The Political Sustainability of the NDC Pension Model: The Cases of Sweden and Italy
| Author | Furio Stamati,Mi Ah Schoyen |
| DOI | 10.1177/138826271301500106 |
| Published date | 01 March 2013 |
| Date | 01 March 2013 |
| Subject Matter | Article |
OF THE NDC PENSION MODEL:
THE CASES OF SWEDEN AND ITALY
Mi Ah Schoyen* and Furio Stamati**
Abstract
Since the early 1990s we have seen pension reforms in a large number of advanced
welfare states, and the most impressive reforms have happened in countries with
Bismarckian pension systems. Some of these countries have adopted a particularly
innovative pension model which is based on pay-as-you-go fi nancing and benefi ts
that are a function of lifetime contributions. Th
e approach is known as the notional
defi ned contribution (NDC) model. Th
is article examines what has happened to the
public pension systems in Sweden and Italy aft er they were among the fi rst to adopt
the NDC model in the mid-1990s. By focusing on the degree of political consensus and
confl ict in the national pension policy debate since the NDC formula was introduced,
the article off ers an empirical assessment of the degree of political sustainability
enjoyed by these landmark reforms. Th
e paper shows that reform processes do not
end with legislation. For reforms to have a lasting impact, whether they are left to
work as intended also matters. Th
e ‘post-adoption’ policy trajectory depends on a
number of factors related to policy design, economic context and political ownership.
Keywords: pension policy change; political sustainability; politics; public pensions;
welfare state reform
*
Senior Researcher at NOVA Norwegian Social Research, P.O.Box 3223, Elisenberg, N-0208 Oslo,
Norway; e-mail: miah.schoyen@nova.no.
**
Doctoral student in the Department of Political and Social Sciences, European University Institute,
Florence, Via dei Roccettini 9, I-50014 San Domenico di Fiesole, Italy; e-mail: furio.stamati@eui.eu.
Previous versions of this paper have been presented at conferences organised by ISA-RC19, FISS
and Espanet Italy. We thank the participants and in particular Bernhard Ebbinghaus and Matteo
Jessoula for useful feedback. We have benefi tted from comments from three anonymous reviewers.
REASSESS, a Nordic Centre of Excellence, has supported the completion of the paper.
European Journal of Social Security, Volume 15 (2013), No. 1
79
Mi Ah Schoyen and Furio Stamati
1. INTRODUCTION
Population ageing and weak economic growth have forced advanced welfare states to
make important adjustments to their pension systems. Th
e most profound reforms
have taken place in countries with Bismarckian pension systems, which used to
rely on single pillar earnings-related public pensions (Schludi 2005). Some of them
have adopted an innovative institutional architecture that combines a less generous
contribution-based pay-as-you-go programme – referred to as notional defi ned
contribution (NDC) – with a greater reliance on occupational and private pension
provisions. Th
e NDC model attracted international attention as a politically feasible
policy solution that could reduce future public spending while avoiding the problem
of how to fi nance a transition to funded pensions (World Bank 2001). Some hoped
that it would take politics out of the game and make pension systems less vulnerable
to economic shocks (see various chapters in Holzmann and Palmer 2006). With about
a decade and a half of (in part economically troubled) history to lean on, we can assess
these expectations empirically.
We contend that the pension literature would be enriched by the addition of
assessments of whether seemingly impressive policy reforms have had a lasting impact.
By examining what we call the ‘political sustainability’ of NDC pension programmes
in Sweden and Italy, this article contributes to this task. While being important for
our understanding of how and why mature pension systems have changed, previous
analyses (e.g. Bonoli 2000; Feldstein and Siebert 2002; Immergut et al. 2007; Schludi
2005) have ended with the legislation of ‘major’ policy change(s) without considering
the likelihood of future modifi cations.1 We show that NDC programmes are not
immune to political intervention. Th
ey are resilient to outright policy reversal but
may be vulnerable to a more subtle process of erosion in the absence of a consensual
reform deal. Broad political compromise is likely to give all included parties a sense
of political ownership, and this strengthens a policy reform’s potential to endure.
Conversely, a political climate dominated by a high degree of confl ict and polarisation
may undermine a reform’s political sustainability.
With regard to method, we use the qualitative technique of process tracing to carry
out a comparative in-depth case study. We present an analytical narrative for each case
and use these narratives as a basis for discussion. Th
e narratives rely on documentary
analysis of newspapers, offi
cial reports, and secondary academic literature as well
as expert interviews. We compare Italy and Sweden, which pioneered the NDC
institutional design in the 1990s. Th
eir reform goals and the new policy instruments
1
Aft er the completion of this article, a major study of NDC reform trajectories was published by
the World Bank (Holzmann et al. 2012a and 2012b). Th
is is an important step in the direction we
advocate. However, the contributions are all written by economists who rely on the tools of their
discipline. Th
e discussions are dominated by technical and normative economic considerations and
lack insights from political science and other disciplines. Our article pushes the agenda in a more
inter-disciplinary direction.
80
Intersentia
Th
e Political Sustainability of the NDC Pension Model
they utilised were initially very similar. However, since then the policy trajectories
of the two countries and the political sustainability of the reformed schemes have
diff ered, in particular during the recent international fi nancial crisis. Hence, the
comparison promises to shed light on the general political sustainability of the NDC
model and on the specifi c national conditions that may enhance or, conversely, reduce
the potential for a lasting reform.
Th
e paper is divided into a number of sections. In Section 2, we explain why the
period aft er the adoption of a policy reform merits attention and present our approach
to political sustainability. Section 3 outlines the defi ning features of the NDC pension
model and shows how the Swedish and Italian NDC approaches diff er at the level
of institutional design. In Section 4 we present the country narratives. Section 5
discusses the similarities and diff erences between the two cases. Finally, in Section 6,
we briefl y refl ect on the robustness of the NDC model and, more generally, on the
conditions that can help to make a reform endure.
2.
ASSESSING POLITICAL SUSTAINABILITY
Th
ere are several good reasons for extending the evaluation of policy reforms to the
years following their enactment. First, studying ‘political sustainability’ relates to
predictability and citizens’ ability to plan their future. If a reform actually endures,
it becomes easier to make well-informed choices. Secondly, while a reform may seem
impressive on paper, attention to the post-legislation phase improves the assessments
of the long-term signifi cance of a particular reform from a political science as well as
sociological perspective. Our empirical material informs the debate on the political
conditions that facilitate (or impede) lasting policy change. In terms of sociology, the
paper provides an up-to-date analysis of developments in income security for elderly
people, a large and vulnerable population group. Finally, extending the attention from
policy design and reform politics to the post-reform period, gives improved analytical
leverage on the more general research question of how the welfare state is reacting to
confl icting economic and societal pressures.
To have a lasting impact, policies have both to be implemented and to be left to
work as intended. Th
e public policy literature has dealt with these stages of the policy
process in two ways. Traditional implementation studies examine the implementation
of ‘big reforms’. Th
e focus is the principal-agent problems that may occur between
elected offi
cials and non-elected bureaucrats aft er legislation.2 A second approach
is to look at the consistency between the reform and subsequent policy choices. In
this article we do the latter. By analysing the consistency of successive rounds of
2
Th
e main lesson of this literature is that politics does not end with legislation (Elmore 1979;
Pressman and Wildavsky 1973, Sabatier 1998). Sometimes bureaucrats (but also non-institutional
actors) who oppose the new policy direction can, in fact, sabotage or hijack the new rules as they
operate on the ground.
European Journal of Social Security, Volume 15 (2013), No. 1
81
Mi Ah Schoyen and Furio Stamati
legislation, we look at the ‘political commitment’ of legislators, i.e. at the chance that,
over time, reforms are reversed or reshaped by elected offi
cials (Patashnik 2008). In
other words, we address what can be referred to as the political sustainability of policy
reform. Following Patashnik (2003: 207), we understand political sustainability as the
‘capacity of any public policy to maintain its sta bility, coherence, and integrity as time
passes, achieving its basic promised goals amid the inevitable vicis situdes of politics’.
In order to identify possible policy reversals and the cumulative eff ects of minor
...
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