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The Semisovereign State Revisited

The Politics of Pension Reform in Germany 1989-1998.

Bachelorarbeit 1999 56 Seiten

Politik - Sonstige Themen


Table of Contents

1. Introduction
1.1. Hypotheses about Consensual Policy-Making
1.2. Welfare State Retrenchment

2. A Pension System Under Pressure
2.1. Exogenous Pressures
2.2. Endogenous Pressures
2.3. The Protagonists of Pension Policy Reform

3. Case Study
3.1. Outline
3.2. Consensus-Based Solutions
3.3. The Break-up of Consensus
3.4. New Partisanship: Unilateral Retrenchment

4. Conclusion
4.1. Hypotheses about Consensual Policy-Making
4.2. Politics of Retrenchment
4.3. The Semisovereign State - An Appraisal

5. Data Table

6. Bibliography

1. Introduction

In the Federal Republic of Germany[1] party changes in the federal government have rarely altered the general direction of national policy. Apart from the short periods 1949-53, 1969-74, and the mid-1980s the major parties have agreed on most matters of political substance (Katzenstein 1987). The major opposition party either did not propose alternative blueprints for policy or, once its politicians had assumed responsibility in government, they found themselves moderating the stances they had held during their years in opposition.

In explaining the steadiness of policy in Germany compared to other industrialised countries, policy-making in Germany has often been described as greatly constrained by a corporatist institutional design. Katzenstein (1987) argued that the resulting multiplicity of constraints on the leeway of the federal government to change the direction of policy warrants a characterisation of West Germany as a “semisovereign state”.[2] Studies of various policy areas showed that successful policies tended to be passed and implemented in broad consensus between corporatist actors and were geared towards incremental as opposed to comprehensive political change (see e.g. Webber 1992). Attempting to explain this bias towards consensus and incremental change, the political science literature has identified distinct stages in Germany’s policy formation process where bargaining political and corporatist actors search for a policy compromise. These findings have led to the development of alternative hypotheses about which stages in the policy formation process are responsible for the consensual nature of German politics. Focusing on the consensus-building impact of catch-all parties, coalition government, cooperative federalism and sectoral corporatism respectively, these hypotheses are not dependent on each other for their validity; any hypothesis might be true while any others are true or false. Pension policy-making, an area which has often been invoked as a prime example for consensual policy-making, encompasses all parts of the policy process highlighted in these hypotheses.

The hypotheses about the constrained character of German policy-making were developed during an era when the welfare state was still in the process of expansion. More recently, however, welfare state programmes have come under pressure. Governments in many industrialised countries, including Germany, have cut spending on social provisions. As work by Pierson (1994) on the United Kingdom and the United States has shown, the politics of scaling back established programmes are distinctly different from the politics of extending them. Comparative research by Pierson (1993, 1997) and Weaver (1993, 1998) has focused on pension policy as a primary area for observing behavioural patterns typical of the politics of welfare state retrenchment.

Welfare state retrenchment presents a crucial test for the validity of the hypotheses about the sources of consensual politics in Germany. Only when pressure is applied to the system of governance, does it become clear if consensus in German politics is anything more than a fair weather phenomenon. As the cornerstone of the German welfare state, pension policy seems an especially suitable prism for researching which - if any - of the hypotheses about consensual policy-making in Germany remain valid during retrenchment. Recent work by Hinrichs (1998) has highlighted the urgency of such a test. Hinrichs has argued that the traditional consensus in pension policy-making has been lost.

The objectives of this thesis are twofold. The first objective is to test five different hypotheses about why German policy-making is so consensual. The second objective is to determine what the German case can contribute to our understanding of the politics of welfare state retrenchment identified elsewhere by Pierson and Weaver.

The period of 1989-1998 is ideally suited to pursue the research objectives. It allows for a study of how pension policy-making has evolved in the last decade under the recent Conservative-Liberal coalition government and also provides a first impression of how the new SPD-Greens government approached the preceding coalition’s legacy. The introduction to this thesis will expand on the hypotheses about consensual policy-making and the characteristics of the politics of welfare state retrenchment. A second chapter will summarise the pension scheme’s structural features, discuss the various pressures on the sustainability of the system and introduce the reader to the main protagonists in pension policy reform. The case study will be presented in a third chapter. The conclusion relates the case study to the research objectives and closes with tentative appraisal of Katzenstein’s characterisation of Germany as a semisovereign state.

1.1. Hypotheses about Consensual Policy-Making

Germany’s multi-levelled corporatist structure embodies “a closely knit institutional web [which] limits the exercise of unilateral political initiatives by any one actor and encourages incremental policy change” (Katzenstein 1987: 192). The five hypotheses presented in this section bring different nodes in this web to the fore. Each hypothesis highlights a distinct mechanism which promotes consensus. The hypotheses can co-exist.

1.1.1. Catch-All Parties

The catch-all party hypothesis explains the consensual nature of German politics by pointing to the pluralism within the two main political parties, CDU and SPD. Trying to appeal to broad sections of the population and aiming for mass support rather than ideological purity, both parties have successfully received the necessary votes to lead coalition governments with the FDP. Their catch-all character (Kirchheimer 1966) has led to the formation of groups and strong wings inside each party, whose members hold diverging views on policy. In consequence, policy proposals are watered down by the requirement to pass them through a web of multiple points of veto and the aim of protecting the interests of a wide range of constituencies.

The Christian Democratic Union (CDU) is the archetypal German catch-all party. The CDU has a decentralised internal structure, indicated by the word “Union” in the party’s name, and is best described as a federation of regional party organisations and interest groups (Katzenstein 1987: 36). The conservative Bavarian wing of the CDU, the Christian Social Union (CSU), does not only have a distinctive profile but is formally an independent party[3]. The CDU includes a large labourist wing (Social Committees), a wing representing business interests, a large group dedicated solely to the interests of small to medium-sized mostly family-owned companies (Mittelstand), a large group of senior citizens (Seniors’ Union), a rather independent youth and student organisation and a group focusing on the perspective of women in politics.

The Social Democratic Party of Germany (SPD) has changed greatly since the early years of the Federal Republic when it was still very much a working class party with strong Marxist and Socialist currents. The success of the country’s political restoration under CDU auspices eventually prompted the SPD to move to more pragmatic style of politics, best expressed by the adoption of the Godesberg party programme in 1959 (Katzenstein 1987: 37). The SPD has thus emulated the CDU’s catch-all strategy and moved away from a party based on class to one based on mass support. The SPD’s internal organisation has remained less decentralised than that of the CDU. The party’s links to the unions are broader than those of the CDU. After a long time in opposition, the SPD entered a coalition government with the CDU in 1966 and became senior partner in a coalition government with the FDP under the Chancellors Brandt and Schmidt from 1969 to 1982.

1.1.2. Coalition Government

The second hypothesis ascribes the strong continuity in German policy-making, i.e. consensus over time, to the nature of government in coalitions and the role of the liberal Free Democratic Party (FDP) in particular. After the consolidation in the West German party system in the decade after World War II, the FDP has been the junior partner in two-party coalition governments until 1998, except for the period of the grand coalition between CDU/CSU and SPD in 1966-1969. More radical than the CDU on economic policy and more progressive than the SPD on civil liberties, the FDP has tried to keep a hold on the centre between the major catch-all parties (Katzenstein 1987). Making use of its strong position heading such crucial portfolios as Foreign Affairs, Economic Affairs and Interior when in government, the FDP has exerted substantial influence on certain “pet policy projects” while going along with the senior coalition partner’s plans on those issues that were not of particular interest to FDP voters. Playing to its constituency of the floating vote of white-collar employees without strong allegiance to any of the big parties, high income households, health care providers and business, the FDP moderated the CDU on cultural issues and obstructed many reforms planned by the SPD.

1.1.3. Cooperative Federalism

The cooperative federalism hypothesis attributes the high degree of consensus in German policy-making to the various links between different levels of government. In comparison to unitary systems of governance, federal systems with their grid of territorial interests tend to check sustained central initiatives influencing the direction of policy. Shared responsibilities between the federal, state and local actors, a well-developed system of tax sharing and strong political parties make Germany’s federal system distinctly “cooperative”.

In a system where responsibilities are divided by function in the policy-making process rather than by policy area (Reissert and Schäfer 1985: 106), the federal government relies on the states and municipalities for the implementation of policies in many sectors ranging from transport to environmental protection or social assistance. Overlapping competencies require different levels of government (such as federal, state, district, municipality and local) to coordinate their activities.

“Vertical” links between the federal government, states and local authorities and “horizontal” links between the states are often channels for transfer payments. In 1980 80% of incoming tax revenues were pooled and shared between the different levels of government (Katzenstein 1987: 49). A horizontal transfer system from rich to poor federal states (L änder) is used to equalise states’ fiscal strength and the living conditions for the population. The federal government can conceivably use an increase in the amount of tax revenues allocated to lower levels of government as a carrot, inducing the Länder and municipalities to support broad policy change. However, in a time of fiscal distress, the federal government is likely to press for the exact opposite, i.e. reduce the funding for lower levels of government but increase their responsibilities.

Depending on its size, each federal state (Land) has three to five delegates in the Bundesrat, the upper house of German parliament. As the peak of a complex system of “interlocking politics” (Politikverflechtung), the Bundesrat stands out as a vehicle for the articulation of Länder interests. In an environment of strong political parties, the representatives from the Länder might put the political considerations of their national party leadership over their Land’s direct interest when voting on important bills in the Bundesrat. If the parties in the federal government, which hold a majority in the Bundestag, the lower house of parliament, do not have a majority of seats in the Bundesrat, partisan behaviour by other parties’ Bundesrat members can cause the policy formation process to stall. The Bundesrat can veto all those bills passed in the Bundestag which amend the Constitution or substantially affect the rights and competence of the Länder in the areas of administration, taxation and finances (Reissert and Schäfer 1985: 106). The Bundesrat can often slow down all other legislation by lodging an objection and, if the Bundestag cannot overrule it with an absolute majority, referring it to the Mediation Committee of the two chambers.

1.1.4. Sectoral Corporatism

A system of sectoral corporatism (Webber 1992) is held to promote an atmosphere of partnership between organised capital and labour. It rests on two pillars, independent collective bargaining in industrial relations and the representation of employers and workers in parapublic institutions that administer social policy. Both pillars offer analytically distinct mechanisms for inducing consensus. Below I will get to each individually.

Both employers and unions support the system of the social market economy of socially bounded market competition, that makes use of the efficiency of the market mechanism while cushioning the outcome of the market allocation. Employers have always seen it as being in their interest to play an active role in the design and administration of social welfare provisions, not least as a form of preventive cost control. They have rejected “exit” from the corporatist arrangements as short-sighted and have instead chosen to exercise their “voice” within the given set-up, often going along with rising non-wage costs, even when they preferred lower ones (Hirschman 1970).

Collective Wage Bargaining

It is argued that free collective bargaining by highly organised peak organisations of the private sector has kept contentious issues out of the realm of party politics. Many social provisions and labour market rules are fixed directly in collective bargaining arrangements between employer and employee representatives; thus they are de-politicised. No German government has ever felt it necessary to introduce a minimum wage, since the downward inflexibility of wages in industry-wide collective wage agreements effectively keeps workers out of poverty. Had the government tried to fix a minimum wage, both unions and employers would have opposed it by referring to the constitutional guarantee for autonomous wage bargaining. Whenever government action became necessary, e.g. in order to push through the extension of workers’ co-determination to achieve more equality with business in running large companies, it was the unions rather than a party which primarily fought for the cause.

Employers, credited for the “economic miracle” of the 1950s by the public, are organised in two major specialised associations each covering 80 to 100 percent of German business respectively. While political lobbying, domestically and internationally, is undertaken by the Federation of German Industry (Bundesverband der Deutschen Industrie, BDI), it is the more moderate Federation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverb ände, BDA) which coordinates collective bargaining and has traditionally dealt with social policy.

With a clear anti-Nazi record, unions assumed a strong role in public life after the Second World War and prominently participated in the rebuilding of democracy in Germany. The Federation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB) serves as an umbrella organisation for industrial unions which organise about 40% of German workers. Differing in their degree of radicalism, these industry-wide unions wield more power than the DGB, for they act independently in collective bargaining, administer their own strike funds and devise their own strategies. As the biggest union, the metal workers union (IG Metall) has been a frequent agenda-setter on issues such as reducing the working week to 35 hours as the most promising way to reduce mass unemployment (Katzenstein 1987).

Parapublic Institutions

Parapublic institutions are both political actors and policy arenas facilitating the process of policy implementation (Katzenstein 1987). In the social policy sector they enable the government to take advantage of the practical insights of major private actors by enlisting them into self-administrating or co-implementing policy collectively. Since the 1950s employers and workers have been represented on a parity basis as social partners in many parapublic institutions. Reaching back into the 19th century, their organisational structure is based on the principle of “subsidiarity” (Subsidiarit ätsprinzip). This principle requires that the organisational unit, best informed about and closest to a particular policy challenge, should deal with it (if this unit is able to cope with the challenge). The dominant parapublic institution in the pension policy sector is the Federation of Pension Insurance Carriers (Verband der Renteversicherungstr äger, VDR), an umbrella organisation for the occupationally-differentiated schemes in the statutory pension system.

As political actors, parapublic institutions are held to restrict the ability of the government to introduce radical changes in social policy. It is argued that the involvement of employers and unions in social policy administration gives them political leverage that reduces the state’s ability to pass legislation that is against the social partners’ interests. As policy arenas, parapublic institutions are seen as promoting cooperation and consensus between organised labour and capital.

1.2. Welfare State Retrenchment

In addition to testing if the hypotheses listed above hold during times of welfare state retrenchment, this thesis will enquire if the German experience in the 1990s can add anything to our understanding of the special features of the politics of retrenchment. Recently, Germany’s system of social insurance has been challenged by many pressures (see next chapter). Efforts at cutting back generous social welfare provisions have been undertaken, including in the area of public pensions. In doing so, the CDU/CSU-FDP government had to balance various objectives: The structure of its reform initiatives have to bridge the constraints presented by feedback from earlier policies. Aiming to stay in power, the government is interested in diffusing blame for making people worse off. Last, but not least, the government needs to keep up public support for the curtailed social programmes.

Two main features, policy feedback and blame-avoidance patterns, have been identified to structure the distinct nature of the politics of retrenchment:

1.2.1. Policy Feedback

The history of past policy choices greatly conditions which policy changes are viable. Policy tends to be path dependent. Once a pay-as-you-go pension system, i.e. one in which current workers finance the pensions of current retirees, is put in place, a switch to full or partial funding will always present a double payment problem. During a period of reform those people paying into the system would have to finance both current and their own future benefits. Additionally, the more mature a pay-as-you-go system is, the better established are expectations about the level of benefits people are entitled to receive. One feedback from existing policies (Pierson 1997) is the creation of a constituency of retirees with a stake in preserving the current level of benefits. Since political parties depend on retired people as integral parts of their support coalitions, resistance against change by this “grey”, often well-organised lobby, is hard to ignore.

1.2.2. Blame-Avoidance

Pension policy reform allows politicians only limited opportunities to claim credit for having solved a problem, but offers multiple chances for the opposition to generate blame (Weaver 1998). Governments are thus motivated to avoid blame by obfuscating the link between decisions and eventual policy. This has led to a set of distinctive political strategies. Changes to established systems, such as increases in the retirement age and changes in the replacement rate, are often stretched out over long periods and implemented with a delay. Governments often make adjustments “automatic” (Weaver 1988) by fixing benefit indexation formulas well into the future or linking them to exogenous variables such as inflation. Technical changes to these formulas often have far-reaching consequences, but they are not easily comprehended by the public. Such behaviour on the part of governments has been pointedly labelled “policy by stealth” (Grey 1990). Since radical structural reform would offer a great invitation for the opposition and interest groups to generate blame, the focus of governments is on incremental retrenchment and refinancing.

2. A Pension System Under Pressure

German pension policy is organised as a three-tier system composed of a statutory public tier, an occupational tier, and a third tier of private provisions. The statutory public retirement insurance (Gesetzliche Rentenversicherung, GRV ) is the first and by far biggest tier with outlays of about DM 363.8bn in 1995 (BMAS 1998a). It accounts for nearly 70% of pensioners’ gross income (Börsch-Supan 1998) and covers about 80% of workers (Hinrichs 1998). The public pension insurance is comprised of regionally and sectorally organised schemes for blue-collar workers and one scheme for white collar workers. The level of contributions and benefits is identical in each scheme with the exception of the systems for miners and farmers.[4] The self-employed can join the system on a voluntary basis. Occupational pensions cover 47% of western workers (Düll 1998). In 1995 they amounted to DM 24bn in the private sector and DM 13.6bn in the public sector. In 1995 private life insurance payments, the main form of private retirement provision, were about DM 60.3bn, making up 11.5% of total old age security expenditures (Schmähl 1998).


[1] 1949-1990 West Germany, from 1990 onwards including East Germany (also referred to as “East” hereafter)

[2] West German institutions were transferred to the East without any great adaptation. Therefore we can also relate Katzenstein’s argument to reunited Germany.

[3] The CSU has formed one federal parliamentary party with the CDU since 1949.

[4] The pension programmes for civil servants and public sector employees are separate from the GRV and will not be dealt with here.


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Oxford University – Final Honours School in Philosophy, Politics and Economics
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Titel: The Semisovereign State Revisited