Surveying the welfare state: challenges, policy development and causes of resilience



15

ment gained pace and during 1977 and 1981 it saw cuts in all major programmes: a time of
consolidating social budgets in line with the levels of 1970 had begun.11

In September 1982, the coalition fell apart, not least because the positions of SPD and FDP
on economic and social policy had become irreconcilable. The change of government to a
new conservative-liberal coalition of CDU/CSU and FDP ended an era of high hopes with
regard to social policy and, towards the end, deep frustration amongst their party members
and electorate. Evidently, ‘social capitalism’ had reached its limits. The legacy of the SPD-
FDP government was visible with a high unemployment rate of 7.5 per cent, more than 2
million social assistance recipients and a combined social contribution rate of 34 per cent of
gross wages. On the positive side, the social expenditure/GDP ratio had been increased, at
least until 1975, and the welfare state as a whole had worked well as a buffer in the years of
economic turmoil (Schmidt 2005: 98).

How did major programmes fare during the period after the end of expansion? Labour mar-
ket policy was clearly dominated by cost-containment concerns which, as far as unemploy-
ment transfers were concerned, led to the first benefit cuts (from 1975 onwards), and to a
pro-cyclical approach to active labour market policy: means that in times of high unem-
ployment, measures were cut only to be expanded again when the economy recovered
(Bleses/Seeleib-Kaiser 2004: 51). Furthermore, programmes that promoted individual train-
ing (one area of active labour market policy), which had been initiated by the same coali-
tion, were cancelled, and the level of benefits across social programmes was decreased
while there was tightening of eligibility rules, applying to unemployment insurance as well
as to pensions (Schmidt 2005: 97).

With regard to old-age pensions, several adjustments were made in 1977 and 1978 includ-
ing the postponement of annual benefit adjustments, caps on future benefit increases and a
technical measure minimizing the wage-based adjustment of benefit levels. On the revenue
side, the contribution rate was increased by a half percentage point and a new contribution
for the unemployed (to be paid by the Federal Employment Agency) was introduced. On
the whole, the Social-Democrat/Liberal coalition enacted incremental benefit curtailments,
which were largely designed to control expenditures (Bleses/Seeleib-Kaiser 2004: 68f.).

Concerning the area of health care, the mid-1970s marked the beginning of a perennial ef-
fort of cost-containment. Therefore, the post-war aims of expansion and matching patient
demand were replaced by a focus on revenue-based expenditure policy. As an addition to

11 This included a number of measures: the automatic adjustment of pensions to wage increases was de-
layed; co-payments were introduced in the health insurance scheme, which also saw the institution of a
body consisting of health care stakeholders which was to deliberate about further cost savings; eligibility
rules of unemployment insurance were tightened and the levels of transfers were lowered. Other areas of
social benefits, such as social assistance, child allowance and others were also affected. In order to stabi-
lize social budgets, the SPD-FDP government raised contribution rates across all social insurance pro-
grammes. Since these measure were considered to be insufficient, the federal government also resorted to
balance deficits by transfers between social budgets and between the federal budget and social budgets.



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