This article looks at two related labour market policies that have persisted and even proliferated across Europe both before and after the financial crisis: wage restraint and punitive workfare programmes. It asks why these policies, despite their weak empirical records, have been so durable. Moving beyond comparative-institutionalist explanations which emphasise institutional stickiness, it draws on Marxist and Kaleckian ideas around the concept of 'class discipline'. It argues that under financialisation, the need for states to implement policies that discipline the working class is intensified, even if these policies do little to enable (and may even counteract) future stability. Wage restraint and punitive active labour market policies are two examples of such measures. Moreover, this disciplinary impetus has subverted and marginalised regulatory labour market institutions, rather than being embedded within them.
active labour market policies, financialisation, Marxism, policy systems, wage restraint, workfare
Why have neoliberal labour market measures survived the 2008 financial crisis? It cannot be due to their effectiveness as policies. Heterodox economic literature has challenged the policy of wage restraint, finding that declining wage shares have led to a chronic deficiency of aggregate demand, slow growth, high debt and instability in Europe (Stockhammer & Onaran 2012). Marxist scholarship has designated the current juncture a 'dysfunctional accumulation regime' (Vidal, 2013) which cannot produce stable growth in the long term. Such critiques are echoed by mainstream economists such as Stiglitz (2012) and Piketty (2014) and by social movements and parties in countries such as Greece and Spain. But those seeking to challenge them--such as Greece's former finance minister Yanis Varoufakis (cited in Ovenden 2015: 163-164)--have apparently been taken by surprise by the rigidity with which European policy elites have stuck to these measures in the face of both academic argument and popular mobilisation.
This article examines the persistence and proliferation of two specific measures which are key pillars of the pan-European austerity agenda: wage restraint and punitive active labour market policies (ALMPs). These policies, we argue, have three salient points in common. First, they both exercise a disciplinary effect over workers. Second, they have both persisted and proliferated throughout Europe despite dubious empirical records. And finally, in proliferating, they have tended to undermine and transfigure existing labour market institutions which have historically mediated the labour-capital relationship.
One explanation for the 'stickiness' of labour market policies comes from comparative institutionalism, the dominant theory in comparative employment relations (Hauptmeier & Vidal 2014). The policy paradigms (Hall 1993), path dependency (Pierson 2000) and policy regimes (Campbell & Pedersen 2014) approaches all suggest that policymakers will not necessarily respond objectively and adaptively to emerging problems, owing to the historical weight of distinct national-institutional systems. However, we argue that this literature underestimates the disruptive effects of liberalising policies on collective bargaining and welfare state institutions, despite empirical evidence of such disruption in Germany (e.g. Baccaro & Benassi 2014; Doellgast 2012; Doellgast & Greer 2007; Holst 2014), which according to comparative institutionalists should have been difficult to reform (e.g. Hall & Soskice 2001). By contrast, we present a view influenced by Marxist and Kaleckian writing, with a particular emphasis on examining how these traditions have interpreted the role of 'financialisation' in European political economy. We are more sceptical of the causal role of institutions in recent labour market policy.
In particular, we focus on the idea of 'class discipline', by which we mean efforts by the state to actively render labour more dependent upon, and less able to challenge, the interests of individual capitalists. For Kalecki (1943), this kind of discipline was an important feature of policymaking in capitalist economies; workers needed to feel the 'fear of the sack' in order to maintain the 'confidence' of business leaders to invest, even if the policies that increase this fear (such as undermining job security) may be destabilising in the long run. We will argue that fmancialisation intensifies the importance of class discipline in labour market policy, since it leads capital to become more intolerant of institutional frameworks and 'social compacts' (see also Aglietta 2000: 420; Daguerre 2014) and thus more disruptive of policy systems. Consequently, the tension between short-term disciplinary policies and long-term stabilising ones is heightened under fmancialisation, and the position of national regulatory institutions is challenged to an extent that is not admitted in comparative institutionalism.
In the following section, we compare comparative-institutionalist perspectives on labour market policy with Marx-influenced alternatives. After this, we discuss the role of fmancialisation, arguing that its consequences tend to conflict with the comparative-institutionalist view of institutions, chiming more closely with the concept of class discipline. Then, we discuss wage moderation policies in Europe. While the evidence in support of wage moderation is weak, we suggest that breaking out of mainstream policies would require defying the disciplinarian impetus engendered by financialisation, something policymakers have not been prepared to do. After this, we also discuss punitive ALMPs, where, once again, disciplinary policies continue despite weak empirical records. Both policy agendas, we argue, reflect the prioritisation of class discipline over institutional coherence.
Comparative-institutionalist and Marxist views on labour market policy
Comparative-institutionalist thought contrasts the transnational diffusion of particular policies and ideas (such as neoliberalism) with the apparent path dependency of national systems (Fourcade-Gourinchas & Babb 2002; Hall & Soskice 2001; Pierson 2000). Exogenous pressures may render national policies outdated, but the latter have their own logic and trajectory due to the inherent staying power of institutions. In contrast, our reading of Marxism also juxtaposes the universalising logic of capitalism with the 'relative autonomy of the state, but places greater emphasis on the disciplinary power that capitalist class interests exert over policymakers at the expense of institutional factors. In this section, we will unpick this difference in more detail.
National 'policy systems' in institutionalist literature are highly complex and multi-causal (Kay, 2005), denoting myriad interconnected variables ranging from formal institutions, informal contact networks, the relative authority of competing interest groups and even the accumulated mass of past decisions. Institutionalists often emphasise the 'institutional complementarity' of these systems (Hall & Soskice 2001), with the 'increasing returns' (Pierson 2000) of existing combinations making policy directions difficult to change once set in motion. In this way, the multiple factors that influence institutional systems tend to combine to produce inertia in policymaking. Hence, the institutionalist characterisation of the policy process generally portrays it as inherently conservative, following entrenched patterns which are only rarely disturbed (Peters et al. 2005) by external pressures such as economic crises.
While conflict between business and labour is centralised in much institutionalist research (Thelen 1999), the assumption is that pressures for change lead more often to incremental alterations than to the dismantlement of existing institutions (Crouch & Farrell 2004). The prospect of'lock-in' is therefore raised, where certain policies persist despite apparently failing in their objectives (Hassink 2005; Sydow et al. 2009). Crises de-legitimise existing policy regimes and catalyse the search for new ones (Campbell & Pedersen 2014), but this is not a Darwinian process of replacing the outdated with the better suited. Instead, it is a sociological one dependent on embedded power relations and the authority accruing to different actors (Hall 1993). For example, Hall (2014) has recently argued that cumbersome institutional logics across the Eurozone prevented the kind of'swift action' that could 'restore investor confidence' such as boosting demand in Germany. Policy is thus slow and awkward, prodded into change by exogenous shocks.
Neoliberalism in this account is therefore a policy paradigm associated with the exogenous shock of crisis, in this case, the discrediting of Keynesian ideas in the 1970s. It reflects a shift in policy authority away from groups such as trade unions and towards business actors (Mudge 2008) and the growing 'persuasive power of the market' (Peters et al. 2005: 1296). Despite its transnational scope, comparative institutionalism holds that its impact will be strongly mediated by national policy systems, with the latter shaping the 'nature and meaning' of the neoliberal agenda in diverse ways (Fourcade-Gourinchas & Babb 2002). Hence, neoliberalism constitutes a shifting power balance within a fundamentally pluralist system. Class is relevant only insofar as different actors (e.g. 'business' and unions) may form stronger coalitions or accrue more authority in advancing their own agendas.
By contrast, class plays a much more fundamental role in Marxist analyses of policymaking. A recurrent theme of Marx's thought in relation to political and legal institutions is the notion of'adequate forms'; while rejecting a simple mono-causalism, Marx believes that institutions ultimately need to adapt to assume forms that are conducive to capital's continued...