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    After the Golden Age: A Decline of Sodal Democratic Policies in Western Europe during the 1980s? by Wolfgang MerkelDepartment of Political ScienceUniversity of Heidelberg

    Working Paper Series 120

    This article, written in 1989, tests the (liberal, Marxist, rational choice) hypotheses on the decline of socialdemocracy on the policy level. After a brief critique of the shortcomings of the "decline hypotheses," thepolicies of those social democratic and socialist parties are analyzed which have stayed in government duringthe "post-golden age" (Sweden, Norway, Finland, Austria, France, Greece, Spain)-which is to say, after thesecond oil-price shock of 1980. The general answer to the predictions of a general decline is clear: there can be nogeneral answer. The decline of social democratic policies is neither general nor irresistible. Besides the failureof implementing social democratic policies in southern Europe, there are cases of resilience and resurgence ofsocial democracy in northern Europe as well, i.e., there are too many exceptions for any "general thesis" tosustain.

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    Table of Contents

    A: The End of the "Golden Age" of Social Democracy- The Preliminary Blockage of the Keynesian Coordination- Socio-structural Change The Rise of New Social Demands The Problems of Social and Political Alliances The End of Intellectual Ascendancy 1. The End of the "Golden Age" of Social Democracy2. Hypotheses on the Decline of Social Democracy

    - The Liberal Voice- The (paleo)marxist Voice- The Voice of Rational Choice3. Pledge for an Open and Ecclectic Approach4. What Is to Be Explained?5. Decline of Social Democratic Policies During the 1980s?5.1. The Resilience of Established Social Democracy5.2. The Failure to Establish Social Democratic Policies inSouthern Europe6. Established Social Democracy and Southern European Socialism:What Makes Them Different?Conclusion

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    2 1. The End of the "Golden Age" of Social Democracy

    The electoral and political success of social democracy after1945 is closely linked to the "Keynesian Revolution" inmacroeconomic policy. I t enabled the social democratic parties toabandon the "electorally unfeasable" (Przeworski 1985) concept ofthe nationalization of the means of production without giving uptheir goals of improving welfare and promoting social equality.In the perception and strategy of many social democrats theownership of the means of production became obsolete. Stateinterventions should be restricted to influencing the economylargely by indirect means, securing a prospective policyregarding business cycles. The slogan which concisely sums upthis new approach is to be found in the Bad Godesberg Programrn ofthe SPO (1959): "As much competition as possible - as muchplanning as necessary". J.M.Keynes famous dictum became the credoof post war social democracy: "it is not the ownership of theinstruments of production which ;s important for the state toassume. If the state ;s able to determine the aggregate amount ofresources devoted to augmenting the instruments and the basicrate of reward to those who own them, i t will have accomplishedall that is necessary" (1964: 378). The Keynesian emphasis onwages as the important factor in global demand management andstate intervention for guaranteeing economic prosperity madesocial democratic policy preferences such as full employment andincome redistribution possible without endangering the

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    3 accumulation capacity of capital. For three decades, i t seemedthat the old social democratic dilemma of the goals ofegalitarian redistribution and economic necessities wasdissappearing. "Suddenly the workers turned out to be therepresentatives of the universal interest. Their particularisticinterest in consumption coincided with the general interest inproduction" (Przeworski 1985: 209). The Keynesian macroeconomicpolicy helped to create a specific political configuration whichreproduced the preconditions for social democratic successthroughout three decades in many countries of North- and CentralEurope.

    Now the favourable, framework for: t h ~ social democratic consensushas been changing since the mid-seventies. Since then, numerousbooks and articles have been written on the "end of the goldenage" of Social Democracy (Offe 1984; Przeworski 1985; Przeworski/Sprague 1986; Paterson/ Thomas 1986; Scharpf 1987; Miliband/Saville/ Liebman/ Panitch 1988; Share 1988; Markovits/ Pelinka1988). In the following I wish to focus my description on abrief summary of the main factors which changed the"environment" for social democratic politics and policies sincethe mid-seventies.

    - The Temporary "Blockage of Keynesian Coordination", The rapidinternationalization of the world economy, the loss of "nationalsouvereignty on interest rates" (Scharpf 1987) caused by the

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    4 expansion of "offshore" dollar markets and the tight monetarypolicy of the most important central banks, the rising publicdebts and real interest rates in the United States and theWestern world led to considerable problems for the "Keynes;anismin one country", at least during the fi rst half of the 1980's.Moreover, the increasing decoupling of economic growth and jobgrowth has disenchanted global Keynesian demand management as"theideal strategy to achieve specific social democratic goals suchas full employment. For many observers, social democracy seemedto have lost, at least for the time being, its central economictool which had permitted i t throughout the post-war period tolegitimize a program of social change, and pragmatism tos i m u l t a n e o ~ ~ I Y reform and stabilize the capitalist systemsimultaneously (Vobruba 1983: 136). The Keynesian Welfare Stateas a "peace formula" (Offe 1984: 14) and "social democraticsolution" to the tensions between democracy and capitalism seemedto become a problem on its own.

    - Socio-structural Change. Technological progress has beenaccelerating the shift from industrial employment to servicesector jobs. With the numerical decline of blue collar workers,the traditional constituency of social democratic parties hasbeen shrinking continously since the beginning of the seventies.Simultaneously, a rapid differentiation among the blue collarworkers has taken place. The emergence of employed andunemployed, full time and part-time, core and peripheral, public

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    5 and private sector workers has at the same time led to anincreasing differentiation of "working class interests". Theorganization and electoral alignment of the workers as thetraditional core constituency has become much more complex anddifficult fo r social democratic parties.

    Moreover, in times of slow, problematic and job-less growth,parts of the middle-strata began to perceive the distribution ofeconomic welfare and the individual "life-chances" more and moreas a zero-sum game. This, combined with the internaldifferentiation of the blue collar workers, posed new demands tothe catch-all capacity of the social democratic parties.

    - The Rise of New Social Demands.During the seventies, the questfor postmateria1 values and goods have been continous1yincreasing particularly in the most advanced welfare states ofWestern Europe. The demand fo r autonomy, participation, women'semancipation, and the preservation of the natural environmentchallenged the one-dimensional growth-cum-redistribution model.Social democratic parties have been confronted with the need tosynthesize "ecology" and "economy" in a coherent strategy ofpolitics and policies.

    - The Problem of Social and Political Alliances. On the one handthe rise of left-libertarian and postmaterialist demands sincethe seventies, and on the other hand the decline of egalitarian

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    6

    values among considerable segments of the middle classesthroughout'the 1980's have created a strategic dilemma for thesocial democratic parties in the arena of social and politicalcoalitions. Many of the liberal parties in Western Europe duringthe 1980s have become the neoliberal agents of the "newmaterialism" of the "Yuppie culture". Social democracy oftenlost an actual or potential coalition partner on i ts right side,while almost simultaneously, with the new ecological and leftlibertarian parties, a new competitor emerged on the left side.Social democracy has been confronted with a neoliberal rightwhich criticizes the welfare state, and state intervention inthe economy, and with the left-libertarian ecological partieswhich challenge the social democratic orientation towardseconomic growth, centralization, and state bureaucracy. Due totheir often "organic" relationship to the trade unions, socialdemocratic parties had fo r some time considerable difficulties toarticulate and represent the "new postmaterialist" and "newmaterialist" demands or to form political coalitions with one oftheir political agents. In each of these cases, social democracyis st i l l running the risk eroding electoral substance among i tsworking class constituencies.

    - The End of Intellectual Ascendancy. All of the above mentionedchanges have combined to undermine the ability of socialdemocracy in shaping the political discourse of reformism,progress and modernity. At the end of the 1970's, "the

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    7 intellectual ascendancy of Social Democracy came to anend"(Paterson/ Thomas 1986: 13) at least in some West Europeancountries. The neoliberal market orientation and individualism onthe one hand and eco10gism on the other dominated the arena ofpublic discourse. Many social democratic parties lost their"long-held monopolistic positions as the sole guardians of theirrespective countries' reform spaces" (Markovits/ Pe1inka1988:28).

    2. Hypotheses on the Decline of Social Democracy

    Considering all these developments as if they occuredsimultaneously a n ~ ;ndepependently from specific nationalcontexts, political and social scientists, liberals, marxistsand the new left simply subsumed them under a generally validcrisis theory. Value judgements and judgements of facts wereconfused, and empirical analyses of political scientists fellvictim to ideologies or sophisticated general theories. As if amysterious "invisible hand" conducted this Babel of voices, theyseem to sound like a harmonious choir. With a powerful voice,they spread the message of "crisis", "decline" and "end", ofsocial democracy.

    - The (neo)liberal voice. Not very cautious in i ts prophecies,the neoliberal voice predicts nothing less than "the end of thesocial democratic century" (Dahrendorf 1980). The main argument

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    8 is that with the establishment of the welfare state socialdemocracy has already fulfilled its historical task. However, inhaving done so, i t has overburdened the economy, weakened theself-regulative forces of the free market and the meritocraticincentives of the citizens (Crozier et a1. 1975). The socialdemocrats overestimated the role the state can play in steeringthe economy and society. They have underestimated the paralyzingforces which "hypertrophic" state activities can have uponeconomic dynamics and welfare. Big government" does not solveeconomic and social problems, i t creates them. I t crowds outresources from the market system, while the overdevelopment ofthe welfare state passivates people as economic actors in themarket system (Rose-1980; OECD 1985). In sum, a too extensivestate regulation disturbs the vital forces of the market system.The voices of 'neoconservatives' (Crozier et al), 'supplysiders'(Laffer),'monetarists' (Friedman), 'fiscal conservatives'(Hayek), or rational expectationists'(Buchannan) commonly argue,that everybody would be better off if the state withdrew fromthe economy and the investors were no longer restrained in theirdecisions by such disturbing interventionist or distributionalregimes of the state.

    - The (pa1eo)marxist voice: Whereas the liberal andneoconservative voice criticizes the "overstretching of thewelfare state" and laments about "too much state", the orthodoxmarxists complain about "too much market" in the "social

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    9 democratic state". The "collapse of Keynesiansim" and thebreakdown of corporatism since the economic crisis of the 1970'shave exhausted the limits of social democracy's reformist andelectoral possibilities (Panitch 1986: 52). What has remained ofi ts former self ;s "a ghost, a form of nostalgia. A nostalgia,ridiculous and poignant for something which once existed and willnever exist again" (Liebman 1986: 21/2). Having rejected the roadto socialism, the social democrats fell victim to their ownattempt to administer capitalism more socially.

    - The voice of rational choice: Social democracy as a"historical phenomenon" (Przeworski 1985: 7) has not simplyfailed due to deviations from a supposedly "correct line" or thebetrayal of its leaders. I t has rather been doomed to fail due torational strategic choices the leaders were forced to make facingthe specific "dilemma of electoral socialism" (Przeworski/Sprague 1986: 55). When i t appeared that workers never become anumerical majority in any society, i t became clear that themandate for the social democratic project - the emancipation ofthe workers - could not be obtained from workers alone. Leadersof social democratic/ socialist parties must seek supportelsewhere in society, i.e. they have to continuously decide"whether or not to seek electoral success at the cost, or atleast at the risk, of diluting class lines and cosequentlydiminishing the salience of class as a motive for the politicalbehavior of workers themselves" (ibid.: 3). Here the dilemma

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    10 appears. To be electorally successfully, social democraticparties cannot appeal to workers alone they have to assume a"supraclass posture". In so doing they dilute their capacity towin workers as a class. Therefore, social democratic andsocialist leaders are confronted with a persistent trade-offdilemma. They are condemned to minority status when they pursue"pure class-only strategies", and they lose votes among theworking class when they follow "suprac1ass" electoral strategiesappealing also to the middle stratas. "They seem unable to wineither way" (ibid. 56) is the quintessence of the electoraldilemma of democratic socialism (Ibid. 3; 55/56; 58; Przeworski1985: 104 pp; Przeworski 1989: 63).

    Moreover, postindustrial changes accelerate the "seculardecline" of social democracy, since the shrinking of the workingclass reduces their "carrying capacity", i .e. gaining a maximumof allies while only losing a minimum of working class support(Przeworski/ Sprague 1986: 88). "Not only does the working classbase shrink but, with fewer workers among their voters, partiesare less willing and able to dedicate their efforts to theconquest of other groups" (Przeworski/ Sprague 1986: 83/4). Buti f they do so, they become victims of an electoral trade-off: themore allies they win among the middle stratas, the more workersthey will lose . However, the steepness of the trade-offs, i .e.the "opportunity costs", covary with the strength of the unions,the existence of neo-corporatist institutions and communist

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    11

    party competition for the working class vote. But these factorsmatter only temporarily, they do not alter the fundamental logicof the "iron" trade-off. Consequently, Przeworski and Spraqueconclude: "Thus the era of electoral socialism may be over"(ibid.185)

    Although Przeworski's and Sprague's analyses are far fromOahrendorf's essayistic gesture and much more sophisticatedthan the ritual marxist complaints about social democratic"reformism", "revisionism" and "opportunism", they come to thevery same conclusion: the decline of social democracy isinevitable. Hence, a peculiar paradox can be detected inPrzeworski's and Sprague's explanation. On the one hand, there isthe epistemological elegance of the choice centred perspective ofmethodological individualism, on the other hand, the rationalchoice approach does not protect Przeworski and Spraque (1986)from ultimately falling victim to a rather crude sociologicaldeterminism. Although the authors concede that electoralstrategies and specific policies may make a short termdifference, they state that 1n the long run the fate of electoralsocialism is determined by industrial change and a supposedlyiron electoral dilenvna. "Ultimately, i t probably matteredrelatively l i t t le whether socialist leaders did everything theycould to win the elections. Their choices were limited (ibid.1986: 126)", The authors own concession that "parties mould'public opinion'' ', "evoke collective identification, instill

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    12 political convnitments" (ibid.: 125/6) remains withoutconsequences for the final conclusion.

    Both the paradigm of methodological individualism and sociostructural determinism tend to neglect varying politicalinstitutions, socioeconomic contexts and cycles as nationallydiffering'' 'opportunity structures" for political choices. Thefusing of rational choice and socio-structural determinismaccounts for the inherent tendency to jump to summarypredictions. Furthermore i t cannot sufficiently explain thediverging political strategies and policies of social democraticand socialist parties. I t can neither illuminate the reasons ofthe electoral successes of the socialist parties in SouthernEurope during the 1980's, nor sufficiently explain the stabilityand electoral recovery of Scandinavian social democracy duringthe last decade. I t remains silent about the popularity and(electoral) success of rather traditional social democraticwe1fare policies in Scandinavia and the "liberalization" of someSouthern European socialist parties.

    2. Pledge for an Ecclectic and Open Approach .

    Neither the ideological (neoliberal, marxist) nor the theoretical(rational choice) assumptions of the three "voices" aresufficient and appropriate to justify their prophetic predictionsand deterministic conclusions. Each of the three approaches

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    13 illuminates only small segments of reality, but in postulatingthese as absolute, they go on to claim to deliver comprehensiveexplanations for the diagnosed "decline" and "end" of SocialDemocracy",

    The common weakness of these analyses is their static perceptionof social democracy as a political actor. On the one hand theyprovide a detailed and pervasive analysis of the dynamic changeof the economic, social and political environment since the m1d seventies. On the other hand they consider the social democraticparties Simply as passive victims of a changing world, therebyneglecting their "revisionist" capacity to reassess values,strategies, and policies in the light of these cnanges so as toreshape the conditions for their political survival and success.

    Thus, an approach appropriate to analyze the politics andpolicies of the social democratic and the socialist parties hasto consider both actors (i.e. socialist parties) and output(i.e. policies) as dynamic and interdependent. I t has to avoidthe fallacies of a priori exclusions of posssibly relevantindependent variables, be i t motivated by ideology or theintellectual esthetics of theoretical monism. An approach whichis open enough to allow for this contingency and the inclusion ofa multiple set of "explaining" (independent) variables has beenpresented by Goesta Esping-Andersen in his book "Politics AgainstMarkets" (1985). He argues that social democratic parties are not

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    15 and political "environments" which the traditional socialdemocratic governments of the Nordic countries and the youngsocialist governments in Southern Europe had to cope with duringthe 1980s.

    3. What Is to be Explained?

    Against the background of these considerations, we intend toinvestigate the question of the supposed "decline" of socialdemocracy at the level of economic and social policies.Here only actual policies and not party programs will becompared1. This implies a specific selection of cases to beanalyzed. With the exception of the Austrian socialists, thesocial democratic parties of "Central Europe" (West Germany,Belgium, Netherlands) will be excluded from the comparison2, aswell as the Danish social democrats and the Labour Parties of

    1 Programs of political parties in opposition andpolicies of parties in government fullfi l l differentfunctions, face different constraints, and followdifferent logics. Considering this principal difference asynchronic comparison between, let us say a Spanishsocialist party in power and the British Labour Partyin opposition becomes meaningless.2 Although the Swiss social democrats stayed in governmentduring the 1980's due to their consociational politicalsystem, they will be excluded from the comparisons too.The system of the Konkordanzdemokratie and the minor rolethe SPS plays within the government makes i t extremelydifficult to attribute certain policies to the socialdemocrats.

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    16 Great Britain and Ireland. This group can be called the "losers"of the post-golden-age (at least of the 1980s). The Portugueseand Italian Socialists cannot be taken into consideration either,because the fi rst governed only for two years (1983-1985) in a"grand coalition" during the 1980s and the latter, although i thas remaining throughout the 1980s in power, has always been thejunior partner in a five party coalition. Therefore, i t isimpossible to attribute specific policies or the governmentsperformance as a whole to the PSP or PSI.

    According to these methodological considerations, only thepol icies of the "strong", that is electoral1y successful1 partiescan be meaningfully compared. Thus only the dominant governingsocialist/ social democratic parties during the 1980s remain: theSwedish, Norwegian, Finnish and Austrian social democrats, aswell as the socialists of France, Greece and Spain. These partiescan be distinquished in two groups with respect to theideological criteria of the parties, the periods in which theycame to power and could entrench their policies, institutions andvalues, as well as some similarities of the economic, social andpolitical environments:1. Established, dominant social democracy: Sweden (SAP), Norway(DNA), Austria (SPOE), Finland (SPF)3

    3 To be sure at the electoral level, the Finish socialdemocrats can certainly not be described as dominant asthe other three parties. Not in the least because theCommunists played a more important role in the Finnishleft and the country as a whole. The fact that the SOP has

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    [!:,CHM1: reneral Fxplanatory & I , e ~ for Fcon(Jnic amI Soctal Policies of Social nmxratic/ Socialist r..ovemrents in l ~ s t e r n F.urope

    Political f-oals/ Opportunity Structure Actor ~ e s u l t s : P b l i c i e s G)VeITllTBl t Program(Tntentions) (Variables of Influence) (Independ.Variable) (F..xplanandum )

    reduction of c l ~ inequalities ,through: -full anplarent-redistribution: -wages

    -tax systen -welfare policies -JOOdernizationcreation of equal"life cl1ances", tfu-ougFj:-educational refot11'S -genner policies

    n e m o c r a t i z a t i o n . t f u - o u g ~ : -reform of public

    administration -territorial necentral. -neocorporatist necision IlBldng in econ. policies -daocx:ratization at the wor'

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    17 2. New, dominant socialist parties: Spain (PSOE), Greece

    (PASOK), France (PS).

    The general point of departure (independent variable) whichallows meaningful comparisons of these governing parties is thatthey all started into the 1980s with government programs whichcan be called "social democratic", despite all gradual nationaldifferences. The exp1anandum is: what are the causal factors forthe divergence or convergence of the actual policies thosegovernments have pursued, that is to say, what is in the "blackbox" which seperates the declared intentions from the actualoutcomes.

    More specifically i t will be asked:Has a significant shift occurred from state to market in socialdemocratic policies?

    - Have the modes and goals of state interventions changed?- How can one explain the different choices of the established

    social democratic and the young socialist governments in regardto their preferences for free market, neocorporatistarrangements and the state?

    - How did the different choices affect the policy outcome, themostly been the strongest party in the Finish multi-partysystem throughout the postwar period (exceptions1954, 1958,1962) and their high "power quotient" highlightthe persistent important positon in postwar Finishpolitics.

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    18economic performance in general, and the "social democratic"performance in particular?

    - Finally, how valid are the general decline-hypotheses forexplaining the development of social democratic parties andpolicies during the 1980s?

    To answer these questions, three key policies of social democratic and socialist governments are taken into consideration: - nationalization and privatization (owning state) - macroeconomic policy (interventionist state) - welfare policy in general (welfare state).

    4. A Decline of Social Democratic Policies During the 1980s?

    Considering the logic of the neo-liberal/ neoconservativeparadigm of the overburdened economy and the hypertrophic stateactivities of social democratic welfare regimes, one could expectthe most rapid erosion in those countries where the "sclerosis"through stat ist regulations has progressed the most: that 1s tosay. in the Nordic countries, and with minor reservations also inAustri a.Marxists would expect that the more class oriented labourmovements in France, Spain and Greece (strong communist unions,relevant communist parties, more radical socialist parties)could press for more progressive social reforms than the

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    19 "collaborative" social democratic parties and unions in Sweden,Norway, Finland and Austria. The rational choice plus sociostructural approach is more indifferent regarding the North-Southcomparison. In the long run, no social democratic and socialistparty can escape the assumed "electoral dilemma" of needingsupport from the workers and middle classes simultaneously. Inthe short run one would expect that in the unionized,neocorporatist countries, the social democratic leaders wouldrationally chose policies which are designed to meet more theneeds of the middle classes, because the partially"institutionalized" loyalty of the workers diminishes theprobabi 1ity of electoral "exit". However the real ity is much morecomplex and contradictory, and i t l a r g e l ~ ' falsifies the onedimensional "decline hypotheses",

    4.1. The Resilience of Established Social Democracy

    If one disentangles the (Keynesian) welfare state into i ts twofundamental levels, the state intervention in the sense ofmacroeconomic steering and policy regulation on the one hand, andthe welfare commitment to provide collective goods and monetarytransfers on the other (Schmitter 1988: 503), one can draw thefollowing conclusions. The three Nordic countries represent arather homogeneous sample in the 1980s, despite some gradualdifferences reguarding the standards of social welfare. Neitherhas a retreat from the commitment to universalistic social

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    20 welfare taken place there, nor has a breakdown or a substantialerosion of neocorporatist arrangments occurred. Even with respectto macroeconomic policies, the state st i l l plays an importantrole. What changed in the course of the 1980s was not theinvolvement of the state in steering the economy as such, but themode and direction of the state interventions. Particularly inSweden (after 1982) and Norway (after 1986) the stateinterventions shifted visibly in favor of the supply side,stimulating investments by spec1ficly designed tax reliefs andsubsidies. Since the Finnish government turned i ts policiescautiously towards a more demand oriented economic management,all three Nordic countries have been pursuing a fairly balancedmi:::'ure of supply and demand oriented policies. From thisperspective Sweden, Norway and Finland should be called"interventionist social welfare states" in the 1980s, in order todifferentiate them from the 1970s type of Keynesian welfarestate.

    However, the "end of the Keynesian Coordination" turned out to benot as definite as some economists and political scientistssuggested at the end of the 1970s. The Finnish example andspecific elements 1n Swedens economic policies at the end of the1980s indicate that there 1s again some room fo r selectiveKeynesian manoeuvres. Yet, in the longer run, the partialderegulation of the financial markets could pose some restraintsupon controlling the exchange rate 1n the future. Devaluations as

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    22 formidable economic performances. Their policies of maintainingor extending the welfare state and keeping unemployment lowneither undermined economic growth nor impeded productivityincreases, at least compared with the OECD-average. On thecontrary, welfare and tax policies have been coordinated toenhance both economic growth and social equality. The high levelof income tax and tax reliefs for reinvestments contributed tothe high rate of capital accumulation. A considerable part ofthe nominal wage increases was taxed away by the progressiveincome tax and transformed into financial surplus of the publicsector, in order to support productive investments of thecorporate sector and to finance social welfare ( Steinmo 1988:426/ 7; Kosonen 1989). The tax system die! dot favour simplycorporate profits, but specifically investments in the mostproductive enterprises. The Finnish move towards these policies(Pekkarinen 1989) also underlines the argument that neither thewelfare state nor its most comprehensive (social democratic)version, the "welfare-interventionist state" (o r KeynesianWelfare state) is condemned to perish by virtue of its supposedly"inherent" contradictions.

    This does not imply that Scandinavian social democracy has notchanged. However, the incremental changes on the level ofmacroeconomic management did not alter their fundamental politicsand policies during the 1980's. In particular, these changes didnot diminish the social welfare commitments of the three social

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    21 a macroeconomic instrument of the national state for restoringeconomic competitiveness can no longer be used as flexibly as 1nthe past. The liberalization of the credit markets couldparticularly reduce the future capacity of the Norwegian state todirect the domestic economy, since the nationalized credit sectorplayed a crucial role 1n the past social democratic policies("credit socialism"). Combined with the fact that the continuosflow of the considerable oil revenues has concealed the relativeloss of competitiveness in the manufacturing 1ndustry during thelast decade, the future of the Norwegian social democratic statecould become more contingent. The enforced restructerlng of theindustrial sector stimulated by the current social democraticgovernment of Gro Harlem Brundtland has shifted the economicpolicies towards a stronger supply side orientation. Howeveruntil now, this restructuring period was neither accompanied bythe retreat of the state from intervening into the economy norwas i t parallel led by a relative decline of wages and socialwelfare.

    The fact that exactly the so-called "social democratic models"of Sweden and, with some reservations, of Norway havedemonstrated a considerable amount of resilience and continuityconcerning political goals, strategies, and achievements throws'a shadow on the general thesis of social democratic decline. Theshadow becomes even darker if one takes into consideration thefact the three Nordic countries have displayed comparatively

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    23 democratic parties to provide collective goods and transferpayments 00 a high level and universalistic base. Moreover, thefact that the Swedish social democrats in 1985 and 1988, and theNorwegian Labor Party in 1985, won the elections with rathertraditional welfare campaigns points to the maintenance orresurgence of social democratic values and policies in thesecountries.

    Austria's social democrats are the deviant case in the group of"established social democracies". The present obsolescence of"Austrokeynesianism" and the privatization and "marketization"of the nationalized sector has already shown some negativeconsequences f ~ r the goals of full employment and socialequality (Mueller 1988; Pelinka, P. 1988). The SPOE has not yetfound functional equivalences for the important role that bothAustrokeynesianism and the nationalized industries, played in itssocial democratic concept (Winckler 1988). Since the Austriansocial democrats have to govern with the conservative AustrianPeople Party (OEVP) since 1986 the temptation to look fo r a"market solution" could be strong. However, even in the case ofAustria, i t has to be seen whether the current trend to moremarket, less state and less social equality is irresistible orwhether a new turn will occur once the business cycle turnsupward, the industrial restructering 1s successfully completed,and the present decline of the OEVP continues.

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    24 4.2. The Failure to Establish Social Democratic Policies in

    Southern Europe

    The "Southern group" is more heterogeneous. True, all threesocialist parties entered government at the beginning of the1980s with radical (PS, PASOK) (Criddle/ Bell 1988; Lyrintzis1983; Spourdalakis 1988) or moderate (PSOE) (Maravall 1985;Santesmasses 1985; Merkel 1989) social democratic programs. But,when in power, the differences between the socialist governmentsin France, Greece and Spain became more pronounced. Neither theParti Socialiste, nor PASOK or the Spanish socialists tried toestablish the "ideal" social democratic steering mix of state market-neocorporatism. Each socialist g o ~ e r ~ m e n t followed its ownbias.

    The state interventions of the PASOK government into economy andsociety did not decrease during their eight years in power, yetafter 1985 these interventions have scarcely been linked toleftist or progressive goals. They have followed a traditionalGreek set of paternalistic and c1iente1istic practices. TheFrench socialists also relied heavily on the state particularly1n the fi rst phase of the Mauroy government. But their stat istapproach from above prevented them from fully recognizing the1mpprtance of the active involvement of "social partners" in theplanning and implementation of their reform policies; anoversight that led Mark Kesselman (1982) to call the "Mitterrand

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    25 experiment" a "socialism without workers". Moreover, thetechnocratic preferences induced the PS to underestimate theexternal constraints upon managing a medium sized open economywithin the internationalized capitalist world economy. Theconclusions which the Parti Socialiste has drawn after i ts f i rstterm in power can best be seen in the moderate social democraticgovernment of Rocard, who gives the market an absolute priorityfor the allocation of economic resources, but uses the fiscalstate for the cautious improvement of social welfare. Withoutproposing the re-nationalization of the industries privatized bythe Chirac government, the PS gives priority to selectiveindustrial interventions, even after 1988. Its continuingcommitment to more social justice is demonstrated in the measuresof the Rocard government to increase minimum social benefits,and to improve education for the underpriviledged , whileimplementing a wealth tax for the rich.

    The Spanish socialist government, however, has been from thebeginning very much aware of the external and internal economicconstraints, particularly in the perspective of the EECmembership and the creation of the single European market in1992. This attitude led them at times to an uncritical emphasison the market and a lack of willingness to use the existing spacefor state interventions, in order to steer the economy andsociety along the lines of more social equality. The attempt toinstrumentalize the "socioeconomic pacts" unilaterally in favor

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    26 of the investors underlines PSOE's market-bias.

    5. The Established Social Democracy and Southern EuropeanSocialism: What Makes Them Different?

    How is one to explain these divergent developments? Morespecifically how is one to explain the stab1lity of establishedsocial democratic policy in Sweden and (with some reservations)in Norway, the "social democratization" of F1nnish policiesthroughout the 1980s on the one hand, and Austria's beginningdeparture from the social democratic past in Austria on the otherhand? What about the failure of the socialist parties inSouthern E u r o p ~ to implement progressive-reformist policies intheir countries? In short, why is there st i l l a dominance ofsocial democratic policies in the Nordic countries and nosocialism in Southern Europe? Przeworski's and Spraque's sociostructural hypothesis can scarcely contribute an answer to thesequestions. As far as the three Nordic countries are concerned,neither the social democratic parties as dominant politicalactors, nor the contents of their policies, indicate socialdemocracy's irreversible decline. The actual shrinking of theblue-collar workers and the progressing differentiation of theworkers did not simply develop into electoral losses for socialdemocratic parties or a shift away from social democraticpolicies. Przeworski's/ Sprague's "iron law" - that 'the moreallies social democratic parties win among the middle strata, the

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    Z1

    r",I>2' coRCIic, Social, InstiMiDn.l and Political Conditionsfor Goyernmt Po Hcles during the 1980s

    conolic IndustriaI Type of Power Single Party gOY. t/ Fraglentation Re levance of theCOlpet it iveness Re1ations MeIfare state Quotient. coalition gov.t of the Opposit. leftist opposit.45-8880-88

    Austria lediull high centraliz./neocorporat istFinland lediull high centraJiz.!neocorporat istlorway lediu. high centraliz./neocorporat istSweden high high central iz.!neocorporatist

    France lediu. low centraliz./confl ictua IGreece 10. low cent ra liz./paternaIist ie/conflictualSpain low/iediul lediu. centraliz./coope rat ive - 1986/

    1986 . conflictual

    bourgeoise

    bourgeoise!universalist icuniYersa listie

    universalistic

    bouri8oise

    larginal

    larginal

    1970-1983: single party 90v.t; 1183-1986: sllll coalition;1986 : grand coalition.

    1980-1181: sla11 coalitions; 1987 -: grand coalition;3 linority govermnts

    4 linority cabinets with parlialentary support of the COllunist Party, and to a linor degree of the Center party lnd the Millieu Partiet.

    5 198H9U: coalition with COllu_ist PartYi 1984-1986: sIngleparty goy. t with Plrliutntlry lajorUy; 1988 - : linoritycabitet.

    2.5

    1.8

    3.0

    3.5

    1.0

    0.7

    U

    3.1

    1.9

    2.0

    2.1

    2.1

    3.2

    2.B

    -single party gov.t-coalition gov.t 1coaIit on gov.ts 2

    single party gOy.t 3

    single party goy.t 4

    -coalition 9o.Y.t 5-Single party gov.tsingle party gov.t

    single party gOy.t

    lediu.

    high

    high

    high

    irrelevant

    high

    low

    low/ lediUI

    lediUl

    lediu.

    lediua

    lediul

    high low

    Power Quotient: given points divided by years in governaentPoints: - DelUSively social deacmtic goyernl8nts: points for each year in governl8nt

    - social deaomts as dOlinut coalition partner:3points for each year in goyernlent- sociaI delocrats as equal partners in a grandcoalition: 2 points for each year in goyern.ent- social delOcrats as junior partners in a sIa11coalition: 1point for each year in governlent

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    27 more workers they will 10se'-, was broken by the influence oforganizations, institutions, cultural values, policy legacies,economic performance and the competitive situation in the partysystem. That is to say, actors and structures functioned asintervening variables 1n a process in which ultimately they werenot supposed to appear.

    Given these concrete structures, values, and actors which co determine the fate of social democratic parties, a morecontingent and open scheme has considerable explanatoryadvantages vis-a-vis deterministic iron laws, derived from one,supposedly unavoidable, electoral dilemma. The configurativeframework we apply here.in the comparative analysis of' "North"and "South" contains three set of variables: economic factors(summarized in the complex indicator of economiccompetitiveness), societal factors ( the role of the middlestrata, type of industrial relations and the type of the welfarestate) and factors of political power (the power quotient, thetype of governing coalition, the fragmentation of the opposition,and the relevance of the leftist opposition).

    1. Economic competitiveness: The medium- high economiccompetitiveness4 in Sweden and Finland, the successful adaptation4 In small and medium size open economies "economiccompetitiveness" is to be understood as follows:the relative unit labor costs (cost side) and theexport market share of crucial products, resp. thedegree of penetrability of the domestic market, fo r

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    28 to the new conditions of the international economy, and thegood economic performance during the 1980s set the base for themaintenance, resp. extention of social welfare. The delayedeconomic restructring in Norway, and, particularly pronounced inAustria,' caused comparative decline of competitiveness in theireconomies. This has posed some problems for the goals of fullemployment and redistribution of their social democratic partiesin the second half of the 1980s.

    All three Southern European socialist governments had and haveto cope with the legacy of a highly (Greece, Spain) andrelative (France, in particular vis-a-vis the three dominantworld economies USA, Japan, ~ 3 S t Germany) uncompetitiveeconomy. The imperative to modernize their economies leftl i t t le room for distributional manouvres and social welfare.Therefore, throughout the 1980s all three socialist governmentshave been more constrained by the international economicenvironment, than their "sister governments" in NorthernEurope. The fact that Austria and the Nordic countries do notbelong to the EC and have, therefore, enjoyed a greater"autonomous" room for manouvre in managing the national economycan be interpreted as a comparative advantage vis-a-vis theSouthern European EC members. Yet, the balance sheet for Greeceand Spain is by no means totally negative. At least in the mediumrun, the EC turned out to be beneficial for the Greek (esp. net

    foreign goods and services (output).

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    29 transfers) and the Spanish (esp. capital inflow) economy ineasing regional economic disparities, pushing economic growth andpressing fo r modernization. However, the EMS membership of Franceclearly restricted the choices of the French exchange ratepolicies in 1982 and 1983. But at that time the possibilities fo rthe Mauroy government using the currency policy so as to avoidausterity measures were already considerably limited by pureeconomic reasons.

    2. The role of the middle strata. Similar to their NorthernEuropean sister parties, the Southern European socialists needthe votes of large segments of the middle strata in order to gainelectoral majorities, but in contrast to the economically andsocially more advanced welfare states of Northern Europe, themiddle classes in Southern Europe are to a much lesser degreedependent on the employment opportunities and provisions of thewelfare state, simply because i t is much lesser developed there.An universalistic welfare program plus economic democracy wouldnot have much appeal to the new rising middle classes, who aremore interested in imediate private consumption, than collectivewelfare provision for the future. Furthermore, under the economicconditions of the fi rst half of the 1980s, the middle stratarealistically perceived the creation of a strong tax and welfarestate as an zero-sum game where they would have to contributemore than they could win in the short- and medium run. In additionto the already mentioned "external" factors, this led the

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    30 socialist governments to meet the challenge of productivity, evenat the expense of traditional social democratic goals. This isparticularly evident for the PSOE government, but to a minordegree also valid for the French socialists after 1983, and PASOKafter 1985.

    3. Industrial Relations. The leadership of the highlycentralized and organized trade unions of all four countries of"establ ished social democracy" can st i l l "convince" thei rmembership that concerted wage bargaining works out to theadvantage of all. The return of the Swedish unions and theemployer association SAF to centralized wage settlements in 1988is only one indicator that erosions of institutions andarrangements have not been irresistible, but' can be reversed aswell. The st i l l close cooperation between the unions and thesocial democratic party in government has enabled a coordinatedeconomic strategy. Hence, in times of economic restructering, amore equal distribution of the social costs has been achievedthan in most of the other OECD countries.

    Despite some differences among the three Southern Europeancountries, the industrial relations in France, Greece and Spainare much more decentralized, fragmented, and conflictual than inthe North. A concerted economic strategy was impossible, with thetemporary exception of Spain. Not in the least because neitherPS, nor PASOK or PSOE have the same "organic" relationship withthe trade unions as their established sister parties in Northern

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    31 Europe. Neither are they the exclusive agents of organized labor,nor is organized labor in Southern Europe as strong, united, andrepresentative as i t is in Northern Europe. In this sense, theSouthern European socialist governments "enjoyed" a greaterdegree of "relative autonomy" (Cameron 1988) from the interestsof the workers, than the social democratic governments of Sweden,Norway, Finland and Austria. This autonomy has been enhanced bythe fact that the socialist parties of Greece, France, and evenSpain draw a smaller part of electoral support from the workingclass, than do their sister parties in the North.

    4. Type of the Welfare State. The policy legacy of an extendedwelfare state as provider uf social welfare and as an employerin a considerable part of the work force is an important factorfor the electoral success of social democratic parties in thethree Nordic countries, since the social democratic parties aremost closely associated with the maintenance of such a welfarestate. The Swedish model of the welfare state (and with minorreservation of Norway and Finland too) with its high standardssatisfies not only the needs of the lower income stratas, butalso of the middle class clientele. Its "productivistic socialpolicy" (Esping-Andersen 1988: 3) towards employment, training,job mobility, education, and family services may be prima facievery expensive. However i t lowers the costs for "unproductiveexpenditures" in times of economic recession, since its capacityto provide employment increases the number of tax payers where

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    33 and redistribution, that is to say, the construction (Greece,Spain) and extention (France) of a welfare state, the governmentcould opt more unilaterally for productivity, without having tofear mass defections of voters. This was particularly significantin the Spanish case, but occured with specific time lags andvarying intensity also in France (1983/4) and Greece (1982;1985).

    5. Political Variables. Since the political variables,governmental power, fragmentation and weakness of the oppositionparties, and relevance of the leftist opposition are rathersimilar in both country groups, or even favourable to thesocialist parties of Southern Europe, i t appears not tooarbitrary to conclude that they have played only a minor rolewith respect to the divergent policies of the social democraticand socialist governments. This consideration is by no meansbased on a crude "economism", but rather stresses theaccumulation of unfavorable economic and societal constraints onprogressive reform policies particularly in Spain and to someextent also in Greece, where the political elites payed moreattention to political Questions than to the modernization of theeconomy in the transition to and consolidation of democracy(Giner 1984; Perez-Diaz 1987; Pridham 1987).

    Certainly, the most important factor for the policy differences

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    35 institutional, and "timing" factors, which ensured themaintenance and resurgence of social democracy in the threeNordic countries, has essentially been the cause for thefailures of leftist-reformist policies in Southern Europe untilnow. However, this does not imply, that the progressive goals ofthe socialist governments in France, Spain and Greece simply fellvictims to the unfavourable economic, social, and institutionalenvironment. They also failed because of ill-designed policiesand the absence of political reforms which have both not beenvery conducive to turn the unfavourable environment into a morefavourable one. The neglect of a tax reform which ensuressimultaneously the accumulation of private capital, highinvestment rates and the fiscal resources for social welfare,and the default to stimulate more cooperative relations betweenstate, capital, and labour are certainly among the most seriousfailures in this regard.

    Nationalization did not matter: at least not in the sense ofbeing conducive to achieving the social democratic goals of amore egalitarian society with universalistic social welfare, fullemployment and new forms of work organizations or economicdemocracy. The French leftist government was not able and/ or notwilling to use the extended nationalized sector for these socialand democratic goals. Nationalization under Mitterand remainedbasically an act of symbolic politics. The Greek socialistssuccumbed to the temptation to use the nationalized sector fo r

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    36 cliente11stic purposes and statist-authoritarian measuresconcerning the regulation of strikes. The Austrian socialdemocrats utilized the nationalized sector too long and tooextensively to hide redundant work force. When they had torestructure the nationalized industries during the 1980s thestate-owned firms lost their defensive employment function. Thewhole concept of Austrokeynesianism became particularlyvulnerable since the SPO had failed to develop functionalequivalences for the macroeconomic functions of the nationalizedsector in time. However, the example of Norway demonstrates thatan all-inclusive negative judgement of the experiences withextended nationalized sectors runs the risk of an unduegeneralization. Norway's labour Party ~ u c c e e d e d in using thelargely nationalized credit sector ("credit socialism") in orderto steer the economy and society more along the lines of theirown social democratic criteria. And even Statoil, Norway,s largestate owned oil company brought in relatively more revenues tothe government, than the private oil companies in Great Britain.But despite the single exceptions of Norway and Finland, thecomparison of all seven cases indicates, that the "functionalsocialism" (Adler-Karlsson) of Sweden, with its small butefficient nationalized sector, turned out to be less vulnerablevis-a-vis the supply side imperatives of the 1980s, than thosepolicy designs which tried to instrumentalize the nationalizedsector as an important element of their macroeconomic management.These outcomes raise once more considerable doubts about the

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    38 social democratic policies in Sweden, the "socialdemocratization" of Finnish politics and policies, the return ofsocial democracy in Norway, the departure from the socialdemocratic past in Austria, the moderation of French socialism,the partial "neoliberal;zation" of the Spanish socialistgovernment, and the cliente1ization of Greek socialism are toodifferent, to subsume them under the one general hypothesis ofsocial democracy's irreversible decline. Concerning the future ofthis historical phenomenon, there are reasons to also takereversab1e patterns into account in the sense of the ability ofpolitical parties to adapt to new circumstances in order toinfluence the conditions of their further existence and success.Therefore, i t appears :to be not implausible that, underconditions of successfull economic restructering, combined withan upswing in the business cycle, and corrections ofadministrative deficiencies in the welfare state, the socialdemocratic project can find once again majorities in theelectoral arena. At the very least, the continuing success of theSwedish social democrats and the stability of social democraticpolicies in Norway and Finland represent an empirical example ofsuch plausibility.

    Changes in social democratic and socialist policies have takenplace during the 1980s. But the deradicallzation of "SouthernEuropean Socialism" (Gallagher/ Williams 1989) did not mean thetransformation into social democratic parties and policies, at

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    39 least not in the case of the PSOE and PASOK government. At theend of the 1980s only the French socialists pursued moderatesocial democratic policies (esp. under Rocard) without havingchanged into a typical social democratic party. The Austriansocialists remained a typical social democratic party, but havebeen moving successively away from social democratic economic andsocial policies. However, the minor changes of the Nordic socialdemocratic policies in the 1970's and 1980's can neither becompared with the retreat from the concept of revolution duringthe fi rst two decades of the century nor with the abandonment ofthe pursuit of socialism by parliamentary means in favor of thecommittment to employment, efficiency, and social welfare afterthe second World War. The retreat of the social democraticgovernments from single modes of state interventions into theeconomy (the economic dimension) did not negatively affect theprovision of social welfare (the social welfare dimension)inNorthern Europe. It cannot be interpreted as a third change offundamental social democratic paradigms in this century.

    To take up the question again, has there been a decline of socialdemocracy? Maybe, a marginal one. However, i t has been neithergeneral nor irresistible. The development has to bedifferentiated into parties and policies, between economicmanagement and the provision of social welfare. Nationaldifferences also have to be taken into account. There are toomany cases of resilience and resurgence of social democratic

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    40parties and policies, that is to say, too many exceptions for any"general thesis" to sustain.

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    -----------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 3: [,olation of Policies RIder Social Delocratic aidSocialist Go'eralents daring the "Golden Age and the 1980s

    l a t i o a a l i ~ a t i o n / lacroeconolic State Inter,entionPri utiutiol Policies into the EconolY lelfare iole of Labor larket/ Growth of thePolicy leokorporatin lage Policies Public Bector

    S.eden nimsalistic; centralhed lagehigh spending lettlelelt; soli:"Golden Age" slall l a t i o n a l i ~ e d deland lanagelent; strong indirect level strolg daristic .age po: rapid groIn

    Bector fil elckalge rate iatmention licy; acti'e laborpolicJ nrket policy

    nimsalistic; Itrong; telporary decntral.1980s largilal,praglatic IiI of sapplJ side strong ildirect high spending telporarJ erosions trends; no deregl: slow growth/priutiutions and deund unage intmentiol level lation; acti,e LKP ltagnation

    leatlorny unimsalistic;ledina/ high strong centralized wage rapid grolth'Golden Age" lediul/ large na: econolic planning; Itrong direct spending Iml lettlemt;tiolalized lector Btate controlled intervention acti te LIPcredit policies;loderate denndunagelent

    ani,ersalistic; central ized wage1980s linor priuti: austerity policy; Btrong direct lediul/ high settlemt; slol gro.th;

    tiutioas ildustrial restruc: intermtion spelding Iml strong acti,e LIP; stagnatioltering; liberaliza: lith Bupply 10 deregulatioltion of credit pol. side eluentB

    Finland lediul/ large Bupply orielted non direct inter: leans tested; .eak/ led ina demtralized lediUl grolthutionalized Keynesian ecololic tentiolS lediUl spending wage settluent;Bector policy level weak acti ,e LKPtread towards centralised uge19BOs larginal praglatic leynelian counter: lediua indirect uni ,ersal in; Btrong settlelent; lediul lediul growthpriutiutiol cyclical policieB iltermtions lediul/high spen. acti,e LIPleans tes ted; celtralised ugehstria large lationalized Austrokeynesialisl strolg direct/ ledina spending Btrong lettlelent; leak lediul gro.thlector indi r. iltermt. Iml acti ,e LIP

    1980s lediua eld of Aastrokern.; loderate trend leans tested; strolg c e a t r a l i ~ e d uge Itagnationpriutiution restricti,e loneta: tolards lore ledina Bpending Bettlemt;rr/ fiBcal policr .arket lml

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    Table 3: Evolution of Policies under Social Oelocratic IndSoclalist GovernleAts during the 'Golden Age and the 1980s

    latioaaliutiOD/ lacroeeololic Itate Ilterteatiol Role of lage Settlemt/ GrolU of the IeIrare PolicyPrintisatioD Policy ilto the Ecoioll leocorporatiBI Labor larket folicy Pablic Sector

    19TOs:bolrg. ledinl/ iargegomnmt utioulif,edlector

    1981-1986: large utiou=Hution;1988-: acceptllce of thepri,atilatiols of

    Chirae's goterllelt

    1915/6: lelaeB.1971-81:inlteritl

    1981-83: redistribl=ti te lellea.; lute:rit,; reillce;de.lld/ 8npplJ BideIiI

    demtulised nge lUllS tested;10 Jettlmats; ledi. . lediu speadilgledi'l/ stroDg leak actice LIP Im l

    Itron& lim attelPts deceltrali,ed lage ledin/atroa, lealS tested;local lml settlemtsj increlied apendingledilll leak aeti 'e LIP stagnation lem tested;aediul speading

    Greece 10 decentralif,ed lage lealS tested;settJemts; ledi I I 1011 spending;19TH981: ledill aatioaalied deilld/ IlppiJ Bide ledi.. DO aeU'e LIP exclusion ofboarg. .ector IiI parts of thego,ernaent population------....----------_..._------*.------------- . ._-----.._-----_._._.--_. __ ..-----------------------------_ .. .--------------------_.----------------------_ ..10 decentralied lage lem tested;1981- 1989 linor nationalia: 1981-1985:redistribu: settlelenta; landa atmg increased speD:tions; tile leJaesianin strolg tory iDcoles policy; ding; indusiollarginal pri,atia: 1985-1989: austeritJi tea.k acti Ie LIP of lider parts of

    tim; the popthtion

    Spain aedilll decentralied and leau tested;centralied wage larginal spending1974-1981: lediu/ large dmadj auppl, side ledi UI settlemts;bourg. lltiollI i,ed sector Iii no acti,e UPgo,ernentled iutI UYle: centralised and lellS tested;1981-1989: ledial printiutiou loderate reslrieti te tricaJ decentralized lage ledi. . loderate increase

    10Ietarl poIiCJ; ledi. ./ Bettlemts; in spendingloderate 8ippil Bide low weak actin LIPorieltatioa; 'Iarke:tilationt of tke eeo

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