Download The Price of Political Crisis Economic Adjustment and Political

The Price of Political Crisis
Economic Adjustment and Political
Transformation in Belgium and the
Netherlands
Erik Jones
SAIS Bologna Center
Thanks
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Honored to be here
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Great to be back in Belgium
Even better to be at the University of Antwerp
Still very humbling to get to talk to you about Belgium
Thanks to all involved
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Dirk De Bievre and Cas Mudde (for the idea)
Linda Rogiest (for the practical arrangements)
All of you (for turning up to hear me)
Apologies for False Advertising
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Original title was for non-academic audience at the Itinera
Institute in Brussels.
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At the time, the economy was doing well even if politics was
unstable – now the situation is at least partly reversed.
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New goal is to emphasize my contribution to the literature (aka
how we understand the world).
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Promise to give some take-homes for those of you more
interested in current events.
Three Part Structure
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First, I want to sketch how my research question
connects to the literature.
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Second, I want to talk about what I found in the
empirical record.
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Third, I want to suggest what this means for today.
Part 1
Theoretical Context
The Context
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Draws on two strands in the literature
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‘Varieties of Capitalism’ – national economic performance is
institutionally determined.
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‘Small States in World Markets’ – democratic corporatism
and political consensus can combine flexible specialization
with political stability and so explains small country success.
The Conventional Wisdom
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Theoretical: Institutionalized democratic
corporatism (or political consensus) is part of a
‘winning formula’ for national success in world
markets.
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Combines market liberalization abroad with
Redistributive compensation at home.
Empirical: This formula is more likely to be found in
small states.
Un-packing Convention
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Four questions are relevant:
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Why do states engage in world markets?
Why do states redistribute in domestic politics?
Where does political consensus fit in?
How is any of this related to being ‘small’?
Bottom-up Approach (start w/ small)
Three Dimensions of Size
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Conventional use (population or output)
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Economic (price-taker or dependence)
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Political economy (efficiency vs. homogeneity)
Small as Consensual
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Katzenstein’s case selection
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Seven consensual countries
Chosen for success
Just happened to be ‘small’
Empirical not tautological – two kinds of consensus
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Liberal democratic (divided societies)
Social democratic (homogenous societies)
Consensus in Divided Societies
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Classic consociational democracy model of Daalder,
Lijphart, Huyse, etc.
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Tends to include large welfare states to cushion
impact of world market forces as in Cameron.
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Only looks ‘liberal’ compared to Scandinavia
because it maintains responsibility for policy
implementation outside the state.
From Consensus to Success
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Consociationalism
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Corporatism
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(vertical social and political organization)
(centralized functional interest intermediation)
Competitiveness
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(policy manipulation of relative costs and prices)
My Research Question
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How do the break-down of consociational
democracy and the process of depillarization change the possibilities for
economic policymaking in Belgium and the
Netherlands?
Why De-pillarization Should Matter
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Pillarization – or consociational democracy – was the formula for consensus
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Consensus was the basis for social partnership
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Social partnership was necessary for wage moderation
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Wage moderation was the key to competitiveness and flexible adjustment
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Without pillarization, Belgium and the Netherlands should not succeed in
manipulating relative prices and so cannot maintain their own competitiveness
(at least not in a way that is superior to market performance)
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They may begin to question the merits of European integration as well
The Theoretical Stakes
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If de-pillarization doesn’t matter, then we need to
explain enduring consensus in heterogeneous
societies like Belgium and the Netherlands.
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If de-pillarization does matter, then we need to
reconsider the durability of the small state model for
success both in terms of domestic compensation
and in terms of engagement with the outside world.
The Argument (Three Claims)
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First, the possibilities for economic policy making are now more
restricted in Belgium and the Netherlands.
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Second, the practice of consensual economic adjustment has
encouraged the process of de-pillarization.
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Hence we need to reconsider the durability of small state success (at least
in heterogeneous states).
Hence the small state model is not only unstable but also self-destructive
(at least in heterogeneous states).
Third, whatever the causal relationship between them, the combination
of de-pillarization and economic vulnerability is changing domestic
attitudes about relations with Europe and the outside world.
Part 2
Empirical Narrative
The Method
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Paired longitudinal comparison of B and NL
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‘most similar’ in the sense that they share many common
features but differ in performance. I use this aspect to
highlight the influence of elite behavior.
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‘most different’ in the sense that they begin to share
performance attributes as common features diverge. I use
this aspect to highlight common sources of structural
change.
Framing Assumptions
(Economic Policy Choice)
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Fixed exchange rates
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Hard currency
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Macroeconomic stability
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Free trade (different from regional integration)
Illustration: The 1950s and 1960s
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Similar institutions, different outcomes, common
patterns
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Consensus was not automatic, it was constructed
Even once constructed, it required political will to operate
That will tended to break down over time
Initially ambiguous relationship with ‘Europe’
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Emphasis on national autonomy and market liberalization
Interregnum: The 1970s
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Without commitment to social partnership, the economy
became ungovernable
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Distributive conflict undermined international competitiveness
(and even basic policy assumptions)
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Conflict began to break down the institutions for consensus as
well
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Shift in attitude toward Europe from market liberalization to
economic stability
Revival: The 1980s
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The institutions for wage coordination remained strong enough
for one more use
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The challenge was generating the will
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But the wage moderation was successful
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And the EMS/ERM ensured the relative price change had effect
even as the 1992 project enhanced its usefulness
Measuring Success (1)
Figure 1: Adjusted Wage Share in Manufacturing in Belgium
75
Percent Value Added in Manufacturing
70
65
60
55
50
45
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 1981
Year
1982
1983
1984
1985
1986
1987
1988
1989
1990
Measuring Success (2)
Figure 2: Belgian Real Deutschemark Exchange Rates
170
160
150
Index: 1970 = 100
140
130
120
110
100
90
80
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Year
Unit Wages Cost s in Manufact uring
Consumer P rices
1986
1987
1988
1989
1990
Measuring Success (3)
Figure 3: Belgian Net Exports of Goods and Services
3
2
Percent GDP
1
0
1980
1981
1982
1983
1984
1985
-1
-2
-3
-4
Year
1986
1987
1988
1989
1990
Year and Mont h
19
94
-7
19
89
-1
0
19
90
-1
0
19
91
-1
0
19
92
-1
0
19
93
-1
0
19
89
-4
19
88
-4
19
87
-4
19
86
-4
19
85
-4
19
84
-4
19
83
-4
19
82
-4
19
80
-1
0
19
79
-4
19
78
-4
19
77
-4
19
74
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Percentage Respondents Satisfied and Fairly Satisfied
Measuring Success (4)
Figure 4: Satisfaction with Democracy in Belgium
70
65
60
55
50
45
40
35
30
25
The Netherlands Looks Similar
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This is the story of the famous ‘Polder Model’
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Ironically it was celebrated more by the Germans than by the
Dutch
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The commentary at the time was ‘less democracy for a better
economy’
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Satisfaction with democracy increased nonetheless
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And enthusiasm for ‘Europe’ as well
Even So, the Cost Was High
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Decline in trade union membership
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Divisions between trade unions and political parties
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Early in the Netherlands but now in Belgium as well
Loss of support for traditional political parties
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More in the Netherlands than Belgium
More dramatic in Belgium than in the Netherlands
Ouster of Christian Democrats from government
The Purple Alternative Did Not Last
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Consensus fuelled opposition and dissent
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Reformist parties (D66, Agalev) fared worst
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Christian Democratic opposition repositioned itself to
the right (NL) and toward the regional level (B)
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Elites began to manipulate ‘Europe’ in domestic
political conflicts
Economic Performance Was Good
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Remarkable consolidation on fiscal accounts
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Continuous net trade surpluses
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Declining unemployment
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Difficult (yet still significant) welfare state reform
But Responsiveness Remained Weak
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Problem was evident in the both countries
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Increasing immobility at home as reforms ran out of steam
Heightened concern about lack of influence abroad (and in
Europe in particular – cf. Nice Treaty)
In any case, ‘Europe’ was not the solution
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Lisbon strategy promised new momentum but then fell short
Meanwhile, budgetary wrangles and ‘Laeken Declaration’
suggest that Europe may even have been part of the
problem
Waiting for the Shock
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Not an issue so long as things worked.
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The problem only threatened to arise if things
got knocked out of line.
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The 2002-2003 recession was a first test.
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The current situation is worse.
Part III
Current Implications
The Future is Now
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The combination of shocks is significant
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The need for adjustment is growing
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The apparent choice is between coordination and the market
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Price–wage coordination at home and fiscal coordination at the
European level, or
A long grinding recession until things work themselves out.
If current trends continue, the market is the only viable choice
Is there a Non-Market Alternative?
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Politicians must express a will to cooperate
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This implies an agreed sense of priority
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Within and across Belgian regions
But across countries as well
Economics over institutional reform
Stimulus over regulation
Inter-personal solidarity over inter-regional distribution
It will necessitate institutional support as well
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Highlighting the role of social partnership
Underpinning the national interest (e.g. Deschouwer)
Strengthening coordination at the European level
Making Clear What is at Stake
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Before politicians choose, they should explain what is at stake to the voters
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The choice is not just between Flanders and Wallonia, or between Belgium and
Europe, but also between cooperation and the market
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The market is not necessarily a bad thing, but . . .
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Cooperation has been the key to Belgium’s past success
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The question is what will determine that success in the future
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The price of the crisis is that this choice can no longer be put off
What Does this Mean for the
Literature?
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Institutions can determine national performance, but there is to
institutions than just their design:
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How politicians use institutions matters
How the people react to institutional manipulation matters as well
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Hence there is no single formula for national success and no
obvious reason why any successful formula should be stable.
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On the contrary, there is reason to believe that every
‘successful adjustment’ creates challenges of its own.
Many thanks for your attention