Looking back at how firms, unions and government have enhanced flexibility in the past provides important clues to what extent labour politics have actually been changed through reforms and to what extent decision-making processes mirror changes in the power of balance between labour and capital as well or reflect ideational or partisan changes. This section will briefly outline the historic development of the main institutions in labour market regulation since the Oil Shock. The 1970s are of particular interest to this study as they constitute a comparable case where coordinated capitalism faced the challenge of enhancing flexibility due to changing macroeconomic conditions.
5.1.1 The politics of flexible labour markets in Germany until the mid-1990s
Despite a growing sense of economic crisis with low economic growth and high unemployment in the 1990s and 2000s many observers remained quite optimistic that these troubles could be solved within the existing institutions of labour market arrangements. One often made argument was that the 1970s provided helpful precedents of how social partner could successfully manage a situation of severe macroeconomic distress and resolve conflict between employment adjustments and employment stability. In the early 1970s Germany and Japan were often praised for
their ability to absorb the shock of soaring oil prices both economically and socially better than most other advanced economies. Some have credited this to their ability to implement measures through (partial) coordination and administrative guidance, and the distinct advantages of their capitalisms in general (see the debate of the merits of ‘Rhenish’ and Japanese capitalism in the 1980s and beyond). Undisputable is that in both cases the Oil crises led to the establishment of several institutions of macro coordination between the social partners and the government.
In the German case the most well known example for policy coordination on the national level is the so called Konzertierte Aktion (“concerted effort”) which was inaugurated in 1966 and lasted until 1977. It was later was often compared to the two alliances for jobs in the mid-1990s. Its original purpose had been to coordinate measure taken by the social partners and the government in order to battle the first post-war recession in the mid-1960s but was also used after the first Oil Shock to coordinate decisions on the national, industrial and corporate levels. Apart from unions, employers and government, the central bank64
64 The Bundesbank played a decisive role in the negotiations and its refusal in the 1970s to support
macroeconomic policy-making through an expansive monetary policy is widely seen as a major factor contributing to the “moderation” of unions: “the autonomy of the Bundesbank protected (…) from Keynesian illusions and located responsibility for employment within the system of free collective bargaining. The strict refusal of the Bundesbank after 1974 to accommodate inflationary wage increases required tight discipline, which could only be delivered by wage bargaining institutions succinctly centralized to contain wage pressures from sheltered sectors” Streeck and Hassel (2003), p. 104. This means it was not so much the state the “ordered” specific measures and required the social partners to follow a specific path, but it more or less resulted from factors beyond the government’s control as the Bundesbank was keen to defend its autonomy from politics.
participated in order to - at least in the beginning - support the tripartite coordination by providing details on monetary and macroeconomic development. Intended as a forum that would facilitate coordinated measures to maintain employment and to stimulate demand, it quickly expanded its scope to legislative initiatives such as Co-Determination Act and other major reforms of the system of industrial relations. However, it did not act as an alternative source for formulation of policy. Rather its main purpose was to facilitate consultation and aid information sharing between the different sides. The Konzertierte Aktion in the eyes of the public quickly became a success not least because core sectors such as metal agreed to moderate wage demands while the economy rebounded faster than expected. When the first Oil shock hit the German economy it became a major vehicle to negotiate wage restraint in exchange for employment security. Again the forum succeeded in orchestrating a moderate wage policy in the private sector (only the public sector continued for some time to follow
a high wage strategy) and wage growth declined considerably after 1975 (Schroeder 2001). The governments in this period encouraged rather than controlled these processes. For instance in reaction to calls for more numerical flexibility, the government temporarily introduced job creation programmes, expanded subsidies for early retirement schemes. This made labour exit more acceptable for workers and downsizing relatively inexpensive for employers. One result of this was that the participation rates of workers above 55 years of age dropped considerably between 1970 and 1980 (Ebbinghaus 2006).
The Konzertierte Aktion came to an end in 1977 when the unions ended their participation due to a conflict about co-determination (Schmid 1985: 108-113). Nonetheless, the pattern of tripartite consultation and coordination established by it continued well into the 1980s. Hassel argues that the moderation in the relationship between unions and employers established through the Konzertierte Aktion proved a major factor not only for the development of industrial relations bu also for economic and labour policies: "Es ist weitgehend unbestritten, dass dieses Modell des kooperativen und produktivitätsorientierten Interessenausgleichs bis weit in die 1980er Jahre und darüber hinaus zur erfolgreichen Krisenbewältigung der deutschen Volkswirtschaft beigetragen hat“ (2006: 323). From a regulatory point of view, however, it is important to note that the 1970s did not establish a pattern of comprehensive labour market corporatism in which legislation is devised cordially. Rather, the Konzertierte Aktion more or less institutionalised and intensified a dialogue between the main stakeholders of the German labour market arrangements. The role of government interventions was limited to temporary measures and it avoided permanent regulatory decisions such as a change in employment protection legislation. This implies that the state encouraged and supported de-central decision- making and regulation. This picture of limited state intervention is also underlined by the fact that during the 1970s the two most prominent acts implemented, institutionalised and expanded co-determination rights of unions and works councils and thus further stabilised the pattern of labour-capital coordination with limited participation of the government.65
65 The Betriebsverfassungsgesetz (BetrVG) or “works constitution act” in 1972 and the Mitbestimmungsgesetz
(MitBestG) or ‘”co-determination act” in 1976. Both acts were implemented under coalitions led by the SPD and were intended to institutionalise and stabilise the influence of labour unions on all corporate levels and to make co-determination mandatory for all industries. Both acts were highly controversial at the time and in the case of co-determination prompted the business associations to appeal to the constitutional court.
The environment for labour market policy changed however in the 1980s. As Streeck and Hassel put it, “Developments in the 1980s changed the balance of power between business and labour and pulled the state into the management of the labour market. […] Companies lost interest in fighting wage increases [...] given that they could respond to high wage settlements by reorganising production and shifting redundant workers into rapidly expanding early retirement schemes.” (2003: 105). The limited interventions governments had started in the 1970s to support a smooth recovery from the Oil shock and to mitigate tensions between capital and labour had over time developed into costly and quasi-permanent spending. The growing political pressure to reduce public debts which had built up during the 1970s meant however, that such policies were becoming ever less sustainable. Moreover, the arrangements seemed to contribute to a relative high level of structural unemployment which persisted even in periods of stable economic growth. This increased the political pressure on governments to consider structural changes to the overall labour market arrangement.66
In Germany the policy shift towards more government involvement was accompanied by a change in government in 1983, from a labour-friendly social- liberal coalition to a more business-oriented conservative-liberal administration. The new government headed by Helmut Kohl borrowed heavily from the pro-market rhetoric of the British Prime Minister Margaret Thatcher. Kohl pledged to make economic recovery the main policy objective of his administration and this included labour market reforms and “deregulations”. The main legislative accomplishment of this period was the 1985 Beschäftigungsförderungsgesetz (BeschFG, “employment promotion act”) which massively expanded the use of fixed-term contracts although under conditions (see section 5.4 and table C-6). According to most observers at the time the reforms represented a significant break with the past because for the first time some flexibility enhancement was achieved through legislative change. However, despite its solid majorities in both Bundestag and Bundesrat, the coalition did not, in contrast to its initial announcements, reduce employment protection. Instead, „wagte sich die Regierung (…) eher an Randbereiche (…) wo man auf grundlegende
This step provided a much welcomed opportunity for labour unions to officially declare the end of the tripartite “Concerted Action” in 1977.
66 This is among other confirmed e.g. by a policy proposal (Trennungspapier) formulated by the FDP, which
eventually led to the break-up of the SPD-FDP coalition in 1982. In the paper, which for strategic reasons was formulated particularly boldly and probably was never intended to be implemented in earnest, the FDP advocated a radical reform of labour market regulation, including the abolishment of employment protection and of the Günstigkeitsklausel.
Änderungen des Kündigungsschutzgesetzes zugunsten der Einführung befristeter Arbeitsverträge verzichtete“ (Zohlnhöfer 2001: 667).
Another important development was the inauguration of an expert-committee, the so-called Deregulierungskommission (official title: Unabhängige Expertenkommission zum Abbau marktwidriger Regulierungen) in 1988, which was entrusted with the task of identifying obstacles to the “proper functioning of the markets“. The committee constituted an important case of innovation in policy- making because it was entirely made up of “experts” who had no formal association with vested interests (although some worked for research institutions which are primarily financed by business organisations). Many of the commission’s proposals concerned the labour market and in many ways they resembled the recommendation the Hartz commission put forward more than 10 years later under a SPD-led government. This applies in particular to an expansion of temp agency work, further deregulation of fixed-term contracts and the possibility for enterprises to deviate from framework agreements through enterprise pacts (for a critical assessment and a list of the employment-related proposals see Hickel 1991). The commission issued its final report in 1991, however, with the exception of a minor reform of temp agency work – the AÜG in 1993 was changed to extend the maximum duration of placements from 6 to 9 months (table C-4)- none of it proposals were implemented.
To some extent the moderate impact of the commission can be explained with changing majorities in the second chamber. The ruling coalition had lost its majority in 1991 and thus relied on some consultation with Länder which were not governed by the same coalition of parties. However, according to Zohlhöfer the cautious approach can be explained with internal disagreement within the CDU/CSU. Its labour wing vehemently opposed almost all proposals for further deregulation for fear of electoral retaliation. This forced the government to compromise on reforms even before bills could be introduced to parliamentary deliberations. Seen against this background, the initiative to use a commission for devising labour market reform rather than relying on the parties’ experts, seems to be less motivated by a need for expert advice but rather by a need to cope with the high salience and the political risks connected to regulatory reform. It is thus not surprising that the only other noticeable labour market reforms, a reform of the KschG (see section 5.5 and table C-2) and a second expansion of fixed-term contracts, both in 1996, entailed
only minor changes and were motivated mainly by the worsening unemployment crisis (in 1996 unemployment rates reached the highest level in the post-war period).
The gap between the decidedly reformist rhetoric of the conservative-liberal coalition and its actual policy decisions, has prompted many scholars to conclude that the German political system is effectively preventing radical reform: “In this system, major changes could effectively only be undertaken in the context of a grand coalition.” (Czada 2005: 175).67
5.1.2 Labour politics in Japan from the 1970s to 1990
Yet with regard to labour market policy-making in the 1990s and 2010s, the late 1980s did lead to an important transformation of labour policy-making: First, regulatory changes became for the first time an actual possibility in policy-making and secondly, issues of electoral salience began to increasingly influence political decision-making.
In contrast to Germany, policy-making processes in Japan have not been dominated by continental European-style consensual politics nor by decidedly corporatist practices. Moreover, as chapters three and four have argued, the LDP has been much closer the interests of business and has traditionally entertained much fewer contacts to organised labour than the German CDU. Yet, if one looks for functional equivalents one does find similar patterns of coordination since the 1970s. For instance, in 1970 the so called sanroukon (Conference on Labour and Industry)68 was
established which, although without any formal legal status, was intended to act as a forum of discussion and information sharing between government, labour and employers and whose activities were not only constrained to topic related to industrial relations. However, over time it also gained a central role in the so called shuntou wage negotiation process.69
67 A good example of German corporatism concerns the administration of the state-run work or job placement
agency (then called ‘Bundesanstalt für Arbeit’) which until the end of the 1990s had the monopoly on placements: “Representatives of employees (trade unions), employer and public bodies acting as honorary members of the self-administrative organs, exercise a direct influence in shaping the policy of the FEI [Bundesanstalt für Arbeit] at all levels: central, regional and local.“ Schmid (1985). The Federal Agency is in many ways comparable to the Japanese ‘Haroo waaku’ agency which lost its monopoly on placements in 1999. However, it has never been organised in a similar corporatist fashion but was administered by the MoL.
The sanroukon-members, comprising the
68 This is an abbreviation of sangyou roudou konwakai (産業労働懇話会). The term konwakai indicates the
informal nature of the institution as it can be translated as ‘informal get-together’. For a more detailed description on the function of sanroukon see Sako (1997).
69 Shuntou stands for the so-called ‘spring offensive’ of labour unions where several unions coordinate their
wage demands and present them jointly to the employer organisations. On both sides there is considerable coordination taking place prior to the shuntou-negotiations. The result is that despite the largely decentralised collective bargaining there is a great degree of standardisation of employment conditions and wages. However, this is largely true for employees of large companies with powerful unions, small and
leading figures of organized labour and capital and of government bureaucracy (esp. of the Ministry of Labour) meet regularly (usually monthly) until the mid-1990s and less often thereafter, discussing a wide set of issues, not all of them directly linked to industrial relations. Especially during the 1970s several proposals were formulated and presented to the government which had been unanimously agreed upon in this forum, e.g. concerning tax cuts in order to make up for moderate wage increases. Indeed, sanroukon arguably paved the way for negotiating and implementing wage restraint after the first Oil Shock which was implemented through the 1975 shuntou. According to observers at the time, Japan was particularly quick and consequential in implementing wage restraint after the Oil shock. However, this was achieved without any sort of formal agreement between the social partners.
The relative minor role of government policy is also visible in the fact that Japanese companies in the 1970s managed to avoid mass lay-offs without financial compensation through publicly financed early retirement schemes. The large keiretsu in particular could rely on internal labour markets, transferring employees to affiliated SMEs which typically suffered from labour shortage due to their lower wage structure (Chuma 1994). Although the Japanese government actively supported firms and industries particularly hit by the crises, it did so mainly through industrial rather than social policy and targeted spending such as temporary job creation programmes. Redundancies were limited to the “peripheral labour force” (i.e. female labour market participation dropped considerably after 1973 until about 1975) which was considered a relative low price as most women were expected to leave the labour market after few years anyway.
Another important development of the 1970s was that the participation of labour unions in policy-making processes. This stood in contrast to the popular picture of Japan being a country of “corporatism without labour” (see also table B-2). “Labour became active in policy formation concerning employment security, as exemplified by its role in legislating new policies such as the Revision of the Employment Insurance Law (1974), the Special Measures for Laid-off Workers in the Targeted Depressed Industries (1977), and the Employment Stabilization Funds (1977). Each of these laws, designed to deal with employment problems, favoured labour” (Kume 1998: 137). The increased possibilities for political participation had
medium companies do not necessarily follow shuntou-agreements (although they too use them as a point of reference). See for example Ibid..
been one of the union’s conditions for coordinating with business and government on the national level. Another example for the growing participatory opportunities for labour is welfare. The 1970s mark the time when many major welfare expansions were implemented. Many of these measures were widely supported by unions and, partially, even the left-wing opposition.70
However, most of the participation took place below the level of national politics. From the 1970s onwards labour market regulation was dominated by a peculiar form of corporatist decision-making dominated by the ministerial bureaucracy. Similar to other policy areas where so called “administrative guidance”71 (gyousei shidou 行政指導) has been the main pattern of regulatory
change (in lieu of legislative politics), the MoL and its shingikai became the main LoR for working conditions and flexibility-related issues (for a description of an idealtypical shingikai-based policy-making process see Watanabe 2012: 33). Most proposals and bills as well as a considerable part of the agenda-setting would take place within the MoL and without direct participation of the government or the LDP (cabinet members usually did not attend shingikai meetings). Also the council members were selected by the Ministry on the understanding that all sides concerned (business, labour) would be represented and had a say. In addition, members representing the ‘public interest’ were invited who were mainly recruited from academia (law, economics and other social sciences) representing different scholarly opinions. As a general rule, decisions were taken unanimously thus effectively granting labour (as well as business) the right to veto bills discussed (cf. Miura 2001b).72
Labour market policy in the 1980s
Rhetorically, the political process in Japan experienced a similar neo-liberal revolution as Germany in the 1980s. For example the governments of Prime
70 For instance in 1973 a major pension reform was passed with the unprecedented joint and explicit support
of labour unions and employer associations.
71 Industrial policy has also been mainly subject to administrative guidance. The term describes a regulatory
process which largely avoids legislation or formal rules when considering the implementation of economic or political goals. Usually it means that firms are encouraged to adopt a certain practice, e.g. by providing financial or tax incentives or by announcing legislation if changes are not implemented within a certain time