3.     The various ways of social democracy in Europe ⁸

3.1   The market-oriented way of the New Labour government

Of all the social democratic governments in Europe Tony Blair's Labour Government (1997- ) enjoys both the most resources and the fewest constraints in implementing policy. Because of the simple majority electoral system, 43% of votes was sufficient for the party to gain a parliamentary majority of 178 seats and thus to enjoy a comfortable governing majority in parliament. The Labour Government does not have to take into account a coalition partner. The Conservative Party's temporary decline and loss of votes and seats was more sudden and striking in Great Britain than for most conservative parties on the continent. The dramatic weakness of the opposition gave the Labour Government more room to move than is enjoyed by most governing social democrats in Europe. On top of that is the majoritarian institutional structure, which facilitates hierarchical, unilateral governance much more in Britain than in the federal consensus democracies of most continental countries (see Lijphart 1984; 1999). The state structure that remains highly centralised despite moderate devolution, upper chamber that is largely irrelevant to the policy process, the absence of a powerful constitutional court, the lack of a written constitution, and a reserve bank that remains at least partially bound by instructions,¹² all combine to give the British government only slightly fettered political power. Both the formal constitutional and the actual political power of a British prime minister and his or her government is without match in Western Europe.

Even the political legacy of the British Conservatives can be considered more a resource than a restriction for the goals and policy instruments of the Third Way, as - in contrast to the Christian-liberal coalition in Germany (1982-1998) - the Tories (1979-1996) undertook structural reforms that have enhanced the Labour Government's reform options. In particular, Margaret Thatcher's governments legislated to greatly reduce unions' blockading strength and introduced labour market deregulation that opened up options for a new kind of employment dynamic. The Labour Government could therefore immediately embark on its welfare to work project without being bound up in delegitimising conflicts with employees and their unions about labour market deregulation.

Fiscal policy

Like all other current social democratic governments New Labour rejects a classical Keynesian economic policy. Indeed, during election campaigning it committed itself to continuing the conservative fiscal policy for at least two years of the previous government and subjected itself to two general rules (OECD 1998):

- All current expenditure is financed only by current revenue. New indebtedness can be entered into only for purposes of investment, not consumption;

- New public debt should be held at a 'stable moderate' level independently of the business cycle; it should not pursue short-term anti-cyclical intervention.

However, the British budgetary policy was no more restrictive than those of most social democratic (and conservative) governments on the continent (OECD-Economic Outlook June 1999). Moreover, instead of channelling unexpected tax revenue primarily into debt reduction, under Gordon Brown the Treasury instead used it to finance special education, employment and health programmes.

On the revenue side, New Labour has begun to reorganise the tax system, so that low-wage earners will receive either full or significant tax relief. Households in which at least one person works full time will be guaranteed a minimum income of 10 000 British Pounds through working families income tax credits. Until then household income will be subsidised via a degressive negative income tax, following which the base-level tax rate of 10% will take effect (Kroenig 1999). It is here that the labour market inclusion strategy is evident: first, demand will be stimulated in the low wage employment sector, while, second, such jobs will be made economically viable so as to avoid or at least lessen the American disease of the working poor¹³.

At the same time, company tax was further reduced and under the Blair government they are the lowest in the European Union. Both tax reforms must be seen as supply-side measures that have the primary goal of stimulating employment in a sustained manner and thereby preventing the 'involuntary exclusion' (Giddens 1999) at the lower end of the social scale.

Employment policy

Between 1996 and 1999 employment in Great Britain grew at a slower rate (1.03 %) than than in the EMU area (0.87%). However, this base level employment growth resulted in a considerably higher rate of participation (1997: 75,2%) than within the EMU area (1997: 65,1%)¹⁴ and the unemployment rate (declining from 8.7% in 1996 to 6.3% in 1998) dropped more quickly than in the EMU countries (1996: 11,6%; 1998: 10,9%)¹⁵. The labour market, which New Labour had left largely deregulated, thus proved more dynamic than most (regulated) labour markets on the European continent. New Labour had better promoted the traditional social democratic goal of inclusion in the labour market (full employment with high rates of participation) than had most social democratic and conservative governments on the continent.

The New Deal is the most notable part of the active labour market policy. Its principal aim is to reduce youth unemployment. The combination of instruments it uses reflect the mixture of incentive and compulsion so characteristic of New Labour: on the one hand young people are employed via subsidised postitions in the private sector and job creation measures in the public sector. As an alternative, state-financed training programmes are offered. On the other hand, the controls and unreasonableness criteria guiding the acceptance of employment have been tightened, to be punished by significant cuts in social transfers (Dingeldey 1999; Robinson 1999). These measures aim to eliminate both free riding and those cases of unemployment where accepting employment is not worthwhile because the income is barely above (or even below) the level of welfare benefits. 280 000 young people have so far participated in the programmes of the New Deal, of which 105 000 have found new employment. Most jobs are sustainable and are located in the first (regular) labour market. In three years of government the Labour administration has succeeded in further reducing youth unemployment and halving long-term unemployment (Brown 1999: 52). However, even after these three years in office, expenditure for the active labour market policy is still visibly beneath the European or even the Scandinavian average. The British figures do improve somewhat if one includes the considerably increased investment in education and training that aims to raise the employability¹⁶ of young people and adapt to the ever-changing qualifications demanded by the labour market. Results in employment can thus first be expected in the middle-term.

Social policy

New Labour is selectively reforming social policy according to the principle of 'welfare to work'. Welfare state measures are generally being judged according to how much they increase pressure to enter the labour market. Welfare transfers are intended to act as an incentive (or pressure) to accept employment and certainly should not prevent this. The passive welfare state is thus to be progressively restructured into an active social investment state, with education, health and children the preferred areas for investment. For example, a generous child care tax credit enables women to enter the workforce (Dingeldey 1999: 333). Backed by tax reforms for those on lower incomes, 1.25 million citizens (among them the families of 700 000 children living in poverty) are to be pushed over the poverty line by the end of the legislative period (Darling 1999: 36).

While the first considerable investment and restructuring of the National Health Service has brought modest success, there is no evidence of long-term reform of the old age pension. In contrast, there has been a visible retreat from the social democratic ideal of unversalism in social policy. The criteria for assessing need have been tightened, with Alistair Darling, the Minister for Social Security, characterising this as a necessary shift in the 'culture of social benefits' (ibid.). This may indeed prevent abuse of welfare benefits and better target social security to those in real need, yet this may be at the expense of social stigmatisation and a necessarily enlarged bureaucracy when it comes to need assessment. New Labour itself legitimises this illiberal-statist measure with the following argument: only when the government demonstrates to tax payers that it is preventing abuse of the welfare system and acting as a safeguard for only the really needy and who cannot be integrated into the labour market can the welfare state relegitimise itself in the long-term and ensure its financing by citizens. Although this argument can claim to be a completely strategic rationale in an era of declining tax morals, the Blair Government underestimates another risk - the extent to which New Labour's exclusion of the middle classes from key benefits makes the welfare state more vulnerable to calls for further cuts. If they act economically rationally, the middle classes will no longer support a highly targeted welfare state that demands tax from them but offers few benefits in return. The really needy do not have a strong political voice and rely on altruistic advocates in the political arena. New Labour has so far failed to produce either persuasive policy or convincing political action to address the danger that the selective and targeted welfare state will suddenly turn into a marginal one.

The strengths and weaknesses of New Labours policies

Strengths

- the abandonment of protective measures that would hinder economic growth and thus lead to a loss in economic and social welfare is more credibly conceived of and realised by New Labour than by the other social democratic parties and governments;

- the labour market deregulation inherited from Margaret Thatcher and largely accepted by New Labour reduces the socially unjust discrimination of outsiders (particularly young people and women) in favour of insiders (typically unionised workers). Moreover, the deregulated labour markets facilitate fast structural change from old industries to the knowledge-based service sector;

- the reorientation of a welfare state structurally rooted in the industrial age and with a socially unjust bias towards the middle classes to one focusing on those in real need leads to desired rather than undesirable redistributive effects;

- the particular emphasis placed on education, training and learning recognises the value of human capital and its embedding in social capital (trust, fairness, cooperativeness, team spirit) in its meaning for the individual, the economy and society; the pressure that the state places on citizens to assume individual responsibility for their own human capital seems socially just from both an individual and a societal perspective.

Weaknesses

- by largely abandoning anti-cyclical fiscal and monetary policies the abdication of political control in favour of the volatile and democratically non-legitimated forces of the market has been accelerated;

- giving up the use of the tax system as a powerful means of redistribution will increase social inequality; a high degree of social inequality is detrimental to social cohesion and trust both among citizens and vis-à-vis the state;

- the downside of the flexibilisation of the labour market is its discrimination of older workers and the forced horizontal and geographical migration of job-seekers; an additional price of flexibilisation is the weakening of trade unions' bargaining power, which has the probable consequence of lower wages and a further redistribution from earned income to capital;

- the targeting of the welfare state to the really needy, justified from the perspective of social justice, makes the welfare state more vulnerable to demands for its further reduction. That is, if the middle classes no longer benefit from welfare transfers and social services they lose their economic interest in the welfare state and will rationally call for further cuts, as they receive little benefit from the welfare state, yet partly finance it through their taxes¹⁷. The welfare state will thus lose important allies with an influential political voice. Further, the danger of a 'two-thirds-society' is thus very real in Great Britain, as the number of people living below the poverty line is currently already twice as high as in Germany and most continental European states.

3.2   The consensus-oriented way to more market: the Dutch 'polder model'

The political institutions of the British Westminster Model, the deregulation carried out during the Thatcher Era and the relative weakness of interest groups have so far allowed New Labour to push through its market-oriented political reforms in a largely hierarchical and paradoxically statist manner. However, a comparable centralist institutional and political setting does not exist on the European continent, even in France. The Partij van de Arbeid (PvdA) in the Netherlands is an example of one party and country that comes relatively close to New Labour's market-oriented goals, but which is furthest from New Labour in the strategies and means it has adopted to achieve the goals. While Blair's Labour Government has followed the traditional majoritarian strategy, the Dutch 'polder model' is strongly shaped by consensus: the reforms were agreed upon among both the political parties and the social partners through a democratic negotiation and compromise process. The (traditional and neo-corporatist) socio-economic council and the Wassenaar wage agreement form the institutional framework that has been successfully utilised for economic and social negotiations against the backdrop of increasing social democratic participation in government since 1982 and after 1989 (Visser/ Hemerijk 1998: 111ff.).

Because of the consensual way in which they were negotiated, the market reforms turned out to be less radical than in England.¹⁸ In the longer term, however, they may have the advantage of more stable support from those affected by the reforms, as they were included in the decision-making process much more than has been the case in New Labour's hierarchical style of politics. The Dutch case has shown how strongly political institutions, traditions and cultures mold political strategies, force actors to negotiate and cooperate, but nonetheless facilitate innovative employment and social policy reforms. In other words, the British way would not have been possible in the Netherlands and the Dutch way was not necessary to carry out the reforms in Britain. The style of politics and decision-making diverge, while the policy goals and outcomes increasingly converge in key areas (such as the labour market). However, in contrast to Great Britain the 'Dutch miracle' of the nineties is by no means attributable only to the social democrats. Rather, it was engineered by coalition governments in which at various times Christian Democrats, left-liberal and right-liberal parties participated (Becker/ Cuperus 1998: 249 ff.).

Fiscal policy

The PvDA has also committed itself to a restrictive budgetary policy that has been pursued during both the 'grand coalition' with the Christian Democrats (1989-1994) and the so-called 'purple coalition' (PvdA, VVD, D'66) from 1994 onwards. Since 1994 the purple coalition has had two priorities in fiscal policy: first, reduction of the budget deficit and gross state indebtedness, and, second, reduction of tax and duties so as to stimulate investment and encourage employment. To achieve the first goal a ceiling was placed on central administration and welfare insurances. In the first four years of government this lead to a reduction in expenditure of 0.4% per annum. Growth-induced revenue was used strictly for reduction of the budget deficit. From 1994-1998 public expenditure dropped by more than 5% to 42.6% of GDP (OECD 1998: Economic Survey Netherlands 1997-98: 51). Budgetary consolidation was carried out not least by a reduction in social expenditure, especially the invalid benefit, as generous as it was abused. The social democrats implemented these cuts in the face of opposition from trade unions and parts of their own membership and voter base in just in the grand coalition (Becker/Cuperus 1998: 253). They also pressed on with the policy as part of the purple coalition. There was no neo-Keynesian stimulation of aggregate demand on the expenditure side and only a modest amount on the income side. Income taxes were cut: the top tax bracket from 70% (1989) to 60% (1996) and the base-level tax bracket from 14% (1989) to 6.35% (1996) (ibid.: 162f.). The latter measure in particular stimulated employment in the lower third of the service industry and also holds up well against social democratic principles from the perspective of distributive politics. The tax cuts were thus aimed less at a general increase in the aggregate effective demand, rather were much more targeted at the creation of part-time work and low-skilled service jobs.

Employment policy

The employment record of the past two decades in the Netherlands is impressive. Employment growth began in 1983 and lasted until 1992¹⁹. After a short period of stagnation employment again began to rise at a quicker rate on average than in most OECD states (Visser/Hemerijk 1998: 43). The Netherlands performed better than most EU states - except Denmark - on almost every indicator of labour market success. Between 1992 and 1996 employment grew at 1.6% per year compared to the average for EU states of 0.4% per year. Workforce participation increased from 52.0% (1982) to 71.5% (1997), recording the highest increase among OECD countries (OECD 1996; OECD 1998a). Unemployment has dropped to 6.2% (1997), significantly below the EU average of 9.8% (OECD 1998a). Female employment, traditionally one of the lowest in the Western world (1973: 29%), has rapidly increased to 60% (1997). How exactly did this 'employment miracle' (Schmid 1996) result, whereby the Netherlands came to perform so well on all three central employment indicators of workforce participation, female employment rates and unemployment? Further, what part in this can the Dutch social democrats claim?

The success is essentially the result of three factors: moderate wage increases, the development of labour intensive service industries, and, above all, the redistribution of work (Visser/Hemerijk 1998: 44). Wage restraint promoted investment, raised net exports because of comparative cost advantage and meant that more people could remain in employment²⁰. Long-term wage restraint was made possible by a series of neo-corporatist agreements, with the way being led by the famous Wassenaar Accord in 1982. As these were mostly bipartisan agreements between tariff partners, the role of the government was in the first instance restricted to moderating interest groups or implementing associated measures. The state's role in the redistribution of jobs through its substantial encouragement of part-time work was undoubtedly of greater importance. In the nineties it was those governments strongly influenced (1989-1994) or dominated (1994- ) by social democrats that played an increasingly important role here. In several tariff agreements, but also in associated legislation, the economic, tax and social policy barriers to part-time work were largely eliminated. Above all, this induced (married) women to enter the labour market. The 'model of one and a half jobs per household' has since gained more and more ground (Visser/ Hemerijk 1998: 66). With 36% part-time jobs, there are in the Netherlands both more women and more men in part-time employment than in any other OECD country (ibid.: 53).

Apart from wage restraint and additional social policy measures, these successes were also achieved through moderate labour market deregulation. With respect to patterns of employment, length of employment, and the flexibility and advanced tertiarisation of employment, the Netherlands have moved closer to the Anglo-Saxon labour markets (Visser/Hemerijk 1998: 57). There are, however, two exceptions to this: on the negative side, even the Netherlands was unable to overcome the continental affliction of long-term unemployment. On the positive side, the employment dynamic has not led to an income dispersion of American dimensions and the accompanying phenomenon of the working poor. The case of the Netherlands is therefore evidence that, contrary to traditional union and social democratic thinking, moderate deregulation of labour markets can lead to more, and to more justly distributed, employment²¹. That this can occur in a harmonised and cooperative way, and that it facilitates emancipatory side-effects (female employment, male part-time work), further weakens future arguments of those defenders of regulated, but undynamic labour markets.

Social policy

The Dutch welfare state of the sixties and seventies can be considered the very model of the passive-compensatory type in the continental mould. It was financed through social insurance contributions, was based on a traditional family structure with a male breadwinner, entrusted the administration of social insurance to the social partners and made income compensation a priority over active employment policy (Visser/ Hemerijk 1998: 173). Out of this 'Bismarckian structure' the Netherlands, a welfare state latecomer, has developed since the mid-1950s into the most generous variant of the passive-compensatory welfare state model in the Western world²². However, it was precisely the combined effect of the passive-compensatory structure and the welfare state's generous entitlements and benefits that made the pathological cycle of 'social security without work' (Esping-Andersen 1990) more obvious in Holland in the eighties than anywhere else.

The invalid benefit was the core and symbol of this cycle. When it was introduced in 1973 the Social Ministry estimated that 200 000 people would have entitlement to it. In 1980 the number stood at 660 000 and at the end of the eighties this increased to a point where almost a million people were incapable of work in a working population of just six million (Visser/ Hemerijk 1998: 160). In less than a decade a cartel of interests comprising employers, employees, doctors, unions, and the government had formed. Employers circumvented business-related dismissals and replaced older employees with younger and more productive workers; employees 'rationally' used the generous compensation and made less of an effort to gain new employment; doctors and bureaucrats stretched the criteria for inability to work; unions served their clientele ('insiders'); and it suited the government that invalids did not appear in the unemployment statistics.

However, the state was little more than an onlooker, as the invalid and sickness benefits were largely in the hands of the bipartisan self-administration of the social partners. As they (rationally) proved themselves unwilling to reform, the impetus to reform came from the government (the CDA/ PvdA-coalition) that at the beginning of the nineties had identified the extremely low rate of labour market participation as the achilles heel of the welfare state and tax system. The decision to reform the invalid benefit (1991) was thus the important prelude to further reforms aimed at altering the passive-compensatory character of the Dutch welfare state. As a result of a bonus/penalty incentive system for employers, a tightening of the invalid criteria for employees, as well as the obligation for workers to accept 'reasonable', not just 'suitable', employment, in 1994 the number of those entitled to the invalid benefit dropped for the first time since its introduction (ibid.: 196). After 1994 the 'purple coalition' pressed on with welfare state reforms under the leadership of the social democrats. The reform of the sickness and unemployment benefits followed. There were essentially four reforms that accompanied the shift from passive to active welfare state: the introduction of financial incentives, limited competititon through the opening up of the system for private insurers, moderation of the 'moral hazard problem' through tightening of entitlement criteria and controls, as well as stronger state control of the social security administration (Barth/ Bauer/ Lang 1997: 86).

In the 1994 parliamentary elections the reforming parties, the CDA and PvdA, were punished for their cuts to social security with the loss of a third or a quarter of their voters. In this respect the election results supported Paul Pierson's thesis that drastic reforms of the welfare state are linked to a high electoral risk for the reformers (Pierson 1996: 145). However, the purple coalition's persistence at once refuted two topoi of social science: first, that government action is primarily directed towards events in the electoral arena and, second, that the state is no longer capable of regulating and exercising control over complex societies. Even though the Dutch government did eventually implement the reforms together with its social partners, it first had to assert itself against the embittered resistance of interest groups, in particular the unions. Through the dominance of the social democrats, the coalition governments of the nineties succeeded in 'restoring the shadow of hierarchy over the bipartisan organisation of Dutch politics' (Visser/ Hemerijk 1998: 206) and breaking up the interest cartel in the interests of the general good of society.

The strengths and weaknesses of the polder model

Strengths

Most of the macroeconomic pro-arguments outlined above in relation to New Labour also apply to the Dutch Partij van de Arbeid. In addition:

- pressure to enter the labour market has increased, but because of the more generous welfare benefits is still weaker and less bound up with strong social pressure than in Great Britain;

- the weaker pressure to accept employment is largely compensated for by an intelligent incentive structure that facilitates part-time work without thereby 'punishing' part-time workers in the area of socal security entitlements.

- consensus politics ensures more stable support for the reforms within the population in the longer term; in addition it corresponds to the stated social democratic aim of stronger participatory inclusion of citizens, their organisations and civil associations in policy formulation;

- in contrast to New Labour's policies, citizens enjoy more options and sovereignty with respect to how they manage their working time.

Weaknesses

- welfare state free riding has still not been sufficiently restricted, as the high number of invalid benefit recipients - without comparison internationally - attests to;

- the welfare state is still geared more towards securing a standard of living rather than survival, and thus retains its 'middle-class bias' that discriminates against the truly needy.

3.3   The (reformed) welfare state way: Sweden

In the 1960s and 1970s Sweden was regarded as the social democratic model (see, for example, Meidner/Hedborg 1984). The Swedish model was characterised by a largely universalist welfare state, full employment, the highest rate of female participation, a harmonised incomes policy that was integrated into economic policy, the strongest trade unions in the Western world, the highest tax burden in a society of astounding tax morals, and the highest level of state expendtiure against the backdrop of a rate of economic growth slightly below the OECD average (Meidner/Hedborg 1984). The sociologist J. Israel (1978) rightly called Sweden a 'social democratic-trade union-big business-complex'. Since the late-70s several pillars of the Swedish model have broken off or at least been considerably damaged: the harmonised incomes policy rooted in solidarity broke down and national debt rose rapidly. Completely new, however, was that the former country of full employment slid into mass unemployment of 9.5% (1993). After reassuming office in 1994 the Swedish social democrats reacted with reforms. These will be briefly outlined here in the three policy areas.

Fiscal policy

Contrary to widespread misperception, during the so-called 'golden era' of the 50s and 60s the Swedish social democrats were already pursuing supply-oriented policies more strongly than neo-Keynesian fiscal policy (Merkel 1993: 195 ff). When the Swedish social democrats were reelected into office in 1994 the minority social democratic government was confronted with a budget deficit of 10%. A Keynesian policy of deficit spending was therefore unlikely not just for reasons of political tradition, but was also precluded by fiscal constraints that could not be ignored. The government thus therefore reacted in an almost perfectly anti-Keynesian way with a combination of tax increases and expenditure cuts. Success was not long in coming. In 1997 the budget deficit was reduced to 1.9% (Lindgren 1998: 84). The consolidating effect could be primarily traced back to three factors: in spite of restrictive budgetary policy, economic growth that had been negative between 1992 and 1994 had increased to 2.3% by 1997. Considerable increases in tax revenue were achieved at the same time as reductions in public expenditure, not least through reductions in many social benefits at the municipal level. Like almost all social democratic parties in the nineties the Swedish social democratic government declared both its programmatic and actual support for fiscal orthodoxy. Expenditure was now not be used as a way to stimulate demand in an attempt to smooth out the economic cycle.

On the revenue side, supply-oriented components were imposed. The tax burden on businesses was eased and there was a move away from direct income tax and towards indirect consumer taxes. The taxation system that during the sixties and seventies had been the most redistributive in the OECD lost much of its ability to redistribute in the nineties. At least in part because of the less redistributive character of the tax system, income differentials and income dispersion increased in the eighties and nineties²³. They continue, however, to be some of the lowest internationally (Bart/ Bauer/ Lang 1997: 111).

Employment policy

An active labour market policy remains the most striking characteristic of the Swedish employment strategy. At 2.1% of GDP (1997) Sweden still spends more on its active labour market policy than any other country in the OECD. However, in the nineties this was successful to only a limited degree, as was reflected by the fact that unemployment advanced at the same time as expenditure for the active labour market policy increased. At least in practice, in the nineties the Swedish social democrats have also moved away from the goal of the highest possible rates of workforce participation. Indeed, the high female employment rate is in decline²⁴. Discussion within the Swedish social democratic party about reducing working time (both working life and the working week) has gained momentum and the first measures in this direction have already been agreed upon at the tariff level - an innovation for Sweden (Lindgren 1998: 89). Moderate cuts to the unemployment benefit to on average 81% of the most recent net income still maintain the benefit at a level very high for international standards (Barth/ Baur/ Lang 1997: 109). The same is true for the cautious deregulation in the areas of working time, the lifting of the ban on private employment agencies. Unions' veto right over the firms' outsourcing activities has been weakened. The period of notice for dismissal in Sweden remains one of the longest in Europe. Despite the reforms mentioned, the Swedish labour market remains highly regulated.

Further flexibilisation of working time and employment contracts is currently coming up against the problem of hardened tariff fronts. Due to the breakdown of centralised wage negotiations in the eighties, a suitable arena for tariff negotiations no longer exists. A new kind of corporatist consensus as exists in the Netherlands is not yet in sight, and neither is the Swedish government able to take radical measures as the British government can. The labour market reform 'jam' in Sweden is unmistakeable and in comparison with Great Britain and the Netherlands, Sweden has fallen beind in the labour market.

Social policy

Despite supporting the universalist welfare state in principle, several measures have been passed by the minority social democratic government since 1994 that have begun to change the face of the Swedish welfare state. The most important are:

- moderate cuts in various monetary social transfers (mostly by 5%);

- the introduction of 'waiting days' in cases of sickness chiefly as a way around the worsening abuse of the working days Monday and Fridays;

- a ceiling of 75% of the wage has been set for replacement income in cases of sickness; health care continues to be guaranteed free of charge by state health services; excesses remain very low in international comparison;

- reductions in pensions: basic and additional pensions are increasingly being integrated into one pension that resembles the structure of the German pension system (Barth/ Baur/ Land 1997: 107); for the first time employee contributions are being introduced to finance pensions (equal financing via 18.5% of income); the development of a second, privately financed pillar of pensions has begun;

- with 31.9%, Sweden continues to have more than double the rate of public sector employment as Germany, Great Britain and the Netherlands; in this area there are plans for limited reductions in the future, which would primarily affect female workers.

In general the reductions are primarily directed at monetary transfers and to a much lesser extent at the social services. The measures are aimed at strengthening employees' individual responsibility and at cutting down on welfare state free riding. However, the reductions were made from a very high level and Sweden's welfare benefits must therefore continue to be regarded as the most comprehensive in the Western world. The 'model system change' as claimed by the press or German conservative parties has not (yet) occurred in Sweden. Certainly, the Swedish welfare state remains further away from the liberal proponents of market-oriented marginal social security than almost all other states in the OECD. Necessary amendments were made in the nineties, but it is doubtful that these amount to a forced dismantling of welfare statism. The Swedish welfare state continues to be strongly rooted in citizens' preferences. This is especially true for those women who have found jobs in the public welfare sector or who have been more easily able to enter the workforce as a result of social benefits. However, in the 1998 parliamentary elections the social democratic government had to pay for even these - internationally relatively moderate - welfare state reductions with massive voter desertion (above all by female voters) in the direction of the left socialists. Pierson's 'retrenchment risk' seems to be realised more sharply in the political culture of the active welfare state than in the passive welfare state of the Netherlands. While the Dutch social democrats have overcome the short-term temptation of electoral rewards through their perseverance with the reforms, this test is still to come for the Swedish social democrats.

The strengths and weaknesses of the Swedish way

Strengths

- Sweden remains one of the most open national economies in the OECD²⁵ and even during the deep economic crisis of the early nineties did not resort to protectionist measures;

- the supply of investors was improved through tax and social policy measures, so that the outflow of Swedish investment capital was reduced and the inflow of foreign direct investment increased;

- the welfare state has only been tinkered with at the edges; in addition, many of the measures aim to combat parasitic free riding and thus, among other things, also served to improve social justice and strengthen individual responsibility;

- the fight against unemployment remained the political priority; considerable resources were further set aside to fight unemployment;

- the level of legal and illegal tax evasion by the self-employed and the wealthy is lower in Sweden than in most European Union countries.

Weaknesses

- the decline in workforce participation rates, particularly for females, signals something of a shift away from the traditional social democratic goal of full employment with high labour force participation rates²⁶

- the decline in participation rates may lead to further difficulties in financing the heavily tax-based welfare state;

- Sweden continues to have a below average growth rate compared to other OECD countries;

- tariff fronts have been further hardened and no return to a concerted or harmonised incomes policy is in sight.

Restructuring of the Swedish welfare state has certainly begun and has already made considerable progress. Up until now it has proceeded less radically than in Great Britain or even than the Netherlands. While the welfare state continues to prevent poverty and minimise social risks, further labour market reforms must be undertaken if unemployment is not to become entrenched and if the kind of gap in social justice unknown Sweden's workers' society until the end of the eighties is not to emerge. In addition, failure in the area of employment would in the longer term endanger the financing of the passive-compensatory area of the Swedish welfare state.

3.4   The statist way: the Parti Socialiste Francais

Of all the social democratic and socialist parties in Western Europe at the end of the 20th Century the Parti Socialiste Francais appears to be the most strongly committed to a traditional statist policy. Indeed, the French socialists have remained statist in two senses:

- the Parti Socialiste promotes the state much more than its sister parties do. This is true for macroeconomic policy, as well as for industry, employment and social policy. This may be interpreted as particular loyalty to traditional social democratic policy goals, but will be paid for in the 21st Century with a lack of innovation vis-à-vis the challenges of economic globalisation and the individualisation of society.

Fiscal policy

However, even the French socialists have committed themselves to budgetary consolidation, to which they had turned by the mid-1980s (Merkel 1993: 323 ff). In the nineties the disciplined budgetary policy helped to force inflation below the EU average. In this sense since 1983 even the French socialists have no longer followed the classical Keynesian route. However, since it entered office, differences can be identified between the fiscal policy of the Jospin government and that of other social democratic governments. The socialist-led government's finance policy stands out from the fiscal priority of budgetary consolidation that is so unmistakeable in the rhetoric and practice of the social democratic-led governments in Great Britain, Holland, Sweden and, since Lafontaine's resignation, Germany. In contrast to the rhetoric of austerity of the German Finance Minister, Hans Eichel, Jospin talks of a mix of selective consolidation measures, price stability and support for the economic cycle (Handelsblatt 20.4.1999). Indeed, in 1999 the French economy proved itself as one of the economic motors of the European Union with 2.6% growth in GDP. The French left government strengthened the looming cyclical upturn not with massive demand side programmes, but with measured strengthening of domestic demand: through, for example, the 1997 increase in the minimum wage and the quadrupling of state transfers to families at the beginning of the school year (Uterwedde 1998: 227). On the expenditure side, acceptance of and adherance to the Maastricht stability criteria with respect to net new indebtedness was achieved not by cutting social expenditure, but through a 'leftist savings policy' (ibid. 228), comprising among other things some rearrangement of the budget at the expense of the defense area.

Divergence from the general trend within the OECD at the end of the nineties is more clearly visible in tax policy. While most countries, with the temporary exception of Sweden, cut tax, the French socialists cautiously and selectively raised certain taxes. This was the case particularly for company tax and for special taxes on income from financial investments. In contrast, those on lower incomes received tax relief. In addition, the French leftist government introduced a financial and social reform component into the tax system that aims to increase the competitiveness of businesses without reducing social benefits. Thus, income-related contributions to health insurance were almost entirely abolished, with the social security deduction from almost all forms of income, CSG (Contribution sociale generalisee), being correspondingly raised instead (ibid.). This means, first, a reduction in non-wage labour costs and with it an increase in the competitiveness of businesses, and, second, a partial fiscalisation of social benefits that more fairly incorporate not only wages, but also other forms of income (self-employed, capital income) into the financing of the welfare state.

The French socialists are also distinct from mainstream European social democracy in monetary policy. While they have accepted the economic and currency union in principle, they have however not accepted the European Central Bank's full independence from democratically-legitimated decision making structures, such as the European Council or the Council of Economic and Finance Ministers (ECOFIN). Similarly, they have not accepted an uncompromising monetarist course as advocated by the Dutch and the majority of German social democrats. The tendency is thus towards a less restrictive monetary policy that will be formulated as far as possible in cooperation with the European Central Bank and ECOFIN and will thus better coordinate economic policy.

It is in employment policy that the traditional, statist nature of French socialist politics most clearly comes to the fore. This was evident in the party's first year in government in its plan for reducing youth unemployment. The goal is to create 700 000 jobs that are to be up to 80% state-financed. Of these alone 350 000 will be located in the public sector, a policy that would be unacceptable to New Labour, the Dutch social democrats or the SPD. The remaining 350 000 positions are to be created in the private sector with the help of state income subsidies. Further measures are (OECD Economic Survey 1998-99: France; Neumann 1998):

- the labour supply is to be reduced by the subsidising of further early retirement schemes;

- a general law has been passed to allow for the introduction of the 35 hour week, for whose forced implementation state subsidies are to act as an  incentive;

- until now scarcely any measures have been implemented to deregulate the labourmarket, with one modest exception being the easing of termination of fixed-term contracts;

While the first two measures must be seen as traditional social democratic employment policy, the latter has turned out to be a small outlet for flexibilisation in an otherwise highly regulated labour market. However, this deregulated sector of fixed-term, low-paid and rarely socially safeguarded jobs has, particularly in the service industry, proved especially dynamic.  If this development is sustained, a dual labour market with a highly regulated but stagnating sector and a deregulated yet dynamic segment with considerable social injustices could emerge as it has done in Spain²⁷.

Social policy

No innovative reforms are yet evident in the French welfare state. Apart from the partial fiscalisation of health insurance, the welfare state continues to be financed primarily through non-wage labour costs, paid overproportionally by employers. However, the socialist French government has cautiously tried to decouple social contributions from income and to finance the welfare state through taxation. Particular emphasis continues to be placed on the welfare state's support of families, though they are now to be assisted in a more differentiated manner based on income and through state supplements. New areas of emphasis are the construction and renovation of apartments, particularly in the ghettos around the large cities. Education, training and schooling receive particular emphasis in government policy, yet, as is the case with the German social democrats, this has not been sufficiently reflected in investment in education²⁸.

In a recent speech to the Socialist International Jospin (1999) consciously staked out the differences to the workfare concept of Britain's New Labour government. The Socialist Party's government has emphasised that the active social investment state is doubtless important, but could not replace the traditional welfare state in those areas related to the 'aging of modern societies': 'We should not imagine that "workfare" will be the catch-all answer when entire geographical areas with no security, training, assistance, or jobs are crying out for vigorous state and private action' (Jospin 1999: 5). However, in its policy and politics the party thus far lacks a convincing response as to how the social investment state and the traditional welfare state, the central investment state and the global markets, and the republican statism and the interest groups and civil associations can be united in a new dynamic and democratic balance.

The strengths and weaknesses of the statist way

Strengths

- the basic willingness to politically (in a democratically legtimated way) steer the economy in those areas where the market gives rise to social unjustified hardships is more prominent in the case of the French socialists than of the other social democrat-led governments in Europe;

However, there is a downside to most of these merits, indicating that social democratic politics is not able to adopt certain unified and ideal instruments and policies, but must ponder trade offs given its own value preferences.

Weaknesses

- the maintenance of the status quo in the welfare state structures is convincing neither in view of its longer term financing and its discrimination of non-familial lifestyles, nor in its passive-compensatory structure that offers too few incentives to accept employment;

- the active labour market policy continues to rely much more strongly on the state subsidisation of work creation programmes, primarily in the public sector, rather than on negative and positive incentives for individual education and training; individual responsibility to 'invest' in one's own human capital is not sufficiently recognised and encouraged in either its economic or its emancipatory functions;

- protectionist tendencies still exist, particularly in relation to third countries outside the European Union.

The French socialists have so far proved astonishingly resistant to changes in the markets. The current Jospin Government considers this policy to be to a large extent legitimised by the majority support of voters. Backed by this democratic legitimation the French leftist government administers the social and labour market status quo in a traditional manner. However, their recipes offer too few innovative responses to the problems of new at-risk social groups and marginalised classes in post-industrial society. It must be feared that further hesitation in implementing reforms will be have to be paid for later with correspondingly stronger cuts to the economic and social prosperity of precisely those weaker classes in society. This would be the classic case of an unintended unsocial consequence of apparently social government action.