The German Welfare State and Globalisation: The Social Construction of Path Dependency

Thesis (M.A.), 2005

42 Pages, Grade: sehr gut


Table of contents

1. Introduction

2. Literature review
The German welfare state – normative principles and development
Economic globalisation and the welfare state - downwards pressure?
Retrenchment theory
Historical institutionalism
Social constructivism

3. Case study
Is Germany globalised?
Globalisation of political discourse
Globalisation in media discourse
Quantitative change in social spending
Qualitative impact
The welfare state and popular sentiment

4. Discussion
Path-dependency versus public discourse?
Relation between historical institutionalism and social constructivism
The mystery of the nonconstructed reform necessity

5. Conclusion

6. Bibliography

7. Appendices

1. Introduction

The current climate seems rather unfavourable for the welfare state. Declining economic growth, mass unemployment, increasing public dept and demographic changes, have led to a discourse of welfare state crisis since the mid-70ies. More recently, increasing integration of national markets towards the formation of a global economy seem to have even more intensified neo-liberal arguments that the high social expenditure which most advanced democracies have seen in the post-war period is no longer sustainable in today’s globalising world. However, this suggested race to the bottom of the welfare state seems not to have happened. Today, its main features seem to remain in place.

The focus of this dissertation shall be the German welfare state. I intend to address the research question 'why does globalisation not seem to have had a significant impact on the German welfare state, in terms of dismantlement?' I shall introduce a historical institutionalist framework, namely the path-dependency theorem of the welfare state, seeking to account for the apparent absence of significant welfare state retrenchment. This approach I intend to place in the wider sphere of social constructivism. This is to say that although at first instance, the neo-institutionalist account seems to hold for the German case, social constructivism seems to prove capable of providing a superior explication. I shall argue that the path-dependency thesis only seems to hold because political leaders in Germany failed to socially construct a public discourse accepting profound welfare state reforms as unavoidable. Prevailing culture and values appear to mark the framework within which actors may influence political outcomes. This approach also allows for incorporating some German idiosyncrasies resulting from reunification, such as high civic support for socialist ideas among East Germans.

I contend that the extent to which economic globalisation actually influences the national welfare state depends critically on how national policy makers interpret its effects and on how media and public adopt the debate. Hence, I would like to regard the impact of globalisation not only as an exogenous force, but also as what national policy makers, employers, electorate, etc. interpret it to entail. In other words, although globalisation seems to strain existing welfare structures, policy makers still have a considerable scope how to react to these pressures.

The dissertation is structured as follows. In chapter 2, I set out the normative principles of the German welfare state and introduce the theory I intend to deploy for the analysis of my case study. Chapter 3 looks at some statistical data seeking to measure the effect of globalisation on the German political economy, which is how much integrated it is with the global economy. Second, I am going to analyse political discourse with the aim to find how politicians interpret the developments of economic globalisation and their influence on the nation state. Third, I shall examine how media discourse portrays the causal link between globalisation and the need for reform of the system providing social benefits. I then shall proceed to assess whether there have taken place any quantitative cutbacks in social spending. This is followed by a reform appraisal from the qualitative angle. Finally, I shall turn to popular sentiment about welfare state reform. Chapter 4 seeks to discuss the value of my theoretical framework to analyse the empirical findings of the case study. First, I shall lay out why both frameworks seem to hold. Second, I shall explicate the apparent paradox. I shall argue that the chief reason for the absence reform seems the failure of the political elites to socially construct the necessity of reform in public discourse. Third, I shall discuss why this discourse is absent. Finally, the conclusion summarises my findings and reflects on their potential implications.

In order to answer my research question, I used secondary sources and some primary sources where appropriate. In the attempt to provide an objective measurement of globalisation’s impact on the German economy, I used data indicating the integration of the German economy with the global economy. As I am going to argue later, for domestic change to happen, it is decisive how political leaders interpret these apparent exogenous pressures. Hence, I researched some government declarations of both the Schröder and the Kohl governments. As I deem the media debate to have a powerful impact on public opinion, I also included articles of the most prestigious German newspapers. Moreover, I attempted to detect quantitative change in German social spending by using some spending figures and their development in the last two decades. Finally, I used survey data to portray public attitude towards welfare cuts is in East and West Germany, and whether there seems to be any changes in line with political or media discourse. I believe these causal factors are able to shed light on Germany’s pattern of welfare state development in the age of globalisation.

Concerning the time frame of my study, I have chosen the early 1980s as a starting point. This is for three main reasons. First, by then the welfare state has passed the post-war period of expansion, sliding in some sort of crisis. Second, the notion of economic globalisation seems to have intensified since the early 1980s. Finally, the Kohl administration took power in 1982, enabling a direct comparison with the Schröder government elected in 1998.

Before setting out the scene and embarking on my analysis, I would like to outline, what I consider significant change to entail. A conceptualisation of change common among scholars seems to be Hall’s (1993) framework. The author classifies change in three orders. First order changes are minor adjustment in response to new developments. Second order changes are instrumental adjustments, while policy aims remain the same. Third order changes, which I regard as significant changes, refer to a shift in the policy paradigm, meaning a fundamental revision of instruments and underlying goals of a policy (Hall 1993, Seeleib-Kaiser 2002). Having said this, significant change of the German welfare state would for instance encompass an open confession towards making private insurance compulsory or a substantial increase in the age at entry for pension entitlements.

2. Literature review

The German welfare state – normative principles and development

In European context, Germany industrialised late but at a very high pace, which did not allow any ample bourgeoisie to develop. Hence, Germany appears to be devoid any deep-seated liberal tradition as for instance in UK. The foundations of the modern welfare state were put in place by Bismarck in form of a social insurance system, which sought to shelter the rising working classes from the detrimental outcomes of industrialisation. The inauguration of the system of social insurance was not motivated by pure altruism. In fact, the coupling of benefits to occupation and status aimed at consolidating existing class structures. Moreover, it was thought to foster the individual’s loyalties to the state and to stem the social democratic movement (Esping-Andersen, 1990: 24). Bismarck’s social insurance model was to determine the development of the German welfare state in the 21st century (Leibfried and Obinger, 2003: 1999).The central configuration even survived the Nazi regime and occupation after World War 2, and is still central to its contemporary welfare system (Goodin et al., 1999: 71-2).

The German post-war welfare state was established by Ludwig Erhard and the Economic council under the conception of soziale Marktwirtschaft (social market economy ) (Goodin et al., 1999: 73). Streeck (1997, p. 2) tellingly describes this particular organisation of the German political economy as exhibiting ‘a complex historical compromise between liberal capitalism, as introduced after the Second World War, and two different countervailing forces, social democracy and christian democracy--as well as between traditionalism and two alternative versions of modernism, liberalism and socialism, and of course between capital and labour.’ In 1957, Adenauer’s reform of the German pension system coupled benefits to earnings instead of contributions (Esping-Andersen, 1990: 25). The idea of the social market economy was in practice implemented through the corporatist management of the political economy, meaning a corporatist intermediation between the capital, labour and the state (Goodin et al., 1999: 73). German firms are social institutions rather than pure subjects to the rules set by the market (Streeck, 1997: 2), since most social insurance contributions are put in by identical share of employer and employee (Leibfried and Obinger, 2003: 201). Additionally, some social services are supplied in a decentralised manner by private non-profit organisations alongside associations or churches (Kitschelt and Streeck, 2004: 7). The principally wage-focused social insurance, however, does not embrace civil servants and self-employed people, which are insured by special or private programmes (Leibfried and Obinger, 2003: 201). The German welfare state regime is generally categorised as conservative (Esping-Andersen, 1990: 27).

The outstanding economic performance Germany displayed in the decades after World War 2, led to a continuous upgrading of the social services provided by the state. This expansion chiefly took place within the frame set by existing structures, such as the expansion of the pension insurance in 1957 (Seeleib-Kaiser, 2001: 104). Until the early 1970s, West Germany had the greatest social expenses in the world. The Modell Deutschland (German model) soon became known to achieve simultaneously high economic growth and equality (Leibfried and Obinger, 2003: 1999). However, since the 1970s, following the breakdown of the Bretton Woods exchange rate system and the 1973 and 1979 oil shocks, the situation changed as the German welfare state found itself confronted with several challenges. Those accumulated until today to include sluggish economic growth, sustained mass unemployment, mounting state debt, over-aging population, reunification, transformations in professional and family structure, transformation from an industrial to a post-industrial economy, and last but not least globalisation (e.g. Leibfried and Obinger 2003, Scharpf 2001, Seeleib-Kaiser 2001).

Economic globalisation and the welfare state - downwards pressure?

The concept of globalisation seems to be a complex compound of a multitude of processes happening simultaneously. Held et al. (1999, p. 16) provide on definition which attempts to capture this multidimensionality in the sense of interconnectedness, regarding it as ‘a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions – assessed in terms of their extensity, intensity, velocity and impact – generating transcontinental or interregional flows and networks of activity, interaction, and the exercise of power.’ For my endeavour, I intent to focus primarily on the economic aspects of globalisation, namely the integration of markets through increased interstate transactions and flows of capital, labour, goods and services. In the last quarter of the 20th century, international trade grew faster than national production and during the 1990s, foreign direct investment increased even more than trade (Castells, 2000: 311).

I now attempt elaborate on domestic socio-political consequences globalisation might have. One might contend that globalisation in fact increases the need for social spending in order to shelter the domestic economy from external risk, stemming from a high exposure to external trade. Accordingly, the more an economy is integrated with the global economy, the greater the need for social spending and hence the welfare state (Rodrik, 1998: 997-8). This approach is challenged by the claim that globalisation exerts downward pressure on the welfare state since in a highly integrated global economy different types of nationally operated systems of social service provision are problematical to sustain. The power of international corporations and financial organisations to move resources easily all around the globe obliges national decision makers to cut down social benefits in order to make social policy more corresponding to the market (Swank, 2002: 2). The trading conditions between capital, labour and the state have moved towards preferring capital interests while impinging on states’ sovereignty to set taxes and national directives. The high mass unemployment most advanced welfare states experience seems to stress increased productivity rather than redistribution. Global tax competition, the necessity to cut non-wage labour costs, and the imperative to avert public sector deficits seem further to strain the welfare state. Governments seem to be compelled to enhance private sector employment, to boost efficiency of welfare state expenditure and to lessen the employment hampering consequences of social benefits (Scharpf, 2001: 145). Extensive social spending is a source of inefficiencies requiring high levels of taxation and inflationary budget shortfall (Pierson, 1994: 1). Okun’s (1975, pp. 91) leaky bucket metaphor distinctively expresses this dilemma between equality and efficiency: ‘the money must be carried from the rich to the poor in a leaky bucket. Some will not receive all the money that is taken from the rich.’ Nevertheless, Rieger and Leibfried (2003, pp. 50) point out that although globalisation seems to exert downwards pressure on the welfare state, this not necessarily has to result in its dismantlement: ‘In a welfare state perspective, the technologically facilitated all-embracing economic community of nations made it more difficult, but did not render it impossible, to define and to defend the complex formulas of social justice that the democratic struggle revolves around.’

Retrenchment theory

I attempt to argue, however, that the causal link between globalisation and welfare state development is not as straightforward as it might seem. I would like to reason that in fact there does not appear to be a direct link between globalisation and the downwards reform of the welfare state. Even if data suggest that a national economy is considerable integrated with the global economy, policy makers have to use it to validate political change (Seeleib-Kaiser, 2001: 106). This is where we enter the realm of the politics of retrenchment. There are several prevalent theories seeking to account for retrenchment dynamics of the welfare state.

Esping-Andersen offers a theoretical approach that seeks to explain welfare state development based on the power resources of different class coalitions. Different kinds of welfare regimes emerge as classes struggle over social provision (Esping-Andersen, 1990: 29-32). This concept, which seems to incorporate factors of agency as well as structural elements, is one of the most compelling and prominent accounts to explain national disparities in development and expansion of national welfare structures (e.g. Goodin 1999, Pierson 1996). Regarding welfare state retrenchment, Esping-Andersen suggests that welfare states create middle class loyalties, which would render Scandinavian or continental European welfare states less prone to retrenchment than less encompassing welfare states, such as the Anglo-Saxon kind (Esping-Andersen, 1990: 32-3). Critics yet contend, a straightforward application of the power resources case would imply that welfare states would face heavy dismantlement as the power of workers movements and left-wing parties declined notably in numerous advanced countries. This however does not seem to have occurred (Pierson, 1996: 150). I believe, especially under recent developments, such as globalisation, over-aging population or prolonged economic crisis, the power resources approach offers little value for elucidating welfare state behaviour in the face of crisis and downwards pressures. Hence, I would like to introduce theory, which appears to be more promising in this respect.

Historical institutionalism

First, I would like to outline a historical institutionalist approach towards the dynamics of welfare state reform in Germany. In general, neo-institutionalist approaches appear to regard the enduring institutional organisation of the political economy as the chief reason structuring collective action and causing dissimilar national upshots. Institutional structures determine individual preferences, capacities, and identity (Krasner, 1988: 67). Historical institutionalists classify institutions as organisations and the regulations or practices that are disseminated by official establishments (Hall and Taylor, 1996: 937-8).

Building on the work of Skocpol, Pierson presents a powerful historical institutionalist account for path-dependency of welfare states. The author argues that the welfares state seems to withstand even ambitious attempts of policy makers to implement neo-liberal reforms. Contrary to Esping-Andersen, Pierson argues that welfare state retrenchment seems to follow essentially discrete logics than expansion (Pierson, 1996: 7). The author draws a compelling concept of retrenchment as a multidimensional endeavour, comprising besides quantitative cutbacks in social spending also qualitative changes in welfare programmes and system (Pierson, 1994: 14-16). The major complicacy of cutbacks seems to be that welfare states have a great mass of supporters benefiting from generous social services, even willing to tolerate higher taxes in return. Benefits resulting from cuts in social spending, however, appear rather diffuse, while costs, such as fewer benefits, are concentrated and tend to be immediately felt. This dilemma seems to make it an extremely strenuous task to mobilise supporters for these kinds of measures (Pierson, 1994:17-18). The fear of electoral punishment usually induces governments to refrain from severe cutbacks in social spending. The author seems to put forward that the features of the social system in place, impinging on the mobilisation of retrenchment opposition, determine significantly the potential for welfare state reform (Pierson, 1994: 30-1). In short, welfare state trajectories appear to be characterised by path-dependency.


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The German Welfare State and Globalisation: The Social Construction of Path Dependency
London School of Economics
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Diese Magisterarbeit (MSc Dissertation) war Teil meines Master of Science in Comparative Politics.
German, Welfare, State, Globalisation, Social, Construction, Path, Dependency
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Master of Science Matthias Mayer (Author), 2005, The German Welfare State and Globalisation: The Social Construction of Path Dependency, Munich, GRIN Verlag,


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