The Uncertain Future of Slovenian Exceptionalism

1. The Uncertain Future of Slovenian Exceptionalism Igor Guardiancich Political Economy Research Group Budapest, 5 December 2011 Central European University

2. Slovenia as it is perceived… The Varieties of Capitalism literature in CESE has unambiguously placed Slovenia at the far end of the liberal-corporatist spectrum by labelling it as: • neocorporatist (Bohle and Greskovits, 2007) • Coordinated Market Economy falling within the Continental European model (Buchen, 2007) • corporatist social-welfare state (Adam, Kristan and Tomšič, 2009) due to a combination of highly consensual democratic institutions, low party polarization, strong social partners, and developed social dialogue.

3. …and as it is now. Since the fall of the Liberal Democracy of Slovenia (in government during 1992–2004) the political underpinnings of neocorporatism have faded away: • polarization increased; • union (and other social partners’) legitimacy declined; • social dialogue collapsed in the aftermath of the 2007-9 financial crisis. The 2010 pension reform is a test case showing that consensual decision-making has become increasingly difficult in Slovenia. Its failure created far greater dilemmas that the incoming government should address.

4. Content of the paper • Main characteristics of Slovenian exceptionalism. • The Slovenian transition from independence to the financial crisis. • Political-institutional structures, weakening of the social partners and collapse of social dialogue. • The 2010 pension reform: chronology, perceptions and repercussions.

5. Neocorporatism Slovenian style • Highest union density in CESE countries (44.3% in 2003). • Compulsory membership of employer associations (GZS and OZS). • Powerful tripartite bodies at corporatist – Economic and Social Council – and political levels – National Council. • These generate collective wage, income and social policy agreements that cover the entire working population. • What pulls Slovenia away from a pure CME is the insider ownership structure and an interventionist state. Due to the 1992 Ownership Transformation Act managerial rather than purely market-based capitalism emerged.

6. Socioeconomic indicators Slovenia developed one of the most egalitarian societies in the EU, not only among NMS. • 2.6 EPL, between Belgium and Germany. • Total spending on social protection higher than OECD average (23.0% in 2005 compared to 20.5% of GDP). • 0.247 Gini coefficient as a consequence of the redistributive tax system, lower only in Denmark and Sweden. • 11% gender wage gap in 2004.

7. The transition • From self-management to a market economy. • From socialism to a pluralist democracy. • From a regional to a national market. • From federation to independence. • From Yugoslavia to the EU and the EMU. Characterized by gradualism, immobilism and elite preservation.

8. Slovenian transition: Gradualism Converting the political-institutional structures inherited from Yugoslavia was a complicated exercise. Transforming a regional a national economy, breaking away from Yugoslavia and its socialist legacies demanded caution, broad consensus, and strong social partnership. Consensualismprevented shock therapy from being applied (apart from to macroeconomic stabilization only). Double-edged sword: • Social peace was preserved and the transformation was successful due to initial conditions and competitive corporatism; • It bred widespread immobilism.

9. Slovenian transition: Immobilism • By resorting to gradualism, decision-makers (mainly LDS) negotiated at length with organized interest groups, delaying and diluting structural reforms. • Economic restructuring was slow in crucial sectors: • Financial services, where a capital market never emerged; • Tertiary education, which is inward looking and cronystic; • Judiciary, inefficient and with a growing backlog of cases; • Health care, pensions, family benefits, and the labour market need thorough reform. • Gradualism entrenched vested interest groups, which further delay reform (e.g. Åslund, 2007).

10. Slovenian transition: Elite preservation • The high level of elite reproduction under LDS was far from beneficial, bringing long-term negative effects, including the establishment of monopolies and rent-seeking behaviour. • This had several negative repercussions: • Delayed and inefficient privatization following the 1992 Ownership Transformation Act; • Extreme ideological division between the left-liberal (SD, LDS, Zares) and right-conservative bloc (SDS and other parties of the ‘Slovenian spring’).

11. The political underpinnings of consensualism • Government that can reach to an ideologically distant opposition and/or social partners. • Internally legitimate trade unions that are in the position to negotiate with policymakers and employers. • Strong employer associations. Since 2004, and especially during the most acute moments of the crisis, all three preconditions have been missing in Slovenia.

12. The weakening of government • Since 2004 the polarization of the political space has increased, leading to the impossibility to strike bipartisan deals and to heated electoral competition. 3 reasons: • The difference in electoral support for the two main parties has narrowed (polarization 1990-2008 is 0.286, but entirely imputable to the post-2004 period). • The era of grand coalitions is definitely over. Since 2004 neither Janša’s nor Pahor’s governments contain any parties from the other bloc. • EU accession compressed the political space until 2004, after that it decompressed entirely.

13. The weakening of the unions Slovenian unions, especially the successor ZSSS are extremely strong and participate in most tripartite fora. They underwent progressive weakening, mainly due to: • dwindling membership (in the service and private sectors); • loss of internal legitimacy (workers circumventing reps in Gorenje).

14. The weakening of business Due to relative high growth and low unemployment levels, business enjoyed a favoured position in Slovenian negotiations. This changed for two reasons: • Until 2006 the membership in GZS and OZS was compulsory, and these represented all Slovenian firms. In GZS it is not the case: if density will fall under 50%, the automatic extension of collective agreements to entire categories is not guaranteed; • widespread company insolvency and low competitivenessled to mass layoffs and concern of the associations with their own narrow issues.

15. The crisis In the period of sustained growth 2005-7, Janša’s government did not build budget surpluses and the European Commission failed to warn against such lax fiscal policy. Slovenian banks became illiquid in late 2008, and since Slovenia is a small open economy, the fall in international orders triggered an economic collapse. The unemployment rate rose from a low of 4.2 per cent in September 2008 to 7.8 per cent in December 2010, and GDP fell by 8.1 per cent in 2009 (Eurostat 2011). Consequently, the global financial meltdown exacerbated all the negative traits of the Slovenian economy.

16. Failure of social dialogue • The accumulation of structural delays forced Pahor’s government to propose several unpopular measures. • The Slovenian Exit Strategy 2010-13 envisaged: • structural measures (reform of the pension system, health care, and long-term care) • institutional adjustments (to corporate governance, financial supervision, financial services, and competition). • Pahor was initially inclined towards social dialogue, but excessive haste (the government was pressured by the EU and OECD) and the radicalization of the social partners’ positions prompted unilateral decision-making, which invariably failed.

17. The 2010 pension reform • Previous reforms and persisting problems • Technical content • Policy disagreements • Social dialogue and perceptions • Failure and consequences

18. Previous reforms and persisting problems The 1992 and 1999 pension reforms achieved too little and arrived to late. The latter stabilized expenditures in the medium term, by maintaining a relatively generous system. However, by 2010: • Certain categories of retirees, especially single women, are at high risk of poverty. • The possibility to deduct years spent childrearing, implies that the effective retirement age stayed low. • ZPIZ has been running deficits since 1996, when the government decreased the contribution rate for employers. Projections forecast 20% of GDP total spending by 2050 and a deficit of at least 8% of GDP.

19. Technical content The initial proposal of the 2010 reform was very radical (NDC + FDC in 2 steps) but was diluted during negotiations: • Statutory retirement age 65 for all, compounded with steeper bonuses/maluses. • Assessment base 30 best consecutive years (minus 3 worst). • Indexation 60:40. • Simplification of professional and supplementary schemes. Macro effects: 2% of GDP lower overall spending. Micro effects: delays individual retirement by 2-3 years.

20. Policy disagreements • Government • While DeSUS backtracked on its own concessions (80:20), ZDUS was in favour of finding a compromise (60:40). • Unions • ZSSS – as opposed to Pergam – did not accept a quid pro quo to lift the request for retirement without decrements at 58/60 for women/men with 38/40 years of service period. • Employers • Repeatedly warned that the Slovenian labour market is not ready to absorb elderly workers without additional incentives, such as progressively decreasing social security contributions.

21. Social dialogue and perceptions The claim that ‘social dialogue in Slovenia is dead’ (Pergam) does not correspond to Pahor’s initial intentions. Between March 2009 and September 2010, the social partners held 50 meetings and the government produced 300 documents.

22. Failure… • ESC As the ESC could not reach agreement, Pahor sent a draft ZPIZ-2 to the National Assembly in September 2010. • National Assembly DeSUS voted against, hence ZPIZ-2 passed with the votes of opposition party SLS. • National Council Vetoed the law, approved by the Assembly (absolute majority). • Referendum ZSSS collected 40,000 signatures. The Constitutional Court confirmed admissibility. 72.2% voted against.

23. …and consequences • Pahor’s government resigned in September 2011, after a vote of no confidence. • The new government will face the same problem of a fiscally unsustainable pension system in the following years (SDS’s stance was ‘the worse, the better’). • Indexation of current pensions has been frozen since 2010 and the erosion of valorization coefficients hasn’t been stopped. Hence, a growing number of retirees will either have unacceptably low pensions (if no corrective action is undertaken) or will simply fall onto social assistance/minimum benefits.

24. “So we entered a blind alley. . . . But there is no real alternative to dialogue. It is something that concerns us all, both present and future generations. I wish that this time would be employed to thoroughly figure out what kind of dialogue we need and to also implement it. We did not manage to develop a culture of compromise, way too often is debate perceived as confrontation, where one of the parts has to be defeated, has to capitulate. And this is really bad for our political culture.” Danilo Türk, President of RS

25. Thank you very much!