DISSERTATION OUTLINE

SOCIAL DEMOCRACY AND UNEMPLOYMENT IN SPAIN: AN INSTITUTIONAL ANALYSIS

I. INTRODUCTION

This research project seeks to address the fundamental issue that western society faces today: how to achieve the balance between economic and social necessity. It will also cut across some of the questions that have attracted the interest of political scientists for the past few years: are Social Democratic policies still feasible in a period of free movement of capital and increasing economic interdependence? Is the decline in social concertation an irreversible trend? If so, is there a feasible social democratic policy that can balance the interests of labor and capital? What are the conditions under which such a policy can be implemented?

In answering these questions, political scientists have been among the first to really focus attention to the possible effects that domestic institutions have on the efficiency and growth rates of economies, and particularly their impact on employment policy and unemployment. In this research project I seek to push forward this theoretical concern by studying the economic strategies pursued by successive Socialist governments in Spain since 1982 with a view to explaining the causes for the discouraging labor market performance of the Spanish economy during the 1980s. I seek to illuminate the reasons for the long-term failure of the socialist government to reduce the high levels of unemployment in Spain by answering two questions:

1) Why did successive social democratic governments fail in their attempts to tackle the highest levels of unemployment of the western world?

2) Do domestic political and economic institutions explain Spain's discouraging labor market performance?

The working hypothesis of this dissertation will be that the institutional framework constrained decisively the scope of the socialists' economic policies, and determined, at the end, their failure in reducing unemployment. I will argue that for conservative adjustment policies to be compatible with the interests of labor you need certain domestic institutions. Supply-side economic policies were very successful in countries--like Sweden or Austria--where the institutional framework was characterized by a high degree of concentration, coordination, and centralization, which facilitated social concertation. Social concertation, in turn, allowed those governments to control wages and, therefore inflation, without having to resort to restrictive monetary policies. This was not the case in Spain where the labor movement was weak and marked by competitive relations between unions, and the business sector was highly decentralized. Therefore, in Spain, the organization and strength of social factors within the domestic economy did not favor social concertation and this, in turn, forced the government to resort to restrictive monetary policies to control inflation, thus, hindering successive attempts to reduce unemployment.

By looking at an instance of a case of failure that has not been yet analyzed or by looking at how the case of Spain holds to our understanding of institutions I will seek to reveal mainly two important features on Spanish and Western European politics. First, I will shed further light in our understanding of how the institutional and political settings affect economic policy, and second, I will reveal the importance of domestic institutions in the ability of governments to respond to international challenges.

II. THE THEORY

One of the key questions in contemporary political economy has been whether it is possible a social democratic policy in an era of increasing capital mobility. In answering this question political scientists have focus on the institutional setting. They have sought to determine the institutional conditions under which the implementation of a Social Democratic policy was feasible, focusing on the economic and political institutional factors that affect economic policy making, and economic performance. For these scholars the key variable that determined the success or failure of social democratic policies has been the effective implementation of voluntary incomes policy. According to these authors, the institutional capacity of the country to implement an incomes policy depends the role played by the labor movement, its strength, and its organization. Social concertation, therefore, is viewed as the key component of an effective social democratic policy.

D.Cameron, 1984; P.Schmitter, 1981; M.Bruno and J.Sachs, 1985; D.Soskice, 1990, have sought to investigate the relative success of corporatist countries--i.e. Sweden, Norway, Austria--in dealing with the economic challenges of the previous two decades. To do so they have focused on the institutional role of labor. They have argued that the more corporatist the country--i.e.the higher union centralization, union concentration, inclusiveness, and labor participation in the decision making process--, the better economic performance, because union leaders will be more willing to cooperate. They have argued that in corporatist countries the incorporation of labor into the economic policy-making setting, facilitated the implementation of incomes policy and the control of wages and inflation without the need to resort to restrictive monetary policies.

Other political scientists,--D.Cameron, 1984; G.Garret & P.Lange, 1985, 1986, 1991, 1993; A.Hicks,1988;--have develop the above argument even further, and have argued that countries with a combination of institutional factors, such as corporatism, Social Democratic government, and encompassing labor movements enjoyed better economic performance. They have emphasized, not only the role and structure of labor, but also the presence of a Social democratic government in power which would provide labor with further assurances about the commitment of the government to the advancement of some of labor traditional goals.

More recently, M. Golden (1993) has sought to test the impact of union monopoly--i.e. the degree of fragmentation of organized labor--on social concertation and wage moderation. She argues that union monopoly is very important because in a non monopolistic labor framework even, if it is in the interest of unions to restrain militancy, they might find that they are unable to do so because of free- riding problems. She contends that in a non monopolistic labor environment unions have more incentives to engage in wage militancy because competition for members provides incentives to try to maximize their wages gains in order to retain members or to attract them from competing unions.

Other scholars--i.e. F.Scharpf, 1987, C.Boix, 1995, J.Pontusson, 1992, and P. Kurtzer, 1992--have also focus on the political and institutional conditions under which it was feasible to implement an effective social democratic policy. They have also emphasized the role of corporatism, the position of the countries in the international economy, and the role of labor. They recognize, however, that changes in the international economic setting--mainly due to the global integration of financial markets, the growth of foreign investment, the increasing exposure to trade of most economies, and the need for flexibility--not only have limited the effectiveness of domestic Keynesian demand management; they also had a very important impact on the position of labor vis-à-vis business and capital by shifting the burden of economic and social adjustment into labor. This in turn, has led to intensified conflicts within peak unions and made it more difficult to maintain corporatist arrangements. One of the most dramatic results of this shift has been the decline in social concertation in the western world.

A major shortcoming of this literature, however, is its overwhelming focus on the small states of Northern Europe. Since these countries--i.e. Sweden, Norway, Austria, Switzerland--were very successful in coping with the economic crisis of the 1970s, and were able to limit effectively unemployment and inflation, most of the literature has focused on the rationale behind that success. The emphasis has been, mainly, on cases of success and not so much on cases of failure. By contrast, few analyses--except for Britain, has focused on how institutions have impeded the implementation of Social Democratic policies. I propose to add to this literature by focusing on the case of Spain, where a long tenure Social Democratic government has resulted in the highest unemployment levels in Western Europe.

The Spanish case is suitable for studying this problem for various reasons. First, the Socialists have been in power for over 13 years--a longer period than any other social democratic government during the last decade. From 1982-1989 they held an absolute majority and received a high enough share of the vote to allow them to pursue a long term strategy. They also controlled the local government of the major cities, and most the regional governments. Yet, they still failed to reduce unemployment in the long run and failed to reform dramatically the institutional setting to accommodate it to their strategies. Second, when they first won the elections on 1982, they had the support of one of the major labor unions and some of the union leaders became members of Parliament. Nevertheless, Social concertation only worked until 1986. Afterwards the socialists failed to recruit the support of the labor unions to implement their economic policies. They even witnessed, for the first time since Franco's years, two general strikes. Finally, the Spanish case offers one of the few instances where a social democratic government remained in power for a substantive period of time that is markedly different from the small European states. The institutional, economic and political circumstances in Spain were very different from those of the northern and central European countries where social democratic parties had ruled for years. Hence, Spain offers an opportunity to research the impact of a different institutional setting in social democratic policies, and the difficulties to reform the institutional framework.

III. THE SPANISH CASE

When the Socialist party won the election in 1982--after almost 50 years out of power--the main slogan behind their electoral campaign was the promise to reduce unemployment--the promise to create 800,000 new jobs. These expectations were soon disappointed. The main economic objective became economic growth. The first Socialist governments sought to harmonize an expansive fiscal policy (increased public expenditure) with a restrictive monetary policy, with the objective of increasing the available per capita income by increasing foreign capital investment. The favorable international economic conditions during the second half of the 1980s--the reduction in oil prices and industrial products, the influx of non speculative capital investment as a consequence of Spain's entry to the EC, and the appreciation of the peseta--all favored the goal of economic expansion. But these policies also resulted in macroeconomics unbalances that became evident in the early 1990s when the international economic recession hit Spain.

Along with these macroeconomic policies, the first Socialist governments also sought to implement profound economic reforms to modernize the Spanish economy, which was lagging behind in most economic parameters compared with its European counterparts. They promoted reforms in the fiscal system, liberalized trade, restructured the labor markets and modernized the industrial sector. They also revamped the financial system and capital markets, and expanded significantly the welfare state. Integration in the European Community--which was viewed as necessary to consolidate the new democracy and to achieve economic modernization--was also a stated Socialist objective. The objective was to increase Spain's competitiveness. Control of inflation, fiscal moderation, and limits to the current-account deficit were considered the right measures to increase competitiveness and growth, and create jobs (J.M.Maravall, 1993; and G.De La Dehesa, 1994).

These policies combined with the entrance of Spain in the EC in 1986--with the financial transfers that it represented--promoted economic recovery in the second half of the 1980s. Yet, growth was accompanied by mediocre performance in the area of employment. While unemployment was already rapidly rising during the transition to democracy--from 1974 until 1982 average unemployment was 8.4% compared with 5.6% in the European Community, and by 1982, it had reached 16.2%,--it got much worse under the socialists. By 1985, just before Spain joined the EC unemployment was 21.9%. At the height of the economic boom unemployment remained very high at 16.3%, and when the recession hit Spain in the early 1990s, unemployment increased dramatically reaching 24.3% of the active labor force by 1994, compared with 10.9% in the EU. The growth in real wages, the inflexibility of the labor markets, low investment, changes in the occupational structure, and the reversal in the flow of emigration all contributed to the increase in Spanish unemployment. Nevertheless, this increase had to do not so much with the evolution of the labor force but with the loss of jobs (R.Tamames, 1995).

It has been argued by many authors (J.M.Maravall, 1993, G.De La Dehesa, 1994, C.Boix, 1995) that the socialist economic policies were successful in enhancing the competitive position of the Spanish economy vis-à-vis its European counterparts. Inflation was reduced, the budget deficit was controlled, foreign investment increased dramatically--which was a major factor in the modernization of the productive structure, industrial sectors were restructured, Spain was integrated with the EC, trade liberalization has been almost total, the labor market was also reformed.

These analyses see unemployment as a short-term cost that the government adjustment policies would solve in longer term--i.e. a strategic gamble or a long term strategy. Nevertheless as of 1995, the pendant subject, unemployment, has not been yet resolved. With unemployment expected to reach 24.1 percent of the labor force this year, it could be conclusively argued that the socialists' policies have failed to tackle it. The question remains WHY? Why did policies that have allowed other countries to adjust or limit unemployment failed in the long run? The working hypothesis for my proposed research is that the institutional framework constrained decisively the scope of those policies, and determined, at the end, their failure to reduce unemployment.

The institutional setting existing in Spain when the Socialist came to power in 1982 was not conductive to the kind of supply-side economic policies that the socialists attempted to implement. Those policies were very successful in countries where the institutional framework was characterized by a high degree of labor union inclusion, concentration, coordination, and centralization, which, in turn, facilitated social concertation. Social concertation was, thus, the instrument of an effective employment policy in those countries. The institutional setting in Spain, however, was very different. The labor movement was characterized by competition, fragmentation, decentralization, and labor exclusiveness from the decision making process. Furthermore, labor unions were financially dependent from the State and this enhanced the bargaining position of the government vis-à-vis the unions. Finally, the competitive relationships among the major unions, which competed for representative in the work councils, did not favor concertation either by intensifying rivalries among unions and by forcing unions to compete for members. At the end, it impeded the implementation of the policies that had proven so successful in the small European states.

The signing of the Pact of Moncloa in 1978 between the government and the opposition--with the agreement to keep wages rises below the level of inflation--had already confirmed from the beginning of the democratic transition the limited role of unions. From 1978 until 1986, however, the unions signed 5 centralized agreements with business and the government. These agreements involved wages, and income policies as well as non-wage issues--i.e. reduction in the numbers of hours worked, job creation, investment, collective negotiation. These agreements were successful in bringing wage bargaining into line with the expected inflation rates. From 1986 on, however, this neocorporatist attempt was abandoned and Spain witnessed a period of decentralization and labor turmoil. Several explanations have been offered to explain the breakdown of concertation in Spain: the dismissal of the 'Fordist' mode of production, the increasing differentiation and segmentation of the working class, the beginning of a period of fast economic growth in Spain, the increasing importance of 'flexibility' for business, a 'crisis of representation' caused by the revolt of the rank-and-file, the increased weakness of the labor movement, the 'dislocation' of Spanish unions (Moscoso, 1995), and the perception from government official that "the cost of neo-corporatism were higher than its benefits" (Maravall, 1992). In this dissertation I will seek to analyze the institutional factors that constrained the social actors forcing them to behave in a way that resulted in the breakdown of concentration.

The important factor was, however, that since the success of the supply-side policies pursued by the social democratic government required control of inflation to guarantee macroeconomic stability and investment, the failure to achieve social concertation, due to the inadequate institutional framework, damaged the perspectives of controlling inflation without resorting to high interest rates and restrictive monetary policies. In Spain, the ending of social concertation after 1986 forced the government to resort to restrictive monetary policies in order to control inflation and guarantee macroeconomic stability. This in turn hindered productive investment and damaged employment.

IV. HYPOTHESIS

My dissertation will center around four variables:

1) Industrial relations institutional setting characterized by union weakness and competition

2) Failure of concertation

3) Restrictive macroeconomic policies

4) Unemployment

In other words, did institutional conditions cause the failure of concentration? If so, did restrictive macroeconomic policies lead to unemployment? My working hypotheses will be that the institutional setting led to failure of concertation. More specifically, I hypothesize that:

1) Labor unions' weakness and lack of autonomy from the socialist government hindered social concertation by giving the government an incentive to take advantage of any deal struck with unions. The observable implication of the hypothesis will be that the government failed to fulfill their compromises with labor. If my working hypothesis is correct, then I will expect that the weakness of the unions led the government to defect in carrying out its promises to unions. If it is not true, the government would not defect. The observable implication is that after the first agreement, the government did not kept its promises.

2) The division within the labor movement caused unions to compete in search of votes for the work councils and this further hindered social concertation. Union fragmentation and decentralized collective bargaining further hindered social concertation by intensifying rivalries among unions and by forcing unions to compete for members. The observable implication of the hypothesis would be that the stance of unions in negotiations with government was affected by their strategies to keep or maintain membership. If my working hypothesis is correct, I will expect strong union competition for members in the work councils. I will also expect unions leaders' decisions regarding social concertation to be based more on its possible effect on the elections for the work councils, than on considerations of macro-economic management. If it is not true, I will expect cooperation among unions, and also that labor leaders based their decisions based on considerations of macro-economic management. The observable implication is that unions did not cooperate and that after the first centralized agreement, one of the two major unions--expecting gains in the upcoming work council elections--failed to support an agreement that the other major union has reached with government and business.

V. RESEARCH INSTRUMENT

In order to test these hypothesis I will start by collecting and analyzing data concerning labor unions and business organization, their organization, leadership, structure, support, internal functioning, resources, and influence in policy making. Then I will proceed to collect information from secondary sources--i.e. technical data, statistics; and by interviewing leaders and members of the economic policy making establishment, including business and labor representatives.

For business organizations I will need to get information about their size, membership, sectors of the economy-industry that they represent, their resources, their main markets, their position towards labor market reforms, their international markets and interests, their relations with labor unions, the degree of fulfillment of agreements with labor unions, and their views about social concertation. For labor unions I will need to get data concerning their economic resources, their linkages to the Socialist party, their affiliation levels, their economic outlook, their views about the role of the state, their views about social concertation, their relationship with the other unions, and their dependency on state's resources, their views about Spanish integration into the European Community, their position about active labor market policies, and labor laws.

I will research and analyze reports published by the Instituto Nacional de Estadistica, Ministry of Labor, Bank of Spain, Ministry of Economy, Ministry of Industry, the CEOE, Direccción General de Aduanas, Consejo Económico y Social, CSIC, OCDE, Instituto Nacional de Estadística,, Instituto Nacional de Empleo, Instituto Nacional de Fomento de la Economía Social, Instituto Nacional de la Seguridad Social the European Union, the IMF, and the World Bank. I will aso obtain information from specialized publications such as: Revista de Economía Industrial, Revista del Colegio de Economistas de Madrid, Revista Información Comercial Española, Boletín de Información Comercial Española, Duns 30,000 Principales Empresas Españolas, Boletín de Estadisticas Laborales, Actualidad Economica, Cinco Días, Revista de Trabajo, Revista de Seguridad Social, Estudios de Econia del Trabajo en España, Perspectivas del Empleo, and Papeles de Economía Española. I will also gather information from private institutions such as: Instituto de Estudios Economicos, Instituto the Empresa, CIRES, Centro de Investigaciones Sociales, ESADE, and Escuela de Organización Industrial.

I will also establish contact with the following business organizations: Confederacion Española de Organizaciones Empresariales, Circulo de Empresarios, Camara de Comercio, Instituto de Estudios Economicos, Comisión Nacional del Mercado de Valores, Asociacion Española de la Banca, Confederación Española de la Pequeña y Mediana Empresa, Asociación Española de Fabricantes de Automóviles, Camiones, Tractores, y sus Motores, Confederación Catalana de La Construcción, Confederación de Empresarios de Andaliucia, Confederación Emprearial de Barcelona, Confederación Empresarial Independiente de Madrid, Escuela Superior de Administración y Dirección de Empresas, and the Instituto Nacional de Industria. I will also seek data from the following labor organizations: Unión General de Trabajadores, Comisiones Obreras, Confederación Nacional de Trabajadores, Confederación de Sindicatos Unitarios de Trabajadores, Fomento del Trabajo Nacional, Sindicato Unitario, and Unión Sindical Obrera.

I will also seek information from leaders and representatives of the following political parties: Partido Socialista Obrero Español, Partido Popular--and its predecesor Alianza Popular, Izqierda Unida and Partido Comunista Español, Partido Nacionalista Vasco, and Convergencia i Unió. I also plan to conduct interviews with high ranking officials from state agencies: Ministerio de Trabajo y Seguridad Social, Ministerio de Economia, Banco de España, and the Ministerio de Energia e Industria.

The analysis of this data will allow me to determine whether my working hypotheses are valid. The field research, coupled with my interviews with the people involved in the process should allow me to find out data regarding the unions' financial dependency, the strong inter labor competition for the work councils, the government and business' lack of fulfillment of their compromises with labor, the increasing dislocation of the unions, the defect of workers, the revolt of rank-and-file, the increasing fragmentation and segmentation of the labor force, etc. This data will allow me to confirm my working hypotheses. If, on the contrary, I find out that labor unions were strong, independent from the government, financially robust, with growing membership, and that they were willing to cooperate and reach compromises with business and the government. Then I will not be able to explain the breakdown of social concertation in Spain, and therefore, my attempt to explain the failure of the socialists policies to reduce unemployment based on the institutional setting would fail and should be attributed to other causes.

It is important that the empirical part of this dissertation will take place in Spain for two main reasons. First, I have to conduct interviews with individuals who reside in Spain. Second, the insufficient information about Spanish labor and business organizations, as well about Spanish policy making process available in US libraries. I need to gather extensive secondary information regarding the historic evolution of the Spanish Socialist Workers Party, the evolution of the Spanish economy during the last two decades, the economic and political considerations of Span's entry to the EC, the participation of labor and business in Spanish economic policy making, policy making processes, and the formal aspects of Spanish economic institutions and agents.

Before starting my field research in Spain I plan to focus on the analysis of the historical aspects that will provide me with the background to foot the dissertation research. I plan to study and research: the Spanish recent economic history, the trajectory of the Socialist Party, the legacy of Francoism, labor legislation, and the decision-making process in Spain. I also plan to concentrate on strengthening the \theoretical underpinnings of the dissertation. I will also begin the analysis of Spanish institutions and organization structures. I will also work on the questionnaire for my interviews.

I plan to complete that first stage of the dissertation within the next four months. Afterwards I plan to go to Spain for at least 3-4 months starting next June. When I have completed my field research in Spain, I plan to come back to Boston to complete the dissertation.

VI. CONCLUSION

The analysis of unemployment in Spain will will contribute to a better understanding of the ways in which the organization and strength of social-economic factors influence economic policy outcomes within the domestic economy.