Domestic economic context

The economic structure

The domestic economic situation in a country clearly affects its government’s response to international economic pressures. Held etal. highlight the economic structure, and that clearly is an important factor.

Sweden’s problems are clearly due to a mixture of economic structure, policy errors and conjunctural factors, but the heavy dependence of the economy on large multinational manufacturing exporters, on the one hand, and public employment on the other, severely limited the options available.

Denmark’s experience in the same period, the late 1980s and 1990s, was very different, which itself suggests that any relationship between interna­tionalization and reduced welfare provision is very problematic at best. Economic concentration is much lower in Denmark than in Sweden; numerous small and medium-size firms play a crucial role in the Danish economy. There is no highly centralized corporatist structure, but unemployment benefits are generous and the benefit system is characterized by a high degree of universalism.

Danish citizens and organized interests seem to have been willing to adapt to crises, making sacrifices in periods of economic difficulty. Undoubtedly, equality and inclusion help to promote such solidaristic and public-minded behaviour: citizens and organized interests have a high degree of influence in the political process and a reasonable expectation that of fairness in the behaviour of governments and other political actors.

Of course, this raises the issue we will discuss next; the domestic political context. However, in Hirst and Thompson’s view the structure of the Danish economy, together with the structure of the welfare state, the political context and the political culture, have shaped Denmark’s response to international economic pressures.

Corporatist structures

In this comparison Hirst and Thompson raise the issue of the role of corpo- ratist structures, which are probably best understood as politico-economic structures. The existence of such structures can clearly mediate the affect of internationalization on policy outcomes. This is evident in another case which Hirst and Thompson briefly examine: the Netherlands. The Netherlands economy is highly internationalized; indeed in terms of trade it is probably the most internationalized economy in the world. However, it has a network of dense corporatist institutions, and, since 1982, a policy of wage moderation which was negotiated, and renegotiated in 1993, with the employers and the unions. Indeed, Hirst and Thompson (1999: 177), citing Visser and Hemerijck’s book A Dutch Miracle, emphasize that many observers argue that institutionalized wage restraint has been Holland’s single most important weapon in responding to international competition. In Hirst and Thompson’s view, these corporatist negotiations, together with the consociational nature of the Dutch political structure, have been crucial in allowing Holland to cope with increased international pressure while retaining high welfare expenditure.

Hirst and Thompson (1999: 180-5) also point out that one of the responses to international competitive pressures in Europe has been a move towards, rather than away from, social pacts/corporatist structures. It is true that these developments have been mainly confined to smaller states, for example, Finland, Ireland, Portugal, Norway and Spain. However, the Italian case is also interesting. Here, reform was initiated from the top, but involved co-operation with unions and employers on wage policy, industrial relations and welfare state reform. Much of the pressure for reform was exogenous, coming particularly from the conditions attached to ERM membership. Nevertheless, the move towards concertation was also affected by the state of domestic public finances, the structure of the Italian pension system and the collapse of the old political system in 1992. The result was: the abolition of the scala mobile (which involved 100 per cent indexation of wages to inflation) and the institution of a wage freeze in 1992; the establishment of a new framework of incomes policy and collective bargaining in 1993; and a new accord on pensions, approved by a referendum in 1995. The point again is that the relationship between globalization, corporatist structures and policy outcomes is not a simple one.

There are two separate but related points here; the first concerns the existence, or otherwise, of corporatist structures; the second concerns their role; and the third concerns their effect. Increased international competition, may lead to the creation of, or continued reliance on, corporatist structures as in the cases briefly examined above. On the other hand, a government may respond to such pressures by withdrawing from involvement in discus­sions over prices and incomes, as was the case in the UK after 1979. Which strategy a particular government pursues is likely to be affected by the domestic economic and political context.

Of course, even when a government has created, or continued to use existing, corporatist structures, this does not mean that those structures performed the same function in the 1980s and 1990s as they had in the 1960s and 1970s. So, Martin Rhodes (1997) argues that the competitive corporatism of the 1980s and 1990s was designed to enhance international competitiveness, rather than sharing the egalitarian and redistributive goals of old corporatism. In his view, the exchange relationship involve in contemporary corporatism is crucially different because what unions get is not rights and entitlements, but voice and the chance to influence labour market and welfare policy.

In a sense, the crucial question is whether the existence of such corporatist structures effect what governments do. Hirst and Thompson (1999) certainly suggest they do and, in particular, that they help ensure continued higher welfare provision. In a similar vein, in the case of Australia, some observers have argued that the corporatism, associated with the eight Accords agreed between the Australian Council of Trade Unions (ACTU) during its time in office between 1983 and 1996, had an important influence on labour market and industrial policy during that period (Capling and Galligan 1992; Goldfinch 2000; Singleton 1990). Indeed, Capling and Galligan (1992) contend that Australia liberalized its trade regime only after establishing a number of corporatist-style industry plans that were designed to allow the industry to respond more effectively to international competition. The point is that the existence of these Accords, particular in the 1980s, taken together with political/electoral considerations which we discuss below, was an important factor in influencing the way in which pressures of international competitiveness affected policy outcomes.

Prior economic policies

Of course, it is not just the structure of the economy or the existence, or otherwise, of corporatist structures, that has an effect.

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