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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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2.1 Neither carrots nor sticks: what unions can no longer do The absence of social pacts from the policy repertoire of any of the states facing the Eurozone crisis could be called the product of the incredible shrinking union movement. We do not mean this in the sense merely of the declining density of the workforce that is unionized, although that represents one of the problems facing the union movement in peripheral Eurozone economies. The social pacts of the 1990s emerged from a situation in which the government needed unions to help design, implement and mobilize support for reforms of the labour market, fiscal and social policy. Because unions could cause governments to fall, they were veto players in reforms (Natali and Rhodes, 2004; Baccaro and Simoni, 2008). The assent of unions to new policies, and the mobilization of their members on behalf of these reforms, could prove the difference between a reform’s success and its failure (Culpepper, 2002). This veto power was the stick, and this mobilization capacity the carrot, that unions could lay before state policymakers to induce their inclusion in reform processes. These were the legitimating macro-capacities of unions, divorced from any of the micro-level (firm-based) coordination character´ istic of CMEs with a long history of negotiated adjustment (Hancke and Rhodes, 2005). And they were the capacities that made unions indispensable players in the process of reform for weak governments facing severe economic and social challenges.

Page 6 of 23 P. D. Culpepper and A. Regan In the cases that defined the social pact literature, and which now find themselves at the heart of the Eurozone crisis—Ireland, Italy, Portugal and Spain—these twin capacities were crucial aspects of the involvement of unions in the making of social pacts. Although we divide them analytically into the carrot and the stick, both the threat and the mobilizing capacity of unions in these countries were products of the same underlying property: an ability to speak for the workforce collectively.

On the threat side, unionized workers could choose to strike, bringing enterprises and tightly coupled supply chains to a halt. But their strikes could also spill over into Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 general protests, in which they would speak as tribunes of the populace against the excessive accommodation of government to demands of liberalization and austerity. This is a threat that employers once feared, because of the costs; and that politicians once dreaded, because of the instability and subsequent lost votes they could create.

The same ability to speak for the broad constituency of working people also underlay the ability to convince parts of the population to accept unpopular reforms. Part of this was a product of having a broad membership and knowing how to count votes in that membership. That is, knowing how to develop reform policies that could be sold to your members. This capacity involved targeting reforms in a way that shielded members who could bring down agreements from the harshest reforms (Simoni, 2010). But it also involved developing strategies to justify those reforms within a broad part of the workforce (Baccaro, 2002). These two capacities were inextricable. And together, they comprised a powerful incentive for governments to work with unions to mobilize active consent for difficult reforms to a group that was inherently distrustful of those reforms.

There is a clear reason that governments during the 1990s struck social pacts with unions: unions were not merely another interest group. They were speaking as the representatives of all those who depend on working for a living, whoever they voted for. This legitimacy allowed even weakened unions to be uniquely capable negotiating partners for government. Analysis that focuses only on the declining market power of unions sees the loss of the stick, but fails to include the loss of the carrot (Baccaro and Howell, 2011). And carrots can look pretty appetizing to shaky governments being asked to implement unpopular austerity packages. As displayed in Table 1, the carrot and the stick have roots in both the workplace and on the streets.

Unions do not lose these twin capacities of threat and of mobilizational capacity merely as a result of falling membership. We argue that both the carrot and the stick depend on union legitimacy: that is, the recognition in elite and mass opinion that unions speak as the privileged representative of working people. It is true that a fall in union density or a decline of collective bargaining coverage should reduce union legitimacy, other things being equal. Defending insider privileges while labour market outsiders get a much worse deal probably does undermine union legitimacy Why don’t governments need trade unions anymore? Page 7 of 23 Table 1 Trade union capacities: the carrot and the stick

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over time (Palier and Thelen, 2010), and we suspect the narrowing of union memDownloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 bership across age cohorts is one root cause of this declining legitimacy.

Yet French unions, which long boasted density below even that of the USA, were nevertheless key actors in mobilizing social opposition to unilateral reforms during the 1990s (Natali and Rhodes, 2004). And in Italy, many of the reforms of the 1990s were based on unions using their role in negotiations to protect the narrow rights of their existing members; nevertheless, the participation of Italian unions in social ˆ pacts reinforced rather than undermined the raison d’etre of the union movement, at least among its own members (Baccaro, 2002; Simoni, 2010). Even with declining membership, it is possible for unions to stake out positions that require them to make trade-offs publicly on behalf, not just of their members, but also of the working people who may not be in unions. This capacity, we argue, underpins the special privileges accorded to unions by state policymakers.

Public opinion data can shed some light on the perception of unions currently and in the recent past. Figure 1 portrays public perceptions towards the legitimacy of trade unions (operationalized as ‘public distrust toward’ unions).1 Eurobarometer only began asking the question about distrust in unions from 1997, and thus the data series misses the crucial periods in which we are interested, when social pacts began in Ireland (in 1987) and in Italy (in the early 1990s). In Italy, distrust in unions has been consistently high since 1997, which coincides with the ebbing support for social pacting after the three big pacts of 1992, 1993 and 1995 (Molina and Rhodes, 2007).2 However, we do not have a measure of change in Italy, so we do not know the extent of distrust of unions before 1997. The Irish case, however, is clear-cut: distrust in unions was low during the ‘Celtic Tiger’ period of social partnership, but increased rapidly from 30 to 53% after 2007, Eurobarometer asks the following question: ‘I would like to ask you a question about how much trust you have in certain institutions. For each of the following institutions, please tell me if you tend to trust it or tend not to trust it’. We summarize the answers for ‘tend not to trust’ trade unions as distrust in trade unions.

Eurobarometer appears to have asked the question nine times between 1997 and 2010, and neither before nor since (as of this writing in 2013). In the figures shown, we exclude the data for Italy in 2001, because the number for distrust deviated from all other years, almost entirely to the benefit of ‘don’t know’ answers (not in favour of ‘tend to trust’ answers, as one would normally observe with a decrease in distrust).

Page 8 of 23 P. D. Culpepper and A. Regan Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 Figure 1 Levels of distrust in Trade Unions in Ireland and Italy. Source: Eurobarometer 1997–2010.

when social partnership turned into a specific public-sector deal. By 2010, the levels of public distrust towards unions had converged in the two countries, with 53% of Irish and 56% of Italian respondents saying they tended not to trust trade unions.

The same trend of growing distrust can also be observed in the other crisis-afflicted countries of the Eurozone, which had previously used social pacts to negotiate adjustment to EMU: in 2010, the five newly peripheral economies of western Europe (Greece, Ireland, Italy, Portugal and Spain) had an average distrust towards unions of 57% of the population, as opposed to 37% in those western members of the European Union typically counted as CMEs.3 These data speak against a potential alternative hypothesis that union distrust is primarily the result of having signed social pacts in the past. Greece, with no history of social pacts, featured the highest level of union distrust in our 2010 sample, at 65%. In Finland, which relied heavily on social pacting in earlier years, public distrust towards unions registered a mere 27%—the lowest in the 2010 sample. Figure 2 displays the data on union distrust for the five CMEs of the Eurozone, which we call the core, against the five peripheral economies.

The convergence of high distrust in unions in the countries of the European periphery and its substantially lower average level across the CMEs of the Eurozone cannot only be explained by the observation that there is a decline in collective bargaining and industrial action across the advanced industrial countries (Baccaro and Howell, 2011, pp. 528– 529). The decline in legitimacy is not just about the declining market power of unions, but also about their ability to partner with the state and employers in the provision of macroeconomic solutions to complex problems. This problem-solving may take the guise of wage restraint, or it may take the guise of

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developing acceptable policy solutions to retrench social rights. When unions are able to negotiate such deals, bringing their membership along and defending the reform to a wider public, they burnish their own credentials to be special partners of the state, whether they represent 20 or 50% of the workforce. But when they are unable, or unwilling, to take such a role at time t, they make it more difficult for themselves to play such a role at t + 1. By not bolstering their public legitimacy, they undercut their own capacity to be privileged interlocutors of the state.

The next two sections of this paper examine the beginning and the end of social pacting as a form of policymaking in Ireland and Italy. Considering these propositions in the Irish and Italian cases has several methodological advantages. First, it contrasts the two most discussed cases of social pacts, which are institutionally diverse. Italy, though heterogeneous, has sometimes been classified among the CMEs of Europe; Ireland is an LME (Hall and Soskice, 2001). Within the social pact literature, scholars have pointed to different levels of firm-level arrangements ´ differentiating the Italian case from the Irish case (Hancke and Rhodes, 2005).

Finally, different economic problem loads have been said to characterize the Italian and Irish social pacts (Avdagic, 2010). Across these differences, we will show, union capacities (carrot and stick) showed a remarkably similar development, and they had a similar impact on the emergence and later disappearance of social pacts in the former poster children of negotiated reform in the EMU.

3. The rise and fall of social partnership in Ireland The core economic problem facing successive Irish governments throughout the 1980s was minimizing strikes and controlling wage-inflation (Murphy and Page 10 of 23 P. D. Culpepper and A. Regan Hogan, 2008). During this period Ireland returned to firm-level wage bargaining after the failure of three previous attempts to centralize industrial relations in the late 1970s (Hardiman, 1988). The rise in inflation was widely attributed to individual trade unions using their collective bargaining strength at the shop-floor level to push up wages at the expense of competitiveness; a policy continued throughout the 1980s, despite the unemployment crisis. It proved to be counterproductive when an internal report by the Irish Congress of Trade Unions (ICTU) found that their members had negotiated a 73% increase in nominal wages from 1980 Downloaded from http://ser.oxfordjournals.org/ at University College Dublin on September 19, 2014 to 1986, but real take home pay had declined by 7%. A combination of increases in income tax and inflation removed any wage gains trade unions had made.

This led a newly emergent trade union leadership in ICTU to recognize that coordinated wage restraint was in the collective interest of society if employers invested the surplus profit in employment (Regan, 2012). For Irish unions, giving up their disruptive capacity was contingent on having access to influence government budgetary policy.

From 1981 to 1986 the centrist Fine Gael– Labour government actively excluded trade unions from policymaking and promoted decentralized industrial relations.

This meant that a fragmented trade union movement, with little or no coordinated leadership from the ICTU, continued its strategy of wage militancy in core strategic sectors of the economy (Hardiman, 1988). Unemployment soared and public expenditure on social policy increased by over 200%. The government responded by cutting social welfare payments and raising income taxes. This provided the political conditions for the ICTU to organize unprecedented mass protests against the government’s tax regime. These were followed by a series of mass demonstrations initiated by the Dublin Congress of Trade Unions aimed at a tax-strike, leading to one of the largest public mobilizations against an elected government in the history of the Irish state. The ICTU emerged as a central player in mobilizing public opinion against austerity. This meant that trade unions were making fiscal adjustment a highly salient electoral issue. These protests and a series of wildcat strikes aimed at pay increases put unprecedented pressure on the Labour party, which subsequently pulled out of government in 1986 over the issue of budgetary retrenchment (O’Leary, 1987).

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