Pension Reforms in Central, Eastern and Southeastern Europe: Legislation, implementation and sustainability

Abstract

The study analyses the legislation and implementation of pension reforms in four Central, Eastern and Southeastern European countries: Croatia, Hungary, Poland and Slovenia. By comparing the political economy of their policymaking processes, it pinpoints regularities between institutional settings, actor constellations, decision-making strategies and reform outcomes. The dissertation addresses three research questions: Why was reform possible and how was it carried through? What are its distributive consequences? Does it guarantee long-term political support? The main argument is that viable pension reforms should not be seen as an event, but rather as a continuing process that must be fiscally, socially and politically sustainable. The primary goals of a pension scheme are poverty reduction, consumption smoothing and insurance. These can be achieved only if the scheme enjoys continuing political support at all levels. Elaborating on this premise, the research makes four broad claims; two related to legislation and two to the implementation of reforms. First, policymakers in post-socialist countries quickly exhausted the possibility of enacting simple corrective measures and were hence forced to negotiate pension reforms with the pro-welfare coalition. Complex exchanges between policy and politics became central to these negotiated bargains. Second, systemic reforms introducing policy innovations, such as funding, were politically superior to parametric changes. Systemic innovations are a source of popular support and free room for manoeuvre. The new funded elements are traded for cuts in public pension schemes. Third, trade-offs between fiscal and social sustainability emerged during legislation, jeopardizing successful implementation. Excessive emphasis on financial viability conflicts with sound social policy. Conversely, failure to eliminate extreme imbalances between contributions and benefits, and unjustified special privileges disrupt the fiscal budget. Finally, how legislation is conducted is important for a reform’s political acceptability. Negotiated bargains are qualitatively different from other modes of policymaking. Contrary to a received wisdom in the literature, the thesis argues that inclusive decision-making, as opposed to limited bargaining, increases both the effectiveness of reforms and their political sustainability over time. The involvement of a greater number of stakeholders allows for smoother implementation: costly deviations from efficient solutions are avoided, and incentives to stick to the reform’s initial rationale are put in place. With respect to existing work, this study makes two innovations. First, it extends analysis to ten years of implementation, following the reform wave of the late 1990s. Second, it employs theoretical instruments to study Eastern pension reforms that are entirely consistent with those applied to the West. The dissertation links the legislative and the implementation phases together by adapting the Natali-Rhodes’ theoretical framework, developed for pension reforms in Continental Europe. The ‘spillover’ is justified on multiple grounds. First, sufficient analogies exist between the institutional structure and the mounting problems of Bismarckian retirement arrangements and post-socialist pension schemes. Second, this approach accounts for the popularity of systemic pension reforms in the region. By focussing on the ‘creative opportunism’ of policymakers, it shows how they simultaneously introduced policy improvements and imposed benefit cuts. Finally, the framework is easily extended to the implementation of reforms, thereby linking individual decision-makers’ preferences to policy outcomes and their consequent sustainability in time.