8      Social Policy: Crisis and Transformation            Text Drucken   
Roland Czada
Peter Katzenstein (1987, pp. 168-92) portrayed the West German wel-
fare state as a highly segmented polity governed by consensual politics
and providing generous social benefits. In fact, at first sight, not much
has charged during the past two decades: compulsory insurance for all
wage earners (sozialversicherungspflichtige Beschäftigung) is still provided
by separate funds for pensions, health, unemployment, occupational
accidents and - since 1995 - nursing care for the elderly (Pflegeversicher-
ung). The system is still highly fragmented, with provision determined by
a person's region of residence as well as by that person's occupation.
Thus, several regional funds are in charge of pensions for blue-collar
workers (Arbeiter), whereas pensions for white-collar employees (Anges-
tellte) are funded on a national basis. Civil servants (Beamte) receive their
old-age benefits from current state budgets, while other public-sector
employees are covered by the national white-collar workers' insurance
scheme, supplemented by a complementary insurance which puts them
on a par with civil servants. There is an entirely separate pension scheme
altogether for coal miners, and finally, self-employed persons (Selbststä n-
dige) are allowed to opt out of the system altogether, which they normally
do, since private pension and medical providers normally offer better
levels of cover at lower costs than do the statutory schemes.
Health insurance too still rests on a multitude of local, regional and
national institutions. Although employees have been free to choose their
health insurance fund since 1996, which has inevitably weakened the
linkage to occupational status, the federal government has introduced a
portfolio balance system to support those funds with bad risks. These are
usually the old established local blue-collar workers' general health
funds (Ortskrankenkassen), which were founded in the 1880s as part of
Bismarck's welfare initiative to attract workers away from trade union-
led health funds (Katzenstein 1987, p. 172). None of these insurance
schemes is capital-based; instead they all rely on current inflows of
social-security contributions to meet their commitments (the so-called
"pay-as-you-go" system). Inevitably this makes the system particularly
vulnerable to economic downturns, which immediately open up a
revenue-outlay gap.
Both employees and employers still share most of the costs of social
security by each paying an equal proportion of the employee's salary as
a compulsory social-insurance levy. Apart from work-related compul-
sory insurance schemes, a number of additional tax-financed social
programmes are run by state, federal and local governments. These are
meant to provide for social needs that fall outside the remit of
the compulsory insurance funds, such as child benefit (Kindergeld),
home construction grants (Eigenheimzulage) and grants for higher edu-
cation (BAFöG). In consequence, welfare allowances are available in
some form to almost everyone resident in Germany (cf. Katzenstein
1987, p. 186). However, in recent years state subsidies to these funds
have steadily increased. The total share of general government contribu-
tions (that is, tax-financed contributions) to social-security programmes
rose from 26.9 per cent in 1991 to 32.5 per cent in 2000. In 1999, an
eco-tax was introduced to generate extra resources for the ailing old-age
pensions system (cf. chapter 10 in this volume). During the 1990s, total
employee contributions to social-security programmes remained con-
stant at around 28 per cent of the total income for these programmes,
whereas the total employers' contributions decreased from 42.5 per cent
to 36.9 per cent (Eurostat 2003, p. 7). Yet despite the increase in
state (i.e. tax-based) funding for these programmes, statutory social-
insurance contributions have exceeded 40 per cent of the average gross
salary since the mid-1990s (Hagen and Strauch 2001, p. 24). Not
surprisingly, the subject of social-security contributions has become a
hotly debated topic, especially as Germany is the only country that still
levies such contributions at such a high level on employers. It has
been argued that these non-wage labour costs have both exacerbated
Germany's unemployment problem, by making it prohibitively expen-
sive to employ new staff, and compromised the international competi-
tiveness of German companies. Politically, therefore, one of the major
goals of welfare-state reform policies since the mid-1990s has been to
reduce the very high level of non-wage labour costs (in other words, the
social-security contributions levied on employees and employers).
During the 1990s, the German welfare state ran into deep trouble.
However, remedial action has been limited to incremental reductions in
the costs and benefits of welfare programmes, and, in particular, to a
shift towards a greater degree of tax funding for such programmes. Yet,
despite its persisting institutional structure, the welfare state has
changed considerably in terms of its financial flows, political-power
structures, scope of services and general policy concepts. When
Roland Czada
compared with Peter Katzenstein's portrayal of 1987, the situation in
2004, with acute political conflicts and considerable benefit cuts, indi-
cates a welfare state in transition. Traditional features of social corpor-
atism, such as party consensus and work-related paternalism, have been
superseded by new forms of decision-making, including corporatist
technical advisory commissions, issue-specific (and hence volatile) party
alliances, the emergent use of market principles and a more universalistic
approach to the funding and delivery of welfare benefits. Although this
transition has by no means been completed, its driving forces, which will
be addressed in the next section, are clearly visible.
Context: the "German Model" and the Challenge of
Two distinct factors make up the context of these recent policy chal-
lenges to the German welfare state. The first can be traced back to the
so-called "German Model" of forced industrial modernisation policies;
the second stems from the unification of the economically weak socialist
German Democratic Republic with the still prosperous Federal Repub-
lic of Germany. Of course, the German welfare state has not been
insulated from broader pressures of globalisation and demographic
changes; however, because of their general character, these will be
discussed separately later in this chapter.
As chapter 7 has shown compellingly, Germany"s social-security funds
have been used from the 1970s onwards to compensate generously those
large segments of the workforce who fell victim to the gradual process of
industrial modernisation and restructuring. Faced with rising unemploy-
ment from the mid-1970s onwards, Germany simply transferred its
least-productive sections of the workforce into the welfare system, in
stark contrast to both the American and British social workfare policies
and the Scandinavian active reintegration programmes. A corporatist
productivity coalition of unions, employers and the state agreed to
exploit the then buoyant social-insurance funds to finance early retire-
ment for older workers and to facilitate companies' efforts to rationalise
the least-qualified and least-productive elements of their workforces. An
Early Retirement Act (Vorruhestandsgesetz) was passed in 1984, and a
Law on Part-Time Work for the Elderly (Altersteilzeitgesetz) followed in
1988. In a collaborative effort, employers and works councils (Betriebs-
räte) helped to implement these laws, which overall were very effective
(Table 8.1). The Federal Labour Office (Bundesanstalt für Arbeit, BA)
was given the task of financing both measures from its unemployment
insurance funds, supplemented by some additional federal grants.
Social Policy: Crisis and Transformation
However, because the BA's financial responsibility was from the outset
limited until 1988, the pension schemes were faced with a double
challenge in the early 1990s, when they had to absorb not only large
numbers of pensioners in western Germany who had retired early, but
also - following unification - all pensioners in eastern Germany.
Self-evidently, a German-style pay-as-you-go system, under which
wage earners' contributions are almost immediately transferred to pen-
sioners as cash benefits, is particularly sensitive to a relative decline in
regular employment. For 2001, the Federal Statistical Office (Statis-
tisches Bundesamt) reported 27.817 million wage earners compared with
26.735 million persons living on social-security income (Figure 8.1;
Bundesministerium für Gesundheit und Soziale Sicherung 2004). By
comparison, the respective numbers for 1985 were 20.378 million wage
earners contributing social-insurance fees, against 13.485 million per-
sons living on welfare. As a result, the ratio of wage earners to welfare
recipients has fallen from 1.5:1 in 1985 to 1:1 in 1997, and in 2003 stood
at just 0.9:1.
Figure 8.1 shows that the number of wage earners paying social-
security contributions has declined steadily since unification. Although
this has principally been caused by large-scale job losses, mainly in
eastern Germany, from 1992 onwards, the peculiarities of the welfare
state have themselves also been responsible. Until recently, employment
policies were focused entirely on measures to create a skilled workforce
Table 8.1. Growth of early retirement, 1975 - 99
Average age of
new pensioners
retiring due to
New pensions for formerly
unemployed persons
(% of all new pensions)
early retirees
(% of all
Year          Male       Female           Male          Female      Male       Female        West          East
1975         56.3         59.2
3.7              0.7
1980         54.7         57.7
8.4              1.6
1985         54.8         54.3
11.9              1.1
1990         53.9         52.6
13.7              1.8
1995         53.5         51.4
24.2              3.4
60.2         6.4
8.7        10.2
1999         52.9         50.8
26.9              2.1
54.5         1.8
14.4        31.4
Source: Hagen and Strauch 2001, p. 17.
Roland Czada
and to enhance productivity, rather than on job creation in low-skill (and
low-income) areas. Although tax cuts for low-income groups had been
introduced in 1996 following a ruling by the Constitutional Court, this
did not create any new incentives for recipients of income support to find
work. Until the end of 2004, for an average-sized family, employment of
any sort meant a withdrawal of benefits, meaning that overall net income
often either stayed the same or was even lower than the level of benefits.
Nonetheless, despite a declining number of wage earners who are
subject to social-insurance contributions, Figure 8.1 also shows that the
1975            1980            1985           1990            1995            2000         2005
Figure 8.1. Labour force, wage earners and welfare recipients (1975-200)
Note : The labour force includes all persons engaged in economic activity
working regular weekly hours (paid civilian and military employment,
self-employment and unpaid family workers) plus all those unemployed
but seeking work. Wage earners pay compulsory social insurance fees
(sozialversicherungspflichtige Beschattigung). Welfare recipients are defined
as persons living solely from social security income, including old age
pensioners (who receive Arbeiter-, Angestellten und Knappschaftsrenten),
recipients of unemployment support (Arbeitslosengeld-und-hilfe), recipi-
ents of income support (Sozialhilfeempfänger) and asylum seekers (Asyl-
bewerber). Not included are welfare recipients living on accident
annuities (Unfallrenten) and students's grants as well as workers in
training and job creation schemes.
Source : Bundesministerium für Gesundheit und Soziale Sicherung 2004.
Social Policy: Crisis and Transformation
total labour force, which measures the number of people who are eco-
nomically active or seeking work, has grown considerably between 1975
and 2003. In the first instance, this was a result of the growth of
Germany's population after unification. However, because of continued
high unemployment, much of the economic potential created by this
increase has lain idle in post-unification Germany. But at the same time,
millions of workers have also taken on so-called "mini-jobs", or become
"pro-forma self-employed".
Since the mid-1990s, part-time jobs of less than fifteen hours work per
week, which are not paid above DM 620 (€ 318) per month (€ 400 since
April 2003), are tax-free and also partly free of social-security contribu-
tions and entitlements. The number of "mini-jobbers" has increased
steadily, rising from 2.8 million in 1987 to over 4.4 million in 1992
and to 6.5 million in 1999 (ISG 1999, p. 2). In 2002, more than 50 per
cent of "mini-jobbers" were either younger than twenty-five or older than
fifty-five; 70 per cent were women (mainly housewives). In this way,
mini-jobs act as stabilisers of the continental Bismarckian social-insur-
ance state that focuses on skilled, highly paid male breadwinners, and
which thereby results in a comparatively low female employment rate
(M. Schmidt 1993).
Meanwhile, the incidence of "pro-forma self-employment" (Schein-
selbstständigkeit) also increased dramatically during the 1990s. Under
this rubric, employees of companies reclassify themselves as self-
employed sub-contractors, thereby avoiding the payment of social-se-
curity contributions altogether. For instance, haulage drivers can
become formal owners of a truck financed and operated by a freight
company or carrier. Of course, most of these self-employed persons still
depend on an "employer", but despite government restrictions, pro-for-
ma self-employment is growing in a number of service industries, with
estimates ranging between 1 million and 1.4 million Scheinselbstständige
in 2001. Clearly, the overall number of 7 million mini-jobs and pro-
forma self-employed persons has to be seen as a consequence of steeply
rising non-wage labour costs in the aftermath of German unification.
The disproportionate rise in welfare recipients and, as a consequence,
in non-wage labour costs first became apparent in 1992. Figure 8.1 shows
that this was an effect of the so-called "unification shock" (Sinn and Sinn
1992; Schluchter and Quint 2001), which saw Germany's GDP per
capita drop by DM 6,000 (€ 3,077) to DM 34,990 (€ 17,943) as a result
of the number of inhabitants growing more than economic output. In
addition, while eastern Germany experienced massive job losses in the
aftermath of a historically unique de-industrialisation process (cf. chapter
2 in this volume), the western German economy, which remained strong,
Roland Czada
had to shoulder the resulting social costs. Initially, total net financial
transfers to the new Länder (consisting of special federal grants, EU
grants, fiscal equalisation schemes, federal supplement grants and
social-security contributions, minus taxes and social-security contribu-
tions collected in the east) amounted to almost 10 per cent of GDP in the
early years, and only fell to 4 per cent towards the end of the 1990s. Sinn
and Westermann (2001) note that the current account deficit of the
eastern Länder amounts to 50 per cent of their GDP. Eastern Germany's
dependency on resource imports is therefore much greater than even that
of the south Italian Mezzogiorno, which is often referred to as the classic
example of an essentially parasitic economy (Sinnand Westermann 2001,
pp. 36- 37). Two-thirds of the current account deficit in the new Länder
has been financed by public transfers; the remaining one-third has been
met by private capital flows. Crucially, more than half of the public
transfers have been spent on social security and only 12 per cent on
public infrastructure investments (Sinn 2000).
Accordingly, the social expenditure ratio, which expresses state wel-
fare expenditure as a share of GDP, has risen sharply after unification
(Figure 8.2). Before 1990, the social-security funds were, generally
speaking, in good financial health, and therefore seemed to be well
prepared for shouldering the immediate social costs of unification. How-
ever, by 2003, the reserve had shrunk to a historic low of just half of one
month's expenditure, thereby reaching a critical limit for a pay-as-you-go
system. This "shrinkage" occurred despite the fact that Germany had
increased social-security contributions on several occasions, whereas its
competitors had all managed to reduce them.
Because of the costs of welfare, there is a considerable difference
between salaries and take-home pay. In 1999, the "average" production
worker took home less than half of what it costs to employ him or her,
defined as net income plus employer's and employee's social-security
contributions plus taxes, compared with about 70 per cent in Britain or
the USA (OECD 2000). Growing welfare expenses and rising labour
costs not only reduced the demand for labour, but also slowed dispos-
able income growth. During the 1990s, even though gross real wages per
capita increased by 2 per cent, net real wages per capita rose by just 0.3
per cent annually. Consequently, the trade unions' moderate wage
claims in the second half of the 1990s did not translate into increasing
levels of employment figures, but instead only reduced the rate of
increase of disposable income. In other words, Germany's high welfare
burden has squeezed private consumption, which grew by just 1.5 per
cent annually between 1991 and 2001, well below the level achieved in
other industrialised countries.
Social Policy: Crisis and Transformation
Agenda: the Quest for a New Welfare Consensus
Before unification, a reform of the welfare state had never seriously
been on the political agenda. Although the CDU/CSU-FDP govern-
ment under Chancellor Helmut Kohl was in favour of a more flexible
labour market, and implemented moderate cutbacks in social-security
spending (cf. Figure 8.2), only minor changes were made. Just before
the fall of the Berlin Wall in November 1989, the Bundestag passed a
pension reform bill to compensate for future imbalances created by
West Germany's adverse demographic developments (cf. chapter 9 in
this volume). The law was backed by a broad coalition of parties,
 trade unions and employers, and thus followed the traditional
consensual model of welfare politics.
In fact, and in a major change in policy, the government planned to
cut both taxes and social-security contributions from 1990. Despite slow
GDP growth rates and still moderate unemployment figures, public-
sector deficits had shrunk during the preceding decade. There had also
been a sharp rise in corporate profits. In 1989, the compulsory pension
funds noted that their cash reserves were at their highest since the
Figure 8.2. Social expenditure ratio, 1980 - 2002
Source : Bundesministerium für Gesundheit und Soziale Sicherung
2004; Czada 2002, p. 160.
Roland Czada
introduction of the pay-as-you-go scheme. The 1989 report of the
government's Council of Economic Advisers (Sachverständigenrat) -
published just a few weeks before the fall of the Berlin Wall - actually
encouraged trade unions to switch the emphasis in their work-related
demands away from issues of quality to issues of quantity, such as wage
levels. The rationale behind this was to boost private consumption by
improving employees' share of the expansion in corporate profits that
had developed hitherto (Sachverständigenrat zur Begutachtung der ge-
samtwirtschaftlichen Entwicklung 1989, p. 166). In return for a deregu-
lation of the labour market, the unions were offered a growth and
employment strategy based on lower taxes, lower social-security contri-
butions and higher wages. In essence, the federal government pursued a
corporatist strategy similar to that of the Netherlands, which eventually
led to the widely praised "Dutch Model".
However, following unification, this strategy failed for two reasons.
On the one hand, the reconstruction of the eastern German economy
called for a massive increase in public spending and private investment.
There was no longer any leeway for wages to increase and - even more
importantly - the Bundesbank had to raise interest rates to a historic
high in order to curb the inflationary pressures unleashed in the post-
unification boom. Moreover, Germany, once among the world's major
net exporters of capital, had to redirect capital outflows to the tune of
DM 200 billion (€ 103 billion) per year in order to finance the recon-
struction effort in the east. Interest rates remained high, and, as noted in
chapter 1, total public-sector debt doubled within a decade. This meant
that the demand-led growth strategy of the late 1980s was no longer
viable for simple economic reasons.
On the other hand, there was a political impediment to welfare-state
reforms. Unification policies started from the general assumption that
West Germany's structures of governance did not need to be reformed
in the process of their transfer to the new Länder (Schäuble 1991, pp.
115-16). Based on the principle of "institutional transfer" (Lehmbruch
1992, p. 41; see also chapter 2 of this volume), the whole legal
and organisational system of the west had been transferred to the
new Länder. Unfortunately, a number of West German institutions
revealed themselves to be ill-suited to dealing with the task of transform-
ing a socialist command economy into a capitalist market economy. In
response, the federal government initiated a series of legislative amend-
ments that were soon dubbed "repair laws" (Reparaturgesetze). Remark-
ably, despite their far-reaching redistributive character, all these laws
and consecutive amendments were passed with broad parliamentary
Social Policy: Crisis and Transformation
Throughout the 1990s, before the political class recognised the need
for a more coherent reform of the country's redistributive policies,
welfare policy was characterised by more-or-less permanent agenda
shifts. Before the crisis of unification, few had considered the interregio-
nal redistributive effects of social-security funds and their consequences.
Yet Mackscheidt (1993) has shown that these have long had a greater
impact than even the federal system's financial equalisation schemes.
Whereas the latter had always been politically highly controversial, the
manner in which social-security funds were channelled from prosperous
regions to poorer ones was akin to a hidden agenda. Interregional redis-
tributions had, since the mid-1970s, functioned as an informal way of
supporting the restructuring of old industrial regions. Massive resource
transfers to the new Länder, however, threatened to overburden this
widely, if tacitly, accepted system. As a result, the top priority for
fiscal and welfare policy shifted to increasing public revenues and
social-security contributions, whilst simultaneously cutting benefits.
But instead of cutting taxes and social-security expenditure, the fed-
eral government delayed and, eventually, reversed its plans. Moreover, it
became clear that a much more fundamental reform of the welfare state
would be needed if its collapse was to be avoided in the long run. Even
though the West German pension reform of the late 1980s had already
made some provision for population decline after 2015, unification
drastically changed this forecast. As a result of high rates of unemploy-
ment and early retirement in the east, a stagnating portion of economic-
ally active persons had to pay for a rapidly growing number of pensioners
at a much earlier stage than had originally been predicted.
From the mid-1990s onwards, therefore, the federal government tried
to forge alliances within the party system and with trade unions, business
groups and employers' associations in favour of far-reaching welfare-
state and labour-market reforms, most of which, as will be discussed
below, met with failure. It was not until the new millennium that all
the main political parties, as well as the trade unions and employers"
associations, agreed that high labour costs (in terms of taxes and social-
insurance contributions) had been hampering employment and eco-
nomic growth. Consequently, welfare-state reforms have now become
a top political priority not only for the federal government, but also for
employers' and business associations and the unions. On 14 March
2003, Chancellor Schröder announced his "Agenda 2010" package of
comprehensive social-policy reforms, designed to solve the long-term
problems of the German welfare state.
In light of the decline in individual welfare entitlements and social
expenditure ratios prior to 1990, one could be forgiven for assuming that
Roland Czada
retrenchment policies framed a hidden agenda for welfare policies ever
since the mid-1970s, and that it was only the unification crisis after 1992
which stretched the system to breaking point. In fact, as Seeleib-Kaiser
notes in a lucid analysis (2002), the post-unification changes must be
seen in the context of this long-term development, the cumulated effect
of which has been a retreat from the public guarantee of living standards.
This principle of Lebensstandardsicherung had been "the major achieve-
ment and leitmotiv of post-war policy ever since the historic 1957 pen-
sion reform"! (Seeleib-Kaiser 2002, pp. 31-32). At the same time, family
support programmes have expanded considerably, including increased
child allowances and tax credits for families, a rising number of childcare
facilities (albeit from a very low level in the west) and other entitlements
such as parental leave.
Process: Decline of Party Accommodation and
Corporatist Concertation
In the West German polity, policy-making proved to be slow and incre-
mental due to high consensus thresholds based on the legislative veto of
the Bundesrat and macro-corporatist concertation (Katzenstein 1987;
Lehmbruch et al. 1988). In addition, ever since the foundation of the
Federal Republic, social policies have been characterised by numerous
bipartite (union, employers), tripartite (state, unions, employers) and
multipartite (insurance schemes, service providers, expert councils, pro-
fessional associations) sectoral bodies. In this system, major changes
could effectively only be undertaken in the context of a grand coalition
(Katzenstein 1987; Lehmbruch 2000). However, as this section shows,
the policy-making process in the areas of employment, health and pen-
sions during the past decade reveals a rapid decline in party accommo-
dation and corporatist concertation.
Employment Policies
Notwithstanding some successive minor changes to labour-market
legislation (Arbeitsmarktförderungsgesetz, AFG), the general direction of
employment policies remained stable throughout the 1980s. However,
in 1993, the AFG was amended to allow contributions to the un-
employment insurance fund to be channelled into huge work-creation
schemes (Arbeitsbeschaffungsmaßnahmen) in the east. As a result, the
level of contributions to the unemployment insurance fund had to be
raised several times during the 1990s; simultaneously, the corporatist
Federal Labour Office (BA), which administered the funds and the
Social Policy: Crisis and Transformation
work-creation schemes, was able to increase its power considerably in
the field of labour-market policies. In 2002, however, a scandal sur-
rounding rigged employment statistics prompted a full-scale reorganisa-
tion of the BA, and the Federal Employment Agency which emerged
from its ruins is based on a managerial approach which includes much
lower levels of corporatism and bureaucracy (cf. chapter 5 in this
During the sixteen years of the Kohl era, "labour-market reforms
remained a process of incremental coping mostly with imminent finan-
cial problems" (Schmid and Blancke 2003, p. 217). It was not until 1998
that the newly elected SPD-Green government tried to introduce a more
comprehensive reform programme. To this end, it initially followed the
traditional macro-corporatist concertation approach, via the" Alliance
for Jobs, Vocational Training, and Competitiveness" (Bündnis für Arbeit,
Ausbildung und Wettbewerbsfähigkeit) - a permanent tripartite body com-
posed of the government, employers- and business associations, and
trade unions. However, as chapter 7 in this volume has shown, the
Alliance was largely a failure (cf. also chapter 6). In addition to some
irreconcilable differences between the employers and unions, the reso-
lution of which was not helped by the attempt to deal with very different
policy issues within just one, top-level forum, the federal government
had unexpectedly lost its Bundesrat majority soon after the Alliance for
Jobs had been established. Thus the Alliance suffered not only from a
broad policy brief which was simply incompatible with an institutionally
segmented polity (Lehmbruch 2000, p. 98), but also from inadequate
capacity of the federal government to act as a third-party guarantor of
corporatist agreements (Czada 2003).
Shortly before the final failure of the Alliance for Jobs, the government
appointed a new circle of leading unionists and employers to examine
proposals on a more specific topic. Under the chairmanship of Peter
Hartz, director of personnel at Volkswagen and a long-standing member
of IG Metall, the so-called "Commission on Modern Services in the
Labour Market" (or, more popularly, the Hartz Commission) was set
up in 2002 to develop proposals for a new employment exchange service
and for employment programmes geared towards competition and
entrepreneurship. To this end, the Hartz Commission made thirteen
separate proposals (Hartz et al. 2002). Among the most important was
the so-called Personal Service Agency, which has now been introduced
in all of Germany's 181 unemployment offices (Arbeitsämter). Under the
proposal, unemployment offices or private temporary job agencies will
employ anyone unable to find new work within six months, with the
aim of neutralising the traditionally high levels of protection against
Roland Czada
dismissal. In addition, the commission proposed the merger of un-
employment and local authorities' social welfare offices (Sozialämter)
into so-called "job centres", including the combination of long-term
unemployment assistance and general income-support payments (So-
zialhilfe). The latter has become the most controversial element of the
Agenda 2010 reform package and was finally passed in the Bundesrat
only on 9 July 2004 (cf. chapter 4 in this volume)..
An additional proposal by the Hartz Commission aimed to facilitate
self-employment, by means of the so-called "Ich AG", which sees a fixed
tax rate of between 10 and 15 per cent levied on those self-employed
persons with an annual income of between € 15,000 and € 20,000. Many
of the proposals contained in the commission's report came from
reform-oriented trade unionists. Walter Riester, a former deputy leader
of IG Metall and Federal Labour Minister from 1998 to 2002, estab-
lished the commission and appointed Hartz, a former colleague from his
union days, as its head. The largest German trade union, Ver.di, was also
represented while commission members from industry included repre-
sentatives from Daimler-Chrysler, BASF, Deutsche Bank and the con-
sultancy firms Roland Berger and McKinsey. Other members of the
commission were Peter Gasse, regional head of IG Metall in North
Rhine-Westphalia, and his predecessor Harald Schartau, who went on
to become minister for labour in that state.
What is striking is the way in which corporatist negotiations at the
peak level of labour-market associations and the state were replaced by a
newly established policy network based on SPD-affiliation, reformist
orientation, personal reputation, experience and expertise. Simultan-
eously, the focus on a rather more closely defined set of problems
replaced the broad scope of issues which had characterised the corpor-
atist emphasis of the Alliance for Jobs. In any case, the SPD-Green
government has stuck to an open style of consensus mobilisation focused
on "friendly" experts who are loosely associated with the incumbent
parties. By contrast, Chancellor Kohl used his personal networks as well
as "fire-side" talks with high-ranking business and union representatives.
Initially, Chancellor Schröder seemed to favour a similar style, but
following the breakdown of the Alliance for Jobs and the defection of
the business elite to support his challenger Edmund Stoiber (CSU) in
the run-up to the 2002 federal election, Schröder has refocused his
attention on experts from within the SPD or academia.
In terms of results, the new approach of "government by commis-
sion" has had a limited impact. In addition to the reduction of unemploy-
ment benefit (Arbeitslosengeld), which is funded from insurance
contributions, unemployment assistance for the long-term unemployed
Social Policy: Crisis and Transformation
(Arbeitslosenhilfe) and general income-support payments (Sozialhilfe)
were merged with effect from 2005. As these two schemes had been
run separately by the Federal Labour Office and local authorities, a new
interface between labour-market institutions and municipal poverty-
relief programmes seems to be emerging. However, this will probably
necessitate further reforms, not least a comprehensive reform of munici-
pal finances and the complex federal system (cf. chapter 4 in this
volume). Even though the relevant commissions have been set up, it
was not clear in summer 2004 whether they would result in anything
other than incremental change.
Pension Politics
Pension issues have often served as a test case for consensus-building
capacities across party lines and on both sides of the corporatist divide.
In West Germany, party concordance and corporatist agreements pre-
vailed throughout the post-war era. However, as noted above, the recur-
ring financial crises caused by a decline in the number of contributors
and a disproportionately growing number of recipients in eastern
Germany meant that pension politics became highly controversial after
the mid-1990s. Table 8.2 clearly illustrates the impact of unification, as a
result of which huge surpluses in the west will have to compensate for
huge deficits in the new eastern states until well beyond 2016. In 2003,
an estimated € 13 billion deficit in the east contrasts with a surplus of
€ 14 billion in the west. These reserves in the west would have sufficed to
stabilise the pension contributions of wage earners well below the cur-
rent level of 20 per cent of gross income in 2004. Apart from unification-
related problems, demographic changes call for major modifications of
the old established Bismarckian model. Starting with the 1992 reform,
subsequent pension law amendments of 1997, 1998, 1999, 2001 and
2003 have cut future pension claims considerably, thereby paving the
way for a new system of compulsory insurance combined with private
retirement provisions.
The pension reform of 1989, which came into effect in 1992, was
backed by a broad coalition of parties, unions and employers, and, thus,
followed the established consensual model. Initiated before the fall of the
Berlin Wall, the reform was intended to correct future imbalances
caused by demographic changes in West Germany. Most importantly,
from 1993 onwards, pensions were to be adjusted in line with increases
in annual net income and not, as had been the case previously, with
increases in earnings. This measure was to prevent pensions in the future
Roland Czada
from exceeding 70 per cent of the average net income of active wage
earners (the net replacement rate).
However, the combined effects of unification, mass unemployment
and early retirement meant that further reforms soon became necessary,
and in June 1996, a Commission on the Further Development of the
Pension System was established. Following its recommendations, the
CDU/CSU-FDP government legislated for a further gradual reduction
in the net replacement rate for standard pensions from 70 to 64 per cent
between 1999 and 2030. This time, the SPD opposition, backed by the
Table 8.2. Net balances of the compulsory pension fund financed equally by employees and
employers, 1999 - 2016 (€ billion)
Net balance (expenses minus revenues)
Western Lä
Eastern Laä nder
All Germany
2002 - 16 forecast.
Source: Bundestagsdrucksache 15/110, pp. 62, 111-12.
With an additional 800,000 persons taking early retirement, pension funds have had to
pay out an extra DM 20 billion (€ 10.3 billion) since 1992. The pension payments for 4
million pensioners in the new Länder amounted to DM 75 billion (€ 38.5 billion) between
1992 and 1997. Therefore, additional costs of DM 37 billion (€ 19 billion) per annum,
which had not been anticipated in the preceding reform, have had to be borne by wage
earners, pensioners and the state.
Social Policy: Crisis and Transformation
unions, put up fierce resistance - not least because of the federal elec-
tions that were just ten months away at the time of the bill's passage
through parliament. On 11 December 1997, the first piece of pensions
legislation since the foundation of the Federal Republic not to be agreed
by a broad cross-party majority passed the Bundestag. After its election
victory in 1998, one of the first acts of the SPD-Green government was
to suspend the 1997 pension reform. Here was another novelty in post-
war welfare politics which casts doubt on whether Katzenstein's portrait
of "policy stability even after changes of government" is still valid (1987,
pp. 4, 35).
The politics surrounding pension reform in 1997 and 1998 only
foreshadowed future party dissent and programmatic volatility. Indeed,
the "Jekyll and Hyde" years in the politics of pensions were still to come:
in 1999, fiscal problems forced the SPD-led government to revert to the
austerity measures of its conservative predecessors. Reneging on its
election promises, the SPD planned to replace the wage indexation of
pensions by price indexation for a certain period to lower the replace-
ment ratio from 70 to between 67 and 68 per cent. In 2000, the
government published yet another reform proposal, which not only
exceeded the planned cuts of the previous CDU/CSU government, but
was also likely to change the system's basic operating principles. Apart
from a radical reduction in benefit levels, it introduced a private statu-
tory pension scheme that would in the long run have gradually trans-
formed the corporatist Bismarckian pay-as-you-go system into a fully
capital-based pension. The so-called Riester-Rente, or Riester pension,
named after the then Federal Minister for Labour and Social Affairs,
Walter Riester, met with a barrage of criticism from the CDU/CSU and
the trade unions. Again, the unions' wholehearted support for a CDU/
CSU position in a highly controversial area of welfare policy was quite a
novel experience. The unions were particularly opposed to the fact that
the shift towards a private mandatory pension fund signalled a departure
from the traditional joint financing of pensions by employees and em-
ployers. The CDU/CSU opposition initially even rejected those parts of
the government bill which were in line with their own former plans and
pre-election statements. As a consequence, the SPD-Green government
had to trim the reform package so that it was no longer subject to
Bundesrat approval. What is more, the SPD was forced into making
substantial concessions to its own left-wingers just in order to secure
the government's Bundestag majority.
The pension reform in 2000 and 2001 was, therefore, an example of
semisovereignty without consensus, which made the parties in govern-
ment vulnerable to all kinds of pressure from within their own ranks.
Roland Czada
Nonetheless, the reform initiated a mixed pension system, composed of
a reformed pay-as-you-go compulsory pension scheme and a new pri-
vate, but non-mandatory, pension. The private component gives em-
ployees the option of contributing up to 4 per cent of their earnings by
2008 into company or other private schemes. Employees can invest in a
range of schemes offered by private insurers, including private-pension
insurance organisations, investment funds, life insurance funds, and
savings banks. All private pensions must meet certain criteria before
employees are eligible for state subsidies and tax exemptions, and -
contrary to the Bismarckian tradition - all benefits will be taxable. The
incentives and subsidies for making contributions to private accounts are
targeted at lower-income individuals and families. Pension credits
earned during a marriage can be shared equally by both spouses through
a new pension-splitting option. The government also introduced reforms
to improve old-age security for women, including compensation for
reduced earnings during child-raising years, and granting pension credits
to mothers who could not pursue part-time employment.
Despite its departure from the established model, the 2000 pension
reform was still ultimately incremental in its impact and failed to address
the long-term financial problems caused by demographic change. In
November 2002, a new Commission for Sustainability in the Financing
of the Social Security System under Professor Bert Rürup (the so-called
Rürup Commission) was set up in order to address yet again the long-
term financial aspects of the pensions and health-care crisis. Its recom-
mendations included a gradual increase in the retirement age between
2011 and 2035 from the current level of sixty-five to sixty-seven, penal-
ties for early retirement and a reduction in the annual increases in
pension payments. A majority of the twenty-six commission members,
consisting of experts who were generally close to the SPD-Green gov-
ernment, backed the final report's recommendations to safeguard inter-
generational justice and limit future pressures on the social-insurance
systems. Only commission members affiliated to the trade unions
opposed the proposals.
In August 2003, the Rürup Commission calculated that the combined
effect of the 1989 and 1992 reforms was already to reduce the real value
of pensions by 30 per cent in 2030. On top of that, the Riester reform of
2000 imposed a further cut of 7 per cent, while an increase in the general
retirement age will mean another 3 per cent reduction. In other words,
from the viewpoint of 2003, the average pension benefits in 2030 will be
40 per cent lower than they would have been under the pre-1989 rules
(Berliner Zeitung, 9 August 2003). This means that supplementary pri-
vate pension provision has become indispensable for anyone below the
Social Policy: Crisis and Transformation
age of fifty. The reduction in benefits combined with an increase in
funding from general taxation has also meant that the premiums for
the compulsory pension insurance could be cut from 20.3 per cent of
gross income in 1999 to 19.5 per cent in 2003. This saving, along with
state bonuses, is meant to be invested into private or company pension
plans. In summary, the era of the all-embracing, Bismarckian work-
related compulsory insurance schemes aimed at status security is over.
So far, however, the public has not yet shown a great awareness of this
new mix of compulsory and private provisions, since this will only fully
affect those generations of pensioners who are still to come.
Health Care
The German health-care sector still constitutes a classic example of
semisovereignty. Because federal and state governments share legislative
authority, the Bundesrat has been involved in all fields of general health
legislation. In addition, a large number of other actors dominate the field,
such as various organisations of insurers, service providers (doctors and
hospitals), pharmaceutical producers, consumers and their respective
peak associations (cf. Döhler and Manow 1967). The process of formu-
lating health policy has always been guided by networks of experts, many
of them linked to the main peak associations. A host of advisory bodies,
commissions and consultative meetings are part of the decision-making
process. As a result, the incremental "muddling through" approach which
has befallen most health-care reforms can be traced to an early stage in
the policy cycle, and not usually to the constitutional vetoes embedded in
the federal structure. In fact, most health-care legislation during the past
decades did not implement any restructuring of the institutional relation-
ship between health insurers, providers and the insured. Modest co-
payments for medications, dental treatment, hospitalisation and other
items were introduced in 1982. These payments were further increased
by the Health Care Reform Act of 1989 and again by the Health Care
Structural Reform Act passed in 1992. The latter introduced new regu-
latory instruments, which included the reorganisation of the governance
of health insurers and a cap on medication costs and prospective hospital
payments. In addition, it proposed measures to overcome the separation
between out-patient medical care and hospital care that prevailed in the
old Federal Republic, and it introduced a free choice of health funds for
the insured (Blanke and Perschke-Hartmann 1994).
Politically, the law rested on the famous 1992 Lahnstein compromise
between the CDU/CSU and the SPD. This excluded the liberal FDP,
even though the latter was in government with the CDU/CSU. The
Roland Czada
reform was a partially successful attempt to reduce the institutionalised
power of the medical profession and the pharmaceutical industry, both
of which have traditionally been protected by the FDP. The Lahnstein
compromise was part of a stream of informal consensual policy-making
that was characteristic of the immediate post-unification period (Manow
1996). However, this was followed by a period of intensified party
conflict, conceptual volatility and political stalemate.
Most of the reforms passed between the mid-1980s and 2000 at-
tempted to redistribute the increasing cost burdens between the various
stakeholders. There was no intention, as in old-age pension policies, to
alter the balance between public and private insurance schemes. Though
the health sector is characterised by fierce competition between hos-
pitals, doctors and pharmaceutical companies, and though a number of
new competitive elements have been introduced, a health-care market
based on privately financed products and services has never developed.
Moral hazard, information asymmetries and cherry-picking became even
worse after the strict corporatist order had been loosened, and once the
insured were able to exercise some degree of freedom in their choice of
insurance fund.
Most stakeholders agree that the severe inefficiencies in the health-
care system are caused by fragmentation, duplication and overlap, and
accordingly, recent health-care reform acts have tried to integrate the
different levels and sectors of care. For instance, free contracts between
insurance providers and rehabilitation clinics have been allowed and
even encouraged in order to overcome the division between funding
agencies and care providers. The health-care system still rests on the
basic assumption that everybody should be entitled to receive all the
necessary services, and that the doctors should decide what is necessary
for their specific patients. It is only recently that the issue of prioritisation
has arisen. The long-established "Federal Committee of Panel Doctors
and Sickness Funds" is now expected to provide authoritative definitions
for measures of quality assurance, as well as developing criteria for
whether certain diagnostic and therapeutic services are appropriate.
However, its attempts to impose a ceiling on expenditure for drugs and
medication fell foul of European cartel laws, and were declared unlawful
following a case brought by Germany's powerful pharmaceutical indus-
try. In 2003, plans to establish a National Centre for Medical Quality
again met with fierce resistance from physicians and the pharmaceutical
industry, who decried the proposals as leading straight back to GDR
Traditionally, quality assurance issues have been in the domain of
individual physicians and organisations and recent debates on such
Social Policy: Crisis and Transformation
issues have to be seen in the context of a renewed increase in health-care
expenditure - mainly as a result of the abolition of spending caps for
medicines. The corresponding rise in contribution rates from 13.5 per
cent to 14 per cent of pre-tax income brought cost containment back
onto the agenda in 2002.
In 2003, a new informal "grand coalition" on health emerged between
the governing SPD and the opposition CDU/CSU, with the aim of
cutting health benefits again and further limiting the sector's regulatory
autonomy. In a rare show of unity, the unions and employers' associ-
ations even called for the abolition of the statutory regional associations
of accredited physicians (ärztekammern), which act as clearing houses
between individual doctors and the statutory health funds, thereby re-
moving care providers from the scrutiny of the insurance funds. As the
1992 Lahnstein compromise had illustrated, a grand coalition in health
policy can overcome the bicameral legislative veto and also withstand
pressures from well-organised groups, such as insurance funds, phys-
icians and pharmaceutical firms. Once again, however, the new inter-
party consensus agreed in 2003 led neither to institutional reform nor to
the prioritisation of certain treatments and medicines. Instead, new
market-like incentives were introduced, including the removal of sick
pay from the bipartite-financed compulsory schemes. Patients are now
expected to pay € 10 for each quarter in which they visit the general
practitioner (GP) (the so-called Praxisgebühr). Indeed, the "gatekeeper"
function of GPs will be strengthened, as specialists must collect another
€ 10 if patients cannot present a referral letter. Other plans include
additional co-payments for dentures, reductions in maternity benefits
and death grants, and cuts in benefits for parents nursing sick children.
Even though this has meant at least a temporary improvement in
the financial position of the health-insurance funds, such measures,
and especially the Praxisgebühr, remain deeply unpopular among the
population (Die Welt, 31 July 2004).
In health policy, governments have continued to rely on benefit cuts
and incremental measures like budgeting, co-payment and competitive
incentives for the various stakeholders. Only recently have prominent
politicians of all parties called for a more fundamental reform in order to
address the permanent crisis in health policy, with a universal compul-
sory health-insurance scheme for all citizens supplemented by voluntary
private insurance contracts (Bürgerversicherung) being the preferred
model. Inevitably, the chances for a fundamental systemic change are
still small, not despite, but because of, recurring grand coalitions in
health politics.
Roland Czada
Consequences: Erosion of Self-Governance and New
Forms of Intermediation
The institutional segmentation of the West German political system has
been emphasised, in particular, by Gerhard Lehmbruch and Fritz
Scharpf. Lehmbruch pointed to incompatibilities of party competition
and co-operative federalism (Lehmbruch 2002), whereas Scharpf's re-
search on "policy interlocking" and the "joint decision-making trap"
offered a key explanation of failed policy reform initiatives in different
sectors (cf. Scharpf 1988). Peter Katzenstein's (1987) seminal work on
"semisovereignty" struck a similar chord; however, in contrast to Lehm-
bruch and Scharpf, he praised as a virtue what they had both considered
to be a design fault.
Yet it is doubtful whether either of these models can adequately
account for the overall stable course of welfare policies during the
1980s. Throughout this decade, the CDU/CSU-FDP government com-
manded a comfortable majority in the Bundesrat, and from 1982 to
1990, this arguably made the Kohl government the most sovereign
compared with all its predecessors and successors in office (cf. chapter
3 in this volume). Even during the 1950s, the Adenauer govern-
ment lost its Bundesrat majority for a few months (March 1956 -
January 1957). The political issue of divergent majorities in the bicam-
eral legislature did not emerge until after the 1972 federal election (cf.
Figure 8.2 in this volume). By contrast, the CDU/CSU-FDP
coalition after 1982 held a majority of five to thirteen votes in the
Bundesrat throughout the 1980s; it was not until the Lower Saxony
election in 1990 that things changed. Thus, with a solid Bundestag
majority and markedly weakened labour unions (after unemployment
figures exceeded one million in 1981), Kohl was presumably the most
powerful chancellor since Adenauer.
To explain why policy remained so stable during the 1980s, one
therefore has to focus on a range of factors outside the domain of
the constitutional veto structures. By stressing the deep fears within
the Kohl government that welfare cuts could adversely affect its electoral
performance, Zohlnhöfer (2001b) has cast some doubt on the exclusive
validity of the institutional explanation provided by Scharpf and
Lehmbruch. A second important factor was the strength of the CDU's
social-catholic wing, which was led by Norbert Blüm, a self-confessed
defendant of the welfare-state consensus. As Federal Minister for
Labour and Social Affairs in every single Kohl cabinet (and therefore
in charge of the largest spending ministry), he was able to make full use
Social Policy: Crisis and Transformation
of the principle of ministerial autonomy (Ressortprinzip) to act as a
powerful stalwart of the Bismarckian welfare state from 1982 until the
advent of the Schröder government in 1998.
The anatomy of neo-liberal strategic policy changes in the UK,
Sweden and the Netherlands shows that problem load is an important
predictor of policy change. The "pain threshold" above which parties and
governments in those countries felt forced to act, irrespective of their
ideological backgrounds, had not been reached, by any stretch of the
imagination, in West Germany before 1990. Bearing all that in mind -
the solid majority of the Kohl government in both chambers, prevailing
electoral considerations against benefit cuts, a powerful unionist pro-
welfare wing in the CDU, and the moderate problem load of the time -
constitutional veto potentials cannot explain the course of welfare-state
reform during the 1980s. This becomes even more apparent when the
welfare policies of the 1980s are compared with those of the following,
post-unification decade.
But here too, an explanation focusing on formal veto powers fails to
account for the delay in cutting social-security contributions and income
taxes which the federal government had planned in 1989. On the con-
trary, the early 1990s have been characterised as the last triumph of
corporatism, party concordance and co-operative federalism (Sally and
Webber 1994; Lehmbruch 2000). Even though the Kohl government
had grown stronger as a consequence of its electoral dominance in the
new (eastern) Länder, and even though the Länder had temporarily sus-
pended their constitutional rights in order to approach unification prob-
lems in a united and flexible manner, the federal government actively
sought to include key representatives of business, unions, the Länder and
the SPD opposition in a range of fora. In particular, the SPD had been
incorporated into the newly established unification policy network with
the Treuhandanstalt (THA) as its focal point (see chapter 5 in this
volume). Prominent SPD figures such as Klaus von Dohnanyi and Detlef
Karsten Rohwedder, as well as union leaders such as Franz Steinkühler
and Dieter Schulte, had been appointed to high-ranking positions within
the THA's executive, supervisory and operative structure.
As a result, the early 1990s witnessed something of a temporary revival
of large-scale inter-party consensus and corporatist politics. The usual
segmented policy-making had been bypassed for a while, at least until
1992, when the first signs of the severe economic crisis caused by
unification prompted an examination of the original concept of a
market-led transformation process and institutional transfer.
The 1990s were, undoubtedly, an active period in terms of agenda
shifts and health reform in particular (Kania and Blanke 2000). After
Roland Czada
decades of corporatist policy-making and its last triumph in the imme-
diate post-unification period, the following years brought a crisis of
consensus politics and corporatist self-government. To draw a conclu-
sion from a political-science perspective, the German welfare state of
2003 was characterised by more state intervention and more market
elements than the one Katzenstein described in 1987. State regulation
and tax-financed state subsidies increased, as did co-payments of the
insured and the share of private insurance contracts, while the share of
the Bismarckian wage-related compulsory insurance contributions de-
creased. Most remarkable, however, is the rapid loss of self-governabil-
ity - and its requisite associational capacities. Germany is no longer "a
good example of how government can enact the rules and then leave the
doctors and sick funds to carry out the programme with little interven-
tion" (Glaser, quoted in Katzenstein 1987, p. 184). The same is true
for other fields of social policy because of increased conflicts among
stakeholders over their share of a shrinking pie.
But even so, Katzenstein's assertion (1987, p. 192) that "a closely knit
institutional web limits the exercise of unilateral political initiatives by
any one actor" continues to hold true. Whether this continues to encour-
age incremental policy changes, as it did in times of affluence, has
become a moot point. The 1990s were characterised by sequences of
political stalemate and a deepening of state involvement rather than
corporatist incrementalism. The latter depends not only on consensual
policy-making. Making semisovereignty work requires strong commit-
ments among and within organisational actors participating in sectoral
self-governance. Without the peak associations being able to commit
their organisational substructure and their individual members to make
their resources available in support of corporatist arrangements, consen-
sus is almost irrelevant since it cannot translate into viable policies. The
creeping decentralisation of the industrial-relations system, both in
terms of lower membership density and adherence to the principles of
collective bargaining, seems to be one of the main problems in this
respect (Ebbinghaus 2002a ; see also chapters 2 and 7 in this volume).
These far-reaching changes within the industrial-relations system sug-
gest that the German combination of a "decentralised state" and a "cen-
tralised society" emphasised by Katzenstein (1987) is no longer valid.
German organised capitalism has decentralised very rapidly, at least in
regard to labour-market associations, because of the industrial-relations
crisis in the east and because of a generational change in business
and union elites. The argument that such a development towards
""social disorganisation" has been sparked off by a combination of post-
modernism, individualisation and the effects of globalisation (Beck
Social Policy: Crisis and Transformation
1996) may constitute part of the explanation, but it cannot account for
some specificities of the German case. First, this argument neglects the
reform plans of the pre-unification Kohl government, which resembled
the Dutch and Swedish concepts and could not be realised in the post-
unification period. Germany's political economy and welfare state would
quite simply look entirely different if unification had not occurred.
Second, global market pressures did not normally weaken, but rather
sustained corporatist capacities in Germany and other European coun-
tries (Katzenstein 1985). Third, the industrial-relations crisis did not
emanate from big global firms, but from the small and medium-sized
industries of eastern Germany in particular. The export industry is still
interested in industry-wide collective bargaining which protects it
against excessive wage demands. In contrast small firms often cannot
afford wages paid in the big export industries, and, therefore, prefer
decentralised bargaining structures. It is for this reason that industry-
wide bargaining has persisted in big firms, and therefore still covers a
majority of employees. When it comes to political representation, how-
ever, small and medium-sized enterprises are stronger, a result princi-
pally of their privileged access to the Land level of government and
via the statutory chambers of trade and industry (Industrie und
In contrast to its centralised Swedish, Dutch or Austrian counterparts,
the German federal government failed to forge a corporatist deal with
the industrial peak organisations, because it was unable to guarantee that
such an arrangement would be implemented appropriately (Czada
2003). Towards the end of the 1990s, unions and employers became
increasingly aware that reform packages agreed in the corporatist arena
would have been jeopardised in the legislative process. The Bundestag
opposition, through its Bundesrat majority, could jointly govern the
country alongside the elected government. Indeed, it tried to do so in
the pre-election year 1997, and again, in particular, after 1998. It must
be remembered that it was much easier to bypass such institutional
gridlock in the era of the "two-and-a-half" party system, which generated
only three possible coalition strategies. After 1990, in a system with
five relevant parties, sixteen Länder and a state of perpetual election
campaigning, this all became much harder to achieve.
Since the mid-1990s, then, corporatist incrementalism has suffered
from institutional segmentation, as well as from the decreasing capacity
of the peak associations to commit their members to a particular course
of action. In addition, the main parties have found it much harder to
bypass these obstacles via a cross-party consensus. In consequence,
Chancellor Schröder has adopted new strategies to circumvent potential
Roland Czada
legislative vetoes as well as gridlocks in the corporatist arena. In particu-
lar, the SPD-Green government has attempted to short-circuit the es-
tablished policy communities in health, pensions, the labour market and
social assistance through the deliberate use of special commissions.
True, their role as advisory bodies in the German political system is in
no way new and all major welfare reforms have, so far, been accompan-
ied by special commissions. The Schröder government, however, used
them as a device to channel the political debate, to test public opinion,
and to exert pressure on the opposition and Länder governments as well
as on interest associations. The replacement of classic corporatism by
expert and stakeholder committees appointed by the federal government
might be considered to be an appropriate way to strengthen its authority
in times of institutional and conceptual uncertainty. Given the imple-
mentation of the Hartz proposals and the influence of both the Hartz
and Rürup Commissions on the Agenda 2010 reform debate, the shift
to government by commission has had a substantial impact. Like para-
public institutions, the commissions serve as "political shock absorb-
ers". Moreover, the government's authority to set up, recruit and
dissolve them opens up much more direct mechanisms of control than
corporatist negotiations allowed for.
Studies on the "new politics" of the welfare state (e.g. Pierson 1996)
have emphasised the constraints in dealing with policy change, structural
reform and retrenchment issues. Institutional path dependencies and the
popularity of welfare programmes are said to result in the need for
policy-makers to take small steps, and to follow "blame-avoidance" strat-
egies. Semisovereignty, party concordance and corporatist intermedi-
ation as described by Katzenstein (1987) have long been best suited to
that kind of incremental adjustment: indeed, the "Bonn Republic" was
quite successful in that respect. The new "Berlin Republic", however, has
experienced a decline in social partnership, shrinking capacities of asso-
ciational self-governance, and intensified party conflicts. Potential
blockades and uncertainties of the policy-making process have resulted
from changes in the party system, fluctuations in industrial governance,
and the transformation of the structure of the state. The latter has
included a reinvigoration of the regulatory state and governmental ini-
tiatives to be found not only in social policy, but in many other policy
fields as well (cf. Czada 2002).

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Social Policy: Crisis and Transformation