 15f). However, the European women’s movement has gradually been able, in cooperation with the larger movement for general employment, not only to bring more regions of the employment world under the European spotlight, but also to free this area of politics from its employment law ‘chains’ (see Commission initiatives COM 2000/335 and 2006/92). Political protagonists of equality quickly recognized ‘the potential importance of the EU as a policy-making area which was more favourable to their demands for equality than most national decision-making systems’ (Mazey 2001, 21). The introduction of the gender mainstreaming concept illustrates this broadening of perspective and action and is reﬂected in Article 23 of the Charter of Fundamental Rights which lays down the Union’s self-commitment to ensuring equality between men and women in all areas. In addition to this, regulations on the basis of the anti-discrimination article 13 TEC (sex discrimination within and outside the work place) have been established to help ﬁght discrimination on the basis of gender, race, ethnicity, faith, disability, age and sexual orientation. Furthermore, the EU, on the basis of its ultimate jurisdiction over the coordination of social security systems as set out in the Treaty of Rome (art. 42), established a host of regulations6 enabling employees (and their families) to take up employment in another EU member state without being disadvantaged in terms of social welfare (exportability of beneﬁts and entitlements, the cumulation of insurance periods, application of the legislation of the host country, equal rights for nationals and non-nationals, and the like): ‘The regime made sure ( … ) that the new exit options opened by the common market were actually matched by corresponding entry opportunities’ (Ferrera 2003, 630). This institution, chronically underestimated in literature on the European social policy integration process, has made it possible, for the ﬁrst time in the history of social welfare states, to export or convert entitlements earned in one state to the system of another state, and to force member states to make their social welfare systems compatible with the requirements of increased internal market mobility. It is especially Council Regulation 1408/71 which can, without any doubt, be judged as a watershed not only in the relationship between the nation-state and its citizens, but also between the EU and its member states: this Council Regulation was an eye-opener for member governments in the sense that the European ‘market building project’ could have indirect implications for the autonomy of European welfare states, forcing governments to institutionalize a higher ‘mobility compatibility’ of their welfare regimes – although cross-border mobility is still comparatively low. In examinations of the integration of social policy, the area of health is often neglected. Since the extension of its jurisdiction under the Treaty of Amsterdam, the EU has had a very robust legal mandate, at least in the ﬁeld of public health (art. 152 no. 1). This has included the areas of improvement of the health of the population, protection from human diseases and the removal of sources of danger to human health. ‘Supranational capacity building’ in the ﬁeld of public health is therefore not only extremely advanced (Lamping 2005), but also generally enjoys widespread acceptance among member governments, despite the fact that not all Commission initiatives meet with explicit approval from those governments (such as the Commission’s anti-smoking and anti-alcohol actions and policies). 501

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Some of these ‘positive’ policies have come about in the context of the so-called Social Dialogue through the decisive and unprecedented participation of the social partners (Falkner 1998; Roberts/Springer 2001). Art. 138 and 139 TEC leave new policy spaces for the European-level social partners to ﬁll and to develop: Promoted by the Commission, since the Maastricht Treaty employer and trade union confederations are granted a new role in making and implementing EU policy and allowed, primarily, to request a Council decision on a negotiated employment policy agreement. In the context of this fragile, experimental form of decision-making, preliminary agreements could be reached about directives on European work councils (1994), on parental leave (1995), on part-time work (1997) as well as on ﬁxed-term work (1999). Yet the critique (see Rhodes 2005, 289f.) has been that these directives, based on compromises, merely represent the lowest common denominator, given the fact that their minimal standards and ﬂexibility limit their impact to the least well-regulated country. Since the turn of the millennium, this moment of euro-corporatist decision-making has been allowed to slip to the outskirts of European policy production, despite considerable eﬀorts on the part of the Commission (COM 2002/341; COM 2004/557). This has partly been a result of the serious problems involved with collective action in the European umbrella organizations of capital and labour. An overview of EU social policy would not be complete without mentioning the European Social Fund (ESF). Until 2007 the only explicit redistributive institution of the EU in the ﬁeld of social policy, the ESF is one of the EU’s central funds and is especially designed to promote employment in the EU; its operational programmes make up an important part of the European employment strategy and are closely linked to it. Since the 1970s, the Commission has launched and ﬁnanced a series of action programmes through the ESF, some of which are to do with employment market policy, which have aimed to revive the employability of certain groups of the population. In addition to the ESF, the European Globalization Adjustment Fund (EGF), established in 2007, provides temporary individual support for workers whose companies have been aﬀected by globalization, including wage allowances, retraining or concrete assistance in ﬁnding new jobs. Financially, however, the fund is relatively insigniﬁcant compared with other programmes promoting training and skills, such as the ESF, the political symbolism of which should not be underestimated. The idea of a European support fund helping to deal with globalization-related job losses was certainly, though not solely, born of a reaction to the French and Dutch rejection of the constitutional treaty in 2005. In comparison to these, positive initiatives to do with the development of social standards and programmes at a supranational level, the other two Europeanization eﬀects identiﬁed by Leibfried and Pierson are rather more derived eﬀects or necessary alignment measures of integration. (b) First, a look at the direct alignment requirements following the creation of internal market compatibility: these negative integration policies operating via the fundamental ‘four freedoms’ and the Single European Market (SEM) competition law can be denoted as explicit spillover eﬀects, i.e. externalities associated with economic integration. They directly have an ‘indirect’ impact on member states’ systems and policies. Negative regulatory policies deﬁne conditions for market access and market functioning and aim at containing legal prohibitions against national regulations that might otherwise function as obstacles and barriers to free movement or as distortions of competition between member states within the community. While the ‘four freedoms’ (art. 39–60 TEC) are aimed at cross-border transactions, the competition law – designed for private players and member states alike – focuses on the liberalization of the internal market in the form of 502

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the ban on cartels (art. 81 TEC), the prohibition of any abuse of a dominant market position (art. 82 TEC), as well as the prohibition of aids granted by the state which distort or threaten to distort competition (art. 87 TEC), and thus oﬀers a complete spectrum of collision possibilities between EU internal market regimes and national social security policies. In light of this hierarchical mode of Europeanization (Scharpf 2000, 14f.), the EU laws and court rulings, in the case of a collision of norms, lead to national institutions having to adjust their systems without the EU precisely deﬁning what exactly an EU-compatible national model should look like. While national social policy at its very core is about deﬁning spatial demarcations and locking in citizens by deﬁning exclusive sets of norms, rules and rights, European integration is about weakening or tearing apart these closure practices, constraining the scope and content of bounding decisions, and creating equality (free movement, free competition, non-discrimination). In this respect and through an accumulation of case-law, in which it applied the ‘four freedoms’ to the system of social security, the ECJ has created a ‘single social area’ (Threlfall 2003) in health care, within which citizens can experience the EU as a virtually borderless and coherent social security zone (see Lamping 2005; Martinsen 2005). Moreover, the ECJ no longer treats EU citizens as simple ‘social consumers’ on the European health care market: The spectacular ruling in the case of the British citizen Watts (C-372/04 of May 2006) can rather be interpreted as a normative social-policy decision deﬁning genuine social-policy entitlements. Analogous to the indirect pressures of integration, these direct pressures of negative integration sometimes generate consequences which have been either politically unintentional or could not have been foreseen. The ECJ, appealed to by the Commission or by national courts, has created a harmonization and homogenization of rights and (social) entitlements, great in scope, which had often been ﬁrmly rejected by governments at a political level and which would have been denied to citizens without the ruling of the ECJ. The legitimization and reasoning behind the verdicts were genuinely economic (enforcement of internal market freedoms), but the consequences were very political. In the ﬁeld of competition law, the ECJ has repeatedly ordered governments to treat the liberal European law as a higher authority than national jurisdiction for the shaping of social welfare systems. Although it remains the responsibility of member states to preside over the organization of these systems, everything the governments do must be compatible with the requirements set out by the common law. As part of its own push for the establishment of a common market for social policy transactions, the ECJ has, by falling back on interpretations of its primary authority, meanwhile driven a wedge through the middle of the welfare states (‘regulatory dichotomy’; Lamping 2005): the states are still able to shape the demand side of their social welfare system, i.e. the groups aﬀected, the payout criteria or the service catalogues; the ECJ, however, is continually liberalizing the production side of social welfare services. The ECJ has precisely deﬁned under which conditions state social welfare institutions come under the jurisdiction of EU competition law and under which circumstances they have portfolio protection, i.e. when they may keep their privileges and special rights.7 The shaping of European social welfare and health policy is a particularly marked example of the juridiﬁcation of governance, especially in the sense of the integration-friendly ECJ having become a central political player (and reference point) in the Europeanization of social policy, in which its decisions function as a policy surrogate. In this situation, two factors have led to the ECJ taking up a key position: the ﬁrst has been the unwillingness among member governments to anticipate the eﬀects of continuing integration on social 503

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welfare systems and, in light of the EU internal market regime, to formulate appropriate (social policy) responses to these challenges (and thus to deﬁne more precisely the action mandates and jurisdiction freedoms of the EU). The court has often played the role of a substitute legislator, plunging into the political vacuum left behind by the non-decisions of governments in the area of social policy alignment. The second factor is that the court has had to base its actions on a treaty which has rightly been referred to as an ‘incomplete treaty’ (Stone Sweet 2004), i.e. a treaty which is unbalanced in favour of economic integration (negative integration) and grants, especially in the area of social policy, wide-ranging powers of discretion and action to the ECJ (but also to the Commission). (d) In addition to these paths or modes of Europeanization as identiﬁed by Leibfried and Pierson, a fourth can be included which has developed since the middle of the 1990s and, following the presentations of the constitution, should be applicable to major areas of national social policy: the Open Method(s) of Coordination. The OMC is an attempt to politically coordinate the shift in speciﬁc policy areas among member states and to channel them as similarly as possible. Policy areas to which the EU has no legal access are to be developed at a communal level via the OMC as a ‘post-regulatory approach’ (Szyszczak 2002, 340) and an ‘experimental governance’ (Szyszczak 2006), referred to and embedded in an EU debate on new forms of governance. The OMC is a malleable and elastic concept. The individual processes diﬀer among the various policy areas in their objectives, indicators, participating players and degree of compliance pressure, rendering it more accurate to speak of OMCs in the plural. Theoretically, the OMC is a lever which links European and national debates. Within the scope of the OMC, (non-binding) aims in the form of guidelines are formulated and both qualitative and quantitative indicators are designated in the wake of benchmarking processes. Although participation is voluntary and the authority of the Commission over the cooperating governments consists more of ‘gentlemen’s agreements than of directives’ (Begg and Berghman 2002, 191), the OMC could be held responsible for a creeping loss of control by member states over the shaping of their social security systems. The OMC was originally designed as a counterweight to negative integration, but has not yet been able to fulﬁl this role. On the contrary, one can observe a dominance of economic and ﬁnancial policy discourse led by the politically powerful Directorates General of the Commission in coalition with the Ecoﬁn Council, which has resulted in widespread isolation from basic social policy issues. Initial attempts by the Commission, under the umbrella of the Lisbon Agenda, to align and connect social security policies of member states (see COM 2003/261 and 2005/ 706) more eﬀectively with the fundamentals of European economic and employment policy have also had similar eﬀects. The most important features and procedures of the OMC were originally developed in the mid 1990s in the context of the European Employment Strategy (EES) and were formalized with the inclusion of the chapter on employment (art. 125–30) in the Treaty of Amsterdam. At the so-called ‘employment summit’ in 1997, the European Council of Luxembourg (‘Luxembourg process’) had created the EES with the aim of more eﬀectively coordinating national employment policies with commonly deﬁned goals (management by objectives). The implementation of these politics of consultation and recommendation, however, is highly dependent on the respective national contexts and (party) political preferences. This makes the EES, as critics correctly claim, ‘rather symbolic than substantive’ (Jones 2001, 264). It is mainly hampered by the diversity of cultural, legal and institutional traditions of member states’ labour market policies and industrial relations, and by prevailing normative conﬂicts over appropriate labour market regulations: it ‘inevitably touches 504

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on core ideological diﬀerences’ (Rhodes 2005, 282) between member states. The EES, which was reformed in 2005 on the basis of new guidelines, is a central part of the Lisbon Agenda initiated by the European Council in Lisbon in March 2000. With this agenda, the Union set a goal stating that, by 2010 the European Union must become ‘the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion’. The Lisbon Agenda suﬀers from a glaring weakness in its implementation. European ‘soft law’ is supposedly intended to become national ‘hard law’, but the Lisbon Agenda has instead become a synonym for European self-overestimation: although some progress was made, it became evident by 2005 that the ambitious goals were not likely to be achieved by 2010. In 2005, the Lisbon Agenda was relaunched, but with renewed emphasis on job creation, innovation and economic growth. The OMC has been extended stepwise from – inter alia – social exclusion and pension policy to health care and health and safety at work. The OMC can doubtless have ‘major implications’ for national social policy (Borrás and Jacobson 2004); since governments ‘have to defend their decisions at the European level in regular debates ( … ), peer pressure comes into play and has, at least potentially, a harmonizing eﬀect on social policies in Europe’ (Falkner 2007, 281). These new arenas have, however, been very selectively used by the various interest groups. If at all, it is the framing eﬀect of this mode of governance, according to López-Santana (2006), which might be signiﬁcant to policy-making across states, especially in the case of policy formulation. However, one can observe that the political players involved make eclectic use of the OMC in internal political decision-making processes, such as in the ﬁeld of employment market policy (Zohlnhöfer and Ostheim 2007) or pension policy, often merely as a legitimacy resource for previously planned policy moves. In other cases, despite the great ambitions cherished by the Commission, it is ignored completely (see Lamping 2006). There is still too little known about the actual eﬀects of the various OMC processes on national politics, although it seems that expectations of its eﬀectiveness have indeed been too high. Moreover, in being dominated by networks of executives and representatives of special interests and in sidestepping parliaments, the OMC has raised serious questions of democratic legitimacy (Büchs 2006) and accountability (Benz 2007).

Expect the unexpected? Social policy in the post-national constellation ‘History tells us that EU social policy is not evolutionary in any simple way’ (Daly 2007, 2). In contrast, this peculiar European policy ﬁeld is tightly constrained by governments’ (legitimate) self-interests and the dominant market character of the European integration project. It is still far from being a stable policy concern of and within the EU. Nevertheless, since the 1970s many experts have hankered for a strong, centralized EU social policy regime, based upon a pan-European solidarity space and equipped with strong regulatory and spending capacities, powerful enough to preserve the main elements of the so-called post-war ‘European social model’ at a supranational level. Yet it is hardly surprising that ‘Social Europe’ is still contentious and a long way from being more than a bold idea, given the formidable obstacles and perils that EU social policy faces, such as the constitutional asymmetry between negative and positive integration, the institutional heterogeneity of European welfare states, the role social policy plays as a vehicle for political allegiance and popularity at national 505

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level, the eﬀects of enlargement to the East, and not least the boundaries of transnational solidarity (see Lamping 2008b). This contribution is revealing on two accounts: on the one hand, much of the European social policy regime can only be understood as the intersection between social policy and other policy ﬁelds in which the European Union has genuine or robust authority. This at least partly explains why social policy still seems to be a confused, unﬁnished and incoherent mosaic which can best be described (and misunderstood) as a sort of highly incomplete welfare statehood. However, if one considers the obstacles discussed which stand in the way of the eﬀective implementation of an EU social policy, then one should not hesitate to describe the glass as ‘half full’. It has been possible through the Commission, a tireless promoter of new objectives and rules, as well as through ECJ rulings to drill pragmatically through hard political boards in order to give weight to EU social policy in an increasing number of policy ﬁelds. On the other hand, the large and varied resistance to the advance of integration into deeper layers of the welfare state reﬂects not only the peculiarity of European policy production, but also the ‘red lines’ which appear to be drawn against the integration progress of this controversial and interest-laden ﬁeld of politics. European social policy is not produced in a vacuum, but rather in a space ﬁlled with forces, in which member states are able to mobilize considerable self-interest and in which responsibility and expectations of security are traditionally directed towards the sovereign states. Since the late 1990s, the Commission in particular has gradually approached the more sensitive areas of national welfare states trying to redeﬁne the European political economy. In this respect, the so-called ‘permissive consensus’ does not seem to be particularly widespread within social policy: European social policy only meets with support among the population when, as de Vries and van Kersbergen (2007) argue, it is not perceived by citizens as a threat to their economic, social and socialpsychological security and well-being, and is therefore compatible with their security expectations. The more the EU social policy ‘politicizes’ and approaches the ‘red lines’ – which is indeed the case – thus unearthing normative debates which should have been held long ago, the more controversial social policy debates within the EU will become, thus increasing the need to resolve political tensions and fault lines. It is to be expected that in the near future, the national welfare states will remain the primary institutions of social policy (guaranteeing social integration and social cohesion), but they will do so in the context of an increasingly constraining multi-tiered institutional context (Leibfried and Pierson 1995, 2000). European social policy integration can thus be conceptualized as a constant, but unequal (issue- and sector-speciﬁc) process of denationalization, deterritorialization and boundary rebuilding, one consequence of which is that national authorities experience a gradual loss of autonomous (de facto) capacity to act and of sovereign (legal) social policy jurisdiction. In addition, common challenges such as mass unemployment, demographic change or ﬁnancial crises have increased both the will to cooperate on social policy and the readiness on the part of member governments to allow the Union a voice in the matter and to accept the European stage as the forum for negotiation. The trade-oﬀ, however, for the progress in the ﬁeld of social policy integration has been the concessions from the Commission which have seen a shift towards less binding forms of inﬂuence and greater freedom of interpretation and implementation for member states in putting European policies into practice. With these new shifting borders between national and supranational levels, older divisions are becoming more apparent: if one applies a narrow deﬁnition oriented towards the ﬁeld of state-guaranteed and state-enforced social transfers, then it becomes obvious that 506

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the national systems of social sharing and social transfers (distribution, re-distribution) are still fundamental mechanisms of social closure. There is an explicit asymmetry between the EU and national social policy: The areas of income (re)distribution and social protection (social security entitlements and beneﬁts, basic safety, direct taxes, etc.), i.e. the policies of market correction, remain almost entirely oﬀ-limits to European involvement. One should keep the distinctiveness of EU social policy in mind since, as Daly (2006, 464) also argues, its purpose is diﬀerent: ‘Not part of state-building and group formation and placement as at national level, but providing the underpinnings for a European integration project that is envisaged foremost as market integration’. This leads to at least two integration dilemmas: The ﬁrst dilemma, which can be called the ‘political paradox’, consists of the fact that the more member governments stick to their facade of sovereignty in the ﬁeld of social policy, the less they are able to mobilize against the dominance of negative integration at EU level – and the more power is transferred to the supranational level. One of the key questions for the future will therefore be whether and to what extent governments are able and willing to make ‘social welfare statehood’ an equally represented subject of European political self-determination. The second dilemma, which can be called the ‘social paradox’, has to do with the ﬂuid resource of solidarity: The larger the EU grows and the more diverse it becomes, the greater the need to establish or strengthen solidarity between member states – yet the growing diversity of the EU systematically makes it more diﬃcult to develop shared beliefs and a perception of commonality. Under these conditions, however, diversity might not be a challenge, but a chance: The central question for a ‘Social Europe’, however, is which (institutional, social, distributive etc.) diversity can be acknowledged and accepted as legitimate – and which cannot.

Notes 1 Consolidated Version of the Treaty on European Union (Oﬃcial Journal of the European Communities, C 325/5, 24.12.2002). 2 Consolidated Version of the Treaty establishing the European Community (Oﬃcial Journal of the European Communities, C 325/33, 24.12.2002). 3 Oﬃcial Journal of the European Communities, C 310/01, 16.12.2004. 4 It is remarkable that the Commission is repeatedly successful in surprising member governments with new social policy initiatives and thereby developing completely new possibilities in its action repertoire (from moral pressure on governments to threats of involving the ECJ as an ultima ratio). The fact that the commission, often in the face of intense political opposition, never seems to back down from politically controversial projects is illustrated by the initiatives towards the liberalization of the service sector (COM 2004/374, 2006/177 and 2008/414) and, in July 2008, the initiative to push for a ‘New Social Agenda’ (COM 2007/726 and 2008/412). The main focus of this crosscutting and multi-dimensional approach to social policy lies in addressing cross-border health care, improving workers’ rights, promoting anti-discrimination, and improving educational systems. 5 The ‘indirect pressures of integration’ have not been considered in this chapter. 6 For example Council regulations 1612/68, 1408/71, 574/72, 3095/95 and 118/97 7 See case law 123/85, 118/85, 35/90, 41–90, 160/91, 180/94 and 184/98.

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Part III Comparative analysis

Chapter 29

European Welfare Systems Diversity beyond existing categories Ursula Bazant and Klaus Schubert1

The preceding 28 contributions demonstrate clearly that there is no such thing as a European welfare model. There is neither a consensus what the term should encompass empirically, nor who is responsible for providing and ensuring ‘welfare’. The search for a typical European welfare model delivers no conclusive results and it seems that it can be taken no further. This initial view is in two aspects incorrect: ﬁrst, there is some – although abstract – accord about the principal existence of a welfare system. Second, if we do not expect to ﬁnd a model, a complete system, but instead take a look at the empirical features shaping the welfare systems of the 27 countries, one can ﬁnd many diﬀerences but also many common characteristics. The following chapter ﬁrst takes a look at these shared characteristics, then examines the variances. On this basis we will see if it is possible to create clusters of welfare states with common features.

Common grounds: the basic view of welfare systems Every one of the 27 countries studied provides a system of social services accompanied by private elements. This might sound trivial and it certainly does not serve adequately to identify a feature unique to the European welfare states. Nevertheless, this minimum consensus is worth mentioning. It shows that the coverage of social risks, albeit to very diﬀerent degrees, is understood as a matter of public interest in all 27 countries. All citizens are responsible, at least partially, for the well-being of their fellow citizens. Interestingly, this is also true for the countries which have only recently established their welfare systems – in spite of scarce economic resources in most east European countries and despite intervention and converse recommendations by international organizations, which could have led to a more liberal course and (far more) individualistic components. But even in those countries which have witnessed major (regime) changes in recent years (e.g. UK, the Netherlands, but also Germany), we can ﬁnd welfare systems which still basically adhere to the principle of redistribution. Indeed, this is still a very basic insight – but considering the task of this volume (taking stock of the real empirical ﬁndings), one worth noting. 513

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Another common feature is the fact that nowhere is the state solely responsible for the well-being of its citizens. To varying degrees, private and semi-public institutions and individuals always share this duty. In many cases, they are the ones providing the services. Here we have to diﬀerentiate between those who provide services on a voluntary basis and act individually, and those who operate on behalf of the state. Furthermore, in some cases it is necessary or even mandatory to have some (additional) private provisions: either because the public services are limited, not suﬃcient to cover needs, or because individuals want to improve the service level they might receive (e.g. private health insurance that provides single rooms in hospitals, etc.). Some countries already have some form of mandatory private pension precaution. This development partly results from a farreaching societal consensus on the individuals’ liability to take (some) responsibility for their own well-being, and partly the need for private precautions arises due to public ﬁnancial constraints. The third common ground for all 27 countries in question is that all the main, traditional social risks are covered – the loss in income due to age, illness, disability and unemployment but also due to giving birth to a child. Increasingly, also the loss in income due to care of older and/or younger generations is recognized as a risk that has to be covered. Furthermore, all countries have pro-active elements. Compensatory payments for temporary loss of income, for example, are combined with the promotion of participation in the labour market (activation, rehabilitation, education and some elements of family policies). Quantitatively, these shared features might not be very considerable, but from a qualitative point of view, they are indeed signiﬁcant. Accepting the principle of redistribution, incorporating the civil society, the recognition of the most important social risks and the shared conviction, that state and society also have to take responsibility for establishing individual prospects, are more than mere lip service. Despite all the diﬀerences we have observed in the actual mode of welfare deliverance, the level of services provided and the consequent results – the basic insight, that individuals do not have to deal with the main social risks alone and that welfare results are not (only) left to the market forces, might be the main common ground of all European Welfare Systems. The following paragraphs give an overview of the main diﬀerences between the 27 countries. At least quantitatively, they seem to override the similarities. Nevertheless, their number should not conceal that it is the basic foundation, the basic understanding of welfare systems that make up for the shared characteristics, the common features.

Differences: diversity beyond existing categories The main aim of this volume is to sum up the current state of aﬀairs of the welfare systems in Europe, but also, and this is the main purpose of this chapter, whether we can ﬁnd similarities between the 27 EU countries and, if so, whether it is possible to identify meaningful groups. Without jumping to conclusions, we can certainly ﬁnd overlapping in the construction of the 27 welfare systems and countries resembling each other. If we take a closer look at the various systems, we may identify groups of some elements – but the composition of these groups vary according to the characteristic under investigation. The following paragraphs will show this very clearly. We have therefore tried to ﬁnd a way to present the various welfare models in a highly dense and compact way. This reduction in complexity is necessary for the comparison, but, inevitably, it also leads to a 514

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loss of information. Furthermore, the formation of clusters can only show some tendencies, a guidepost. The huge changes in the 27 countries, but also the formation of an EU27 itself, led to a sharp increase in the complexity of the welfare realities (see also the introductory chapter in this volume). However, we have tried to ﬁnd a way to show that reality is more complex than all current welfare theories would indicate. Therefore, based on the information the country chapters provide and the Eurostat data, we have constructed four groups for those characteristics that can in our view be seen as the most basic elements of a welfare system. The four relevant characteristics are social spending, the (dominant) mode of ﬁnancing the welfare system, the (main) political actors involved and the ‘guiding theme’ (leitmotif) leading the respective welfare system. Analysing these four characteristics for the EU27 shows ﬁrst that it is possible to identify groups, but second these groups have not much in common with any well-established welfare cluster, and third vary according to the speciﬁc characteristic. First of all, we ﬁnd diﬀerences between the 27 countries according to the social spending. How much is spent in total? Where are the key aspects of activity? From this we can also identify national policy priorities. Our second distinctive feature is the form of ﬁnancing. Again, besides the obvious diﬀerences we can interpret more from the data, especially for example about who or what people believe should be responsible for social risks – and who is in charge: the society as a whole, the respective socio-economic group, the family or the individual. Financing also gives some hints to the targets to be reached: is it the preservation of the socio-economic status quo during times of income loss, or is it the provision of a certain minimum standard? A third main diﬀerence is to be found in the way services are provided, or, put more generally, the relevant actors involved. Concluding from these three characteristics, we ﬁnally can identify the leitmotif behind the respective welfare system, the guiding theme the various systems are built around. Spending and priorities Besides the absolute level of spending, the functional spending data show the priorities the 27 countries set. We can only rely on public-spending data, although for some policy ﬁelds, we have data on private spending. This is in particular true for private pensions and health expenditures. However, because of the huge variance in the duty and necessity to undertake private precautions, private spending data cannot be compared. Furthermore, the view of one’s own welfare system does not necessarily correspond to the comparative data. From the Maltese contribution, for example, we know that the spending level is seen as generous – but compared with the other EU countries, Malta actually shows modest spending ﬁgures for social risks. Similarly, the expenditure level in Sweden is seen as moderate – but, according to the Eurostat data, Sweden still spends a relatively large amount on social policy. Therefore, the following analysis uses the Eurostat data on public social spending to guarantee comparability. For 2005, we ﬁnd blatant diﬀerences in total spending, varying between €867 million in Malta and €659,868 million in Germany, oscillating around a mean of €191,425/ 110,923 (EU15/EU27). Therefore, Germany spends more than 22 per cent of all social expenditures in the EU27, whereas the contribution from Malta is only 0.03 per cent. Mostly, these variances are not surprising and only mirror the country proportions. However, this provides no explanation why per capita spending in Poland is at only €1,257 and €14,218 in Luxembourg (Figure 29.1) 515

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Figure 29.1 Per capita social spending, 2005, EU27. Source: All values for Portugal: 2004, if not stated otherwise

The lowest per capita amount is to be found in Bulgaria with €454 per person in the year 2005 (mean EU15/EU27, €7,391/6,087). Thereby, Bulgaria spends only about 7.5 per cent of the EU27 mean and Luxembourg more than 230 per cent. Besides making adjustments according to the population size, it seems also necessary to take economic power into consideration. It is therefore necessary to consider the question what a country can aﬀord to spend on social expenditure and we get a better picture about the importance of social spending in the diﬀerent countries. An orientation might be provided by the ratio of social spending to gross domestic product (GDP) (Figure 29.2). A similar picture appears. The smallest part of the GDP used for social spending is to be found in the Baltic States (Latvia 12.4 per cent, Estonia 12.5 per cent, Lithuania 13.2 per cent). Sweden, France (lagging behind a little in the per capita analysis) and Denmark are on top (32. per cent, 31.5 per cent, 30.1 per cent). The mean is at 27.2 per cent (EU27). And since 2000, the ratio has got worse in Latvia and Lithuania, so we don’t even see a catching-up (Figures 29.3 and 29.4). The development over the ﬁve-year period shows that there is no clear interdependency between the actual spending level and its positive or negative trend. Some of the countries that reduced their spending in the years observed show a medium social spending–GDP ratio (as the UK or Slovenia) – while others such as the Baltic States spend comparatively little on social policy. And while Ireland and Cyprus have a relatively low social spending–GDP ratio, they have witnessed a catching-up between the year 2000 and 2005. Here, another interesting point can be made with a 10-year comparison for the old EU members, as we can ﬁnd some signiﬁcant changes over time.2 In the long run, we can name far more countries that reduced their social spending as a proportion of the GDP. This is especially true for Finland, which has reversed this process a little in recent years. For those countries, usually the fall over the 10-year period is bolstered a little by an increase in the second part of the observation period (2000–4; see, 516

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Figure 29.2 Social spending–GDP ratio, 2005, EU27.

Figure 29.3 Development in Social spending–GDP ratio, 2000–5, EU27.

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Figure 29.4 Development in Social spending–GDP ratio in percentage points, 1995–5 and 2000–5, EU15.

for example the Netherlands or Sweden). What we cannot see here is the development in the second half of the 1990s, where most countries reduced their social expenditures. If we group the 27 countries on this basis, we ﬁnd the landscape described below (Figures 29.5 and 29.6). The 27 countries were arranged according to their per capita social spending and their social spending–GDP ratio into three groups (high/medium/ low). To establish the groups we took the distance between the country spending most (Luxembourg for the per capita spending, Sweden for the social spending–GDP ratio) and the one spending least (Bulgaria3 and Latvia, respectively) and divided the spread into three equal groups. The result is segments covering about €4.600 in Figure 29.5 and 7 percentage points in Figure 29.6. Many results are as expected, but if we have a look at the per capita spending, we can see that the UK, Ireland, Italy and Finland belong to the same group as the ‘continental’ countries. On the other hand, the social spending–GDP ratio is unexpectedly low in Ireland, at a level otherwise to be found only in the new EU member states. Also, we would have expected Luxembourg to fall into the high-level group, and Poland, Hungary, Slovenia and the Czech Republic close to the middle ﬁeld. However, what can be concluded from Figures 29.5 and 29.6 is that the groups to be found do not match any commonly known clustering. Another question that can be addressed by looking at the social expenditure is their functional distribution. Here, we can see a clear common feature for (almost) all 27 countries: the highest part of spending goes to pensions, more or less closely followed by health expenditure (Table 29.1 and Figure 29.7). Only Romania, Finland and Luxembourg show a diﬀerent pattern, with health expenditure contributing to total social spending as a slightly higher share than pension expenditure.4 518

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Figure 29.5 per-capita social spending. Source: For all groupings, Luxembourg and Malta do not scale to this drawing because of better perceptibility

These two policy ﬁelds are more or less equally important in the Netherlands, Sweden and the Czech Republic. The only striking exception is Ireland. Not only do the two policy ﬁelds change their ranking order, but the share dedicated to pensions/old age expenditure is also by far the lowest of all 27 countries. Even if this kind of expenditure is still the second most important, the percentage spent on it (24.8 per cent) is far below that of Luxembourg, which is the country with the second lowest expenditure on pensions/ old age (35.9 per cent). Only Cyprus devotes a similar low share to its second most important policy ﬁeld (here it is health/disability with 28.5 per cent). In both countries we therefore witness a comparative big gap between the most important policy ﬁelds in spending terms. The main reason for this is that other policy ﬁelds are of higher importance: in 519

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Figure 29.6 Grouping: Social spending–GDP ratio (three equally sized groups).

Ireland, besides the focus on health policies, a relatively high share is devoted to housing and family (with 2.8 per cent and 13.6 per cent respectively, each being the second highest share for the EU27). Cyprus also places a comparably high emphasis on the category housing (2.2 per cent), and also the spending for policies against poverty/social exclusion are relatively high. Exceptions in the other directions can be found with Poland and Italy, where pensions/old age completely dominates the spending pattern with more than 58 per cent of all expenditure. Some of the countries additionally place some emphasis on other policy ﬁelds, at least according to their own opinion. The contributions from the UK, Belgium, the Czech Republic and Denmark for example report to have a focus on labour market policies. This does not necessarily have to be reﬂected in the presented Eurostat data, as a policy 520

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Table 29.1 Functional expenditure as a per cent of total social spending, 2005, EU27

eu27 at be bg cy cz de dk ee es ﬁ fr gr hu ie it lt lu lv mt nl pl pt ro se si sk uk

Families

Unemployment Housing

Social exclusion Sickness/disability Old age/survivor

7.7 10.4 6.9 6.6 11.6 7.3 10.8 12.6 12.0 5.5 11.2 8.0 6.3 11.5 13.6 4.2 9.0 16.5 10.6 4.7 4.6 4.3 5.3 10.0 9.5 8.4 11.0 6.2

5.8 5.6 11.7 1.8 5.7 3.5 7.1 8.3 1.3 12.1 9.0 7.1 5.0 2.8 6.9 2.0 1.8 4.9 3.7 7.3 5.5 2.8 5.0 3.2 6.0 3.2 4.2 2.5

1.2 1.0 1.5 2.6 4.4 2.6 0.7 3.3 1.0 0.9 1.9 1.5 2.3 0.7 1.9 0.2 1.7 2.0 1.0 1.6 4.5 1.8 0.9 2.1 1.9 2.8 3.1 0.7

2.2 0.3 0.2 0.0 2.2 0.4 2.1 2.3 0.2 0.8 1.0 2.6 2.2 2.4 2.8 0.1 0.0 0.7 0.6 0.9 1.2 0.6 0.0 – 1.7 0.1 – 5.5

35.2 32.4 32.5 36.2 28.5 41.7 33.9 34.2 40.7 37.9 37.6 33.6 31.8 39.0 42.9 31.5 39.5 38.0 33.6 32.6 38.0 29.6 38.1 42.4 38.3 39.9 37.5 39.2

44.2 47.0 42.7 49.4 45.8 41.2 42.0 36.5 43.3 40.4 36.1 41.3 49.8 41.6 24.8 58.6 45.0 35.9 46.3 51.8 39.4 58.4 44.1 40.6 39.0 43.5 41.2 44.1

Figure 29.7a Functional expenditure for main categories of social risk as a percentage of total social spending, 2005, EU27.

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Figure 29.7b

Figure 29.7c

focus does not always have to be mirrored in expenditure patterns. Worth mentioning in this context is also the question of education policies and the debate whether it is a part of welfare policies and if so, to what extent. The distribution in the areas pensions/old age and health/disability between the 27 countries is more or less the same: excluding Ireland as an outlier, the gap between the country spending most on pensions (Italy 58.6 per cent) and the one spending least (Luxembourg 35.9 per cent) accounts for 22.7 percentage points. In health policies, 13.9 percentage points separate the front-runner (Romania 42.4 per cent) from the rear 522

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Figure 29.7d

(Cyprus 28.5 per cent). A similar dispersion can be found for labour market and family policies: 12.3 percentage points lie between Luxembourg (16.5 per cent) and Italy (4.2 per cent) for the latter; 10.8 percentage points separate Spain (12.1 per cent) from Estonia (1.3 per cent) in the former. For the areas of poverty and housing we ﬁnd on the one side countries spending almost nothing. Italy devotes only 0.2 per cent of all social spending for policies against social exclusion – the Netherlands provide 4.5 per cent (dispersion 4.3 percentage points). Bulgaria, Lithuania and Portugal spend statistically insigniﬁcant amounts for housing; in the UK it is 5.5 per cent.5 Finally, it is not always a special emphasis per se that leads to high or low expenditure levels for some areas, but mere necessity. Housing, and especially privately owned homes, for example, has always been an important topic in social policies in the UK and Ireland. Possessing one’s own home was and still is an important means of saving. In Cyprus, this topic is so important for historic reasons. Some countries do have higher spending shares for pensions/old age due to the demographic change taking place, as pension rights have to be served. Still other countries suﬀer a high poverty rate and very unequal distributions in income and wealth or from high unemployment rates, and need therefore to invest more for these areas. But the mere ‘power of the factual’ does little to explain the spending pattern: Poland and Slovakia show the highest unemployment rates in the whole EU, but their share of expenditure for labour market policies is comparably low (Poland 2.8 per cent) or mediocre (Slovakia 4.2 per cent) (Figure 29.8). Similarly, the distribution of income does not explain the variation in policies against social exclusion: the high value for the Gini coeﬃcient for Latvia (39) does not lead to an especially high spending share in this area (Figure 29.9). A slightly diﬀerent picture can be found for labour market expenditures. Indeed, the Danish expenditure share for labour market policies comes fourth of all 27 countries, despite the fact that it shows the second lowest unemployment rate (3.8 per cent, only over-ruled by the Netherlands with 3.2 per cent) (Figure 29.10). 523

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Figure 29.8 Risk-of-poverty rate (60% of median equivalence income after transfers), as a percentage, all countries 2005, EU27.

Figure 29.9 Distribution of income. Gini coefﬁcient, all countries 2005, EU27.

However, the highest share for labour market policies is given by Spain and Belgium – i.e. by countries with comparably high unemployment rates. As stated, exactly those countries with the highest unemployment rates of all EU27 spend only a mediocre (Slovakia) or even small (Poland) share on labour market policies. Thereby, the socioeconomic background seems to determine a part of the spending pattern, though politically set priorities seem to shape the distribution of expenditures over the various policy branches, too. High spending shares for a policy ﬁeld might therefore be the result of necessity or political will – or the background for a good performance in the respective branch, as the Danish labour market example shows us. 524

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Figure 29.10 Unemployment rates, all countries 2007, EU27 as a percentage.

Financing Basically, there are two contradictory possibilities to fund (public) social spending. Both concepts do not exist in their pure form anywhere. The dominant sourcing mode reﬂects the respective persuasion about who should be in charge of the social protection system and to what extent solidaric redistribution is adequate. If the target is inclusion of the whole society, the main funding resources are taxes. If a reallocation in between the aﬀected socio-economic group is preferred, social insurances are dominant. Furthermore, the funding is also in accordance with the society’s beliefs about the necessary or desirable generosity of public social protection and which societal groups should proﬁt (most) from it. Eligibility rules play a role, too: should beneﬁts be granted when a certain situation occurs, or when certain criteria are met? Generally speaking, universal beneﬁt systems tend to be tax-funded, whereas selective systems are more likely to be organized via social insurances (more on the leitmotifs in a later paragraph). Therefore, the Belgian, Spanish or Czech systems are predominately ﬁnanced through social insurances. Usually, they are funded through contributions paid by employers and employees and paid out of the gross wage. There is often, but not always, a parity in the percentage paid. In Finland, for example, where the welfare system is ﬁnanced via taxes as well as social security contributions, employers contribute a far higher share than the employees. The same is true for France. Systems ﬁnanced mainly through taxes can be found in Denmark, Cyprus and Ireland. An exception to the usually close link between means-testing and contribution-funding is Malta. Despite the fact that Malta has the lowest overall tax rates in the whole EU, the welfare system is nevertheless mainly ﬁnanced out of these means. The sources are split 2:2:1 between indirect taxes, direct taxes and social insurance contributions.6 Still, Malta has a relatively large share of meanstested instruments: 3.1 per cent of GDP is devoted to measures related to ones actual neediness, which is twice the EU average. Although not a single country raises its welfare revenues from only one source, and in recent years there has been a trend towards further 525

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mixing the ﬁnancing base, two countries are the hardest to classify according to a taxﬁnanced–contribution-ﬁnanced dichotomy, not least because of major changes taking place in this area:7 the Greek system is ﬁnanced equally by employer contributions, employee contributions and taxes, each by a third. And also Ireland, typically a tax-funded system, has witnessed big changes. Still, about 55 per cent of resources are derived from taxes, but that is a far smaller share than it used to be. Figure 29.11 gives an overview of the dominant ﬁnancing for the EU27 in the year 2005. In Denmark, not even 30 per cent of social spending is ﬁnanced through social insurance contributions, whereas in Slovakia the ﬁgure is more than 80 per cent. So the diﬀerence between the two of them is almost 57 percentage points. We divided this range into three groups. Starting with 28, which is slightly below the share stemming

Figure 29.11 Grouping: ﬁnancing.

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from social insurance contributions in Denmark, up to 85, which is slightly above the value for Slovakia, we therefore get three groups of 19 percentage points each. Therefore, we get a group mainly funded by taxes, one with a mixed ﬁnancing base, and ﬁnally a group almost exclusively ﬁnanced by social insurance contributions. The ﬁrst group (shaded dark in the ﬁgure) is very small, whereas there are comparatively many countries in the ‘social insurance’ group (shaded light in the ﬁgure). It is important to see, that here again, we do not ﬁnd agreement to the clustering we know from the relevant literature. Actors In most cases the state, or more precisely the central/federal state is the main actor and the national policy level the most important decision-maker. Bigger variances can be found in those tasks not performed by the central/federal state. Many countries delegate them to other public institutions like public agencies or the regional/local level. Exemptions are only the Netherlands and Belgium, which place less value on the national level. In Spain, the central/federal state generally provides the framework or guidelines for the autonomous regions to work with. The regional/local level is also predominant in Italy and Malta. The latter is also an example of a state with a high participation of private actors, just as the Netherlands and Slovakia and to a certain extent also in the Czech Republic, Lithuania, Cyprus, Spain and France – even though the involved actors vary very much and so does their role in the welfare system. Families are highly involved in Greece, Ireland, Austria, Portugal, Spain, Lithuania and the Czech Republic (Figure 29.12). In many countries there is not an obvious division between public and private welfare. There are countries where the central/federal state plays a crucial role (shaded dark) or where the lower state levels are important actors for the welfare system (shaded light) – and there are countries where both levels play an important role (shaded grey). Nor can one talk of competition between public and private actors or the diverse private institutions, of which the most important are private organizations and institutions (shaded dark) and families (shaded light). Again, a mix between the two of them is indicated in grey. Countries where private actors do not play a signiﬁcant role are in white. From Figures 29.12 and 29.13 it can be seen that some countries have more or less one dominant actor (e.g. UK or Romania), whereas others show a mix of relevant actors (e.g. Germany). Interestingly, there seem to be policy areas where the central/federal states typically delegate. For example: 1 Social partners, typically involved in labour market policies and sometimes also in the administration of social insurances as in France or Austria, but not in the distribution of services and transfers. There are three exceptions: in Sweden, the social partners are responsible for the whole (passive) labour market policy, as the unemployment insurance is in the hands of the labour union. In Finland, the regions are in charge of the labour administration. And in Romania, the social partners do not play a role in the administration of the social insurances – moreover, the state has much inﬂuence on these bodies. 2 Lower public levels, states, regions, communities, cities, etc., are mainly responsible for social policy in a narrow sense, i.e. poverty, welfare and (basic) health care. Therefore, it is exactly those duties of the welfare system that can be seen as 527

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Figure 29.12 Grouping: public actors.

the most fundamental which are delegated to lower levels – responsibilities usually attached to the whole society which show the highest acceptance rates: most people understand that these elementary services have to be provided to everybody in need, so redistribution is barely questioned in these policy ﬁelds. Even the economic literature accepts that redistribution is necessary in these areas. Another ‘typical’ responsibility for lower government levels is education – a policy ﬁeld which does not deal with safeguarding against risk or providing for needs, but on the contrary, opens up individual opportunities. In a broader understanding, education therefore has a preventive character, and within the spectrum of welfare services is the anti-pole to those services which are only available when a plight has occurred. Poland, Denmark, Spain and Belgium are countries where education is only the responsibility of lower public levels. 528

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Figure 29.13 Grouping: private actors.

3 Similar thematic tasks are delegated to the families. Usually, their duties have an even more ‘last resort’ character: many of them have to be taken on by them, as there simply is nobody else taking care. This is mostly true for a variety of social services in a narrow sense, as long term care for older people, education/raising children and poverty, so again very basic areas that often involve the most vulnerable in society. Ireland is a special case, as the families are also involved in health policies; 4 Private contractors are often to be found in complementary areas, providing services beyond the basic coverage. Furthermore, measures that are seen as ‘not absolutely necessary’ are often delegated to the private sector just as the provision of instruments with a more preventive character. This is especially true for complementary, voluntary services in health and pension policies. The deﬁnition of what is an ‘additional’ service 529

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varies very much from country to country. Often, these private precautions are supported publicly, and very often they are not really ‘voluntary’, as it is necessary to contract out to a private provider to have a decent coverage. A minor exemption is Austria, where private contractors are also relevant in the area of social services, although more as a provider of genuine public services. Leitmotifs Leitmotifs are the basic, principal understanding about the main idea of the welfare system (preventive or remedial) and the question of responsibility for personal risks (collective or individual). For both of them, we can only speak of tendencies in the EU27. As mentioned before, every country knows a certain degree of collective coverage, at least through the funding system. But we also ﬁnd private elements in every country. The opposites ‘preventive–remedial’ helps to describe if the welfare systems mainly react (afterwards) to already existing problems or is more engaged in the early intervention, before risks get acute. Is the target to enable as many people as possible not to be exposed to social risk right from the start or is the target to minimize and compensate for income loss? Are people in the former case more responsible for themselves when they are in need, or is action taken mainly when they are already in need? In the ﬁrst case, active labour market policies and education play a crucial role in the welfare systems – not necessarily (only) with respect to the sources devoted to these policy ﬁelds. More important is which role these policy ﬁelds play in the whole system. Many countries do not understand education as a part of the welfare system (Austria, Greece, the Czech Republic, Italy, to name but a few), whereas others place signiﬁcant emphasis on them (e.g. UK, Sweden, Lithuania, Spain, and increasingly also the Netherlands). In fact, the questions concerning the leitmotifs as to what role education plays, can currently only be answered qualitatively by comparison: education has a more important role in Sweden than in Germany, a higher emphasis is placed on it in Lithuania than in Italy. There is a link between the question who is responsible for the coverage of social risks – society as a whole or individually – and when the welfare systems intervene – before or afterwards. Usually, countries with a preventive strategy expect their citizens to deal with social risks, and when necessary, deal with the social problems themselves. Citizens are seen as self-responsible individuals who have undertaken private precautions. So we can often ﬁnd the combination ‘preventive-individual’ for the leitmotifs and ‘remedial-collective’. But as Figure 29.14 shows, there are also deviations. Sweden has a preventive strategy, but still emphasizes collective responsibilities in the funding of the system as well as in the provision of services. The most interesting result is that the new EU member states are spread over all groups. Poland and Hungary are individually preventive (shaded dark), Slovakia, Romania and Cyprus show a more collective-remedial pattern (shaded light). And astonishingly, we ﬁnd Latvia in the same group as Sweden and Finland. Another possibility to evaluate the leitmotif is to have a look at the level of provisions. Here, it is not so much the expenditure level or actual services which are of interest, but more the actual approach, the target as it were. Thus, what is seen as the ‘appropriate’ level of services and transfers for which the society should be liable can be identiﬁed. Essentially, it is a question of whether one’s standard of living should be maintained in spite of loss of income for example, or whether merely the minimum level of need should be covered. Often we ﬁnd a diﬀerence according to the policy ﬁeld and the risks 530

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Figure 29.14 Grouping: leitmotif.

identiﬁed. The more an unfortunate occasion is seen as impossible to avoid, the greater the collective willingness to cover income loss. On the one hand the question of ‘Who is responsible?’ comes into play, on the other, the length of time of income loss. The longer the period of time one is without (labour) income, the higher the propensity that only a minimum coverage is granted. For more transitory income losses, we ﬁnd more often systems paying a part of the former income and thereby maintaining the attained standard of living. A reason could be that in the case of prolonged diﬃculties as for example disability, it is not possible to regain the former standard of living. Figure 29.15 arranges the countries into one group providing universal minimum coverage (light), and another providing means-tested, standard of living-maintaining coverage (dark). As before, there are also those countries with a mixture. 531

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These ﬁndings are more interesting than the ones for Leitmotif 1. First, some countries perform ‘classically’, as do the UK or Germany. But, France as well as Sweden do not behave as we would typically expect. Additionally, the new member states are again spread over all groups. Furthermore, the groups diﬀer greatly in their compilation from the ﬁgure before. We can ﬁnd only a limited number of countries belonging to the same group in Figures 29.14 and 29.5: (1) Portugal, Austria, Germany, Luxembourg, Italy, Greece and Romania; (2) the Czech Republic, Spain, Bulgaria and Estonia; (3) Slovenia, Belgium and Cyprus; (4) Sweden, Finland and Denmark; (5) Ireland and Hungary, as well as (6) Latvia and the Netherlands. The question is now whether one can actually talk of clusters or regimes.

Figure 29.15 Leitmotif 2.

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Clusters, regimes, groups? To divulge in advance: it is neither possible to ratify any of the existing groupings we know from the relevant literature (see the Introduction to this volume) nor to identify clear-cut new clusters. Except for the above-mentioned ﬁrst group (Portugal, Austria, Germany, Luxembourg, Italy, Greece, Romania) and maybe also for group 2 (Czech Republic, Spain, Estonia, Bulgaria), it is doubtful whether two or three countries are enough to call it a ‘regime’. Furthermore, even ‘group 1 and 2’ countries do not build a common cluster according to the other criteria we investigated (spending, funding, actors). Of course it is still possible to construct country-groups according to their respective ways of dealing with various policy ﬁelds (see Table 29.1 and Figure 29.6 for the functional distribution of spending). The same is true for grouping countries with regard to their special foci, their leitmotifs, their way of funding, etc. For some of the characteristics we can also ﬁnd some similarities with the well-known regimes, especially when we look at the ﬁnancing of the welfare systems. However, the groups we ﬁnd are composed diﬀerently in every single case. The most stable group of countries seems to be the Czech Republic, Spain and Estonia, showing the same behaviour when it comes to per capita social spending, funding and the leitmotifs. Lithuania and the Netherlands share similarities in the sourcing, the relevance of private actors and also the leitmotifs. But these two (minor) relativizations are not enough to refute the principal ﬁnding. Additionally, the heterogeneous behaviour of the new EU members underlines the challenge for the welfare research to deal with this question of development in the European Union. The bottom line is that we can deﬁnitely not speak of clusters or regimes. What we present here is a very ﬁrst analysis, an initial picture of the status quo to bring more clarity about the diversity of the European Welfare Systems. The characteristics described in the ﬁrst and second part of this contribution may serve as a foundation for further research. Therefore, some precaution is necessary in order not to repeat the mistakes of previous research. First, it has to be emphasized that clusters must be given scope to change. Any grouping may not be a static picture, otherwise ‘hybrid’ forms would sooner or later present the largest group. Even if changes do not occur immediately and path-dependency certainly exists to some extent, we also ﬁnd some countries going in a totally new direction given time. The Netherlands and Sweden are common examples, but also Spain witnessed major reforms in the past, bringing about deep changes. The developments in the eastern European countries are also interesting in this respect: they show that even comparatively new systems are not immune to change and reform. Second, new clusters have to be able to grasp the actual, real level of social coverage and also a certain degree of subjectivity (How well do I consider myself to be covered?). This might be the biggest challenge to welfare research. Neither task is really possible at the moment as we lack appropriate indicators. In particular, we have actually no way to compare the subjective well-being, analogous for example to the well-known ‘chill-factors’ in weather forecasts. Third, new clusters should be able to take account of diﬀerences in the various central/federal states themselves. Especially the contributions from Italy, Spain, Belgium, Sweden, Poland and Latvia show the importance lower government levels might have. And, they also clearly show that regional responsibility can lead to regional diﬀerences in the welfare system and the outcomes reached. The respective variances should be identiﬁed to get a realistic picture of the European welfare landscape. 533

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These three points – change, coverage level and sub-national/regional diﬀerences – will be crucial for the quality and validity, but also for the use of any new grouping of the EU member states in the ﬁeld of welfare system research.

Notes 1 The authors wish to thank Cathryn Backhaus for considerable help with translation. 2 No long-term data are available for the new members to the EU. 3 Bulgaria and Romania spend far less per capita than all other countries. But even if we exclude these two from our analysis, the composition of the three groups does not change. 4 Nevertheless, the chapter on Romania states that the country is lagging behind the other 26 EU member states with respect to health expenditure (see Dobre in this volume). This is true in absolute Euro terms, but not according to the percentage of all social spending devoted to this policy ﬁeld. 5 For Romania and Slovakia, no data were available. The expenditure share may revolve around 0.01and 0.1 per cent in both cases. 6 There is some discrepancy between current Eurostat data and the information in the country chapter (see Pace in this volume). According to the currently available European data a far bigger share is derived from insurance contributions. 7 Interestingly, the changes in the funding mode take place irrespective of the previous regime. As we cannot ﬁnd any convergent trends either, this is a hint that obviously there is no ‘best practice’ in funding a welfare system.

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Chapter 30

Politically limited pluralism as European identity European Welfare Systems Simon Hegelich and Klaus Schubert

Analysis of the welfare systems and the ensuing matrix have clearly shown that in political science discussion and research two aspects must be more strongly emphasized: peculiarity and plurality. On closer inspection, all welfare systems show speciﬁc characteristics in signiﬁcant areas, which in particular in their combination must be regarded as a national distinctive feature. When European Welfare Systems are viewed as a whole, the plurality becomes apparent. This discovery is not new: Indeed, the systems of social protection within the European Union are far from being identical and uniform. Any future scenario for a uniﬁed EU involvement in the area of policies regarding social protection must take into account the present situation of diﬀerentials and peculiarities. (Moreno 2001: 91; see also: 2003) On the basis of his case studies, developed from a historical perspective, Kaufmann (2003) also states that distinctive national features and actual developments of European welfare states can scarcely be replicated in the categories and models of comparative welfare state research. Following this assumption, a central question inevitably emerges: In view of the plurality and variance of welfare systems in Europe, does it make sense to talk of ‘European Welfare Systems’? Or put another way: Is there, alongside the more or less haphazard aﬃliation of the states to the European Union, a speciﬁc characteristic, which justiﬁes labelling all welfare systems as ‘European’? Concerns in the introduction about the methodology have already raised this question and highlighted the inadequacies of a purely negative deﬁnition of what is European about the welfare systems. In order to explore this question in more detail, what follows will tie in with the theoretical approach of Claus Oﬀe and Robert Cox. Oﬀe (2003) goes in search of the ‘European social model’ and draws conclusions, which, with the help of Cox’s (2004) considerations on the varying rationale of the Westphalian state system and of the American ‘empire’, meaningfully complement each other. In combining these approaches we have developed the concept of a politically limited pluralism within which the initial criteria for the 535

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‘European’ of welfare states can be developed. This concept will subsequently be put to an initial – though admittedly incomplete – ‘test’, using the antithesis, the American welfare state. Furthermore, from the concept of politically limited plurality arises a recapitulation of the processes which develop between the nation-states among themselves and with the European Union as a supranational authority in the ﬁeld of social policy. From this analysis we believe that European welfare research would beneﬁt from the better integration of ideas on pluralism. Finally, how this could be achieved and what practical conclusions concerning European welfare politics could be drawn, will be outlined in the conclusion.

Politically limited pluralism as European identity The statement at the beginning of this book, that one must assume a discontinuous development in the dimensions of space and time in regard to European Welfare Systems, can be seamlessly integrated into the larger picture of European history, as outlined by Oﬀe: Modern European history is arguably shaped [ … ] by what one might call a ‘logic of discontinuity’. This discontinuity poses challenges and calls for types of response that exhibit some European elective aﬃnity. Spatial discontinuity results from the contest over land borders [ … ]. By discontinuity in time, I mean the relative frequency of regime changes in European history. (Oﬀe 2003: 439) In his search for a European social model, Oﬀe deliberately chose the nation-state as his starting point, because the Westphalian state system still has an inﬂuence on the distinctive identity of European nations. Regardless of all the debates on the loss of state governance, it is clear that the nation-state, particularly in the area of social policy, can not be overlooked as a basis for analysis. The nation-state, at least in modern history, must be conceived of as a self-contained and self-governing entity with distinctive centres of legitimated political rule and the enforcement capacity which has eﬀectively enabled it to shape the institutional structure of its society and economy. (Oﬀe 2003: 437) One should not be lead by the fallacy that a common denominator, which links the various welfare systems (analytically) in the category ‘European’, can be found in history. Arguably, ‘Europeanness’ is nothing that can be found in the shared histories of European societies but, to the contrary, something that is in the still elusive state of ‘becoming’, an arifact of European integration and its homogenizing impact. (Oﬀe 2003: 439) But how can a European identity be derived from the concept of the nation-state, considering the fact that this model of political authority has established itself worldwide. At 536

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this point, an interesting interface to international political economy arises, which in recent years has again increasingly concerned itself with the comparison of European and US American ideas and politics. Cox assumes that the USA and Europe diﬀer fundamentally: while Europe continues to base itself on the Westphalian system of the nation-state, US policy (with, among other things, its idea of a ‘New American Century’) follows the rationale of the empire. Cox describes this logic as follows: Empire constitutes a movement towards convergence in political, economic and social practices and in basic cultural attitudes – a movement tending to absorb the whole world into one civilization. [ … ] The governing principle of ‘empire’ is unity. (Cox 2004: 309) Cox contrasts the principle, aimed at uniﬁcation, with the Westphalian system of the nation-state. The second conﬁguration is the persistence of the Westphalian inter-state system that was inaugurated in Europe in the 17th century and spread throughout the world during the period of European dominance. The sovereign state, though weakened, remains a hardy structure. [ … ] The governing principles of the Westphalian world are pluralism and a continuing search for consensus. (Cox 2004: 309) There is a striking parallel here between the analyses of Cox and Oﬀe. In very diﬀerent areas both assume, that there is a special European feature, which exists in the speciﬁc interaction of nation-states with each other and is evident particularly when in relation to the USA. ‘Perhaps a reasonably clear and meaningful identity of “the” European model emerges only if Europe is contrasted with non-European global regions, such as East Asia, the underdeveloped South, or North America’ (Oﬀe 2003: 439). Even if the contrast to the USA makes clear that it would make sense to look for a characteristic speciﬁc to European Welfare Systems, it may still be not enough to deﬁne this distinctive identity in a negative way. Oﬀe also has a comment to make on this: This is the lesson on the learning of which both the history and the territorial situation of Europe have put a high premium since the Westphalian peace settlement – the lesson of bridging, regulating, and constraining domestic and international conﬂict while at the same time recognizing the legitimacy and inescapability of diversity. There is a European way in which ‘diversity itself is handled’ and institutionally transformed into ‘ordered, limited, and structured diversity. (Oﬀe 2003: 440) Following this idea, the distinctive identity which distinguishes European Welfare Systems from welfare systems in general, arises from a virtually dialectical attitude of nationstates towards plurality. Social diﬀerences, in spite of their potential for conﬂict, are recognized and are neither dispelled nor regarded as irrelevant. At the same time European nation-states are restricting this plurality by establishing institutional frameworks and thus arrive at an ordered, limited and structured dissimilarity in their societies. We 537

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will refer to this method as the construction of ‘politically limited pluralism’. However, the speciﬁc character is not to be attributed to the results, but to the goal-oriented processes of welfare policy, since as Kaufmann rightly points out: ‘The agenda of the welfare states assumes that inclusion can only come about through the state (and not for example solely through the market economy)’ Kaufmann 2003: 42. In this abstract form, the category of politically limited pluralism would seem rather meaningless and have little relation to the subject of welfare systems. On the basis of the chapters on the individual member states, we intend in the following to give examples of three factors of politically limited plurality. It is apparent in all the chapters on the countries: & &

&

ﬁrst, that the question of welfare is ﬁrst and foremost a domain of national politics and political debate; second, that with their welfare systems, nation-states react to conﬂicts, which emanate from socio-economic diﬀerences, such as access to resources, social class, gender or gender role, age, but also partly ethnic and or regional background, without however, oﬀsetting this problematic diversity; third, that a great deal of social eﬀort is required to attenuate the eﬀects of these diﬀerences, so that compromises, cooperation and coordination are possible.

European Welfare Systems as national policy The ﬁrst precondition of the concept of politically limited pluralism is based on the assumption that the welfare systems in Europe are primarily part of a national political process, which is highlighted on the basis of individual aspects in the chapters on the member states. Although this theory initially seems clearly plausible, the use of the adjective ‘national’ in welfare state research is contentious. Contrary to the view that welfare politics primarily take place on a national level, there are in fact various strata. When considering the family and the market economy, which are also involved in welfare production (Kaufmann 2003), the political nature of the welfare system is put in doubt. What evidence can be found in the chapters on the individual countries to conﬁrm our theory? In recent years welfare state research has increasingly considered the eﬀects of regionalization (McEwen 2005, Moreno 2003, Ferrera 2005). Is this regionalization putting into question the use of the term ‘national’ to describe European Welfare Systems. Ferrera comes to the following conclusion: ‘Although comparative systematic evidence is lacking, several signs in several countries do point in a direction of greater social policy regionalization’ (Ferrera 2005: 202). Ferrera primarily refers to Italy, Spain and Belgium. In Italy a clear tendency towards regionalization, particularly in the areas of health and pensions, can be ascertained. However, it is worth noting that this process was initiated on a national level. And it would seem that the control over this process has remained in the hands of the central government, which for example in the health reform of 1999 focused on increased cooperation between local, regional and national institutions, while in 1992 wanted to increase competition between these levels (see Natali in this volume). Italian regionalization would thus not seem to contradict the theory, that the Italian welfare system is aﬀected by political decisions on a national level. In Spain regionalization primarily aﬀects basic income, while areas such as health, employment and pensions – in spite of some regional diﬀerences – are mainly of national 538

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concern (see de Villota and Vásquez in this volume). In respect of basic income, which in the course of a shift in power to the autonomous regions, a very interesting fact can be observed. While under the heading ‘welfare tourism’, the concern is usually expressed that various welfare services on a regional level would lead to a ‘race to the bottom’, the example of Spain shows that regionalization very quickly brought about a standardization of the basic income on a national level (Moreno 2003). The Belgian case is diﬀerent again. Marx points out that there is no ‘Belgian welfare system’ in the true sense of the meaning, since important sectors are regulated and organized on a regional level (see Marx in this volume). Although there are many aspects in the Belgian case, which are decided on a national level and there are obvious interconnections on local, regional and national levels, however, regionalization in Belgium leads to clear diﬀerences in areas such as health care. However, what links these three cases is that the question of how much autonomy the regions should have in regard to matters of welfare, is one of continuous bitter political debate on a national level. This aspect easily gets put aside because the question of autonomy in these countries at times questions the very foundations of the nation-state, and the welfare system is thereby allocated a subordinate role. Ferrera also rightly points out, that regionalization is most pronounced in those countries which are confronted with the issue of ‘secession’. ‘As in Italy, the issue of “secession” has explicitly and repeatedly surfaced in Spanish and Belgian public debates during the 1990s and early 2000s’ (Ferrera 2005: 203). In advance of our second theory, it can be said that in regionalization, welfare systems react particularly to social conﬂicts, which take place on a regional level. With regard to the supranational level, it can be noted that the EU limits national welfare policies in some areas (see chapter 6), but one certainly cannot talk of an independent EU welfare policy (see Lamping in this volume). Ferrara, who has analysed the processes of Europeanization in welfare politics in detail, also comes to the conclusion that: far from being a linear and unilateral, top-down process of erosion, the redrawing of cross-state boundaries in the social sphere since the 1970s has resulted from a tug of war between the national and the supranational levels, in which the member states have been able in various cases to assert their interests and to claw back prerogatives regarded as critical for their sovereignty. (Ferrera 2005: 163) Even Heidenreich’s empirical analysis shows that despite an irrefutable increase in the ‘economic’ relevance of the supranational level, the national level, from a ‘political’ standpoint, can continue to take preference. ‘In defence of the “methodological nationalism”, it can be shown however, that the nation-state is still the most important arena for the analysis, the perception and the regulation of social inequalities’ (Heidenreich 2006: 7). This statement is also true in regard to the accession countries. In Slovakia the inﬂuence of international organizations such as the EU, the World Bank and the IMF, on welfare reform, particularly at the end of the 1990s, can indeed be substantiated. Using external models as examples has not however led to a loss of the distinctive national feature, which is shown for example in the Tripartita (see Wientzek and Meyer in this volume). Similar could be said of Estonia and Latvia, which, though they clearly orientate themselves on the Scandinavian model (bringing in expertise from Norway and Sweden), but where in fact, because of the combination of ‘Scandinavian elements’ with the objectives 539

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of a liberal policy, individual speciﬁc welfare systems were established (see Trumm and Ainsaar; Aidukaite in this volume).

European Welfare Systems as a reaction to conﬂict Our second theory claims that European Welfare Systems react to conﬂicts, which arise from social diﬀerences. The diﬀerences are thus acknowledged. These conﬂicts are as complex as the societies themselves and in many cases speciﬁc to the country. They extend from the ‘labour question’ (see Hegelich and Meyer in this volume) and ‘forms of discrimination’ – such as in the UK in the course of Europeanization (see Mitton in this volume) – to ‘ethnic conﬂicts’ (see Ripka and Mareš in this volume). In Sweden for example, it can be observed that the welfare system is very strongly based on the concept of equal opportunity. On the basis of a relatively homogenous population structure the welfare system was created so that as many people as possible had the same start. In doing so there is a shift in priorities, such as from housing policy to family policy and to employment policy (see Hort in this volume). When considering the dynamics of social conﬂicts, one must bear in mind that the welfare system itself produces an independent social stratiﬁcation. ‘The welfare state is not just a mechanism that intervenes in, and possibly corrects, the structure of inequality; it is in its own right, a system of stratiﬁcation. It is an active force in the ordering of social relations.’ (Esping-Andersen 1990: 23). This can be observed in for example the case of Denmark. The ﬁght against unemployment by enabling the state to withdraw from the labour market led to a ‘growth to the limit’, so that the main conﬂicts, which had to be dealt with in the 1990s, were ‘homemade’ (see Green-Pedersen and Baggesen Klitgaard in this volume). The fact that a welfare system can develop its own momentum, i.e. that it reacts to ‘self-made’ diﬀerences, is a signiﬁcant reason why welfare reforms in any European country are never oﬀ the political agenda for long. In the cases of Germany and Finland for example, it can be assumed that the welfare reforms of recent years will lead to increasing conﬂicts in the near future (see Heglich and Meyer; Kangas and Saari in this volume). It is interesting to note that in all the countries, in which there is much social conﬂict, there is reaction to this through the welfare system, even when the underlying diﬀerences are not of an economic nature. Thus, in Ireland for example, it is possible to observe a strong connection between the welfare system and Catholicism, which, however, changed in the course of convergence policy (see McCashin and O’Shea in this volume). Regional conﬂicts are similarly absorbed by welfare systems. As already mentioned, this is shown in the cases of Italy, Spain and Belgium (see Natali; de Villota and Vázqueq; Marx in this volume), but also devolution in Great Britain can be seen as an example of this (see Mitton in this volume). It is important to realize that it is not social diﬀerences themselves which kick oﬀ changes in welfare policy but ﬁrst the conﬂicts that are caused by social diﬀerences. Welfare policy is therefore inﬂuenced to a large extent by the ‘organizational ability’ of social groups. This is particularly clear in the examples of Austria, the Netherlands and France (see Österle and Heitzmann; van Oorschot; Gallouj and Gallouj in this volume), which are frequently characterized as corporate welfare systems. The signiﬁcance of the ability of social groups to deal with conﬂict is also clearly shown in the example of Greece. The dictatorship, in spite of a considerable economic boom, was for decades able 540

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to prevent the development of a welfare system in the European sense (see Papatheodorou in this volume).

European Welfare Systems as a vehicle to facilitate compromise, coordination and cooperation If one pursues the question as to how European Welfare Systems react to conﬂicts, a very unusual position becomes clear: on the one hand, much eﬀort is put into reducing the social diﬀerences, which caused the conﬂict. However, at the same time the diﬀerences are not removed, and the conﬂicts not brought to an end. Instead they seek to reach a level upon which the conﬂicts can be ‘accepted’ as tolerable by the groups involved, so that compromises, coordination and even cooperation are possible. It is indisputable that the European Welfare Systems are characterized by a relatively high level of expenditure (Adnett and Hardy 2005, Alesina and Glaeser 2004, Atkinson 2000, Aust et al., Benz et al. 2000, Leibfried 2000, Giddens 2007). It is not the level of expenditure which is the decisive factor – since there are no European anomalies – but how it is put to use. In Greece, for example, (but also in Italy and Spain), there is a problem of the status of illegal immigrants (see Papatheodorou in this volume), which cannot be solved by merely rescinding the illegality, but by providing welfare services for illegal immigrants combined with measures to promote integration. Many European countries have a similar procedure to deal with the conﬂict which exists between those paying social insurance and those claiming beneﬁt. In Germany, for example, old age pensions have been reduced in order to stabilize the rate of contribution. At the same time the ‘intergeneration contract’ is adhered to, in other words the dependence of the generations is retained. This system is supported by a second and third column, in order to reduce the pension cuts to an acceptable level, which the contributors will face in the future (see Hegelich and Meyer in this volume). In Italy the dissatisfaction of the industrialized north with the welfare transfer to the south is generally accepted. At the same time regionalization of the welfare system and the accompanying marketization, particularly of the health system, is increasingly ﬁnanced through taxation and supported by national government coordination (see Natali in this volume). In Poland high unemployment and low employment opportunities in the normal labour market have led to a complex conﬂict situation. On the one hand there are the unemployed who insist on the continuation of the instruments of passive employment policy (particularly ﬁnancial assistance). The government and the economy lobby for wages to remain stable in order not to reduce regional competitiveness. Among employees, agricultural workers and miners are very well organized and have special tax concessions. Other employees, in contrast, are forced to pay for the social beneﬁts with high social insurance contributions, which guarantees the (unstable) social peace (see Siemien´ska and Domaradzka in this volume). At this point we come upon the limitations of the concept, which we are following in this book. Since to begin with a description of the institutions of the various welfare systems is essential for an introduction, the dimension of conﬂicts with regard to the ensuing political ‘strategies’ (the search for consensus through compromise and negotiation, means of conﬂict management) is not looked at enough. In this respect, the thesis of politically limited pluralism can up to now ‘only’ be made plausible, but not proven. The many common features of the welfare systems in Europe become more apparent when the European systems are compared with the US American model. 541

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Politically limited pluralism in contrast to the US American model If one compares the three factors of politically limited plurality with the US American welfare system, a completely diﬀerent picture emerges. Glazer argues that American federalism, with its very strong tradition, led to the fact ‘that there are going to be far fewer national policies in the sphere of social protection in the USA’ (Glazer 1998: 10).1 How this connection between federalism and residual welfare state development has come about exactly, is still the subject of various debates. Hacker and Pierson, for example, argue ‘that federalism has strengthened the position of capital to such an extent that the creation of a national welfare system could, for a long time, be prevented’. Prior to the Great Depression, business occupied a privileged position in American politics thanks to the structural power conferred upon it by the decentralized character of American federalism. State leaders’ fear of capital ﬂight and of the potential negative eﬀects of social reforms on state economies tightly constrained the range of feasible reforms, even without active business intervention. (Hacker and Pierson 2002: 279) Services provided by the US American welfare system are not aimed at settling disputes arising from social disparity. On the contrary: Alesina and Glaeser argue that the main reason why a ‘European Welfare System’ has not been developed in the USA, lies in the American focus on ethnically motivated lines of argument. The recent rise of anti-immigrant politicians in Europe illustrates our claim that US–Europe diﬀerences have more to do with the racial divisions than with deep cultural diﬀerences. As Europe has become more diverse, Europeans have increasingly been susceptible to exactly the same form of racist, anti-welfare demagoguery that worked so well in the United States. We shall see whether the generous European welfare state can really survive in a heterogeneous society. (Alesina and Glaeser 2004: 181) The discrepancy thus exists not in the absence of diﬀerence, but in the fact that welfare policy is not used to minimize the resulting conﬂicts. Whether this is due to the low level of ethnic diﬀerentiation in Europe, as Alesina and Glaeser suspect, remains questionable. Taylor-Gooby in contrast has proven that this eﬀect is statistically oﬀ-set by the involvement of left-wing parties in government. We have shown that, once left politics are taken into account, the impact of diversity on social spending falls dramatically. When a leftwing inﬂuence is established and has inﬂuenced political institutions, as in the case in Europe but not in the US, diﬀerent patterns of development and of path-dependency are set in train. In eﬀect, the presence of the left appears able to insulate welfare systems against the impact of greater diversity among citizens. (Taylor-Gooby 2005: 671) Even this negative statement, that the welfare system in the USA is not used to oﬀset conﬂicts which arise from social diﬀerences, can be supplemented by a positive assertion. A prevalent trait of the American welfare policy is the division into ‘good and bad risks’ 542

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(Esping-Andersen 1999: 75). While the good risks are guaranteed through the market, the welfare system concentrates on the bad risks, linking state support with proof of need and thereby decisively contributing to the stigmatization of beneﬁt recipients. Social conﬂicts are thus further intensiﬁed rather than reduced. The idea that diversity is seen as the source of problems, but is ‘nevertheless’ not eliminated by the nation-state, is thus invalid. The diﬀerence between Europe and the USA with regard to the third point immediately becomes obvious. In spite of the United States’ great potential for growth, the American welfare system is even today only modestly developed. ‘The US, despite its obvious wealth and formal commitment to mass democracy, has never developed redistributive institutions on anything like the scale of the European welfare state’ (Taylor-Gooby 2005: 663).

International and supranational European welfare policies If it makes sense to regard the concept of politically limited pluralism as something unique to the welfare policies of European states, then it must be asked whether this concept can also be used to describe the European Union as a whole. Europeanization is generally seen as a ‘leveller’ of European social systems. Particularly in studies dealing with the ‘European Social Model’ (ESM), it is often and automatically assumed that the European Welfare Systems will develop to a standard system or should at least develop in this direction. Irrespective of the diﬃculties in identifying what is ‘European’ more or less all-embracing lists of criteria are drawn up, which hardly show a conceptual debate of the subject. Giddens alludes to this theoretical shortcoming, for example, when he states: ‘The ESM, it has been said, is not only European, not wholly social and not a model’ (Giddens 2006: 14) and then only to come up with four factors, which are meant to constitute the ESM, whereby one of these factors ‘a robust welfare system that provides eﬀective social protection to some considerable degree for all citizens’ (Giddens 2006: 15), already contains that which is to be explained. It is however diﬃcult to understand why a strengthening of the supranational level primarily should lead to homogenization. Conversely, in research on federalism it is regarded as a well documented argument that a distribution of power between various levels, can impede developments in the welfare state. ‘One of the very few areas of unanimity in the literature [is … ] that federal institutions are inimical to high levels of social spending’ (Castles 1998: 82). Perhaps the main problem is that up to now an attempt was made to suggest a certain quantity of welfare services. If the category of politically limited plurality is applied to the ESM, then one can talk of international and supranational European welfare policies concerning all those processes, which try to reduce the conﬂicts that result from the plurality of various welfare systems. Reduce the conﬂicts by restricting or limiting these diﬀerences, while at the same time accepting national diﬀerences positively. In deﬁning the ESM in this way, it is not a certain ‘level’ of the welfare systems, which is the primary focus, but the ‘process’ of how these states arrive at a compromise. The open method of coordination (OMC) for example would thus not be used as a benchmark for the extent to which it leads to a common European social policy, but because of its neutrality, would serve as a good example of that which distinguishes the European 543

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Welfare Systems. ‘It is for this diversity of national policy priorities that, technically, the term, “coordination” in OMC is a misnomer anyway. What the method is intended to lead to is cooperation, which is much harder to achieve than coordination among actors with divergent interests’ (Oﬀe 2003: 467). And in order to achieve cooperation, the diﬀerences have to be acknowledged, even though they can be reduced. The idea of a European welfare system which aims at uniformity is therefore incompatible with the basis of European Welfare Systems that accepts plurality, and at the same time limits it politically, in order to achieve cooperation and compromises.

Plurality of European Welfare Systems, theories on pluralism and political consequences If one accepts politically limited pluralism as a special feature of European Welfare Systems, then there arises a close connection to pluralism theories. The term pluralism is used with various connotations. On the one hand it is used to describe a philosophical school, which in contrast to monism assumes a given diversity, necessary for openness, change and planning. In addition, pluralism, particularly in the Anglo-Saxon world, is understood as a principle of social organization, which makes countervailing of power possible (checks and balances). The third connotation is as the open debate between political, social and economic interests in modern democracies, which is speciﬁcally based on the acceptance of diverse opinions, interests and aims (Schubert 1995). With regard to European Welfare Systems one can assume pluralism both within and between the European societies. While this plurality is often understood as a ‘European problem’ and shortcoming, in the sense of ‘incomplete integration’, the acceptance of this diversity from a theoretical and practical view opens the way and view to the proceeding opportunities and options. In the ﬁrst place the acceptance of plurality essentially means a reduction of the ‘intensity’ of conﬂicts. It is not a question of which position will be accepted, but ‘only’ to what extent interests will be realized. No position is excluded on principle; however fundamental conﬂicts develop into conﬂicts of interest and diﬀerences, which in theory, but also in practice are negotiable. Giving up the principle of permanent exclusion also means giving up on the idea that conﬂicts can be solved once and for all. The permanent attempts at reform in the European Welfare Systems emphasize this point. As the most diverse interests and social groups are involved, a situation is seldom reached that satisﬁes all. At the same time reforms in European Welfare Systems are almost always the result of a divergence of interest and negotiation, and lead to various forms of cooperation. Even if the quantity and frequency of conﬂicts in pluralism also increase, the level of conﬂict and the intensity will be reduced to such an extent that negotiations will be the main option and in most cases cooperation will be the most important alternative. This diversity with regard to conﬂicts concerning welfare matters has, second, a systemic advantage: as welfare policy is an ongoing process, experimental solutions can be sought and new paths trodden. Reforms do not gamble all their stakes but deal with small areas and subsystems. In this way there may be varying solutions to similar conﬂicts, or strategies deployed successfully in one area, may be used in other areas. Alternatives are a basic requirement for bench-marking and learning processes. For this reason too, pluralistic systems are highly innovative. In the course of demographic developments, welfare systems have diﬀerentiated between ‘illness’ and ‘care’ in the area of health. In 544

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some European countries this development led to new institutionalized forms (of insurance), which are debated in other countries and may – in a modiﬁed form – be taken up. The scope of possible solutions does not exclude wrong decisions or wrong developments, but, third, the consequences of these are relatively limited in pluralistic systems, not only because the aﬀected units are smaller, but also because the sub-divisions do not exist on their own, but in a social context. Therefore, a collective guarantee is possible (for example, wrong developments in employment policy are often compensated by the pension system). This network of various subsystems leads, fourthly, to the fact that the system as a whole can react ﬂexibly to external shocks. The consequences of the oil crisis, for example, had to be overcome. No European welfare system failed in this task, but the strategies for solutions were very diﬀerent, and likewise the results and successes. Thus, the following also applies to European Welfare Systems that: ‘from the almost endless, indeterminate possibilities of linking the “several parts” to conﬁgurations of something “new”, something evolving, something innovative, an extraordinary dynamic’ arises (Schubert 2003a: 34). On an inner-social level these advantages are ﬁrmly positioned and widely accepted. Even the accession countries have – for good reason – looked for their own independent way of social insurance. Even in the cases which clearly used external models as an example, distinctive national features are increasingly evident. On an intra-societal level the strengths of this plurality have yet to be fully acknowledged. From the fear that diversity would lead to a ‘race to the bottom’, emphasis is too often put on standardization and it is overlooked that the economic logic of globalization does not necessarily penetrate the area of welfare systems. The logic of welfare systems is not solely based on the criteria of eﬃciency, but also on identiﬁcation, acceptance and speciﬁc ideas of fairness. Therefore, the case for European welfare pluralism is not necessarily associated with a criticism of the political ability and capability to act – either on a national or supranational level. The aim of political intervention must be to limit diﬀerences in welfare services within and between the societies to such an extent that they can be accepted as components of an inter-connected system. On this basis, conﬂicts (which have necessarily arisen) can be resolved through negotiations and cooperation, which induce the described innovation and learning processes. This acceptance of a national way must be understood as a precondition of European integration in the ﬁeld of welfare systems. Only when the limits of an integration programme are accepted, is it possible for European integration in the positive sense to come about. Then the apparent contradiction between enlargement and deepening can also be put aside. A deepening, which accepts plurality as something positive and not a drawback, is not contravening enlargement, which also accepts this principle. Such a concept has nothing to do with ‘laissez faire’ but is explicitly a political strategy for action, which on the basis of acceptance of the diﬀerences develops new potential. ‘Unity not as stipulated, but as a possibility, that must be continually looked for and if necessary – on the way to uniﬁcation – created’ (Schubert 1995: 409) is a perspective of European development, which does justice to the unique characteristic of the European Welfare Systems better than any uniformity.

Note 1 Finegold puts this view into perspective by emphasizing that American federalism also has positive eﬀects on welfare politics. However, in the end: ‘Some of the most important social programmes are wholly national. But others are based on the states, or at least give them signiﬁcant responsibilities’ (Finegold 2005: 175).

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