Reforme instituționale

Attacks upon the Romanian Welfare State and the Trade Union Decline

VALERIU FRUNZARU
[National School of Political and Administrative Studies Bucharest]

Abstract:
The global economic crisis has dramatically affected the Romanian economy and consequently the Romanian labour market. The Romanian right-wing government tackled these challenges by cutting 25% of the public sector salaries and introducing new laws that radically changed the labour rights. Therefore, the economic crisis and the global economic competition are causes and justifications for the implementation of the new policies that gave less social rights to the employees and made them less protected by unions. In a broader perspective, the welfare state regime became more liberal with a lower level of decomodification.

Keywords: welfare state; industrial relations; decomodification; economic crisis; globalization

Introduction

The wave of the economic crisis struck Romania at the end of 2008 and the beginning of 2009 after eight years of economic boom, when the Romanians finally enjoyed the good face of capitalism. The economic downfall that started at the end of 2008 represented for this ex-communist country another reference point in its recent history. Romanians usually refer to their recent history by saying before and after the fall of the communist regime, before and after the adherence to the European Union and now before and after the economic crisis. This paper is about the welfare state retrenchment and the trade unions decline caused (or justified, we will see) by the economic crisis of the last years, in a country that since 1990 has been in a transition from a communist regime to a capitalist and democratic regime.

The building of the Romanian  democratic welfare state was influenced in the last two decades by political, social, and economic local factors, by external institutions, countries or experts (e.g., International Monetary Fund, World Bank, EU), and in the last four years by the economic crisis. All these factors together tailored a welfare state that I will try to classify in a welfare state typology. 

Romania is a Latin, ex-communist state and since 2007 a new EU Member State, facts that have had an impact on the development of the Romanian welfare state. First, belonging to the Latin group countries could be a cultural factor that raises a possible thesis that Romania can be part of what Stephan Leibfried called Latin rim welfare states that can be found in Spain, Portugal, South of Italy and Greece¹. Second, as an ex-communist country, Romania suffered a very difficult economic transition with financial support from International Monetary Fund (IMF) and World Bank (WB), support conditioned by the implementation of macro-economic policies, ignoring the institutional development or the local specificities. Lazăr Vlăsceanu² criticized IMF and WB for their lack of interest in the institutional development, Cătălin Zamfir³ for the fact that they tried to impose their own solutions even if they had no legitimacy and Marian Preda⁴ for the confusion created by the multitude and sometimes contradictory recommendations that came from these  international actors (and not only from them). Third, the adherence to the EU was associated with Europeanization through the adoption and adaptation of the Community acquis, for example the values and the rules stipulated in chapter 13 of negotiations: Employment and social policy.

Beyond the internal and the external factors that shaped the welfare state, the financial and economic crisis that hit Romania as from the end of 2008 was a cause or a justification (as unions say) for new laws and policies in the field of employment, social security, social work and social dialog. Between 2003 and 2008 the GDP growth was over 6,5% on average, with the highest values in 2006 (7,7%) and 2008 (7,1%). The financial crisis associated with the economic crisis diminished the foreign investments and the Romanian migrants’ remittances from the Western Europe countries, stopped the possibility to take bank loans for buying houses and restricted the loans for consumer goods. The decline of Romania’s GDP was 7.1% in 2009 and 1.3% in 2010, which raised the problem of financially supporting the state employees and pensioners. In 2011, the Romanian GDP increased by 2.5%, especially due to the prosperous agricultural year and for 2012 the GDP growth is estimated to approx. 1.5%, but this estimate that is difficult to achieve because of the very hot and dry summer with a negative impact on agriculture and because of the economic crisis in the Euro zone.

The paper is divided into four parts. The first section reviews the literature on the welfare state typologies with the aim of finding the category that Romania belongs to. In the second section I will underline the changes in the industrial relations and how these transformations influence the welfare state. The third section presents the impact of the economic crisis on the Romanian welfare state and trade unions. In the last section, I will present my conclusions on how the economic crisis is associated with the attack upon the Romanian welfare state and with the decline of the trade unions.

Welfare state typologies. What kind of welfare state is in Romania?

The classical welfare regimes typology made by Gøsta Espig-Andersen⁵ on capitalist democracies considers, given the level of decomodification of labour, that there are three groups of welfare states: socialist, corporatist and liberal. At these three categories Stephan Leibfried added the Latin rim welfare states that can be found in Spain, Portugal, South of Italy and Greece⁶. In Latin welfare states, women have a traditional family role (as a consequence there is a higher level of gender inequality in the labour market), there is a higher level of employment in agriculture and politicians make generous promises that correspond to socialist welfare state, promises that are not kept.

The welfare state typologies made by Espig-Andersen and Leibfried were critisised for not taking into consideration others factors such as the confucianist welfare state and the musulman redistribution through zakat⁷⁸. Other critics emphasize the economic and political changes from the last two decades that dimisished the redistribution role of the welfare state and increased the competition state, where social investment policies such as education and training have a higher role in enabling citizens to get the welfare⁹. Bob Jessop says that the contradictory relationship between capitalism and welfare state „created political openings for attacks on social welfare in so far as critics emphasize its fiasco-financial costs rather than its contribution to economic performance”¹⁰. The economic, political and social changes undermined the Keynesyan Welfare National State (KWNS) and changed it to Schumpterian Workfare Post-National Regime (SWPR) with less social rights. The economic global competition, crisis in post-war compromises between industrial capital and organized labour, resistance to top‑down state planning, to bureaucracy, inflexibility and the cost of the welfare state, the weak of national society, and the changes in the  values and social identity are some of the factors that make possible the development of the SWPR¹¹.

Hudson and Kühner¹²¹³ consider that the political, economic and social changes sustain the idea that the welfare state has changed from a protective to a productive one.  Therefore the „existing measures of the protective elements of social policy cannot help us much in understanding the productive elements of social policy found in welfare states” and „ because the United States was classified as a liberal welfare state with relatively lean social protection it does not automatically imply that its investment in human capital will be equally restrained”¹⁴. Consequently, the welfare state typologies that only take into consideration the redistribution dimension are biased as they ignore the investment dimension of the welfare state. Anthony Giddens argued that a globalized knowledge-based economy requires a new post-industrial welfare society that corresponds to a new way, a third way that exceeds the socialist (left-wing) and the liberal (right-wing) welfare state¹⁵. Welfare should be obtained through the distribution of skills, capacities and productive endowments and not through financial redistribution or by offering free services. Investment in education enable people to get jobs and being employed is the best way to be socially included. Therefore, the emphasis given by Hudson and Kühner to the transition from the protective to productive welfare state is a consequence of the economic, social and ideological changes, as well.

The new reality raises methodological problems because a state can have both productive and protective elements, but “if a welfare state is ‘weak’ in one area, it cannot ‘make up’ for this by being ‘very strong’ in another area”¹⁶. The authors utilize fuzzy set ideal type analysis in order to offer a multidimensional analysis of the welfare state activity that allows a classification of nations based on multiple, even conflicting components. The protective welfare state is measured by indicators related to income protection and employment protection, while the productive welfare state is measured by indicators related to educational investment and training investment. The findings show that the shift to productive welfare is not a general phenomenon: “While theorists are right to suggest our attentions need to be cast more firmly towards the productive dimensions of welfare, those claiming that there has been a paradigmatic shift of welfare states themselves towards productive welfare have, it seems, been somewhat hasty in drawing their conclusions”¹⁷.

Based on the figures from 2005 for training investment, 2007 for educational investment and 2008 for employment and income protection, Hudson and Kühner consider that in Romania there is a weak productive-protective welfare, with a very low level of income protection and training investment, and with a good level of employment protection¹⁸. Therefore, Romania is more protective than the Czech Republic, France and Germany, but less protective than the Netherlands, Austria and Latvia. At the same time, Romania is more productive than Hungary and the Slovak Republic, but less productive than Danemark, Estonia and Norway.  

The innovative methodology developed by Hudson and Kühner has the advantage of the multidimnesional clasification – a state coud be at the same  time protective and (not) productive or, for example, „productive plus employment protection” (with training, education, and emplyoment protection, but without income protection). Another advantage of this methodology and clasification is that it considers the investment dimension of the welfare state that is going to be more present in some of the analysed states. The disadvantage of this classification is that it does not take into account the cultural traits of the welfare states. The Latin welfare state coined by Leibfried¹⁹ takes into account the importance of the values and not only the economic and political dimensions. In the Southern European countries, a similar welfare state could be found with similar employment, economic, and political characteristics. Isabel Tavora (2012) considers that in Spain, Portugal, Italy and Greece, family has had a strong economic role in shaping the structure of employment²⁰. Therefore, women have family roles and dependent status promoted by the Church, as well. In general, on the labour markets from these countries the share of part-time work is relatively low, the levels of self-employment, temporary employment and undeclared informal work are high, there are low wages in agriculture, underemployment and seasonal work, often informal and unprotected²¹. Another similar background is the late industrialization where the fully proletarianized working class has never materi­alized. And as far as the recent history is concerned, the Latin welfare state experienced right-wing dictatorships.

Does the Romanian welfare state have a similar background with the Southern European countries? I will start by talking about the common political background. Romania experienced both right- and left-wing dictatorship, the first one during the World War II and the second one after the World War II till the end of 1989. Therefore, Romania experienced dictatorship regimes for a longer time. Even if under communism the proletarians ware seen as a positive working class, there was a high level of employment in rural areas, situation that did not change much after the fall of the communist regime. In 2009, according to the Romanian National Institute for Statistics, the employment rate for the population aged between 15 and 64 was 57.1% in urban areas and 60.8% in rural areas. For the population aged 64 and over, the employment rate was 1.4% in urban areas and 23.4% in rural areas. The fact that in rural areas the employment rate is higher, especially for older population, is explained by the fact that an employed person could be any person who works in agriculture at least 15 hours per week, as well. If 34.4% of the total employed persons work in agriculture, only 1.4% of women and 3% of men work as wage-earners in agriculture (Table 1), the rest of them work especially in the subsistence agriculture.

Regarding the gender issue, we can say that women, compared to men, are more present as employees in the fields of education, health and social work and less in constructions, transport and real estate (Table 1). The gender pay gap is larger in the economic sectors, where women have a higher employment rate. For example, in manufacturing, where 27.9% of women work, the gender pay gap is of 21.8%.

Table 1. Distribution of employment by economic sector and salary comparison by gender in Romania (2008)

Source. Romanian National Institute for Statistics

If we compare Romania with the Southern European states, we can see that there are similarities with Portugal regarding the gender pay gap in the whole economy and in industry and with Spain regarding the female employment rate (Table 2). The comparison should be done taking into consideration that in Romania the female employment rate would be much lower if we considered the large number of agriculture employees who are not wage-earners. Similar to Portugal, women are concentrated in labour-intensive, low-paid industries such as textiles and clothing and the de-familializa­tion has been incomplete²².

Table 2. Female employment rate and gender pay gap (%)

Source. Eurostat

The comparative analysis reveals similarities between the Latin welfare states and Romania regarding historical experiences, the importance of the agricultural sector and gender inequalities. On average, the gender pay gap is relatively low in Italy, Portugal and Romania, but there are sector where women are paid much less than men (e.g. in industry).

Industrial relationships and welfare state

One of the main debates in literature regarding industrial relations refers to its decline that led to a major reassessment of the way the traditional industrial relations actors operate. Allan B. Bogg analyses the end of the statutory union recognition in the United Kingdom and concludes that the transition to the new model of industrial relationship has not been achieved: “We are in what Gramsci might have described as an ‘interregnum’ in which the old is dying, and the new cannot be born”²³. Anna Ilsøe presents the decentralization of the collective bargaining in Denmark that led to different forms of flexicurity for different groups of employees, agreements that bring a greater efficiency and employee satisfaction²⁴. The cases of Germany and The Netherlands are important lessons about how industrial relations influence the development of the welfare state²⁵. As Christine Trampusch mentioned, the collective negotiations organized at sector level are forms of delegation of the financing and regulation of welfare to these actors who were considered as responsible for unpopular cuts: “Welfare retrenchment is not only a shift of welfare states to more market-oriented systems, but also a process of delegation of the financing and regulation of welfare to actors who are collective by nature. Collectively negotiated benefits offer politicians a means of avoiding blame by creating a mechanism of compensation for unpopular cuts in public programmes. Through collective bargaining, trade unions and employers may help to make major cutbacks more acceptable to employees. They may decrease the electoral costs of retrenchment for governments”²⁶. But the industrial change in Germany does not mean that we witness the end of corporatism, but at a new way of corporatism. If in 1990 65.5% of all jobs in Germany were covered by central collective bargaining agreements, in 1998 this was true for only 32.2% of all jobs²⁷. Christine Trampusch points out the shift from liberal to a post-liberal welfare regime in Switzerland where trade unions have become proponents of national social policy legislation. The effect is that in the continental dimension of the Swiss welfare state “trade unions opposed public welfare schemes and favored private welfare provision linked to their own associations and the collective bargaining system”²⁸.

Important changes take place in the most populated countries, China and India, where the cheap labour force represents a very important factor that make commodities manufactured in these countries very competitive in the global economic competition. Even if there is a Labour Law (1995) in China in the private sector the union membership level is much lower than in the state sector, while the official statistics say that only 12.3 percent of the enterprises have set up a basic system of pension, medical and unemployment insurance for their workers²⁹. Elizabeth Hill underlines that in India the industrial relations are confronted with two big challenges: unorganized (informal) workforce and the liberalization to address the dynamics of a globalizing economy³⁰. In this country the government can prohibit strikes and refuse permission for lay-offs or retrenchments or closure, and the industrial relations system applies to around 7.6 percent of the workforce, the rest of the employees are working in highly exploitative, insecure jobs for very lowwages³¹. 

Michael Barry and Adrian Wilkinson underline the employers’ desire for more decentralized and deregulated systems of industrial relations in recent years and at the same time the fact that unions and the employers’ associations “became unfashionable as neo-liberal inspired rhetoric came to dominate public policy debates surrounding industrial relations in the 1980s, and as employers sought a range of ‘flexibilities’ as they confronted uncertain and more competitive economic conditions”³². In the same topic, Chris Howell mentions that in this period states become more interventionist in restructuring the labour market in the interests of a post-Fordist flexibility³³.

The welfare retrenchment and the lower power of unions in the context of the global economic competition could be offset by the Europeanization of industrial relations at transnational company scale. Isabel da Costa et al. mentions that despite the EU legislation (e.g. the absence of a right to strike at the EU level), the number of transnational agreements in metal industry signed in the past decade increased³⁴. Regarding the development of a European system of industrial relations, Deborah Hann indicates that inability of trade unions to define a clear strategy for the European Works Council³⁵.  A more pessimistic approach have Paul Copeland and Mary Daly, who consider the EU strategy for 2020, which will take at least 20 million people out of the poverty and exclusion, does not deepen the Europeanization of the social policies. They consider that this target was a result of a political opportunism and a substantive measure to reach it is internally complicated and the policies remains at the initiatives at the Member States³⁶.

To sum up, the welfare state and the trade unions are under the pressure of the globalised knowledge-based economy and of the lower wage export-oriented East Asian economies. In Germany, The Netherlands and Switzerland, trade union activity become more decentralized and organized at sector levels, which involves a new kind of corporatism. Therefore, the new industrial relationships are not just influenced by the new welfare state, but they influence the welfare state, as well. A chance to face the global competition within EU is the union cooperation at community level. In the EU, unions are more cooperative when it is about companies that have employees in several Member States, but the EU legislation is still restrictive regarding the right to strike at the EU level.

Economic crisis and the new Romanian policies

The first impact of the financial and economic crisis on Romania was at the end of 2008, but because the GDP growth for the entire year of 2008 was 7.1%, it was not until 2009 that the crisis was felt. The decline of Romania’s GDP in 2009 was 7.1%, which raised the problem of budgetary expenditures for state employees’ salaries, social protection (especially pensions) and investments. To gradually adjust the budget deficit and to overcome the problem of the current account deficit, the Romanian Government borrowed almost EUR 20 billion from the IMF, the World Bank and the European Bank for Reconstruction and Development. But these loans were conditioned by implementing very unpopular policies in order to limit the budgetary deficit and the rising inflation. After the doubling of the wage costs in the public sector between 2005 and 2009, the Romanian government, according to the letter of intent sent to the International Monetary Fund (IMF) on April 24, 2009, undertook to:
1. increase the social security contributions by 3.3%;
2. reduce incentives and other benefits and cut 137.000 vacating jobs;
3. eliminate salary increases in the public sector scheduled for 2009 (or an equivalent reduction of the number of employees);
4. reduce the number of employees in the public sector, including by replacing only one out of seven employees that leave the public sector;
5. apply a new unitary salary scale (the quota of the non-salarial costs will no longer exceed 30% of the total public remuneration);
6. continue the parametrical reform in the public pension system, including by increasing the retirement age, especially among women.

But these measures were not considered sufficient for the budget balance and the Romanian Government, in the letter sent to IMF on September 9, 2010, mentions that they reduced the public salaries by 25%, the number of employees by 27.000, social remunerations by 15% and increased the VAT from 19% to 24%, so that at the end of the year the budget deficit be topped at 6.8% of the GDP. The public sector wage cuts, the elimination of incentives and other benefits (such as overtime pays), and the VAT increase almost halved the purchasing power for many Romanians.

These measures that directly affected all Romanians were accompanied by the introduction of new laws in the social field: the pension law (2010), the labour code (2011), the social work law (2011) and the social dialogue law (2011).

In Romania for every pensioner there is only one employee, which raises big questions regarding the sustainability of the PAYSG pension system. The first parametrical change in the public pension system was made by the 2000 pension law that increased the retirement age for women and men and introduced a new formula for calculating the pension benefits taking into account the entire professional career. The new pension law from 2010, which introduced the unitary system of public pension, extends the same formula for calculating the pension to employees of military institutions. While the previous pension law increased the retirement age from 62 to 65 for men and from 57 to 60 for women from 2000 to 2013, the new pension law increases the retirement age for women from 60 to 62 until 2030.

The new labour code modified by the law no. 40/2011 raised lots of public debates. The Government considered the new code necessary in order for Romania to be competitive in the European and global labour markets, while trade unions said that this was a slavery code. The new labour code introduces more flexibility in the labour market (Table 3). Employers can increase the trial period, reduce the working time and salaries accordingly, make collective redundancies, increase the fixed-term individual employment contracts and cannot be constrained by national collective agreements (except those regarding the minimum salaries) and by (local) unions in establishing their work regulations. Therefore, the employees and trade unions have fewer rights and because the collective agreements were eliminated the employees have less power to negotiate their individual employment contracts. Moreover, the new social dialogue law (2011) removes the possibility of the sole collective contract at national level and allows only sectoral contract agreements. According to the Cartel Alfa trade union confederation, the new social dialogue law led to a decrease in the number of employees covered by collective agreements form 98% to about 36%³⁷.

There are new regulations in favour of the employed persons, as well. An employee can have concurrent jobs within several companies or a single company. The new labour code stipulates fines or imprisonment as sanctions in case of absence of individual employment contracts for more than 5 persons (irrespective of their nationality), payment of wages below the level of the legal minimum gross wage for employees hired based on individual employment contracts or refusal to grant access to labour inspectors to the premises of companies or to deliver the documents required by them.

Table 3. Labour code changes in Romania during the economic crisis

 

The new social work law (2011) corresponds to the Romanian Government Strategy regarding the social work reform from 2011. This strategy objectives for 2013 are to reduce the social spending by 0.78% of the GDP  (all social work expenses in 2010 amounted to 2.86% of the GDP), to focus the social work on the first deciles and to lower by 100,000 the number of persons aged between 16 and 65 who receive social benefits. The 2011 social work law brought many changes, but I will only underline three of them: it introduces the principle of subsidiarity, it defines poverty in absolute terms and it introduces tougher rules for the means test. Subsidiarity is a principle according to which for welfare are responsible the person, the family, the local community and the local associations and “complementary” the state. Poverty is defined as the lack of resources strictly necessary to buy the goods needed to ensure a minimum standard of living in a period of time. The new law establishes that the means are tested by taking into consideration not only the individual or family incomes, but also the assets and incomes that could be obtained by using owned movable and immovable property. In government terms, the new strategy and social work law are meant to promote social inclusion through active measures and have as main objectives to reduce poverty and to promote working as best way of social protection. Because of the new rule regarding the means test and because poverty is defined in absolute terms, less people will be eligible to receive social benefits and, as the strategy stipulates, more people will no longer be dependent on social benefits and will enter the labour market.

Discussions

The welfare state typologies made by Gøsta Espig-Andersen and Stephan Leibfried are challenged by the transformations that we’ve been witnessing in the last decades. The knowledge-based economy, the post-industrial society, the global economic competition and the success of the neo-liberal ideology are factors that led to the retrenchment of the welfare state or to the creation of a competition state with social investment policies.  John Hudson and Stefan Kühner talk about a productive welfare state and Anthony Giddens about a third way, where welfare state means investments in skills and education. In a conference sustained in 1955 by Richard Titmuss, the author underlined the confusion made by the UK Minister of Finances about what is and what is not social spending³⁸. Nowadays, Jenes Alber maintains that there are stereotypes regarding the US welfare state that is wrongly considered “residual”³⁹. Alber claims that the “work-conditioned” welfare state is a more appropriate expression for the empirical facts form USA and underlines that if we take into account the impact of taxes and publicly mandated schemes, the net total social expenses from USA are close to those from the European countries. Therefore, we can say that the change in the empirical facts and in the ideologies that dominate the public sphere led to new welfare state typologies.

The welfare state retrenchment is associated with a change in industrial relations in some countries (e.g. Germany and the Netherlands). The new industrial relations are factors that have influenced the welfare state, as well. Within the nation state, the trade unions activity becomes more decentralized and organized at sector levels. At the European level, trade unions try to organize themselves, but sometimes they do not have a clear strategy. In the global economic competition, a closer cooperation of the trade unions at least at the European level is a chance for negotiating with multinational companies.  

Romania has similarities with the Latin (Southern) European welfare state and, according to Hudson and Stefan Kühner, Romania had a weak productive-protective welfare state before the changes during the economic crisis. The new laws presented in this paper prove that the Romanian welfare state regime became more liberal with a lower level of decomodification. The economic crisis and the global economic competition are causes and justifications in the eyes of trade unions for the new regulations that gave less social rights to employees and made them less protected by unions.

If in Greece, a Southern European country that was very much affected by the economic crisis,  „the welfare state was virtually unreformable”⁴⁰, in Romania there was a strong wind of change at the welfare policy level, which also brought a new education law (2011), criminal code (2009), criminal procedure code (2010) and civil procedure code (2012). In order to reduce the budget spending, the Romanian government closed down 67 hospitals in 2011 and tried to introduce a new health law, but faced a strong public opposition. This was the only consistent and efficient public manifestation against the new policies. The trade unions reacted to the salary cuts, the welfare state change and the new rules on social dialogue by making public statements and leaving the Social and Economic Committee in 2011 rather than organizing protest rallies and strikes. We can conclude that the economic crisis led to a more comodified labour market and to weaker trade unions.

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VALERIU FRUNZARU – Lector univ.dr., Şcoala Naţională de Ştiinţe Politice şi Administrative (SNSPA).

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