The Uncertain Future of Slovenian Exceptionalism

1
The Uncertain Future of Slovenian Exceptionalism

• Igor Guardiancich
• Political Economy Research Group
• Budapest, 5 December 2011
• Central European University

2
Slovenia as it is perceived

• The Varieties of Capitalism literature in CESE
  has unambiguously placed Slovenia at the far end
  of the liberal-corporatist spectrum by labelling
  it as
• neocorporatist (Bohle and Greskovits, 2007)
• Coordinated Market Economy falling within the
  Continental European model (Buchen, 2007)
• corporatist social-welfare state (Adam, Kristan
  and Tomšic, 2009)
• due to a combination of highly consensual
  democratic institutions, low party polarization,
  strong social partners, and developed social
  dialogue.

3
and as it is now.

• Since the fall of the Liberal Democracy of
  Slovenia (in government during 19922004) the
  political underpinnings of neocorporatism have
  faded away
• polarization increased
• union (and other social partners) legitimacy
  declined
• social dialogue collapsed in the aftermath of the
  2007-9 financial crisis.
• The 2010 pension reform is a test case showing
  that consensual decision-making has become
  increasingly difficult in Slovenia. Its failure
  created far greater dilemmas that the incoming
  government should address.

4
Content of the paper

1. Main characteristics of Slovenian exceptionalism.
2. The Slovenian transition from independence to the
   financial crisis.
3. Political-institutional structures, weakening of
   the social partners and collapse of social
   dialogue.
4. The 2010 pension reform chronology, perceptions
   and repercussions.

5
Neocorporatism Slovenian style

• Highest union density in CESE countries (44.3 in
  2003).
• Compulsory membership of employer associations
  (GZS and OZS).
• Powerful tripartite bodies at corporatist
  Economic and Social Council and political
  levels National Council.
• These generate collective wage, income and social
  policy agreements that cover the entire working
  population.
• What pulls Slovenia away from a pure CME is the
  insider ownership structure and an
  interventionist state. Due to the 1992 Ownership
  Transformation Act managerial rather than purely
  market-based capitalism emerged.

6
Socioeconomic indicators

• Slovenia developed one of the most egalitarian
  societies in the EU, not only among NMS.
• 2.6 EPL, between Belgium and Germany.
• Total spending on social protection higher than
  OECD average (23.0 in 2005 compared to 20.5 of
  GDP).
• 0.247 Gini coefficient as a consequence of the
  redistributive tax system, lower only in Denmark
  and Sweden.
• 11 gender wage gap in 2004.

7
The transition

• From self-management to a market economy.
• From socialism to a pluralist democracy.
• From a regional to a national market.
• From federation to independence.
• From Yugoslavia to the EU and the EMU.
• Characterized by gradualism, immobilism and elite
  preservation.

8
Slovenian transition Gradualism

• Converting the political-institutional structures
  inherited from Yugoslavia was a complicated
  exercise.
• Transforming a regional a national economy,
  breaking away from Yugoslavia and its socialist
  legacies demanded caution, broad consensus, and
  strong social partnership.
• Consensualism prevented shock therapy from being
  applied (apart from to macroeconomic
  stabilization only).
• Double-edged sword
• Social peace was preserved and the transformation
  was successful due to initial conditions and
  competitive corporatism
• It bred widespread immobilism.

9
Slovenian transition Immobilism

• By resorting to gradualism, decision-makers
  (mainly LDS) negotiated at length with organized
  interest groups, delaying and diluting structural
  reforms.
• Economic restructuring was slow in crucial
  sectors
• Financial services, where a capital market never
  emerged
• Tertiary education, which is inward looking and
  cronystic
• Judiciary, inefficient and with a growing backlog
  of cases
• Health care, pensions, family benefits, and the
  labour market need thorough reform.
• Gradualism entrenched vested interest groups,
  which further delay reform (e.g. Åslund, 2007).

10
Slovenian transition Elite preservation

• The high level of elite reproduction under LDS
  was far from beneficial, bringing long-term
  negative effects, including the establishment of
  monopolies and rent-seeking behaviour.
• This had several negative repercussions
• Delayed and inefficient privatization following
  the 1992 Ownership Transformation Act
• Extreme ideological division between the
  left-liberal (SD, LDS, Zares) and
  right-conservative bloc (SDS and other parties of
  the Slovenian spring).

11
The political underpinnings of consensualism

• Government that can reach to an ideologically
  distant opposition and/or social partners.
• Internally legitimate trade unions that are in
  the position to negotiate with policymakers and
  employers.
• Strong employer associations.
• Since 2004, and especially during the most acute
  moments of the crisis, all three preconditions
  have been missing in Slovenia.

12
The weakening of government

• Since 2004 the polarization of the political
  space has increased, leading to the impossibility
  to strike bipartisan deals and to heated
  electoral competition. 3 reasons
• The difference in electoral support for the two
  main parties has narrowed (polarization 1990-2008
  is 0.286, but entirely imputable to the post-2004
  period).
• The era of grand coalitions is definitely over.
  Since 2004 neither Janšas nor Pahors
  governments contain any parties from the other
  bloc.
• EU accession compressed the political space until
  2004, after that it decompressed entirely.

13
The weakening of the unions

• Slovenian unions, especially the successor ZSSS
  are extremely strong and participate in most
  tripartite fora.
• They underwent progressive weakening, mainly due
  to
• dwindling membership (in the service and private
  sectors)
• loss of internal legitimacy (workers
  circumventing reps in Gorenje).

14
The weakening of business

• Due to relative high growth and low unemployment
  levels, business enjoyed a favoured position in
  Slovenian negotiations. This changed for two
  reasons
• Until 2006 the membership in GZS and OZS was
  compulsory, and these represented all Slovenian
  firms. In GZS it is not the case if density will
  fall under 50, the automatic extension of
  collective agreements to entire categories is not
  guaranteed
• widespread company insolvency and low
  competitiveness led to mass layoffs and concern
  of the associations with their own narrow issues.

15
The crisis
In the period of sustained growth 2005-7, Janšas
government did not build budget surpluses and the
European Commission failed to warn against such
lax fiscal policy. Slovenian banks became
illiquid in late 2008, and since Slovenia is a
small open economy, the fall in international
orders triggered an economic collapse. The
unemployment rate rose from a low of 4.2 per cent
in September 2008 to 7.8 per cent in December
2010, and GDP fell by 8.1 per cent in 2009
(Eurostat 2011). Consequently, the global
financial meltdown exacerbated all the negative
traits of the Slovenian economy.
16
Failure of social dialogue

• The accumulation of structural delays forced
  Pahors government to propose several unpopular
  measures.
• The Slovenian Exit Strategy 2010-13 envisaged
• structural measures (reform of the pension
  system, health care, and long-term care)
• institutional adjustments (to corporate
  governance, financial supervision, financial
  services, and competition).
• Pahor was initially inclined towards social
  dialogue, but excessive haste (the government was
  pressured by the EU and OECD) and the
  radicalization of the social partners positions
  prompted unilateral decision-making, which
  invariably failed.

17
The 2010 pension reform

1. Previous reforms and persisting problems
2. Technical content
3. Policy disagreements
4. Social dialogue and perceptions
5. Failure and consequences

18
Previous reforms and persisting problems

• The 1992 and 1999 pension reforms achieved too
  little and arrived to late. The latter stabilized
  expenditures in the medium term, by maintaining a
  relatively generous system.
• However, by 2010
• Certain categories of retirees, especially single
  women, are at high risk of poverty.
• The possibility to deduct years spent
  childrearing, implies that the effective
  retirement age stayed low.
• ZPIZ has been running deficits since 1996, when
  the government decreased the contribution rate
  for employers. Projections forecast 20 of GDP
  total spending by 2050 and a deficit of at least
  8 of GDP.

19
Technical content

• The initial proposal of the 2010 reform was very
  radical (NDC FDC in 2 steps) but was diluted
  during negotiations
• Statutory retirement age 65 for all, compounded
  with steeper bonuses/maluses.
• Assessment base 30 best consecutive years (minus
  3 worst).
• Indexation 6040.
• Simplification of professional and supplementary
  schemes.
• Macro effects 2 of GDP lower overall spending.
• Micro effects delays individual retirement by
  2-3 years.

20
Policy disagreements

• Government
• While DeSUS backtracked on its own concessions
  (8020), ZDUS was in favour of finding a
  compromise (6040).
• Unions
• ZSSS as opposed to Pergam did not accept a
  quid pro quo to lift the request for retirement
  without decrements at 58/60 for women/men with
  38/40 years of service period.
• Employers
• Repeatedly warned that the Slovenian labour
  market is not ready to absorb elderly workers
  without additional incentives, such as
  progressively decreasing social security
  contributions.

21
Social dialogue and perceptions
The claim that social dialogue in Slovenia is
dead (Pergam) does not correspond to Pahors
initial intentions. Between March 2009 and
September 2010, the social partners held 50
meetings and the government produced 300
documents.
22
Failure

• ESC
• As the ESC could not reach agreement, Pahor sent
  a draft ZPIZ-2 to the National Assembly in
  September 2010.
• National Assembly
• DeSUS voted against, hence ZPIZ-2 passed with the
  votes of opposition party SLS.
• National Council
• Vetoed the law, approved by the Assembly
  (absolute majority).
• Referendum
• ZSSS collected 40,000 signatures. The
  Constitutional Court confirmed admissibility.
  72.2 voted against.

23
and consequences

• Pahors government resigned in September 2011,
  after a vote of no confidence.
• The new government will face the same problem of
  a fiscally unsustainable pension system in the
  following years (SDSs stance was the worse, the
  better).
• Indexation of current pensions has been frozen
  since 2010 and the erosion of valorization
  coefficients hasnt been stopped. Hence, a
  growing number of retirees will either have
  unacceptably low pensions (if no corrective
  action is undertaken) or will simply fall onto
  social assistance/minimum benefits.

24
So we entered a blind alley. . . . But there is
no real alternative to dialogue. It is something
that concerns us all, both present and future
generations. I wish that this time would be
employed to thoroughly figure out what kind of
dialogue we need and to also implement it. We did
not manage to develop a culture of compromise,
way too often is debate perceived as
confrontation, where one of the parts has to be
defeated, has to capitulate. And this is really
bad for our political culture. Danilo Turk,
President of RS
25
Thank you very much!