Liberalising without bargaining: a political economy interpretation of the “death of social pacts” in contemporary Italy

As many other capitalist societies, Italy has recently undergone a process of liberalization in several institutional domains1. In this country, close to the South European ideal type of capitalism2, state intervention was progressively retrenched both in banking and industrial sector and labour market partially deregulated, while corporate governance seems to maintain the features of a bank-based “family capitalism” dominated by a very concentrated ownership3.

In two closely interrelated institutional domains, industrial relations and labour market institutions, the trajectory of change has been far from linear. Overall characterised by a high level of interest group pluralism4, the degree of coordination shows low levels in the 1960s and part of the 1980s while high levels were achieved in the 1970s and 90s. The 2000s show a stable milder level with informal centralisation of industry and firm level bargaining by peak associations (one side, or only some unions) with or without government participation.5 After a period in the 1950 in which the balance of power tilted against labour, tension arose in the 1960s with frequent strikes and demonstrations6. Industrial relations remained conflictual during the period of the “political exchange”7in the 1970s, marked by the approval of the Statute of workers. Inability to produce neo- corporatist agreements continued throughout the 1980s8. It is in the aftermaths of the 1992 crisis that Italy seems to move towards a more neo-corporatist system. The “technical” governments in

1992 and 1995 successfully engaged in tripartite negotiations to obtain the abolishment of wage indexation and two pension reforms aimed at the reducing public expenditure, necessary to access the Euro zone. In 1994, trade unions acted as veto players determining the failure of the confrontational approach adopted by the first Berlusconi government9. Further social pacts became less and less effective10, until the “Pact for welfare” in 2007, as part of the leftist coalition strategy

to build a socio-political coalition involving unions and employers11. Since then, a clear tendency towards pluralism seems to emerge during Monti’s government12  and Renzi’s government, which has clearly adopted a unilateral strategy to implement important reforms on the labour market.13 After ambiguous institutional changes, inspired by CMEs during the 1990s and by LMEs during the 2000s14, during the current crisis, with the Fornero law (92/2012) under Monti’s government and the Poletti decree (24/2014) and the so called “jobs act” law (92/2014) under Renzi’s government, the labour market is being further flexibilised. Individual dismissals were deregulated15 and the use of fixed-term contracts liberalised, while only temporary  incentives to use the “contratto a tutele crescenti” which entails increasing employment protection with tenure, lead to an overall increase in uncertainty on the labour market.16

These recent institutional changes challenge some of the findings in the literature of social pacts. High unemployment and pressure to enter the European Monetary Union are among the most important determinants of social pacts17, including the ones implemented in Italy in the 1990s. Mutatis muntandins, these elements are present during the recent crisis but have not led to the emergence of a bargaining process. The unemployment rate passed from 8.4% in 2011 to 12.2% in 2013 and pressure from the European Union was explicit in the letter addressed by M.Draghi and Trichet to the Prime Minister Berlusconi which contained a series of “essential measures” to be implemented, including decentralisation of the bargaining process and flexibilisation on the labour

market. It is also argued that social pacts arise in the presence of weak governments willing to find consensus in the corporatist arena18. How is then possible that even a government as politically weak as Monti’s government19can avoid it? Culpepper and Regan (2014) suggest that the collapse of social partnership is due to the weakness of trade unions: they have lost their capacity to mobilize consent (carrot) and organize strikes (stick) and they have nothing to offer to policy makers. This thesis is not fully convincing as between 1970 and 2010 trade union density in Italy has declined by

4%, a negligible extent compared to France (-64 %) or Germany (- 42%), and collective bargaining coverage remained unchanged at 85%.

Alternatively, drawing from Thelen (2014), we could interpret the Italian pattern of liberalisation as stemming from the political coalition that currently dominates its political economy. A tough unilateral approach towards reforms, instead of engaging in tripartite bargaining, could be explained by the fact that the last three coalition governments are implementing a  political strategy that excludes unionised workers, as advanced by Amable et  al. (2012). Alternatively, the last two governments led by a left-wing party, could have been implementing a “biting the hand that feeds strategy” that seems to emerge about welfare state retrenchment in times of austerity (Bojar, 2013). In order to test these hypotheses, it seems necessary to investigate the political demand behind

recent institutional changes in the labour market, as to the best of our knowledge has never been done for the Italian case. The 2011-2013 ITANES panel data20 are used to determine the socio- economic characteristics of individuals in favour or against greater freedom for the firms to hire and fire21, their political preferences and voting behaviour in 2013. This analysis will allow apprehending the nature of the current political settlement that can explain the specific pattern of Liberalisation undertaken in Italy.