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«Why don’t governments need trade unions anymore? The death of social pacts in Ireland and Italy Downloaded from at ...»

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Socio-Economic Review Advance Access published February 2, 2014

Socio-Economic Review (2014) 1–23 doi:10.1093/ser/mwt028

Why don’t governments need trade unions

anymore? The death of social pacts in

Ireland and Italy

Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014

Pepper D. Culpepper1,* and Aidan Regan2

Department of Social and Political Science, European University Institute, San Domenico di Fiesole, Italy;

Department of Politics and International Relations, University College Dublin (UCD), Ireland * Correspondence: pepper.culpepper@eui.eu During the 1990s, a prominent strategy of economic adjustment to the challenges of competitiveness and budgetary retrenchment among the non-corporatist countries of Europe was the negotiation of social pacts. Since the onset of the great recession and the Eurozone crisis, social pacts have been conspicuous by their absence. Why have unions not been invited into government buildings to negotiate paths of economic adjustment in the countries hardest hit by the crisis? Drawing on empirical experiences from Ireland and Italy—two cases on which much of the social pact literature concentrated—this article attributes the exclusion of unions to their declining legitimacy. Unions in the new European periphery have lost the capacity either to threaten governments with the stick of protest or to seduce policymakers with the carrot of problem-solving. They are now seen as a narrow interest group like any other.

Keywords: industrial relations, political economy, public policy, trade unions, tripartite institutions, Europe JEL classification: J51 trade unions, J58 public policy, P16 political economy The deep practice of concertation in the past caused the evils against which we are fighting today, and on the basis of which our children and grandchildren do not easily find work. [Unions and employers] should not be actors to which public authorities outsource their political responsibility.

Mario Monti, Italian Prime Minister, July 2012 The Department of Finance has concluded that the dominance of the social partnership process did enormous damage to our financial system. This is something I intend to fix.

Brian Lenihan, Irish Minister of Finance, December 2010 # The Author 2014. Published by Oxford University Press and the Society for the Advancement of Socio-Economics.

All rights reserved. For Permissions, please email: journals.permissions@oup.com Page 2 of 23 P. D. Culpepper and A. Regan

1. Introduction One of the defining features of the politics of adjustment to the Economic and Monetary Union (EMU) and domestic welfare reforms throughout the 1990s and early 2000s was the negotiation of social pacts among governments, unions and employers. This process of negotiated reform took place in various European countries as a response to different problems. Centralized corporatist deals in some countries embedded social partnership in the politics of industrial relations, while in others social pacts were one-shot negotiations aimed at labour market flexibilization, Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 wage restraint and social policy reform (Rhodes, 1998). Ireland and Southern European countries such as Italy and Spain stood out in the literature because they did not have the embedded collective bargaining arrangements characteristic of coordinated market economies (CMEs), in which governments engaged routinely with unions in policy concertation. Scholars who observed these processes found that they were adopted by weak governments that needed the support of the social partners in order to adopt difficult political reforms (Baccaro and Lim, 2007; Baccaro and Simoni, 2008; Avdagic, 2010).

Prior to the ‘great recession’, the process of involving organized labour in the making of social pacts was conceived as one of the most likely strategies for successfully mobilizing societal support for challenging reforms, even in countries without a history of corporatist concertation. In the past 5 years, however, trade unions have been notable by their absence from reform initiatives (Armingeon and Baccaro, 2012). National governments, regardless of partisanship, have actively rejected a process of negotiated adjustment that includes unions. Furthermore, the core actors of the Eurozone are encouraging member-states to establish governments capable of acting without trade union support.

In this article, we return to two of the cases that were central to the literature on social pacts: Ireland and Italy. We argue that ‘social partnership’ has collapsed

because trade unions in these countries now have nothing to offer to policymakers:

they cannot strike fear into the heart of a government or employers through industrial action; and they cannot develop and sell broad reforms to their members.

In fact their narrow membership compels them to pursue strategies that favour insiders, not outsiders. Unions have neither the carrots with which to attract governments to incorporate them into policymaking nor the sticks with which to compel their inclusion.

Social pacts were once the intersection between the system of public policymaking and the system of interest representation. But while governments still need a way to mobilize the populace behind policies that involve hard choices, many union confederations no longer have the power to make themselves that interlocutor, nor the capacity to figure out something governments cannot do on their own. Part of this failure, we argue, is due to an inability to be able to Why don’t governments need trade unions anymore? Page 3 of 23 offer something to employers, once the privileged partners of unions in these negotiations. Thus, part of the story of the decline of government-led social pacts is a decline in the perception of employers about the desirability of these arrangements.

Yet our research design allows us to cast doubt on a hypothesis derived from differences in varieties of capitalism: Italy (particularly its northern half) is often categorized as a CME, while Ireland is a liberal market economy (LME). Thus, the variation we observe is not across types of capitalism, but within both types over time. Italy in the 1990s incorporated unions in its major reforms; today it does not. Ireland in the Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 1980, 1990 and 2000s incorporated unions into a structured form of social partnership; now decisions are made only with public-sector unions. What has changed over time is not the type of capitalism, but the capacities of unions and their consequent public standing in both countries.

Our findings follow the argument developed by Baccaro and Howell (2011), that there has been a neoliberal trend in systems of industrial relations. But our empirical focus is on tripartite policymaking, not on industrial relations institutions.

Thus, the power resource emphasized by Baccaro and Howell, workplace mobilization, is only part of the story of why unions are excluded. They also have nothing to offer to solve government’s problems, such as restraining wages or passing pension reforms. Without any ability to solve these problems—by developing innovative solutions or selling them to an increasingly narrow membership—unions are merely another interest group trying to preserve their special benefits.

Our argument proceeds as follows. First, we show that existing accounts cannot explain the differences we observe. Instead, we develop an argument about both the carrot (mobilizing consent) and the stick (strikes) on which trade unions used to draw. We then show through process-tracing of the two cases that both capacities were in evidence in the early period but absent in the second period, and how this influenced government choices about incorporating unions into policymaking. A final section considers the limits and further implications of our findings.

2. Social pacts and government response to crisis Before looking at the capacities of unions in detail, it is worth reviewing some alternative explanations that could account for the change in government strategy regarding negotiation with the social partners. First, the crisis facing national governments in the EMU may be so big that it excludes the possibility of a negotiated adjustment through encompassing social pacts. This claim is ironic, given that much of the literature on social pacts in the 1990s focused on their necessity for governments under severe pressure to meet the original EMU criteria and stabilize their ´ finances while introducing disinflation (Hancke and Rhodes, 2005; Hassel, 2006;

Avdagic, 2010). Wage and labour market flexibility, central to all social pact Page 4 of 23 P. D. Culpepper and A. Regan agreements over the past 25 years, are the two remaining policy instruments available to national governments in the absence of exchange and interest rate adjustments. Thus, in the Eurozone, member-states now have an incentive to simulate an internal devaluation. Renationalizing these policies through a centralized social pact agreement would in theory send a positive signal to international markets and reflect the policy preference of core Eurozone actors that national competitiveness is the only solution to a balance of trade crisis for deficit countries.

Hence, the international crisis, in the context of Eurozone constraints and increased Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 uncertainty should be more—not less—of an incentive for national governments to adopt a negotiated process of adjustment with trade unions.

Second, it could be argued that even if the international crisis acts as an incentive to renationalize social pact arrangements, the EU transnational response to the financial crisis rules out this strategy. The sovereign debt crisis has put unprecedented pressure on the fiscal capacity of some states. For the hardest hit countries in the Eurozone—Greece, Ireland, Portugal, Italy and Spain—much of the policy response has been almost entirely dictated by the ECB and IMF. Therefore, coordination has shifted away from the national to the transnational level, ruling out a strategy of social pacting with national trade unions. In this regard ‘Europe’, rather than ‘social pacts’, justifies the government strategy.

But this claim ignores a key insight of the social pact literature: that weak governments need to rely on the legitimation of social pacts in order to push through hard reforms in difficult times (Baccaro and Lim, 2007; Baccaro and Simoni, 2008; Avdagic, 2010). Ireland and Italy, like the rest of the newly ‘peripheral’ countries of the Eurozone, were characterized by extraordinarily weak governments during the period of adjustment. And this adjustment was expected by international actors to be developed nationally. Even in Greece, which was under the most intense fiscal pressure, international creditors were still responsive to national protests and deferred to national policy designs (Psimitis, 2011). The severity of the crisis and its internationally coordinated response, while narrowing the domestic policy menu, did not rule out the possibility of social pacts.

Third, one could argue that the underlying policy bargain of social pacts, as they evolved during the neoliberal era, primarily benefited the material interests of employers (Hassel, 2009) or the electoral interests of governments (Hamann and Kelly, 2007). Much like the cross-class coalitions underpinning CMEs, the underlying agreement was on the introduction of market-friendly reforms (Regini, 2000). In this sense national social pacts were facilitated by government, but the main interests driving the process were those of export employers. It could be argued that governments have changed strategy because employers no longer have anything to gain from negotiating centralized pacts with trade unions. They would prefer to adopt a market-clearing strategy of adjustment at the firm level.

Why don’t governments need trade unions anymore? Page 5 of 23 This theoretical posture ignores the fundamental fact that the main actors striking deals in social pacts are national governments, which have an interest in ensuring political stability in the economy. Social pacts supplement the electoral mandate of government by involving organized interests with the disruptive capacity to veto change in a process of negotiated reform (Baccaro and Simoni, 2008). Involving trade unions as social partners contributed towards political stability and the strategic management of the economy. The nature of that bargain, and the type of trade-offs involved in this exchange certainly changed Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 over time, particularly during the neoliberal era, but the core actors did not. It is a relationship between national governments and trade union confederations.

We contend that it is not the Eurozone crisis, weak government or employer interests per se that explain the collapse of social pacting, but the weakness of trade unions themselves. Our core argument is that unions in the private sector cannot impose harm on employers or government, and their narrow membership and weak organizational capacities do not allow them to develop innovative solutions or the ability to mobilize support for a broad set of reforms that would benefit the workforce at large. So the state gains little by including them in a tripartite process of adjustment (outside the public sector), and hence they cannot force their way to the bargaining table.

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