The Definition and Impact of Corporatism in Economic Policy Determination

1. MGTECON 580: Class 3 Definition of corporatism: Tripartite policy determination Economic policy is codetermined by three partners - Government, employers and employee’s representatives Scope: - Incomes policy (wages, working time, working rules) - Economic issues (trade, competition & industrial policy, fiscal, monetary policy) - Policy issues (education, health, research) Important elements: - Partners make decisions not proposals - General interest, not special interests of specific groups (lobbying) - Committed experts, not uncommitted Relation: corporatism and welfare models There is no welfare state without corporatism Relative weight of social partners and government different Extreme case government puts into law, what social partners have decided

2. Types of corporatist models Nordic model: - Inclusive (citizenship access) - Generous / high-spending / expensive - Tax financed - Re-distributive (post-taxes income more equal than pretax income) Continental model: - Worker’s access only (Bismarkian) - Insurance type - Contributions based (of employers and employees) - Protects insiders, not entrants, long-term unemployed - Distributive issues less dominant Neo-liberal model - Means tested access - Subsistence level guaranteed - High-entry, unconstrained exit Club members: Nordic model: S, SF, DK, NW Continental model: G, AU, F, B, NL Liberal model: UK, IRE, US

3. The dimensions of Real World Corporatism Apart from the 3 models there are differences according to centralization, fragmentation, agenda: • Degree of centralization / decentralization • Negotiation can be done • National level • Industry level • Regional level • Firm level • Structure and orientation of the social partners • By one union or by several fragmented ones • Unions can be centralized or divided by political fractions • Bargains hold for all workers in the industry or members only • Impact of head of organization can be strong or weak resulting in macro vs. microeconomic priorities • Agenda • Income policy: determination of wages • Price policy : caps for price increases • Codetermination: influence on company boards • Welfare components: extent of health, unemployment, pensions • Policy in general: education, taxes, investment • Administration of social security, health system Conclusion: There are ranking lists for corporatism, which combine- degree of centralization- width and depth of agenda- labor market regulation- product market regulation Germany, Austria, and Sweden usually at the top

4. The impact of corporatism Positive impact - Consensus driven approach - More complex policy agenda is possible - Reduction of risks, strikes, imbalances - Solves prisoner’s dilemma (increases length of the play) Negative consequences - Favors insiders (at the costs for entrants, unemployed) - Favors special (concentrated) interests: large firms, old industries, nationalized industries) - Slow, path dependent decision - Reduces primacy of political representatives (problem of democracy) Performance - Good combination: growth, stability, employment - Ambiguous results for productivity / speed of change - Intra-change may be encouraged, interchange slowed down - In periods of drastic change both alternatives possible: Petrified institutions or catalyst of new strategy

5. Rise and demise of corporatism Maximal influence sixties & seventies - Increase of socialist governments - Broader social reform perspective - Redistribution shifts from income to Wealth, capabilities, chances - Codetermination rules in firms - Optimism about government activity (Fine tuning plus long horizon) Critique in the eighties & nineties - Globalization and integration disfavor national contracts - Unemployment rises, migration as threat - Inflationary impact of misled Keynesianism - Policy shift in UK - Competitiveness dominates redistribution - Taxes rate approached 50% - Fewer children, share of old aged rises - Costs of easy solutions (early pensions, disabled, rents in sheltered sectors) visible

6. The future of corporatism Similar hierarchies in reform agenda - Shifts in influence to employers - Strategies of cost containment vs. activation - From corporate protection to re-employment - Rules in health and labor institutions to reduce costs and permissiveness - Defense strategies vs. technological encouragement and inclusion Country differences - UK shifted to the residual model - Italy became more comprehensive, but reached limits of finance in the nineties - Other countries reduce specifically pension benefits, but maintain comprehensive approach - Northern countries and Ireland include reform of institutions and push for new technologies A not fully understood stylized fact - The most successful EU countries have a modern tripartite decisions system: Sweden, Finland, Denmark, Netherlands; Ireland, Austria Final evaluation: The social partners can solve problems and prevent strikes, but sometimes the government has to set the agenda and to prevent insider systems and to contain costs of negotiated solutions