The Limits of Europeanization: explaining low reform capacity in Greece?

1. The Limits of Europeanization: explaining low reform capacity in Greece? [Work in Progress] Kevin Featherstone LSE

2. Greece & Europeanization • ‘Europeanization’ is everywhere: recent growth of studies of domestic change attributed to ‘Europeanization’. • Risk of normative bias. • Looking at cause & too readily accepting the effect. Convincing empirical evidence?

3. Europeanization as the frame • Such studies face major challenges in establishing rigorous causal explanations: identifying • ‘linking mechanisms’ (Goetz, 2000) between EU & domestic sphere; • key intervening variables (e.g. actors, institutional capability, discourse, policy structure: Radaelli, 2003); • significance relative to other stimuli (external, domestic). • Non-deterministic outcomes.

4. Europeanization frustrated? • Despite: • high public support for EU membership in Greece; • Declared commitments of successive governments for EU’s EMU; Lisbon 2000 Agenda & ‘modernisation’. • Greece has been one of the worst in implementing EU laws, adopting single market legislation & Lisbon reforms. • Why?

5. How to explain relative failure? • Europeanization perspective helps to explain agenda & identify response, but there are limits: • Greece displays a paradox of capability: ‘integrated political leadership’ condition (a simple polity: unitary; centralised; unicameral; majoritarian) appears to be met, but ‘reform capacity’ is low. • To explain non-adaptation, we should not start from ‘Europe’: accounting for actor interests & ideas in domestic setting requires other conceptual frames. • What are we missing in the domestic system to deepen our explanation of low reform capacity?

6. Structuring interests… • How does domestic ‘system’ structure rational interests, behaviour? • Modelling the domestic ‘system’: mode of interest mediation (unions-employers-government); politics of the welfare regime; interests derived from economic model.

7. What model? Interest mediation • Unions: ‘parentela pluralism’ (Pagoulatos, 2003): diverse but ‘rent-seeking’ behaviour from state. ‘Disjointed corporatism’ (Lavdas, 1997): corporatist structures lacking compromise & trust, unable to sustain stable pacts. • Historically, ‘statism’ has structured expectations of each of the social partners (including the government) • Conflictual: e.g. tripartite social dialogue in 1997, 2000 failed.

8. What model? Welfare regime • Mediterranean-type (Ferrera, 1996): highly fragmented provision. Peaks of generosity (e.g. public sector pensions); lack of coverage (e.g. unemployment benefit). Affects rational interests: undermines labour mobility. • ‘Late-comers’ agenda (Pierson, 1998): provision still being created alongside defence of privileges: ‘immovable objects’ versus agenda on equity. Powerful vetoes. • High fiscal burden of pension privileges with social inequity – result of political interests, as well as available resources.

9. Politics of pensions • To some significant extent, technocratic consensus on need for reform. • Yet, sub-optimal outcomes: slow, piecemeal. • No ‘crafted’ social model to defend, bare interests rather than social choice. • Actors defend interests in knowledge of welfare gaps & vulnerabilities in provision, and expectations of reform weakness. System encourages them to be ‘risk averse’ & ‘rent-seeking’.

10. What model : varieties of capitalism • More ‘state capitalist’ (Schmidt, 2002) than LMEs (UK), CMEs (Germany) (Hall & Soskice, 2001), but state’s impact varies. • Mixed Market Economy (Molina & Rhodes, 2005): more corporatist than in LMEs, but more fragmented & less able to coordinate than CMEs or deliver collective goods. • Lacks complementarity: low social protection, high jobs protection. Strong domestic veto points, low reform capacity. Prisoners’ dilemmas.

11. Modelling interests in the Greek economy Self-employed % more than double EU15 av. Family workers 3x EU15 • Company structure: very few large enterprises and very many micro- and small-firms • Employment structure reflects late industrialisation: importance of services; disproportionate size of agriculture; relatively small manufacturing sector; • Participation: low participation of women & part-time workers; significant problem of long-term unemployed. Services 65%; Agric12% Female % one of lowest in OECD; part-time a third of EU15 average

12. Total Employers’ organisation density is half that of EU15 average Structuring representation: Product market regulation 2nd most restrictive in EU15; worst in ‘ease of doing business’ (World Bank). • Business voice favours few large firms (SEV), rather than myriad of very small enterprises . GSEVEE, not representative of small and medium size businesses in Greece. A fragmented coalition with no clear agenda. Thus a consensus emerges in the business community for a domestic market of anti-competitive regulation, barriers to entry, relatively cheap labour & stable product demand. Business constituency for liberal market measures is thus limited and shallow. • Union voices over-represent the public (and ‘wider’ public) sector (GSEE, ADEDY), favouring the interests of a highly protected core group of workers, rather than temporary & irregular, informal workforce. Prioritises rigidity over flexibility & irregularity. Overall, union density is above EU15 average, but unionisation in private sector is low Ratio labour cost/ hours almost half EU15

13. Split rationality & differential political voice • VoC: follow ‘median voter’. But where is the median voter? • Split rationality & differential political voice (private sector versus public sector workers) (few large firms & myrid of small enterprises) • Affects rational actor interests towards privatisation; labour mobility & pensions. • A problem of governance: low reform capacity from a set of structural conditions – distorted representation, conflictual interests, skewed & limited public provision.

14. Bringing the State back in: Govt sector cost highest in EU15; one of lowest in effectiveness scores 2nd worst in EU in Global Corruption Index • A long-term statist tradition (a ‘developmental state’) but its effectiveness and efficiency is comparatively low, undermining the capability to deliver public goods. • Perceived corruption and tax evasion is very high, undermining competition and the effective delivery of public services and functions. Large informal economy. • State spending on social protection is relatively high, but skewed and this affects actor rationality on welfare & employment. Shadow economy (28% of GDP?) largest in EU15 Total Social Expend as % of GDP close to EU median

15. Addressing the puzzle: modelling responses • There is a weak domestic constituency for market and welfare reforms, with the rational interests of key social actors defined by (a) the limitations of current (welfare) provision and compensating employment protection; (b) protected markets with stable product demand. • Stop-go, incremental policy reform is the most likely outcome across such sectors.

16. Limits of VoC • Not a simple problem of selfish unions & inertia of few big firms (nor of party or personality). • Wider systemic conditions need to be incorporated: e.g. • Inefficiency, low resources of state administration: low implementational strength. • Conflicting interests of clientelism: undermines will to reform. • Cultural factors: corruption, mistrust,non-compliance. • Limited public space for debate on options. • Above consistent with Simitis, 2007.

17. Reform deficit in a conducive economic climate • Period here is not one of economic difficulty (with higher adaptational costs), but one of exceptional growth (with more scope for side payments); • Thus: strength of opposition indicates (a) the embedded strength of the current system; (b) the failure of new social forces to emerge in the boom years; (c) failure of government to advance ideas to win support from potential ‘winners’ & build a reform coalition.

18. Yet: Greek contrasts • Capability: Greek performance has varied between sectors. • Very good macro-economic performance since 1996: high GDP growth; convergence in inflation, deficit & debt levels. Distinctive features here: external commitment device of EMU; relative autonomy & exclusivity of domestic policy management in this area. • Contrast with problems in enacting ‘supply-side’ reforms & welfare modernisation: weaker EU leverage; a more open and diffuse domestic policy process. • Testifies to: nature of EU policy instrument (adoption-implementation); how contrasting domestic settings structure actor access & interests.

19. So: limits to Europeanization • For Greece, domestically, a systemic problem of governance. Low reform capacity from both state weakness & structure of interest mediation. • For EU: issues of its ability to coordinate a programme of economic & social reform – weakness of Lisbon process in face of domestic opposition. Capability-expectations gap? • Conceptually: ‘Europeanization’ & ‘VoC’ approaches need not be incompatible. One extends limits of the other. Delve deeper into structures of rational interest, vetoes to explain EU effects & domestic response; contrasting Greek sectoral performance.