Impacts of the Neoliberal Revolution on U.S. and German Labor, Health Care

The end of the economic golden age of the post war period was marked with a general recession throughout most of Western Europe and the United States. In response to the perceived failure of the Keynesian systems in Europe, a neoliberal movement gained power. Margaret Thatcher and Ronald Reagan especially promoted neoliberal ideals, which emphasized faith in the markets and constraining the state's role. Keynesianism's approach to benevolent government was replaced with the idea of monetarism and a belief that unrestricted markets would result in efficient use of resources (Björklund, Haveman, Hollister, and Holmlund 1991). Monetarism emerged as an obsessive focus on battling inflation, even at the expense of a country's economy. During this period of fiscal austerity, the welfare state came under attack, and governments began to criticize the idea of social agendas and started making cuts to previously firm welfare policies.

By the late 1980s, it appeared that the United States had sufficiently recovered from the economic shocks of the previous decade, while most of Western Europe was still struggling. During the 1960s and 1970s, unemployment in the United States was double that of Europe, by the mid 1980s, it was the other way around and while employment steadily rose in America, Europe saw erratic patterns that ultimately fell below those rates of their golden era (Anderson and Halvorsen 2002). Yet, it was not the overall productivity or international competitiveness of these European nations that suffered. In fact, some nations, such as Germany, actually seemed to be gaining from the liberalization and internationalization of trade (Manow and Seils 2000). Rather, the most significant change seemed to be the drastic rise in the percentage of unemployed persons within the countries.

Ironically, despite the seeming retrenchment of the welfare state in the neoliberal era, health care policies have actually expanded. In the European Union, coverage rates increased from an average of 72.7 % in 1960 to 97.4% in 1995 (Pierson 2001). Between 1960 and 1991, the average public spending in the OECD on health care increased drastically from 2.5% of the GDP to 6% of the GDP (Pierson 2001). Yet, the massive increases in health care expenditure, especially during a period of recession and economic austerity, ultimately impeded on other social policies in some nations. Despite this, the issue of health care has been primarily one focused on cost containment for most of the industrialized world, rather than universal access, which is taken for granted. The only exception to this is the United States, which is still debating over the right of all citizens to some bare minimum level of care (Mueller 1993). In this advanced era, the United States has become an outlier, with health care policies that are not merely outdated, as with some European states like Germany, but rather, insubstantially formed from their original conception.

The first part of this essay focuses on the labor market policies enacted since the neoliberal revolution of the 1970s. It examines Germany and the United States as examples of nations that are both incredibly successful in the world of international trade, and yet have followed distinctly different routes of social welfare. It makes the claim that Germany's active labor market policies are not sufficient in counteracting their drastic unemployment levels. Welfare policies set in a different economic era are no longer applicable, and regardless of continual reformations, Germany's attempts to maintain these social protection standards only perpetuate their high levels of unemployment. This is not to say that the United States has successfully adapted their welfare state to the modern era, but rather, that substantial social policies have not been established in America. High employment levels exist, but this is also accompanied by extreme economic disparity and high levels of poverty relative to Western Europe. Essentially, part one of this essay makes the claim that a trade off exists in the modern era of economic openness between equality and employment. However, it is important to note that this essay does not make the claim that there is a direct correlation between economic openness and welfare policy. Instead, it claims that Germany's existing welfare institutions perpetuate the unemployment caused by a move towards economic openness and liberalization.

The second part of this essay looks at the issue of health care policy in Germany and the United States since the onset of the neoliberal era. It examines the implications that its increasing expenditures have had on other social policies, including the labor market. It asserts that the rapid inflation of health care costs has caused all of the different welfare systems to suffer to control cost containment. It makes the claim that the United States has failed to create a substantial health care system for the modern era, and that it is the only state which does not recognize universal access as a human right. Yet, it also asserts that Germany's contribution based system is ultimately perpetuating their high levels of unemployment and that reformations are not sufficient. This essay does not make the claim that Germany's health care system is essentially a failure, but rather, that its attempts to contain costs through incremental reform is not enough. Radical reformation, as in their Health Care Structural Reform Law, is necessary in a modern economic world (Giaimo and Manow 1998).

Although this essay makes some larger assertions as to the affects of liberalization on some welfare policies, it is important to distinguish between the varying welfare states of each nation. This essay focuses specifically on those of Germany and the United States and does not make the claim that these assertions are applicable to other nations. Despite the fact that some Western European countries may have similar welfare states or social policy reformations, the neoliberal revolution impacted each country differently. Therefore, this essay focuses on basic trends in Christian Democratic and neoliberal regimes in Germany and the United States, but does not seek to make sweeping generalizations as to the state of welfare regimes in the modern economic era. Rather, the purpose of this essay is to point to the weaknesses of both an outdated welfare state in Germany and an insufficiently crafted welfare state in the United States in regards to labor market and health care policies in both nations.

Labor Market Policies in the United States and Germany

In the 1970s, Keynesianism was replaced with fiscal austerity and a move towards neoliberalism. The United States was at the forefront of this revolution towards a more open international economy, and Germany, along with most of Western Europe, followed suit. Under Reagan, there were attempts to "create a deregulated business environment in order to facilitate the competitiveness of... firms in the global market place" (Johnson and Farrell 1998: 133) There was widespread pressure to deregulate public utilities, and a fear that not privatizing would ultimately lead to competitive disadvantages. A paradox emerged, in which state power was utilized in order to ultimately free the market, and the regulation of market activities became increasingly important because the state could not directly pursue their goals (Héritier and Schmidt 2000). The claim that globalization is undermining the welfare state is not wholly true, and "in all countries, public service goals have been maintained in spite of liberalization" (Héritier and Schmidt 2000: 558). Yet, with liberalization did come a huge shift of economic opportunities by an accelerated decline of highly unionized, high wage employment and organizational changes from Fordist modes to more flexible ones in the United States and a general move of employment away from the manufacturing sector towards the service sector in Germany (Johnson and Farrell 1998). These ultimately resulted in the essential trade offs between employment and equality during an era of economic austerity.

Iverson and Wren describe the "trilemma of the service economy" as the conflicting goals of employment growth, wage equality, and budgetary constraint (Pierson 2001: 86). In liberal nations, as in the United States, they avoid problems with lost budgetary constraint and high unemployment by expanding the low wage private sector service employment. However, this is accompanied by poverty and high levels of economic disparity. With Christian Democrats, as in Germany, public service employment is limited and labor market regulations and high fixed costs prevent private sector employment growth. Thus, their primary problem becomes high unemployment. Pierson describes the death spiral scenario in Germany, in which their low employment levels could lead to higher payroll taxes, which would ultimately perpetuate this cycle of unemployment (Pierson 2001).

Market making regulations established rules of property rights and fair competition, but employment policies were not under scrutiny or debate. According to Héritier and Schmidt, employment policies simply have not had the regulatory efforts of the infrastructure, and "implications of each firm's firing decisions... and the welfare state transformation are rarely the object of reflection" (Héritier and Schmidt 2000: 559). Although social insurance charges went up from 24.4% of Germany's GDP in 1960 to 41% in 1996, only 4.5% of this increase went towards unemployment (Pierson 2001). The general solution has been to reduce the labor supply, as in the 1970s when they stopped the flow of migrant workers and offered incentives for early retirement (Mannow and Seils 2000). But as Germany is primarily funded by payroll taxes, contribution rates go up, thereby raising wage costs, and perpetuating Pierson's death spiral scenario.
Germany's political economy is based on four components: a federal government with a restricted capacity for direct economic steering, a highly independent central bank, autonomous 'social partners,' and a welfare state that is contribution based and mostly committed to status maintenance (Manow and Seils 2000).

All of these components hinder their ability to adapt, as evidenced during the economic shocks of the 1970s when the Bundesbank actually forced the country into recession when they refused to devalue the currency. The independence of the Bundesbank forces Germany to observe strict fiscal policy and introduces incentives for the government to shift the financial burden. Their corporatist system allows for minimal government intervention and strict protectionist policies make it hard to both drive down wages and expensive for employers to hire new employees. The "insider-outsider" problem exemplifies the growing issue of unemployment in which the long term unemployed are simply out of luck. Mass unemployment is prevalent in most sectors sheltered from international competition which have suffered from poor job growth (Manow and Seils 2000). Consequently, social costs imposed on labor increase steadily, and non wage labor costs affectively destroy employer motives to hire new employees.

Germany's insurance principle is based on the idea of a direct connection between contributions and benefits. Yet, with massive unemployment, this principle is insufficient when there are less people to contribute towards payroll taxes. Because Germany is restricted by a fixed budget, contribution rates are forced to increase with lower employment, thereby also increasing non wage costs. Since the economic shocks of the 1970s, Germany has endured vicious cycles of spending cuts, cost shifting, and active labor market expansions, as a result of addressing two, conflicting, goals: containing social spending and allowing for firms to lay off workers 'painlessly' (Mannow and Seils 2000). This policy sequencing allowed for cutbacks during the economic slumps and expansions during the booms. However, Germany did generally have an active labor market policy which focused on training. The problem was that there was "no general entitlement to training to job creation measures" and they were an easy first target for cuts, and there is doubt as to whether or not these training measures actually reached the low skilled (Mannow and Siels 2000: 283). Essentially, people with little or no skills simply could not find work in Germany.

In the United States, the welfare state itself is a matter of debate, and it is not entrenched within the political culture. Instead of a series of social insurance that reaches the majority of the populace, like Germany, social policy acts as a last resort measure for the very bottom rungs of society. There may be some validity to cultural arguments that Germany's welfare state is facilitated by a patriarchal social ideal and Christian social ethic, while America's liberal values and individualism have prevented the fruition of a very generous welfare state (Weir, Orloff, and Skocpol 1988). However, as Weir, Orloff, and Skocpol point out, this cultural values argument has yet to point out the exact ways in which it has influenced social policies (Weir, Orloff, and Skocpol 1988). Instead, this essay focuses on the labor market policies of the United States, which have through their privatization affectively reduced unemployment, but increased poverty and economic inequality.

Anderson and Halvorsen offer three solutions to battle unemployment: wage flexibility as in lower minimum wages, higher qualifications, and reduction in the costs of low productive service labor as in lower wage costs (Anderson and Halvorsen 2002). Wage flexibility is evidenced in America, but highly unionized industries in Germany have only agreed to moderate wage flexibility. Lower wage costs are not possible in Germany, with their contribution based system. Thus, the only plausible solution seems to be in higher qualifications, or economic training programs. Training programs are a part of active labor market policy, and can come in a variety of different forms. Björklund, Haveman, Hollister, and Holmlund categorize them in the following way: complete government production, shared public-private production, subsidized activities, mixed work and training, training, enterprise promotion, regional and structural support, and regulations (Björklund, Haveman, Hollister, and Holmlund 1991). Both Germany and the United States incorporate a mix between the public and private sectors in active labor market policy.

Germany's labor market institutions are highly decentralized, and involve a sharing of power between the public, industry, and labor. The Federal Employment Institute runs both unemployment insurance and selective employment programs, and they are separate from the federal government, running on a fixed budget. They operate few programs other than the insurance, and most employment training programs are run by the state or by private groups. The benefits include a very high quality of instruction, but as it relies primarily on employers and unions to provide training, the non wage cost is generally very high (Cichon 1986). Additionally, the OECD lists new technology creating more skill intensive jobs, and more varied jobs as two of the three developments that pose risks to the performance of the labor market (OECD 1990).

The United States, as opposed to Germany, spends less time and money on training programs, produces more employees, but with vastly inferior skills. In Germany, the average time invested in training for unemployed adults is 8 months, as compared to 3.5 in the United States (OECD 1990). Training also represented .25% of Germany's GDP in 1990, with approximately $7,200 in start up costs per person, as opposed to the .05% it represented of the United State's GDP, with about $1,800 in start up costs per person (OECD 1990). As for direct job creation, it represented .16% of Germany's GDP in 1990, with $13,800 in start up costs per person, as opposed to the .01% it represented in the United States, with only $3,700 in start up costs per person (OECD 1990). It cost less for the United States, on average, to create a job for one person than for Germany to begin training one person. Yet, Björklund, Haveman, Hollister, and Holmlund attest that employment and training programs have had statistically small effects relative to the size of the problem (Björklund, Haveman, Hollister, and Holmlund 1991).

There is also the issue of labor market participation, particularly with regard to gender. Germany is notable for its low levels of increase in female labor market participation since the post war era. While the United States went from 42.6% of the female population employed in 1960 to 70.5% in 2001, a 27.9% increase, Germany went from 49.2% in 1960 to 63.8% in 2001, a 14.8% increase (Anderson and Jensen 2002). Although the percentages in both years differ by only about 7%, it is significant that Germany, which seemed progressive towards female labor market participation in the post war era, has stagnated in comparison to the United States. Germany's welfare state is still based on the male breadwinner model, resulting in historical underdevelopments of certain benefits that could facilitate more female participation in the labor market, such as childcare. This idea of familialism is yet another facet of an outdated welfare state that is not suited to deal with problems in a modern economic era.

The German welfare state is based on a series of reformations over several decades, and is insufficient to deal with modern issues. Their reliance on direct contributions only perpetuates their biggest problem of unemployment. The fragmentation of economic classes and their insistence on status maintenance is not cost effective, especially in an already strained system and a populace which includes an increasingly high number of unemployed peoples. This is not to say that the United States system of low wage privatized service sector jobs is substantially better, but only that it does effectively reduce the level of unemployment, although at the expense of economic equality and increasing poverty. The trade offs that exist between the seemingly conflicting goals of equality, employment, and budgets are evidenced in the failed welfare states of both Germany and the United States. Neither set of labor market reformations can satisfactorily handle the new pressures of this economically liberalized world because they are based on a set of policies created in a different economic era. A wholly new set of labor market policies are necessary in order to address the growing world of service industry employment.

Health Care Policies in the United States and Germany

Health care is unique in that it is ingrained in industrialized society as an undebated universal social right. The type of care that is guaranteed in that universal right varies, and according to Keith J. Mueller, it can be divided into two basic ideas: that all citizens have the right to the same level of care or that all citizens have the right to some minimum level of care (Mueller 1993). The vast majority of Western Europe, including Germany, prescribes to the first school of thought, while America believes in the second. The basic themes of health care can be divided into three sections: quality, access, and cost containment (Mueller 1993). While the United States may struggle with universal access, they generally have excellent quality available to those that can afford it. Germany, however, has nearly universal access, with over 90% of Germans covered by some form of health care, but has admittedly inferior quality in comparison to the best of the American health care system (Von der Schulenburg 1988). Yet, this essay is not going to discuss the morality behind health care policy, but rather, focus on the ability of the current systems to deal with the growing pressures of cost containment.

Cost containment has become a growing problem for all states due to the rapid inflation of health care costs, regardless of their different systems. Health care is a massive social commitment, and involves an increasing amount of the social policy budget. Health care costs in general do not follow the same supply and demand curves that the market follows, and even as the price increases, the demand is inelastic. Yet, due to the fact that health care costs are "lumpy," budgets are unpredictable, and cannot follow a fixed, or regular pattern. Of the three general health care systems: a single payer system, a corporatist system, and a limited liberal system, this essay will focus on the latter in Germany and in the United States, as examples of vastly different methods of social policies in an attempt to control costs. In Germany, a variety of different policies were enacted, "including a cautious use of market forces, and greater state intervention, but also adjusting the tried and true framework of associational self governance" (Giaimo and Manow 1998:2). In the United States, the Clinton Plan attempted to enact an institutional framework of a national health insurance, but ultimately failed. What sprang up in response to this failure was generally unregulated market developments lead by private actors (Giaimo and Manow 1998). The assertions and claims made in following paragraphs refer specifically to these two nations, and the only sweeping conclusion that can be drawn is that the rapid inflation of health care costs is putting universal fiscal pressure on all countries.

Germany's health care system is a corporatist system, which emphasizes "solidaritätsprinzip," or solidarity, and "sachleistungsprinzip," or benefits in kind (Von der Schulenburg 1988). Solidaritätsprinzip is based on the goal of providing equal access to high quality service to all. Sachleistungsprinzip is the principle of reimbursements, so that patients do not have to pre finance their health services (Von der Schulenburg 1988). Their system is highly autonomous and decentralized, the state's major role is setting procedural policies and social goals within legislative institutions. The system is mostly administered by a set of actors including insurance funds known as sickness funds, corporate actors such as doctor's associations, and trade unions or administrative boards (Giaimo and Manow 1998). This system is primarily employment based, as people are allocated to different sickness funds based on occupational status, and employers and employees pay equal shares of insurance contributions (Giaimo and Manow 1998). With the increasing levels of unemployment in Germany, this has had an adverse effect on the contributions. Because the budget is set and each sickness fund is self governing, contributions must increase in order to deal with both rising health care costs and a smaller pool of employed persons (Von der Schulenburg 1988).

In comparison to many other nations, German attempts to contain health care costs have been effective, and only the recession of the 1990s and their unification have recently undercut these efforts (Giaimo and Manow 1998). Their Health Care Structural Reform Law of 1992, or Gesundheitsstrukturgesetz (GSG), is an example of a step away from the general incremental reformations of the welfare state, and a move towards radical change. Reformations included broadened planning competencies of sickness funds, equalized membership across sickness funds, allowed insured persons to choose among sickness funds, restricted physician freedoms, and limit the number of drugs covered by national insurance (Giaimo and Manow 1998). The GSG "represents an exceptional case in which very special circumstances led to profound structural reforms," and as Giaimo and Manow caution, most current reformations are more apt to follow incremental change and patterns of cost shifting (Giaimo and Manow 1998:12).

Unlike any other health care system in the industrialized world, universal health care access is not guaranteed in the United States. This is not to say that America does not spend a significant portion on their budget on health care, but rather, that it allocates the responsibility of health care onto most employers, who voluntarily offer medical insurance (Mueller 1993). State funded insurance programs are severely limited and reserved for essentially only the very poor, the elderly, and the disabled (Kronenfeld 2002). There is no preset national budget and health care policy is a "patchwork of poorly connected financing mechanisms with variance by patient type, type of provider, and type of service" (Kronenfeld 2002: 146). It is not that Americans must pay more than other nations out of pocket, as only 15% of the nation's "health dollar" came from out of pocket expenses in 1999 (Kronenfeld 2002). But rather, it is that government social protection is not guaranteed, except in the aforementioned limited cases, and for the most part, medical insurance is privatized and voluntary. Thus, the biggest problem in America is that there are severe gaps in coverage.

The Clinton administration attempted a massive health care reformation plan that would have ultimately attempted to bridge many of the coverage gaps. Yet, ultimately, the magnitude of the plan met with severe opposition from many interest groups, namely physician groups and insurance companies, and the plan failed in the face of such a prevailing issue network (Mueller 1993). According to Giaimo and Manow, the American health care system failed to contain costs and allow access for reasons that lay within the system itself, including: first, the system's method of reimbursements based on services performed and billed, as opposed to those that they did not do, second, the rise of profitable insurers, and third, government legislation that encouraged the growth of Health Management Organizations (HMOs), thereby further segmenting the market (Giaimo and Manow 1998). With growing costs of health care, employers are becoming less apt to offer substantial health insurance, and greater numbers of employed people within the United States fall into the gap.

Incremental reformations are not sufficient to handle the growing fiscal pressures of cost containment with regard to health care policies. Yet, it is difficult to surmount both opposition and tradition and enact sweeping change. Germany's GSG was an exception in which the special circumstances finally resulted in the necessary reformation that was necessary. However, Clinton's failed health care plan is a more atypical example of attempts towards health care policy reformation. As evidenced by the positive trends resulting from Germany's GSG, though, it is this very sort of upheaval that is necessary in order to begin tackling the problems with health care policies. Neoliberal ideals of free market cannot wholly apply to health care systems, and consequently, greater state intervention must occur in order to contain the growing costs and allow accessibility.

Conclusion
Health care costs continue to eat up a significant portion of both Germany and the United States' social expenditures, while labor market policies are less debated, and receive a substantially smaller portion of the welfare budget. Both Germany and the United States maintain a health insurance policy that is primarily based on employment. However, while Germany guarantees healthcare to the vast majority of its citizens in a system in which the state sets the regulations and institutions, the United States allows for a highly privatized form of health insurance, which is essentially voluntary. Although America does boast a much lower level of unemployment than Germany, employment is not synonymous insured, and a significant number of low wage and low skill jobs in America offer no or very limited medical insurance. Thus, we come to the question, how are health care and labor market policies affected by the changing economic environment?
There are significant ties between the health care systems of both Germany and the United States and their states of employment, or unemployment in the case of Germany. Although Germany does offer generally universal health care, its sickness funds' reliance on occupational status exemplifies again the insider-outsider problem. For those who are employed, they reap the many social benefits, yet those who are not, have limited access to social benefits in a system designed around employment. Additionally, the increasing state of unemployment combined with the rising inflation of health care costs have put mounting fiscal pressure on sickness funds to raise contribution levels, which in turn will raise the non wage labor costs. This again perpetuates that vicious cycle of unemployment. In the United States, the move towards a low wage privatized service industry employment does not allow for any form of medical coverage. With the rising costs of health care, employers cannot afford to finance health insurance for employees in such a low wage sector, as the non wage costs might actually outstrip the wage. Health insurance in the United States appears to be limited to those who can afford it, and poverty and greater disparity, in terms of social benefits in addition to economic inequality, is perpetuated.
Since the neoliberal revolution, the failure of the traditional welfare policies of Germany and the non existence of a substantial welfare state in America are evident. Although some attempts at reformation have been made by both nations, these incremental changes cannot adequately adapt to such a radically different economic world. Germany's labor market policies cater to the already employed or well skilled, and do not sufficiently cater to the needs of the increasingly unemployed. Their contributions based system only perpetuates their unemployment cycle and the fiscal pressure caused by the mounting costs of health care. In the United States, the inability of the government to create an adequate welfare state has left a nation that is riddled with more poverty and economic inequality than most other advanced, industrial states. Although they offer less unemployment than Germany, this is only in the form of low wage jobs which barely sustain the already poor populace, and there is no form of social safety net on which to rely. There are benefits to both welfare states, but a radical reformation is necessary in which new policies need to be created that directly address the current liberalized economic order of the world.

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