Can welfare-state reforms in Europe be explained by government attempts to improve economic efficiency? Discuss with respect to a social policy reform in two countries.
Pension systems were first introduced in Europe in the late 19th and early 20th century. In the post-war ‘golden era’ of welfare they were subject to wide expansion and increases in the benefits offered. They became the largest source of state welfare expenditure in Europe. However, by the 1980s the ability of these pension schemes to cope with the changing demographics and economic situation was placed under question. Reform was accepted as essential if pension schemes were to remain financially ...view middle of the document...
On the one hand increases in life expectancy, declining fertility rates, and the trend towards early retirement have triggered an increase in the pensioner/worker ratio (Breyer, 2001). This has led to huge increases in the costs involved in sustaining public pensions and necessitates reform in one form or another. Meanwhile, changing social structures such as increased divorce rates, higher levels of atypical work and more females participating in the workforce also led to a realisation that pensions required reform (Schokkaert, E. & Van Parijs, P: 2003:252). Low employment growth has also been a factor in the need for reform.
Despite realisations since the 1970s of the problems these changes presented to pensions reform was and is a notoriously difficult process. This is because there is no clearly defined path or one-size-fits-all solution (Barr, 2010) and the difficulty in successfully negotiating the intensely divisive politics of pension reform.
3. Objectives of Reform
According to Barr (2010:197) pensions have a range of primary objectives. These are to enable consumption smoothing, provide old-age insurance, poverty relief and to redistribute. Reform should then try and create an efficient pension system that uses available resources in the best way possible to achieve these objectives in the face of the aforementioned demographic and social changes. Given the underlying principle of pension schemes in Europe, namely ensuring a certain standard of living for the elderly, pension reformers should consider issues both of economic efficiency and social justice or equity. Thus, reform should aim to restore economic equilibrium via cost containment while also expanding to incorporate those uncovered as a result of changing social structures. Barr (2010:102) states that an increase in efficiency may only be possible at the expense of social justice. Schokkaert, E. & Van Parijs, P (2003: 260) meanwhile argue that focusing on social objectives, with utmost respect and recognition for the demographic necessities, will result in a more effective arrangement that will be ethical and supported by the people. Thus, there is a political-economic question of to what extent are pension reforms driven by economic efficiency or social justice.
This idea of a trade-off is the central factor in the difficulty in reforming pensions. Regardless of what cuts or extensions are involved pension reforms at least appear (Johnson, 1999) to create winners and losers. So, pension reform generally provokes intense reactions from workers, the elderly, labour organisations and opposition political parties. This is particularly a problem in Bismarckian countries where pension systems focus on pay-as-you-go (PAYG) systems, which are entrenched and mature (Schludi, 2005:44). The rationale of this system is that retiree pensions are funded via the contributions of current workers. Although this is unsustainable and inequitable...