Michel Cames July 2010 University of Luxembourg

michel.cames@gmail.com

Corporatist governance in Luxembourg: from origin to maturity
This paper aims to draw attention to long-standing corporatist governance in Luxembourg. Based on Katzenstein (1985), it highlights its origins and development revealing linkages to Catholic Social Thought, the institution of proportional representation and its small country characteristics. Its roots reach deep into history and can be mapped from the onset of Luxembourg’s industrial takeoff. As for the present, it has been eagerly portrayed as “Luxembourg social model” with tripartite concertation between government, unions and employers.

Its long-standing viability however does not render corporatist concertation invincible to changes in socio-economic development and it may well become less predictable in the future. The essay will make the contention that unlike its pluralist counterpart, corporatism as the key policy-making process in Luxembourg has adverse effects on authentic political participation and has shaped a long standing lagging mind-set to change. It might thus become detrimental to Luxembourg’s future prospects in a changing global economic environment.

As for the path dependency of corporatist development, I will portray its maturity in a semi-chronological way. A search for consensus determines its course all the way. Present-day tripartite experience will only be skimmed, yet I have tried to illuminate a path looming ahead.

Terminology and definition

Corporatism is an ambiguous and evocative concept (Katzenstein, 1985:30). It goes back to pre-industrial times when the basic unity of society was not the individual but 1

a corporate group. I confine myself here essentially to neo-corporatism while merely skimming fascist corporatism or political authoritarianism, which has only been of short concern in Luxembourg. I will neither use the prefix “neo“ nor will I use any adjective as Katzenstein does when he refers to the democratic type of it. I will be eloquent whenever referring to authoritarian or fascist corporatism.

As for both types of “corporatism” described by Hirsch (1993:9), neo-corporatism according to the tripartite and sectoral corporatism which he assigns to the union of civil servants (CGFP), I will only refer to the former, or in Mancur Olson’s (1982) language, corporatism of “encompassing interest associations” and not the rentseeking “non-encompassing special-interest associations”.

Corporatism, also termed as social partnership, social pact or tripartism can be described as a process of institutional arrangements between government, employers and trade unions to formulate and implement commonly agreed policies. It has been identified as occurring in small, open economies particularly in Europe and its objectives are to divide productivity gains “fairly”.

Corporate concertation is closely linked to consensual governance particularly in very small states such as Luxembourg. Whereas corporatism is generally constrained to tri-partite governance, consensualism as an outcome transcends the political sphere and brings about a culture of compromise particularly in a small country context that diffuses conflict according to the metaphor “all in the same boat in a hostile world”.

The origins

Catholic Social Thought

Industrial development was late and fast in Luxembourg. At its onset, class cleavages were rather mild and the urban bourgeoisie was barely developed. Only the maturity of a self-confident working class could have nurtured class conflict substantially. Industrial expansion was limited to the very south of the country. The peasantry from other parts of the country were often reluctant to move south to join the labour force. Many preferred to migrate to the US where they could remain 2

independent and homestead cleared land. The new labour force was immigrant to a large degree. In 1913, only half were Luxembourg nationals (Blau, 2005:47). Immigrants were on the one hand unskilled labourers, mainly from Italy, who could be expelled easily during an economic downturn. On the other hand, skilled German labourers often came in conjunction with capital owners from the Rhineland. A distinct working class with a political impact on national policies was only in the making. Particularly in the southern part of the country, fast urbanisation and a lack of decent housing caused much distress (Lorang, 1994), yet the awakening Left became only gradually a challenge to the established nobility and landed elite. In the first years, their representatives originated largely from the bourgeoisie for lack of politically mobilised labourers.

The deepening of class allegiance and the resulting polarisation of political forces into parties in the early days of the twentieth century stimulated another political force which for decades had felt excluded from the political arena: political Catholicism. Common dividing lines shaping electoral alignments being the conflict between church and the state and to a mounting degree between the city and the countryside, the cleavage capital-labour moved increasingly to the fore. In this overarching conflict, political Catholicism gathered momentum by the support of the conservative peasantry and petty manufacturers. With the establishment of the popular “Volksverein” and the ensuing creation of the party of the Right the movement found its political home.

Political Catholicism aimed to find a third way between Marxist socialism and liberal “laissez faire” capitalism. Based on the Catholic social doctrine and in especial on Pope’s Leo XIII encyclical Rerum Novarum of 1891, it stressed the need to improve "the misery and wretchedness pressing so unjustly on the majority of the working class” (paragraph 3). It admitted the right of the State to enter the economic arena, as well as the possibility of workers organizing for their self-protection. While rejecting both communism and unrestrained capitalism, it affirmed the right to private property and rendered homage to the principle of “subsidiarity” as for handling matters by the smallest, lowest or least centralized authority, if possible at local level. As papal doctrines they fell on fertile ground in ultramontane (Rome-friendly) Luxembourg clergy (Trausch, 2008:59 and Fayot, 2002:118). Zahlen (2001:23) invokes that the 3

organisation of Luxembourg civil society has been built up on subsidiarity: “La légitimité de ces associations est d’autant plus forte que l’Etat luxembourgeois a toujours évité une implication directe trop importante dans le domaine de l’aide sociale et des services sociaux”.

It might well be that late industrial development spared Luxembourg from more intense class conflicts, which other countries had to go through. By the timing of its takeoff, gloomy experiences from early industrial development abroad had already generated a timid response among the ruling classes to problems of economic dislocation and pauperisation connected with the Industrial Revolution. Prior to the papal encyclical, Bishop Wilhelm Emmanuel von Ketteler’s “Die Arbeiterfrage und das Christentum” (1864) was seminal for many Catholics throughout Europe as a systematic critique of existing economic conditions.

Paul Zahlen equates the roots of corporatism to social capital acquired by smooth industrial development without much unrest. Social capital – or density of trust – was enhanced by small-scale industrial development in the South of Luxembourg as compared to large industrial basins like the Ruhr in Germany or in Northern France. Moreover, many labourers were able to remain part-time peasants (2001:23).

In the early Twentieth Century, social thought of moderate Catholicism was pleaded successfully by a group of young proponents around Pierre Dupong who were able to limit the influence of the right wing rural aristocracy in the dawn period of the party of the Right. They were to leave their mark on their party’s agenda for a long time to come. They made the term of “Christian-social” excel the more commonly known expression of “Christian-democrat” even these days (Trausch, 2008:116). Unlike conservative parties in countries as France or Britain, they paved the way for a party that is “ideologically egalitarian, frequently governing with left-wing parties and producing a large and redistributive welfare state” (Katzenstein, 1985:100).

The voting system

Proportional representation (PR) represents another building block towards corporatist governance. At the end of World War I, Luxembourg was not spared from 4

the winds of change that blew through most of Europe. Universal suffrage could not be withheld from the vast majority of the population any longer. Proportional representation was tightly knit to the issue. Luxembourg was a latecomer in changing its electoral framework, Belgium for instance adopted universal male suffrage by 1893 and PR in 1900 (Katzenstein, 1985:155). A conservative member of parliament resolved all doubts: “La représentation proportionnelle était tellement indiquée qu'on ne pouvait plus s'y opposer" (Fehlen, 1993:17). Conservative and socialist forces in Luxembourg could largely agree when it came to renewing from scratch electoral rules embracing proportional representation, preferential voting, cross-voting (“panachage” i.e. voters may split the vote and opt for candidates of different parties) and the partition of the constituencies. Stein Rokkan refers to PR as the “saddlepoint” solution in the game of opposition forces just after World War I in Luxembourg among other countries (Rokkan, 1970:76-80). A zero sum game between the Party of the Right and the Socialists made this general overhaul of electoral rules rather swift.

The introduction of proportional representation was basically a small state’s phenomenon. Katzenstein invokes that “larger countries by way of contrast, either did not adopt PR, abandoned it quickly, or fared disastrously with it” (1985:150). While the Netherlands adopted the purest form of PR with no territorial partition of constituencies, “a radical system of PR grafted onto the German politics at the end of World War I may have contributed to the downfall of the Weimar republic”. The French, on the other hand, abandoned their experimentation with PR in 1928 “as evidently unsuited to the structure of French politics” (Katzenstein, 1985:154-156).

Katzenstein (1985:156) argues that PR tends to insulate different parties from one another. Quoting Stein Rokkan, it fixes an existing balance of power among social forces. While lessening incentive for full mergers among political parties, it encourages a sharing of power among political opponents. In the absence of commanding electoral majority by any one social sector – as in Luxembourg from the mid 1930s onward – this system of sharing power buffered against political volatility and enhanced the prospects for consensus.

The cross-voting procedure was initially not on the policy agenda. It ended up as a concession made to the Liberals who were notably to lose out from universal suffrage 5

(Fehlen, 1993). This “mitigation of PR” (Fayot, 2002:20) was bitterly regretted by the Socialists whose delegate Jos Thorn objected:

"Ce sera toujours la vieille histoire, la même vieille rengaine, et la représentation proportionnelle avec le panachage n'a pour ainsi dire aucune valeur. Avec ce système nous aurons les errements du passé. Les candidats qui auront toute chance d'être élus sont ceux qui passent peut-être le plus par les cabarets. [...] Ceux qui ont le plus de chance d'être élus sont ceux qui ont le plus l'habitude de serrer la main, d'aller à chaque enterrement" (public account of parliament, pp 3724).

As Fehlen (2004) argues, cross-voting has deeply influenced policy making in Luxembourg: “C'est un système qui va dans le sens du clientélisme ou du corporatisme, qui n'est autre que du clientélisme de groupe. Au Luxembourg, les partis sont très faibles en raison de ce système”.

Consensualism is further enhanced by this rather singular voting system. Well suited to smallness, it puts individuals rather than ideas to the forefront. In a small society however, individuals interact with each other over and over again in a wide range of social situations. To enable this social mechanism to function without undue stress, they minimise or mitigate overt conflict. Lowenthal, who introduced the term of “managed intimacy” (1987:38-39) argues that individuals become experts at muting hostility, deferring their own views, containing disagreement, and avoiding dispute in the interests of stability and compromise. An electoral modus such as PR generating its own political predictability goes in line with this mindset.

Small country characteristic

It has been claimed that a country being small is indicative of proportional representation. At this point it will be argued that small size of a country is directly linked to pursuing consensual politics. It is the main line of argument of Peter J. Katzenstein in his seminal book on corporatism in 1985. According to him, small European states, because of their small size, are very dependent on world markets and cannot meet structural changes in the world economy with protectionist policies as large countries can do. For them, economic change is a fact of life. Ensuing 6

economic openness reinforces corporatist arrangements that distinguish them from the large industrial countries. They are not permitted the luxury of long-term plans for sectoral transformation. Instead they choose a variety of social and economic policies that prevent the costs of change from causing political eruptions. They live with change by compensating for it (1985:23-24). The “instruments of domestic compensation” include incomes policy, a large public sector and generous social welfare expenditures (1985:57) while using a flexible, reactive and incremental strategy (1985:79).

It will be on these instruments that I will focus in a Luxembourg context in my attempt to seize corporatist governance and illustrate its effects. But let me first turn to the establishment of mature corporatist policy making in Luxembourg.

The tricky years: from the authoritarian challenge to the corporatist compromise

After the class struggle of the early 1920s with its revolutionary dreams broken into pieces, the Party of the Right could firmly take hold of the political arena. According to its political catholic conviction to the subsidiarity principle, professional chambers were instituted in 1924. Dismissed from the political mainstream, they remained of little impact all the more the Bech government drifted to liberalism while the economy boomed. After the economic bubble burst and markets did not stop shrinking by the early 1930s, many migrant workers left the country. Nonetheless, unemployment and decreasing real wages did not make a halt at the national labour force. In the heyday of fascism all over Europe, Luxembourg was not spared of the economic downturn nurturing right-wing ideas (Blau, 2005:26). An authoritarian strand of extreme-right thought surfaced inside the Party of the Right. Journalist of the major daily newspaper – the clerical “Luxemburger Wort” – the priest Jean-Baptiste Esch represented this strand of thought. He was a relentless supporter of classical corporatist ideas. Based on the follow-up encyclical Quadragesimo anno (in the 40th year) from Pope Pius XI in 1931, he inferred social Catholicism in an ultraconservative way that aimed at overhauling entirely the basements of parliamentary democracy. His ideas found fertile grounds during these years when parliamentary discourse was widely denounced as ridiculous and liberalism as disastrous. A social order of pre-industrial times with crafts orderly organised into an 7

“economic parliament” based on the principle of solidarity and subsidiarity were at the forefront of his reflections. His determination however to break away from parliamentary democracy was disapproved – albeit not openly – by mainstream members of his party. Reacting to attacks from the Labour Party claiming that the clergy was not the sole spearhead of the corporatist order, Pierre Dupong replied that he stands up for it. Nevertheless, as Trausch asserts, he did not see corporatism as a panacea but put it in the wider political and economic context of the 1930s (2008:81). His vagueness however came to the fore when he referred to a Third Way: “On nous invite à choisir entre le libéralisme économique et le corporatisme, le régime d’autorité et le parlementarisme. Or il y a place pour des solutions intermédiaires” (Dupong 1935 at the 25th anniversary of the Catholic Students’ Association, in Trausch, 2008:81).

An intermediary solution was soon to arrive. With the worsening of the economic situation, labour unions gained strength while the Bech government was weakened. Bech himself was a declared enemy of the unions (Trausch, 2008: 219). Several events contributed to reaching the pivotal point: the successful labour union front against the government early 1936, the law on collective bargaining and the “muzzle referendum” the year after. By the end of the year 1937, a tripartite government headed by Dupong was set up with the overwhelming governmental majority of 48 out of 55 parliamentary representatives (Fayot, 2002:131). It allowed integrating the labour unions into the Luxembourg political arena. Maas suggests that this change of social climate conducted nationals to increasingly identify with “their” state and it rendered them determined albeit anxious during the festivities of the centenary of Luxembourg independence in 1939 (2002:29). The reinforcement of national unity proved to be important in times of German occupation (Trausch, 2008: 238). While reinforcing social cohesion, it can be defined as the starting point of the so-called “Luxembourg social model” (Wey, 2003a:18).

Luxembourg has been in step with other small European nations that did not concede to fascism. According to Katzenstein, the corporatist compromise was struck in the crisis-ridden 1930s. It broadened narrow conceptions of class interest to include an acute awareness of the fragility of small European states (1985:35). In reacting to the Depression, political extremism and the threat of war, political forces 8

in small European states accommodated themselves to the need to overhaul rather than to overthrow capitalist society. That accommodation provided the political foundation for a democratic corporatism, which emerged fully after 1945 (1985:140). So it did in Luxembourg.

Meeting in the middle

It was not only the Party of the Right that moved to the centre of the political spectrum in those pre-war days. The Labour Party had already moved a long way into the same direction. Fehlen and Poirier (2000:62) argue that in the early 1920s, the creation of a labour party without explicit reference to revolutionary-minded unions served to wed the working class with democracy. After the Socialist party’s division in 1921 and the crushed strike experiences, antagonism against the Communists did not subside. The hostility of union leaders towards the Communists was still vivid after the Labour party joined the government (Fayot, 2002:135). Only at the time of the “muzzle referendum” campaign, the Labour Partly overtly supported the Communist Party albeit for self-defence reasons. This clear demarcation made it easier for the Party of the Right to approach the Labour Party following their humiliation by the referendum in 1937. Moreover, taking account of the existence of a dominant party union nexus, collaboration of the Socialists with the Party of the Right had been paved by concerted action of the parties’ relative close unions. Upchurch et al. argue that ideological fluidity was a reflection of the rejection of doctrinal dogma and utopian vision by social democratic leaders in favour of a position defined by flexible pragmatism and electoral expediency. Social Democracy’s love affair with Keynesianism and its anti-cyclical policies since the 1930s redefined its aspirations away from nationalisation projects towards developing an ideology of the welfare state (2009:6f). Reformism was abandoned and trade union militancy – detested by conservative forces – was contained by Keynesianism and wage control by an accommodation between trade unions and party leaders. According to a Marxist view, unions were a product of capitalism. Gramsci wrote:

“… trade unions were nothing more than a commercial company, which aims to secure, in the interests of the proletariat, the maximum price for the commodity labour […] and the capitalists, for industrial reasons, cannot want all forms of 9

organisation to be destroyed. In the factory, discipline and the smooth flow of production is only possible if there exists at least a minimum degree of consent on the part of the workers” (Gramsci, writings from early 1920s in Upchurch et al., 2009:19-20).

As Upchurch et al. assert, trade union leaders acted as mediators within the institutional framework and their social position was thus dependent on the continuation of the capitalist order. While workers accumulated a consciousness of being critical to capitalism as a result of work experience, they acquired at the same time a consciousness of the capitalist order to be natural. By the end of the 1930s, a process of “social democratisation” of worker consciousness had taken place in most of western Europe, as Communist alternatives were increasingly constrained by a combination of the deflections of Stalinist ideology and the defeats of militancy in the two decades of recession in the 1920s and 1930s (2009:20-21).

This has been the case in Luxembourg. Kunitzki (2003:123f) reports about a most natural development of representative unions in all sectors of the economy. The employers dominated by the steel industry integrated labour unions in a tacit consensual arrangement where both parties felt responsible for social harmony in the interest of perpetual progress. According to him, since the Luxembourg steel industry was put up during the Zollverein age and influenced by the social doctrine of Bismarck, social democracy never appeared to be hostile against economic tenets but quite simply one of the pillars of society. Due to the huge importance of the steel industry at a national scale, employers could not set their agenda in an egocentric fashion but the government kept an eye on the general balance. Even so, social partners of the steel sector knew that in the last resort it was up to them to fix a compromise preserving the long-term balance of the country (Kunitzki, 2003:124).

As a matter of fact, steel industry employers tried at their best to foster unions at a very large base. That is why the union membership fee was deducted from the wage and transferred to the union of the employee’s choice. According to Kunitzki, this system ensured that the labour union membership rate was nearly 100%, which again reassured the employers that unions were made up of a core of moderates and

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thus keeping extremist and revolutionary tendencies off the mainstream (2003:124125).

After World War II, the renamed Socialist Party could form a government with the CSV – the former Party of the Right – for more than ten years. The “big tent” approach of the latter – attracting a large base of support at the polls – emerged increasingly to be a valuable model for the Socialists all the more that the workers' share in the population did not decrease in Luxembourg compared to other industrialised countries. Trausch refers to a “people’s party of the Left” (2008:58). Blau infers that the Socialist party acquired a “solid culture of government” which made them move towards the middle classes while getting increasingly bourgeois and “sacrificing their ideals on the altar of realism” (2005:87).

As for the former Party of the Right, Blau argues that after the name change to a “Christian-Social” party, it displayed even more openly its aspiration to inspire with social Christianity to become an “interclass” party (2005:85). A few years later however, after Prime Minister Dupong passed away who had fervently supported Christian-social ideas all his life, the ideology was substituted by European integration (2005:86).

Corporatism at its peak

According to literature on neo-corporatism, its golden age has been the trente glorieuses (“glorious thirty”) until the recession years in the mid-1970s. Katzenstein argues that since the middle of the 1950s the requirements of international competitiveness stemming from an increasingly liberal international economy had contributed to the maintenance of corporatism. Less dramatic and chaotic than events of the 1930s and 1940s, structural trade deficits of the small European states had reinforced corporatist patterns throughout the post-war decades (1985:95).

Corporatism has been moulded into institutional forms in Luxembourg as in other countries with a corporatist style of governance. Nonetheless, most institutions remained quite toothless, starting 1924 with the creation of the Professional Chambers via National Labour Council (1936), National Labour Conference (1944) 11

and even the Economic and Social Council in 1966. It took until 1977 when the Comité de coordination tripartite was founded that a more potent instrument of corporatist governance was put into place. Even so, corporatism was well alive informally. As Kunitzki reports, unofficial but efficient contacts between employers from ARBED (at the time Luxembourg’s largest steelmaker), the head of government and union leaders made up for “intrinsic” concertation. He asserts that those informal meetings – as for instance lunch of the ARBED director at the Prime Minister’s office – took more account of the wider economic and social environment of the country than the institutionalised gatherings (2003:127).

This practice highlights Katzenstein’s (1985:80) three defining characteristics of corporatism: first, an ideology of social partnership (“domestic quarrels are a luxury because we are so small”) at both formal and informal levels and second, a centralised and concentrated system of economic interest groups. Lehmbruch invokes that bargaining power has to be “concentrated in the hands of top level leadership, a sort of interlocking directorate of the competing groups. While pragmatic consensus among elites is rather highly developed, there is little communication among lower levels of the groups. An essential condition is strong vertical integration of each group. The resulting latitude of action by its top leadership is necessary for a smooth functioning of the bargaining process. This means, in the case of liberal corporatism, that trade unions as well as employer organizations must be strongly centralized” (Lehmbruch, 1974:7). The third characteristic has been an “uninterrupted process of bargaining among all of the major political actors across different sectors of policy” (Katzenstein, 1985:80). Economic governance in Luxembourg adheres – or adhered – to this modus since social concertation was never abandoned, major so-called forces vives de la nation have been involved and social partners never deal strictly with issues only related to them.

Let me now come back to the three instruments of domestic compensation invoked to above by Katzenstein: incomes policy, a generous social welfare system and linked to that, a large public sector. As for policies of wage and price restraints agreed upon at a national scale, social concertation in Luxembourg in the post-war years managed rather well to keep salaries and prices under control until the early 1970s. After that, demands for pay increases flared up (Zahlen, 2003a:37) but salary moderation was 12

soon to be respected again in the recession years with a further institutionalisation of social partnership by the instrument of tripartite.

As for the social welfare system, Luxembourg’s policies did not follow the generous model put forward by Katzenstein, at least not until the recent past. As Zahlen (2003a:45f) shows, public spending including social security has been more restrictive in Luxembourg than in most other European countries. Total spending of public bodies amounted to a maximum of 50% in the early 1980s, yet remained below expenditures of most other countries. Correspondingly, the budget spent on wages for the public service has been rather low in Luxembourg (2003a:51) and matches the low share of public service employees in the total population (Bossaert, 2008:133f).

Zahlen associates these figures with the principle of subsidiarity and the State’s aspiration to intervene only in domains where civil society cannot act efficiently. He concedes that when in times of globalisation social links tend to weaken, the State may not be able to withdraw further (2001:23 and 2003a:69). Moreover, Zahlen admits that taking the GDP as basis of comparison, the importance of public spending might be underestimated due to a considerably higher GDP of Luxembourg as compared to that of other countries (2003a:49-50). I might add that due to the Luxembourg economy being based increasingly on a single very potent pillar, the finance sector, rising fluctuations in tax revenues have adverse affects on public spending.

Withering corporatism?

Since the late 1970s, an increasing number of political economists claim that corporatism at the European scale has been on its decline (cf. for instance Philippe C. Schmitter, 1974 with “Still the century of corporatism?”). Globalisation and the ensuing neo-liberalism have disturbed once stable post-war employment-friendly and protective labour market regulations, active industrial policies and a generous social security system. Even that in the 1990s these claims have been qualified as premature, a conversion from conventional forms of corporatism towards competitive

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corporatism and social pacts (cf. Martin Rhodes, 2001) has been recorded. Those have been triggered off largely by serious budget constraints in many countries.

In Luxembourg however, such constraints were avoided by a swift and lucrative structural change from the industrial sector (steel industry) to the service sector (banking) from the 1980s onwards. Managing ever increasing budget surpluses have been common undertakings of Luxembourg’s finance ministers. Thus a tendency towards questioning established forms of corporatism has not been observed until recently. Only during the aftermath of the banking crisis of 2008 and the ensuing general recession, the general discourse has been increasingly channelled away from employment-related and welfare state oriented concerns to competitiveness in a globalised market environment.

The latter agenda however is hard to put into practice with a strongly institutionalised apparatus of social concertation. Instead, as social pacts show in other “concertationprone” countries – even in some that only had a short history of corporatism, such as Ireland – flexible arrangements of social partners with a low degree of hierarchy and institutionalisation have had a certain success of finding a suitable path of development. Moreover, as Baccaro (2003:685) argues,

“concertation seemed to work best when the structure of the interest representation system resembled the structure of the European corporatist societies of the 1920s and 1930s (a period in which societal interests were not allowed to organize freely). This implied that a limited number of actors (ideally, one) should be allowed to sit on each side of the bargaining table. Also, these actors should be able to impose their will on their lower-level affiliates, both at the industry, and more importantly, at the workplace levels.”

Having said this, corporatist governance in Luxembourg is made up by networks linking government with interest organisations with a quasi-public status as key actors in policy making. Implications about this governance style are multi-fold. First of all: what are the effects of a fully-fledged institutionalisation of tripartite and other corporatist bodies to the core bodies of constitutional democracy? Mario Hirsch has been articulating the most tenacious criticisms on the so-called Luxembourg Social 14

Model. Parliament would be assiduously ignored during social partners’ negotiations and is only required to rubber-stamp the final outcome (Hirsch: 1993:10). The Cercle Bech (in Hirsch, 2005:5), a think tank said to be politically to the right, argues that the parliament in Luxembourg has been “emasculated” by tripartite concertation.

Corporatism’s implications

Corporatist governance style worshipped in Luxembourg has far-reaching socioeconomic aspects. Subsequently I distinguish between the power distribution among actors within the tripartite’s constituents and the legitimacy of the tripartite body as a whole respectively the legitimacy of their non-governmental constituents.

In corporatist models, actors holding bargaining power are concentrated in the hands of top-level leadership while lower levels of the groups communicate little. Participation tends to manifest merely for the top leadership of selected vested interests. Involvement of the rank and file is limited. Hierarchical and oligarchic tendencies go often hand in hand with a lack of horizontal coordination. Unions in Luxembourg are organised rather hierarchically and vertical integration is strict. Only the union leaders are integrated in tripartite negotiations and their coordination with the rank and file is generally limited to appraisal. For the government as well, there is a tendency that controversial issues are rather tackled by the Prime Minister himself (“top priority issues”) behind hidden doors. I would like to assert that this culture of top-heavy decision-making – which goes mainly unnoticed and thus has rarely been contested – is a common characteristic of interaction in Luxembourg and may be ascribed to its corporatist and Catholic inheritance and its long-standing allegiance to Latin traditions by the ruling class.

Bossaert (2003) refers to “strongly seniority-dependent aspects of Luxembourg’s public services”. The tendency towards strong centralisation, strong vertical integration with only the top leadership necessary for smooth functioning (Lehmbruch, 1974:7) earmarks Luxembourg’s public service. That is why the number of senior officials among the public service should not exceed if possible hundred people in order to enable decision making processes to be taken in an “intimate” working climate (Bossaert, 2008:135). These networks of restrained access mirror the 15

corporatist style of governance. It is just this oligarchic characteristic that prevents the public service from adopting more participative and inclusive human resource management policies.

In contrast, Lorig (2008:36) in his account on political culture in Luxembourg perceives opportunities of participation as relatively developed. He draws on the favourable relation between political mandates and total population. Moreover, while referring to the European Values Study (EVS), he attributes distinct participation to a high share of people being member of an NGO.

Armingeon (2007a:309) in this review on the Katzenstein thesis weighs corporatism in small countries against citizen’s satisfaction. In line with the European Social Survey (ESS) of 2004, he argues that citizen’s satisfaction with the political system is not related to an economically effective corporatism. In Luxembourg however, satisfaction with democracy is extraordinary high. On the other hand, in Luxembourg just as in other small countries, citizens are not more interested into politics for the challenge that economic vulnerability poses for the politic system. Luxembourg is here in a rather peculiar position: even that citizens are not very interested into politics (less than the mean value of the ESS), they are extremely satisfied with its actors.

Zahlen (2003b:36) draws analogical findings from the European Values Study on Luxembourg. Whereas few Luxembourg citizens think of politics as an important matter, many have a great deal of trust into political parties. When it comes to interpersonal trust on the other hand, Luxembourg fares rather mediocre. The lack can be partly drawn to cultural heritage since most historically Protestant societies rank higher on interpersonal trust than do most historically Catholic societies (Inglehart and Baker in Zahlen, 2003b:40, footnote 18). However, as interpersonal trust is significantly correlated to both a society’s level of GDP per capita and the level of income equality (Costa and Kahn in Zahlen, 2003c:41), Luxembourg with both of these indicators being positive, the degree of interpersonal trust might be disconcerting in Luxembourg.

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Here Zahlen invokes the problems of the micro-society (2003c:41) which calls to mind Lowenthal’s seminal contribution on social features in small states. In a small country environment of “managed intimacy” where citizens are experts in muting hostility and deferring their own views, containing disagreements may well have a social price, which is interpersonal trust. In such small societies such as Luxembourg interpersonal trust might be kept more within a tight kinship cordon than in larger societies where it is easier to disagree with people you most likely will never meet again. All the more as Lowenthal argues that in order to avoid bitter and prolonged factionalism causing devastating effects, inhabitants of small states often take pains to conceal or mute hostilities they may feel (Lowenthal, 1987:39).

Familism and loyalty to a wider kinship are at stake. In Luxembourg, it seems that to a certain extent some indicators from sociological surveys point in that direction. According to Lowenthal, bonds of family underpin small-scale intimacies. Those loyalties suffuse small-scale economic, social and political enterprise while citizens accept kinship relations as a warp and woof of public affairs and family favouritism as a fact of life (1987:40). Baldacchino (in Sultana, 2006:40) notes that in the field of career guidance, there is a tendency for vacancies to be created in a tailor-made fashion and job advertising can become largely ceremonial. “It’s who you know, not what you know” is particularly relevant in a small states context. Sultanta reports that in the context of a survey on career guidance in small countries, one of the respondents referred to this phenomenon as “the Vitamin-B-complex”: even if you are good and have a lot of diplomas, you are not sure to find a job without knowing someone “important” (2006:42-43). According to Genevois (2009), the share of job vacancies to be filled by word of mouth seems to be high in Luxembourg, but unfortunately she does not provide any comparative data from other countries that would permit a quantitative appraisal.

Woolcock and Narayan put this loyalty in the context of social capital. Social capital is a double-edged sword. Where communities or networks are isolated, parochial or working at cross-purposes to society's collective interests, productive social capital might be replaced by rent seeking “perverse social capital” (Rubio in Woolcock and Narayan, 2000:229). They differentiate between bonding social capital in societies where social capital inheres mainly in primary social groups disconnected from one 17

another and bridging social capital in societies with good governance and where the state opens up and explicitly builds bridges to excluded groups and makes them gain access to the resources and services to which they are entitled (2000:237).

It is idle to speculate in how much social capital in Luxembourg is of the former or of the latter type. Nonetheless, taking as indicators the level of citizens being member of an NGO seems to be rather unrewarding all the more that due to long-standing traditions of subsidiarity social security has been partly outsourced to voluntary associations. On the negative side, we however find some worrying indicators. Lack of interpersonal trust is one of them. Besides, the above-mentioned characteristics of bargaining power concentrated in the hands of top-level leadership seems to work best in an obscure political sphere of corporatist arcane imperii without interference from rank and file. Those involved in tripartite bodies have never denied a necessity for small and impenetrable networks. It has been telling that Prime Minister Juncker who fervently speaks up for a culture of debate, has been termed in a blog by The Economist (2009) on the EU institutional wrangling for European Council president as a “past master of the dark EU arts of corridor deals, late night compromises and procedural ambushes”. Even that this dig might be associated to a long-standing antagonism Blair-Juncker, it might just as well provide an insight into pluralist AngloSaxon perceptions of corporatist procedures.

In this regard, the EVS highlights another particularity of Luxembourgers, namely a fairly favourable stance towards a political system that is “headed by a strong personality who does not have to worry about parliament or the next elections” (Zahlen, 2003c:35).

Vivien A. Schmidt in her contribution on small state’s welfare state adjustment argues that discourse often is the missing factor in explanations of policy adjustment. She distinguishes between coordinative and communicative discourse. While during coordinative discourse “epistemic communities” such as those represented in tripartite construct a proposed policy programme in a rather secluded forum, during communicative stage of discourse by contrast, key interlocutors such as spokespersons present those programmes for discussion and deliberation with the public. She argues that most small states under most circumstances tend to privilege 18

the coordinative discourse over the communicative. In multi-actor constellations – such as Luxembourg’s tripartite forum – debate and deliberation over major policy initiatives tends to go on mainly behind closed doors (2003:137-138). The communicative discourse, as a result, tends to be much thinner than the coordinative, which leaves the public with little significant orienting or legitimising information. She also puts up that in countries where the coordinative discourse is highly confidential, if not entirely secret – she refers to Austria – the public has been more vulnerable to the communicative discourse of extremists (2003:139). As for her comparison between The Netherlands and Belgium, she claims that multi-actor discursive constellations resembled each other in every way except the discourse. It resulted in The Netherlands to change their negotiation systems while apparently Belgium “never got it right” (2003:128).

Confidentiality may well be appropriate in certain policy domains and situations of negotiation. It is the generalisation that is alarming. It shuts citizens deliberately off the networks of decision. It works all the better in an environment where the culture of debate has not been strongly developed and where critical intellectual voices have been scarce for the lack of an established university backdrop.

Furthermore, in a society such as Luxembourg with a very high share of foreigners and merely nationals allowed to cast their vote for parliament elections, a considerable share of citizens are not suitably represented and their lobbies are maybe heard but often deviated. Schmidt asserts that democratic legitimacy is jeopardised if coordinative discourse is not inclusive or transparent marginalising certain groups such as i.e. immigrants, the unemployed or women (2003:138).

By non-transparent discourse, they are commonly excluded from information networks. As Woolcock and Narayan assert, a social capital perspective adds its voice to those calling for information disclosure policies at all levels to encourage informed citizenship and accountability of both private and public actors who purport to serve the public good (2000:242). Or except for Malta and Cyprus, Luxembourg is the only European country where freedom of information is not embodied in a law. While as early as 1946 in its very first session the UN General Assembly stated that freedom of information is a fundamental human right, in 1995 the UN Special 19

Rapporteur on Freedom of Opinion and Expression claimed: “Freedom will be bereft of all effectiveness if the people have no access to information. Access to information is basic to the democratic way of life. The tendency to withhold information from the people at large is therefore to be strongly checked”. Yet, in Luxembourg freedom of information is basically an issue for experts – journalists – and civil society hardly takes notice of the lack of this basic democratic element. Informal access and dissemination of information is the key whereas establishing information platforms – so-called observatories – as have been instituted in many countries and enabling access to key data and intelligence are not at the political agenda.

Let me now move towards questioning the legitimacy of tripartite non-governmental bodies. I will focus particularly at the legitimacy of unions. Employers’ legitimacy with a small number of actors is less complex even that more could be said about the sharing of representation between industry and manufacturers.

During the last decades, a gradual shift of labour from the secondary to the third sector has decreased steadily the number of workers employed in industry. In Luxembourg this trend has been particularly intense with structural transformation from the steel industry to the banking sector. On top of that, socio-cultural changes have eroded shared aims of members of society as a whole. The effect has been a gradual decrease of union membership in most countries. In Luxembourg, on the other hand, union membership rates in industry have remained high. Nonetheless, as unions need to be governmentally entitled to be nationally representative and the government’s ex post efforts to adjust and regulate the representativeness during times of swift structural change has not come to terms (as can be illustrated in the banking sector’s union ALEBA), a growing number of union members find themselves not represented in tripartite panels.

Armingeon argues that unions are more often than not defenders of the “old welfare state”. New social risks generated by changing life and work patterns are not appropriately taken into account by them any longer. He refers to a growing share of young and single mothers in the working population (2007b:116). European unions represent mainly elderly and male employees from the secondary sector (Armingeon, 2007b:117) and are thus contributing little to the modernisation of the welfare state. A 20

survey on the Swiss labour market reveals that political stances differ very much nonregarding whether employees are union members or not. Even though union affiliates are politically mostly assigned to the left, the survey exposes that employees from the secondary sector are politically far to the right (2007b:114-115). According to the World Values Surveys, Armingeon claims that in most cases union members are generally not in favour of income equality. On the contrary, in quite a few cases they even favour a more pronounced inequality (2005:151). Particularly in Continental Europe, so he argues, unions have mutated from reform catalysers into reform preventers and those who created the welfare state in the post-war years might become its gravediggers (2007:120).

When attempting to evaluate in how far non-governmental constituent units of the tripartite committee represent the full spectrum of Luxembourg society, obvious deficiencies come to the fore. At a time when major emphasis is placed on civil society and its important role in social and political change is rarely challenged, entrenched structures of power within tri-partite corporatism continue to deny the potential role of civil society to bring about such change.

Molina and Rhodes invoke that as far back as during the 1980s when in some countries a decline in older neo-corporatism triggered off the emergence of new forms of neo-corporatist decision making, this change involved not merely newer issues but also new corporatised actors (2002:309). Several authors alluded to Luxembourg’s resistance to change. Wey conveys that many actors from Luxembourg civil society feel to be placed at the margin of consensual networks (2003b:3). Insinuating on the question in how far tripartite bodies are still representative of Luxembourg society and economy, Thill (2009:10) puts forward that the tripartite is still associated to the industrial age. So does the Cercle Bech question in how far an upgraded Economic and Social Council would have to include representatives from civil society (Hirsch, 2008:206). Some singular attempts for change exist though. Luxembourg Minister for Sustainable Development Schank recently announced the setting up of a Quadripartite including civil society aimed at tackling the burning issue of climate change. It will have to be seen whether in this both sectoral and encompassing issue a move to break away from tri-party bargaining will show the way forward. 21

A path looming ahead?

Corporatist governance is deeply rooted in Luxembourg. As Hirsch argued, a majority of Luxembourg citizens have been deeply enchanted by the instrument of tripartite and believe it to be a panacea (2008:205). Nonetheless, the failure of tripartite negotiations earlier this year and the ensuing disorientation and inability of the government to steer have been indicative of crisis management. An erosion of this firm constituent of Luxembourg’s political arena has not been openly acknowledged. Alternatives are definitely not within easy reach. It is true that tripartite negotiations failed before. Yet political actors might come to terms that sustained budget constraints will make the days of old-type corporatism numbered in Luxembourg just as it was fading in most other countries decades ago.

Particularly the proponents of the “cosy” welfare state are hard to convince to change the rules of the game and develop a more competitive model of “social pact” corporatism. Armingeon in his paper on problems of transition from corporatism to pluralism (2005:137) points out that while political concertation does not collapse, the centralisation of organisational structure diminishes. Union members’ militancy is rather low what explains why unions can make concessions in tripartite bodies. According to the World Values Survey of 1999-2001, as many as 61% of Luxembourg union members would never seize buildings and factories, a rather average score at a European scale. It explains why union leaders cannot easily choose between a cooperative and a belligerent policy. Instead they signalise “action” to their members by organising round table talks without much content that are en vogue as long as the press reports about (2005:145). He puts forward that unions would not like to do without corporatism (2005:137). Government and employers could, yet the latter would not like to renounce on certain regulating roles the unions took over such as for instance vocational training (2005:154).

It is probably only a question of time before Luxembourg, as far as new forms of corporatist governance are concerned, will follow suit its European counterparts. As Schmidt invokes in her excursion on discourse, in the Netherlands in the 1990s, under conditions of breakdown of “multi-actor” (corporatist!) negotiation, a “single22

actor” constellation brought the communicative discourse to the fore (2003:137). It is thus rather incomprehensible why there is a general tendency not to accept that change is possible in Luxembourg. “Strong criticism against excesses of consensualism” made Zahlen (2001:24) “think of fight against windmills”. Admittedly the assertion was made nearly ten years ago. Yet change is perpetual and so let me hope that these days strong criticism against excesses of consensualism makes people think about struggle for political debate.

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