Fiscal Stimulus Packages During Financial Crisis
in the US and Switzerland in Comparison by
Dr. Felix Hörisch and Jakob Weber
Mannheim Centre for European Social Research (MZES) University of Mannheim
A5, 6 68159 Mannheim, Germany
Contact:
[email protected] [email protected]
Tel: +49 621 181-2847
Work in Progress / Preliminary Results
Please do not cite without the permission of the authors
Abstract
From 2008 to 2010, economic disruptions swept across OECD-countries with an apparent
disregard to government party colours and national economic philosophies. In late 2008 and
2009, the affected countries reacted with economic stimulus packages. In this paper we have a
closer look from a Varieties of Capitalism-perspective (supplemented with arguments of party
ideology) at the packages of the USA and Switzerland. On grounds of the revisionist welfare
state debate and the claim that skill regimes differ considerably between Liberal Market
Economies (LMEs) and Coordinated Market Economies (CMEs), we find strong theoretic
arguments for education/training and healthcare programmes being more generous in states with
high degrees of economic coordination. We investigate whether there is a factual empirical
relationship through a qualitative research design. Our analysis includes the archetypical LME
USA and Switzerland – a border case tending to the CME-spectrum.
Key words:
Financial Crisis, Fiscal Policy, Varieties of Capitalism; Party Effects, Fiscal Package
1
1 Introduction The international financial and economic crisis confronted all OECD member states with similar
economic challenges. A lot of valuable insights have been won from large n-Analyses
considering explanatory factors for attributes such as the revenue- and spending shares, the sizes
and the compositions of fiscal stimuli. This paper wants to add to this research by qualitatively
analysing the composition of stimulus design in two OECD nations, namely Switzerland and the
USA in the years 2008 and 2009. We present the Revisionist Welfare State Debate-argument that
Coordinated Market Economy (CME)-employers join alliances rallying for social insurance
policies to allow the national workforces to make sunk human capital investments and provide
their employers’ need for special skills. On grounds of this theory, the support for such measures
is also plausible for conservative parties in CMEs while it is not plausible for those in Liberal
Market Economies (LMEs). Therefore, we argue that in CMEs both, left and right parties are for
the sake of the CME-model more likely to put a special emphasis on education/training-spending
and healthcare investment while in LMEs solely left parties should push forward social policies.
We also claim that the improvement of network structures between companies should find the
support of all types of CME-parties. We investigate whether our assumptions are justifiable in
empirical terms by taking a look at select measures within the stimulus packages of the USA – a
paradigmatic case of a LME – and Switzerland – a border case tending to the Coordinated
Market Economy spectrum.
The remainder is organised as follows: Chapter 2 provides a brief overview of fiscal policy
responses to the financial crisis, chapter 3 introduces our theoretical arguments and hypotheses,
in chapter 4 we justify of our case selection. In chapters 5 and 6 we discuss the Swiss and the
US-American fiscal stimulus packages before chapter 7 concludes.
2 A Brief Overview Over OECD-Fiscal Policy Responses to the Crisis Reacting to the international financial crisis and the ensuing economic slump between late 2008
and early 2009, most OECD-states passed extensive economic stimuli (OECD, 2009a, p. 68)
Unfortunately, quantitative data on the cross-national distribution of the policy measures under
regard in this paper is scarce. However, the reader may get an impression of the immense socio-
economic relevance fiscal stimulus packages bore during the crisis and still bear during its
2
aftermath through the sheer package sizes of which we present an OECD-overview in Figure 1
below. The implemented of packages of the six frontrunners – South Korea, USA, Australia,
Japan, Turkey and Canada –amounted to between 4% and 6% of their respective GDP and also
the adoption of austerity measures as a reaction to the immense fiscal pressure in place measures
went beyond 6% of GDP in four countries (Greece, Iceland, Hungary and Ireland). In the crisis
years, most countries increased their debt for expansive economic-growth packages (cf.
Wagschal & Jäkel, 2010).
Figure 1: Size and composition of the fiscal policy reaction of OECD states (% of GDP)
Annotation: This figure was designed on the basis of OECD-data (OECD 2009a: 62). *= No data was available on the balance between the revenue- and the expenditure-side in Portugal. Therefore, the fiscal package amounting to
0.8% of the GDP is displayed as including equal amounts of revenue- and expenditure.
While the advantages and disadvantages of different package designs are discussed elsewhere1
this paper does not aim at a normative assessment of policy designs. We rather make the claim
that from a VoC-perspective certain policies seem to be more feasible than others and were 1 See OECD (2009b, pp. 105-107) for a discussion-overview. It is also claimed that public revenue stimuli can be carried out more quickly than public spending, as tax cuts can be applied much faster than expenditure increases and are also easier implemented administratively (Zohlnhöfer, 2011, p. 234). On the other hand the multiplier effects of tax cuts are only approximately half as large as the effects of additional public spending or investment (cf.OECD, 2009b, p. 106), Also note that generally the multiplier effects of fiscal stimulus packages are assumed to be lower in more open economies than in sheltered economies (cf.OECD, 2009b, p. 106).
Composition of fiscal stimulus packages (in % of gdp)
3,2 2,44,1 4,2
2,91,7 2,2 1,6
-0,31,7 2,6 1,6
0,5 0,3 0,9 0,4 1,2 1,1 0,7 0,4 0,8 0,9 0,6 0 0,3 0,3 0-1,6
-7,5
-2,2
-10
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-6
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0
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6
8
Sou
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US
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Japa
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Can
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Spa
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New
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Sw
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Den
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Ger
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and
Cze
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UK
Mex
ico
Bel
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Slo
vaki
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Aus
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Pol
and
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Fran
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Por
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Sw
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Ital
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Gre
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Public spending Public revenue
3
therefore more likely to be implemented than others. The research into the empirical grounding
of theoretically relevant policy determinants will be made for the USA and Switzerland. In the
following chapter we are going to outline why these two countries are of a special relevance for
our research.
3 Theory and Hypotheses Our theoretic expectations are based on the Varieties of Capitalism theory (VoC),2 an actor-
centred approach claiming that the success of a political economy depends on companies solving
their coordination problems in various economic subsystems, e.g. industrial relations, education
and vocational training, corporate finance/governance or inter-firm relations (Hall & Soskice,
2001, pp. 6-7). VoC finds that the corporate strategies to overcome problems within the various
subsystems are substantially influenced by the institutional design of a political economy. The
respective nature of these strategies stands at the core of the VoC-classification of political
economies. Hall and Soskice differentiate between two ideal types: Liberal Market Economies
(LMEs) in which strong market forces dominate, and Coordinated Market Economies (CMEs) in
which coordination mechanisms play a major role between the various market participants. In
LMEso, companies coordinate their activities in all of the mentioned subsystems primarily by
free competition on the market, orientation on price signals, and marginal cost analysis as
described by the neoclassical school of economics (Hall & Soskice, 2001, p. p. 8). In CMEs,
however, non-market based relations play a major role and are crucial for the development of
corporate core competencies: Coordination leads to long-term relations based on informal
contracts and insider networks, monitoring activities which are based on private information and
make personal contacts economically vital. The core competencies of firms are developed on
coordination mechanisms between several economic groups, e.g. employers’ associations and
unions. On this classification system VoC develops a concept of institutional complementarity
claiming that “[w]hat is wise for governments to do depends upon the type of market economy in
which they find themselves” (Wood, 2001, p. 274): LMEs should “sharpen” their market
mechanisms while a CME should support “the institutions and networks of coordination that
2 For the Varieties of Capitalism theory as a theory of public policy see Höpner (2009). For further discussion on the assumptions of the Varieties of Capitalism theory see Hancké, Rhodes, and Thatcher (2007),
4
connect companies” in order to enjoy a comparative advantage over the respective other
economic system (ibd.). As a first conclusion from these findings, we can thus say that in CME-
stimulus packages, policies improving the network character of company relations should be
central.
Furthermore, we want to take into consideration what Höpner (2009, p. 303) calls a historic
revision of the welfare state evolution and was in fact intended as a theory resulting in the
necessity “to rewrite social history” (Estevez-Abe, Iversen, & Soskice, 2001, p. 182). Opposing
the stance that social welfare generally is the result of employee power resources overwhelming
the interests of employers, VoC-scholars claim that in CMEs also the particularity of “the work
practices and production regimes” (Hall & Thelen, 2009, pp. 13-14) may make the granting of
employment and unemployment protection a rational capitalist deed. In the case of CMEs, so
goes the argument, a production regime has risen that relies on a workforce with “industry- or
company-specific skills conducive to incremental innovations” (Hall & Soskice, 2001, p. 40). As
CMEs evolved, CME-employees acquired or were granted unemployment benefits, “[l]ong-term
employment contracts” and “supervisory boards, which include employee representatives as well
as major shareholders” (Hall & Soskice, 2001, p. 24). These served as insurance mechanisms and
as an incentive to make time- and money-consuming investments into the acquisition of working
skills specialised on one industrial sector or even to working processes existent in only one
single company. Since these are of little value outside of the respective industry or even
company. VoC-scholars argue that employees in the low level insurance-LMEs act economically
rational and invest in general skills which are transferable between sectors and companies. Given
this human capital focus of VoC, we can at this point say that stimuli in CMEs, to improve the
national economic standing in the sense of comparative institutional advantages, should include
policies that in coordination with the respective sectors or companies but also the employees
foster the advancement of specialised skills. In LMEs, however, we expect the fostering of
general skills without the involvement of any economic parties. With the economic importance
of skill-insurance in CMEs at hand, however, conservative parties - representing the interests of
the upper income population – should in this context not propose the lowering of social
protection mechanisms as these are part of the “overarching institutional infrastructure” (Hancké
et al., 2007, p. 189) enabling their voters’ employees to acquire specific skills. Iversen and
Stephens find such an effect for conservative parties during the evolvement of the Swedish
5
welfare state: They did not prioritize social policy issues during the evolvement of the welfare
state but rather concentrated on their “constituents’ (upper income groups) main interest”
(Iversen & Stephens, 2008, p. 7) being to profit from its affluence through low levels of taxation.
However, since the incentives for right parties to strengthen systems of social protection are not
given in LMEs, we would in accordance with Wagschal (1996) rather expect social contribution
cuts and lower taxation.3 Our research hypotheses are the following:
Ha1: In CMEs, human capital policies will aim at improving the employees’ pool of specialized skills. Employers and employees will be involved in the process of implementation. In LMEs, the focus will lie on the fostering of general skills in the workforce. An involvement of employers and employees is unlikely.
Hb1: In CMEs, both left and right parties will favour social policies to strengthen the CME-typical skill regime.
Hb2: In LMEs, left parties will promote the strengthening of social policies while they should be of no interest for right parties.
Hc1: In CMEs, all types of governments will implement policies strengthening the network character of businesses.
While the Swiss package is very concise, the US-stimulus consists of such a large number of
measures that their discussion would go beyond the scope of this paper. For pragmatic reasons
but also for the sake of giving deeper insights into the distinctive processes of national policy
making, we are therefore going to investigate into the plausibility of our hypotheses in three
policy fields: education, corporate coordination networks (i.e. the detection of CME-networking
in Switzerland) and healthcare (especially of interest due to the innovation Obama’s health
concept constitutes for the USA).
4 Case selection: USA and Switzerland – A VoC-Prototype and a Hybrid The classification of national economies as CMEs or LMEs by Varieties of Capitalism stands at
the core of our case selection. As Table 1 shows, Hall and Gingerich (2004) provide a
classification of national economies in which some cases are classified as definite ideal types and
others have a more peculiar in-between position. Our approach is – in accordance with Campbell
3 Given the focus on Health, Education and Coprorate Coordination, however, taxation will not of prime concern in this paper.
6
and Pedersen (2007); Crouch et al. (2005, p. 34) and Katzenstein (2006)4 - not to understand
VoC as a dichotomic approach. We will deliberately include Switzerland into our case selection
– a hybrid case leaning to the CME spectre. Comparing the Swiss model with the clearly
allocated case of the USA, we hope to gain new insights on the argumentative strengths and
weaknesses of the dichotomous categorization of the VoC-school and derive further insides on
how the partisan effect on fiscal policy may differ between different varieties of capitalism.5
Table 1: Case selection
LMEs More liberal than
coordinated economies
More coordinated than liberal economies
CMEs
USA, Canada,
New Zealand,
UK
Australia, Ireland, Ice-land, Korea,
Mexico, Turkey
Switzerland, Belgium Denmark,Finland, France, Japan,
Netherlands, Portugal, Spain, Sweden, Czech Republic, Greece, Hungary,
Luxembourg, Poland , Slovak Republic
Germany, Italy, Norway, Austria
Overview on the basis of the index of economic coordination of Hall and Gingerich (2004) and own classifications Not only the economic systems but also the fiscal stimulus packages of the two states under
regard are designed very differently: While Switzerland provided one of the smallest fiscal
impulses in the OECD, looking at the US-stimulus package means looking at the second-largest
package in this group amounting to a total of 5.6% of GDP. To give the reader an overall
impression of the package composition, we list below figures on fiscal stimulus package (FSP)
sizes and compositions published by the OECD (2009c).
4 For metric concepts of measurement of the degree of coordination within a political economy see Hicks and Kenworthy (1998), Hall and Gingerich (2004), as well as Höpner (2007).
5 This paper is work in progress. The final paper will also include the CME-case Germany and Australia as an in-between case leaning to the CME-side.
7
Table 2: FSP-Size and Composition in Germany, Switzerland, Australia and the US
FSP-Size in % of GDP
Revenue Share Spending share
CH 0,5 0,2 (40% of FSP) 0,3 (60% of FSP)
USA 5,6 3,2 (57,1% of FSP) 2,4 (42,9% of FSP)
Reference: OECD (2009c)
Table 3: Composition of spending measures Total in %
of GDP State Con-sumption
Investment Transfers to households
Transfers to business
CH 0,3 0,3 0 0 0
USA 2,4 0,7 0,3 0,5 0
Reference: OECD (2009c)
5 The Fiscal Stimulus Packages in Switzerland (2008/2009)
5.1 Elections in Switzerland The federal parliamentary elections of October 21, 2007 preceded the budgetary reactions of
Switzerland to the financial crisis. At the first legislative chamber (the Nationalrat) the rank of
the largest fraction remained with the national-conservative SVP, followed by the social-
democratic SPS, the CVP/EVP/glp–fraction of confessional parties and a green party, the liberal
FDP and finally the Green fraction. Switzerland’s traditionally conservative lead second
chamber (the Ständerat) however, was dominated by the CVP/EVP/glp-fraction, followed by the
FDP, the SPS, the SVP, and the green fraction.6 Due to the exclusion of Eveline Widmer-
Schlumpf and Samuel Schmid from the SVP ensuing the events of the irregular nomination of
Widmer-Schlumpf for the department of justice and police, the Bundesrat was made up by two
members without party-affiliation, two SP-Bundesräte, two FDP-Bundesräte and one CVP-
Bundesrätin. The facts given above evidently complicate a categorization of the Swiss
government in early 2008 on partisan spectres. However, we argue that the then Bundesrat was a 6 The order of appearance follows the order of the then fractional sizes. For a complete overview of the actual numbers, please see: (Cusack & Beramendi, 2006, p. 48).
8
centre-right government of the moderate kind. For 2009 we see the Bundesrat swinging back to
the political right since Schmid announced his retirement in summer 2008, Schmid and SVP-
nominee Ueli Maurer was appointed his successor on December 10, 2008. Maurer officially took
Schmid’s place on January 1, 2009. Another change within the Bundesrat remained without
ideological repercussions: FDP-Bundesrat Pascal Couchepin stepped down from the department
of inner affairs in summer 2009 and was replaced from within his party, making FDP-nominee
Didier Burkhalter a Bundesrat. For 2009 we see the Bundesrat swinging back to the political
right since Schmid announced his retirement in summer 2008, Schmid and SVP-nominee Ueli
Maurer was appointed his successor on December 10, 2008. Maurer officially took Schmid’s
place on January 1, 2009. Another change within the Bundesrat remained without ideological
repercussions: FDP-Bundesrat Pascal Couchepin stepped down from the department of inner
affairs in summer 2009 and was replaced from within his party, making FDP-nominee Didier
Burkhalter a Bundesrat.
5.2 The Swiss Type of Market Economy In contrast to the USA and Australia, Switzerland is classified as a CME in the Varieties of
Capitalism literature (Hall & Soskice, 2001). But, as Börsch puts it „in several respects,
Switzerland bears striking similarities to the Anglo-Saxon LMEs” (Börsch, 2007, p. 185).
Untypical for a CME, Switzerland has very high levels of stock market capitalization (Hörisch,
2007, pp. 40-42), medium levels of employment protection and no codetermination rights in the
private sector (Jäkel & Hörisch, 2009). Hancké et al. (2007) argue that the pressure of stock
markets and the fear of hostile takeovers is dampened anyway due to “ownership concentration
and the network-type character of the relations among managers and between managers and
bankers” (ibd. 183) and the “minor importance of stock options in management compensation”
(ibd. 190). They find employer-employee coordination to be much “more informal and
voluntary” (ibd. 174) than common for CMEs but resembling the agreements made in German
firms, however solely “at the micro level” while “macro-level industrial relations institutions are
different” (ibd. 187). Generally, for subsystems such as the skills taught in the educational
system, they find that coordination occurs and allows for a typical CME-like specialization on
“medium-high-tech industries […] characterized by incremental innovation patterns” (ibd. 174)
and diversified quality production. However, they point out that the construction of these
arrangements has a considerable bias towards employee associations, which “largely determine
9
the content of the apprenticeship programmes” (ibd. 188). Due to the limited role employees play
for the Swiss economic coordination, the classification as a moderate CME-type by Hall and
Gingerich (2004) seems adequate. We will treat Switzerland as a hybrid case, being closer to a
coordinated market economy than to a liberal market economy.
5.3 Overview: Select Measures of the Swiss Fiscal Packages The years 2008 and 2009 in Switzerland saw three fiscal impulses – the
Stabilisierungsmassnahmen - on the federal level. According to the Swiss secretary of economy
(SECO), these fiscal stimuli added up to a total of approximately CHF 2 billion (approximately !
1.31 billion in August 2009) (SECO, 2012, p. 2). Depending on the respective references this is a
share of GDP lying between approximately 0.35% of the Swiss GDP 2008 (calculation based on
OECD 2012, p. 44) and 0,5% of Swiss GDP (OECD 2009b, p. 63). Either way, the Swiss
stimulus package constituted the smallest reaction of all OECD-fiscal packages with a positive
net effect (OECD 2009b, p. 64). This might be explained by a Swiss preference of comparably
robust automatic stabilisers over discretionary measures of financial stabilization due to positive
experience in the past (SECO, 2012, p. 2).
Table 4: Select Measures of the Swiss Fiscal Packages Name of Measure
Amount (Planned/
Distributed) CHF in m
Sector Fiscal Package Number
Percentage of…
Package Size
GDP in
2008
Early VAT-Reform
CHF 150m/ CHF 150m
Health extra-measure during summer-session of
2009
N/A 0.026
Export Platforms
CHF 25m/ CHF 25m
Corp. Coor-dination
3 6.25% 0.004
Further Education in STW
CHF 30m/2m Education 3 7.5% 0.005
Further Education (Energy Efficiency)
CHF 15m/9.7m
Education 3 3.75% 0.003
Reference: EFK (2012)
10
Another important factor certainly is the Swiss brake on debt in place since 2001. The table
above outlines the features of the Swiss fiscal stimulus under regard in this chapter.
5.4 Analysis of the Swiss Fiscal Packages from the VoC-Perspective
5.4.1 Education-Policies in the Swiss Fiscal Packages Switzerland invested subsidies of CHF 30 million for measures of further education during short
time work-programmes when the third fiscal package took effect. Being an important element of
Switzerland’s automatic stabilizers, the extent of Kurzarbeitsentschädigung (short time work-
reimbursement) increased massively from 2008 to 2009 as a reaction to the crisis.7 In March
2009, SECO encouraged employers to supply measures of further training and made clear that
reimbursement would continue when reduced working hours were used for measures of further
education (Schweizer Parlament, 2009). When the third fiscal package was adopted on
September 25th 2009, it included an additional subsidy of CHF 30 million (EVD & SECO EFK,
2012; 2009c). It was intended as a co-financing of self-assessments and further education
accounting for 50% of the cost per employee (going to a maximum of CHF 5 000). The measure
was supplemented with the possibility of academic work (scientific or educational) for short time
workers under the maintenance of unemployment insurance payments (EVD & SECO 2009a).
Notably, VoC would expect a special emphasis on specialized sector- or firm-specific skills.
However, SECO, among others, especially encouraged the development of general skills
improving employees’ chances on the labour market such as language courses and IT-
technological qualifications (EVD & SECO 2009c). In the end, solely CHF 2 million were used
so that one can hardly speak of a relevant impulse for the national pool of skills. It is most
probable that the low usage of the policy was due to the general decline in STW-usage at the
beginning of 2010 (EFK, 2012, p. 44).
Also the subsidisation of apprenticeship and further education in the segment of house
construction and energy efficiency (worth CHF 15 million) contained in the third fiscal package
constitutes an interesting case of national economic skill coordination. Since there was a lack of
specialists for the refurbishment of buildings and the installation of green technology in
households, a programme of vocational re-training and internships was proposed. The
7 In 2008, solely CHF 19 million had been spent, while in 2009 CHF 997 million were made available (SECO, 2012, p. 19).
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programmes for domestic engineering (demand of 400 employees, provision of CHF 4 million)
and the construction of roofs, walls and windows (demand of 300 employees, provision of CHF
3 million) were solely coordinated between two state departments and branch/trade associations
(UVEK&BFE 2009). The installation programme, however, also involved employee-
organisations. CHF 1 million were invested in the expansion of the platform energiewissen.ch
serving for the acquisition of costumers, the coordination of (re)training and the publication of
professional articles (UVEK&BFE, 2009, p. 2). This policy package again is an example of how
the Swiss state assists its national economy in ensuring the availability of special skills. While
the coordination of vocational programs between the state and economic players is typical for a
CME, the minor role of trade unions may serve to promote the thesis that the Swiss market-
economic coordination rather lies in the hands of the employers than in that of the employees.
In addition to that, CHF 40 million were budgeted for further education of the young
unemployed with a concluded apprenticeship. Federal contributions to measures of further
education lasted up to 12 months and lay at 50% of the costs (limited at a maximum of CHF
5,000). SECO expected that the skill demands of the eligible apprentices would vary very much
just as our theory would expect in the context of CME-special skill demands (EVD & SECO
2009b). However, also here the acceptance was very moderate (Usage of CHF 3.4 million, partly
due to a positive development on the labour market and partly due to the subsidy only covering
50% of the costs) which might also be the reason why there are no comprehensive evaluations of
the skill demands served.
Summing up these measures, one can say that Switzerland’s fiscal impulse included measures
fostering the development of general skills and such measures fostering specialized skills in its
crisis training policies. Where the policies aimed at the provision of special skills, robust state-
economy coordination networks were used. In accordance with VoC-literature on Switzerland,
there was a predominance of employer associations’ shaping power over that of trade unions.
5.4.2 Health-Policies in the Swiss Fiscal Packages The reform of Switzerland’s Invalidenversicherung, was an important modification of a human
capital insurance mechanism typical for CMEs. The Value Added Tax Reform worth CHF 150
million (SECO, 2012, p. 21) was the last revenue-sided measure allocated to the 2009 crisis-
measures by SECO. Among other things, it was meant to finance the Invalidenversicherung (IV),
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Switzerland’s disability pension offering partial insurance of the time- and money-consuming
apprenticeship procedure against invalidity. In 2009, the IV was a matter of political discussion
since it was experiencing soaring costs and deficits. Increasingly, the Swiss old age and
survivor’s insurance (AHV) had to help out the IV financially. To put pressure off both
insurances while avoiding higher social contributions, all Swiss parties – except for the SVP,
which called for other steps of IV-reform – demanded that the value added tax be raised by 0.4%
from 2010 on and the benefits be distributed to the IV (Forster, 2009). The parties in favour of
the bill undertook considerable efforts to make it appeal to the public since the tax reform
implied a revision of the Swiss constitution through a referendum: Firstly, the Bundesrat
postponed the referendum from May 2009 to September 2009. Didier Burkhard (FDP), in charge
of the Federal Department of Home Affairs,8 argued that this would enable the Swiss public to
evaluate the concept uninfluenced by the critical economic situation (ibd.). Secondly, on 12th
June 2009, the Nationalrat agreed to a one year-delay of the originally planned implementation
date after considerable pressure had been put on the parliament by the two biggest parent
organisations of Swiss employers: sgv and economiesuisse. The latter argued for the delay
mainly on grounds of the need to adopt prices to the new tax situation and the economic tension
in 2009 (Schweizer Parlament, 2009). While Caspar Baader and his SVP deemed the permanent
corrections of the bill as an outright constitutional scandal (SRF, 2009),9 the Swiss economy
widely supported the altered bill and Edi Engelberger of the sgv thanked the parliament for
making “the bullet to bite (Swiss: ‘the turd to swallow’) as tasty as possible” (swissinfo.ch,
2009). Interestingly, he grounded his support for the measure on the need to avoid higher
contributions for employers/employees, the protection of Swiss jobs and the claim that stable
social insurance strengthened Switzerland in the international competition (ibd.). The Value
Added Tax Reform was adopted after the referendum on 27th September 2009 with 54,5% of the
8 This Swiss department is not concerned with inner security affairs but with matters such as “pension provision, healthcare, education and research” (EDI, 2013).
9 In fact, the accusation that the postponement was little more than a tactical consideration to gain the support of the Swiss employer organisations is not far to seek. Anyway, SECO counted the postponement – together with the Value Added Tax Reform discussed below – as a measure meant to stimulate the Swiss economy during the crisis (SECO (Staatssekretariat für Wirtschaft), 2012, p. 21). However categorized, the reform remains an interesting showcase of how a financial crisis as a contextual factor alters the paths welfare state reform takes.
13
voters in favour of it and 45,5% of them opposing the bill (EVD & SECO, 2009). Even though
the conservative SVP spoke out against the measure, it is evident that in the case at hand
employers promoted an institutional mechanism of social insurance since they saw it as a
comparative institutional advantage. This supports the claim that Switzerland tends to the CME-
spectre.
5.4.3 Corporate Coordination in the Swiss Fiscal Packages In the framework of the third fiscal package, CHF 25 million were released for the creation of
export platforms. This is an outstanding example of a CME-measure strengthening “institutions
and networks of coordination that connect companies” (Wood, 2001, p. 274). For the years 2010-
2012 the measure included the successive founding of cleantech switzerland, medtech
switzerland and ingenious switzerland (for architecture, engineering and design).10 According to
SECO, access to the public-private partnership could be granted to all companies, branch
associations and boards of trade in case they belonged to the target branch, their products were
demanded abroad, they were in need of support to improve their exports, showed readiness to
share experience/contacts with potential competitors on the home market and to independently
continue the platform after an end of public support (Roth & Schlup, 2010). The marketing
activities of the platforms are centred around branding/supporting Switzerland as an export
nation for the respective firms and the participation in trade fairs, matchmaking, support through
trade delegations and exchange through panels and publications (Schweizer Bundesrat, 2009, p.
5746). SECO potentially saw the danger of market bias but was confident to avoid it through
mostly supplying general support and bringing to account measures for single companies (Roth
& Schlup, 2010). All these facts considered, the export platform neatly fits into the world of
CME-coordination where the intermingling of state and economy are accepted as mutual
benefiting and firms are willing to enter into non-competitive long-term commitments.
10 Apart from clean technology, medical technology, architecture, engineering and design, the Bundesrat’s initial plans also were to include infrastructure companies and car part suppliers (Schweizer Bundesrat, 2009, p. 5746).
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6 The Fiscal Stimulus Packages in the USA (2008/2009)
6.1 Elections in the USA The time frame under regard for the US-American fiscal packages reaches from February 2008
to February 2009. At the beginning of 2008, Republican president George W. Bush Jr. was in
office. In Congress, the Democratic Party held the majority in both chambers at that time (51-49
in the Senate,11 236-199 in the House of Representatives), furthermore the majority of the
governors were Democratic (28-22). November 2008 saw the Democrat Barack Obama win the
presidential elections against Republican John McCain. The Democrats also enlarged their
majorities in the simultaneous Congressional Elections (57-41 in the Senate, 257-178 in the
House of Representatives), moreover they could also increase their number of governors (29-21)
(cf. Library of Congress, 2013). While labelling the Republican Bush administration a right
government should go uncontested, the classification of the Obama government is a bit more
complicated. It would in the LME-context at hand certainly be absurd to equate the Democratic
Party with socialist or social democratic parties of the continental European kind. However,
especially Obama’s emphasize on “health coverage for all” (Obama & Biden, 2008) lets it
appear plausible that his government is located further left than that of Bush. Instead of drawing
generalizing comparisons between the US and Europe or intending an exact quantitative
ideological positioning,12 we claim that in Obama’s fiscal stimuli a stronger preference for social
redistributions – i.e. more left-leaning policies than under Bush – should be visible.
6.2 The US-American Type of Market Economy VoC categorizes the USA as the LME-prototype (Hall & Soskice, 2001). This is plausible since
market forces are the dominant principal in all major subfields of the economy. The labour
market of the US is characterized by very low levels of employment protection (Hall & Soskice,
2001, p. 19; Jäkel & Hörisch, 2009) and there are no codetermination rights (Felix Hörisch,
2009, p. 48; Felix Hörisch, 2012). The companies finance their undertakings primarily via the
stock market and even in spite of high employment rates there are high levels of inequality (Hall
& Soskice, 2001, pp. 19-22). 11 Two independent candidates supported the Democratic fraction.
12 Whatsoever, the reader may be informed that the CPDS-database categorizes Obama’s cabinet as a right-leaning centre government (Armingeon, Engler, Gerber, Leimgruber, & Beyeler, 2010).
15
6.3 Overview: Select Measures of the US Fiscal Packages During the years 2008 and 2009, three fiscal packages were signed into law in the USA: Under
George W. Bush Jr. the Economic Stimulus Act amounting to $152 billion (February 2008) and
the Emergency Economic Stabilization Act (October 2008) amounting to $700 billion. Under
Obama the American Recovery and Reinvestment Act (February 2009) that had amounted to
$821 billion by October 2011 (Levit, 2011, pp. 9-10) was signed into law.
Table 5: Select Measures of the US Fiscal Packages
Name of Measure Amount ($ in millions)
Measure Fiscal Package
Percentage of…
Package Size
2008-GDP
Education Spending under EESA
10,1201 Education EESA 1.5 0.07
Education Spending under ARRA
92,800 Education ARRA 11.3 0.64
Paul Wellstone Mental Health and Equity Act
N/A Health ESA N/A N/A
Health Spending under ARRA
150,0002 Health ARRA 18.3 1.03
Reference: U.S. Government (2009);
1: While the ARRA-education expenses are comprehensively listed on recovery.gov, this amount is based on our own calculations including the following measures: Teacher Expense Deduction, Hope Scholarship, Lifetime Learning Credit, , Enhanced Charitable Deduction for Qualified Computer Contributions, Qualified Zone Academy Bonds and finally the Secure Schools and the $3,3b Community Self Determination Act which was intended for schools and infrastructure, which bloats the estimated spending amount considerably. 2: Of the measures amounting to $150b, only Medicaid and COBRA are discussed in this paper (amounting to a total of $106.3b).
6.4 Analysis of US Fiscal Packages from the VoC-Perspective
6.4.1 Education-Policies in the US Fiscal Packages Firstly, we are going to track measures altering the availability of human capital in the USA.
While the non-bailout spending measures under ESA (credit market programmes and investment
in the Auto Industry) had no repercussions in the US-American educational system, EESA
provided several education-measures. The most prominent one in this regard was the Qualified
Tuition Deduction ($5.333 billion) allowing for deductions for “qualified higher education
16
expenses” of $4,000/$2,000 (depending on tax category). Apart from that, teachers profited from
an Extension of the Teacher Expense Deduction over 2007 until 2009 ($410 million) and
individuals in major disaster areas were aided through a doubling of most of the provisions of the
Hope Scholarship and Lifetime Learning Credit in 2008 and 2009 ($121 million). However,
there were also infrastructural investments in the education system: rural schools, so it was
decided, could profit from a Reauthorization of the Secure Rural Schools and Community Self-
Determination Act of 2009 and Payment in Lieu of Taxes even though this measure had been
meant to end in 2007 ($3.3 billion for investment in infrastructure and schools). The Enhanced
Charitable Deduction for Qualified Computer Contributions allowed for $356 million in tax
deductions for “computer equipment and software to elementary, secondary and post-secondary
schools” and the extension of Qualified Zone Academy Bonds (QZABs) beyond 2007 implied
that also in 2008 and 2009 $400 million be distributed to “school districts with low-income
populations” to “save on interest costs associated with public financing school […] renovations
and repairs (cf. U.S. House of Representatives, 2008, p. for this passage).
In Obama’s American Recovery and Reinvestment Act (ARRA), education ranked as the 4th most
important investment (U.S. ED, 2009; Government, 2009, p. 1). The emphasis was moved
further into the direction of infrastructure investment. Financial support for the use in education
institutions was available through three programs with the following extent (cf. Duncan, 2009):
Qualified School Construction Bonds (QSCBs) Issuing of $11 billion in 2009, $11 billion in 2010 and additionally $200 million in both years for schools associated with the Bureau of Indian Education Extension of Qualified Zone Academy Bonds (QZABs) Extension from $400 million in 2007/2008 respectively to $1.4 billion in 2009/2010 respectively Build America Bonds (BABs) $2.4 billion for the years 2009 and 2010, among others also available for schools Solely under the QZABs the training of school staff was permitted, while the focus of the
programmes rather was to encourage the modernization of buildings, the conversion of “obsolete
non-school buildings into modern school facilities” with a special emphasis on “green buildings”
and synergetic effects of the buildings as “centers of their communities” (Duncan, 2009). The
recipients of the tax exemptions – states and local educations agencies in QZABs and QSCB,
17
municipal bond issuers in BABS13 – were able to write off against tax 100% of the interest on
bonds for their investments (35% in case of BABs). Especially the investment in socially
underprivileged areas and/or charter schools was encouraged, e.g. through eligibility criteria
determined by the amount of pupils under the poverty line or being recipients under the National
School Lunch Act (cf. Duncan, 2009 for this passage).
The program clearly did not plan for modernization of school facilities purely as an economic
stimulus. The US Department of Education announced that the funding should be seen as “a
unique opportunity to jump start school reform and improvement efforts” (ED 2009, p. 1). The
Department of Education’s mission statement was that “all students should graduate from high
school prepared for college and a career and have the opportunity to complete at least one year of
postsecondary education” (ibd.). In order to acquire this goal several policies – which cannot all
be laid out this paper - were proposed: Firstly, the adoption of “rigorous standards and high
quality assessments” (ibd. 2), including the offering of college-relevant advanced courses and
support of “English language learners and students with disabilities” (ibd.). Secondly, the
development of data systems providing feedback “to educators, students, families and the
community in order to improve student and teacher performance” (ibd.) again including a special
program for students with disabilities. Thirdly, training, mentoring, certification and selective
compensation to increase “teacher effectiveness and equitable distribution of effective teachers
(ibd. 4). Fourthly, the “Turning around” (ibd.) of low-performing schools through
restructuring/closing, building of “[s]upport community schools” (ibd. 6), incentives for “highly
effective teachers” (ibd.) to teach at such schools, intense preparation for college etc. (ibd.).
Finally, the improvement of results for all students was proposed, including
“strengthening early learning; extending learning time; strengthening preparation for college and careers; using technology to improve teaching and learning; modernizing school facilities; and
conducting reviews, demonstrations, and evaluations that enhance program effectiveness.”
(ED 2009, p.6)
The results in this section bear relevance both for our hypothesis of general skill-focused
education in LMEs and the promotion of social policies by left LME-parties. Firstly, we can see
that for both governments the overall spending trend went towards the fostering of pre-tertiary
13 Under BABs also the assistance of public postsecondary institutions was possible (cf. Duncan, 2009).
18
education. With regard to the Obama Department of Education’s mission statement shown above
and at our current point of research it appears that the focus lay on the provision of general
skills and an improved access to post-secondary education. However, in future research we
should expand our horizon to measures of further training and try to trace vocational elements in
the secondary education programmes to gain further insights on the relevance of policies aiming
at the provision of specialized skills.
Since the ARRA-education investments outnumber the investments under Bush by far and
emphasize the advancement of the socially disadvantaged to an extent that goes way beyond the
additional investment of $400 million in the 2008 QZAB-programme, they can be analysed as a
social policy benefiting the low-income populations. We can say that in an LME-context ARRA-
education policies embody the classical partisan theory prediction that the more left parties are,
the more they will promote the redistribution of public goods to the lower social strata.
6.4.2 Health-Policies in the US Fiscal Packages VoC finds strong arguments why the Liberal Market Economy USA should not be interested in
the expansion of its Health Provision sector. In fact, the crisis reactions under Bush seem to
promote this claim: The first fiscal stimulus package signed into law in 2008 provided for a
“temporary relief” of $100 billion to “allow Americans to keep or spend more of their incomes”
(House, 2008) and approximately $50 billion to allow American companies an additional
deduction of “50 per cent of the cost of their investment in 2008” (ibd.) but refrained from tax
breaks explicitly designed to make the health sector profit. Vehicle for the second Bush stimulus
in September 2008 was the previously resting Paul Wellstone Mental Health and Addiction
Equity Act praised as “a great step forward in the decade-plus fight to end insurance
discrimination against those seeking treatment for mental health and substance use disorders”
(APA, 2009) by the American Psychological Assocation. However, according to Providence
Journal-writer John E. Mulligan (2008) it is rather unlikely that the bill was then chosen for
policy reasons. It is rather probable that it was picked to overcome the problem arising from the
initial House-opposition to the Defenders of Freedom Tax Relief Act of 2007 which „failed
passage as the original House vehicle for the Emergency Economic Stabilization“ (LoC, 2008).
According to him, the signing of the mental health bill was little more than a “time-honored
stratagem of finding a live but dormant House Bill […] to use as a shell” (Mulligan, 2008). It
19
seems quite plausible that the main intention behind the bill was the saving of time and the will
to stick to the provision that tax bills originate in the House. Apart from this pragmatic inclusion
of a health insurance measure, the “$150 billion in tax breaks for individuals and businesses”
(Associated Press, 2008) show no focus on the health system.
After Obama had successfully run for office, however, the prominent amount of $150 billion of
Health Provisions making up approximately 19% of ARRA was “viewed as the jumping-off
point for the Obama administration healthcare agenda, which seeks to increase access to services
while controlling cost” (Jutkowitz, 2009, p. 1). From the VoC-perspective, two elements of the
bill are of a special relevance: Firstly, the provision of “state Medicaid programs with $87 billion
in fiscal relief, delivered over nine calendar quarters” (cf. Dorn, 2009, p. 1) and secondly a
subsidy of $24.7 billion for laid-off workers (ibd. 2). VoC proposes that LMEs maintain low
rates of social protection since no insurance of specified human capital investments is required.
The increases in state spending mentioned above challenge this assumption. However, the policy
making process leading to the health policies was at least in parts controversial between the two
chambers even though they were both dominated democratically after the November elections in
2008. With regard to the Medicaid subsidies passed on to the federal states, one can say that both
chambers pledged for the approximately identical amount of $87 billion and solely disagreed
upon the “proportion of assistance that was targeted to states experiencing unusually high
increases in unemployment rates” (ibd. 4). However, the House had proposed that the crisis-
induced unemployed should be able to hold on to health coverage through buying into the
Medicaid which was opposed by the Senate due to fear of free-riding effects (Reichard, 2009).
The House, however, managed to enact its proposal of 65 percent subsidies paid through the US
Department of Labor in form of tax benefits for employees eligible for the COBRA program – a
measure comprising continued health insurance payments for the unemployed - or similar policy
packages even though the Senate had pledged for an amount of just 50 percent.
The huge amount of health investments made in the stimulus under Obama are interesting with
regard to our hypothesis that left parties will favour measures of social insurance also in an
LME-context.
20
7 Conclusions In this paper, we carried out research on various VoC-predictions regarding fiscal stimuli in the
USA and in Switzerland during the years 2008 and 2009. Our expectation that Switzerland - an
economy tending to the CME-spectre - would emphasize the provision of special skills over that
of general skills was not quite adequate. Money was put aside for both skill types. However,
where special skill policies were implemented, the shaping procedures relied on tight networks
between the state and the economic actors. As we pointed out, in this process employer
associations played a more important role than trade unions. This supports the claim that the
particularity of the Swiss CME-concept is the limited role of trade unions and employee
representation in the coordination process. Our hypothesis on cross-party support for social
insurance policies seems to be quite adequate in the Swiss case: Solely the conservative SVP
contested the VAT-reform in support of the Invalidenversicherung. As expected, employer
associations supported the measure and saw it as an improvement of the Swiss standing in the
international economic competition. The creation of Swiss export platforms in 2009 is in line
with our expectation of a cross-party driven fostering of business networks and provides
evidence that Switzerland is a CME-type of economy. Such structures of corporate intermingling
are absent in the USA.
In the US fiscal packages, education policies seem to emphasize general skills. After the
government had ideologically moved to the left under Obama’s presidency, crisis education
investment took on a rather redistributive character making the less-wealthy profit from broad
education investments. Also the massive health expenses under the Obama administration show
that also in LMEs social insurance can be enlarged in case there is an ideological power shift to
the left. It stands to reason that social policies are not solely dictated by comparative institutional
advantages. Also with regard to the Republican fiscal cliff blackmailing directed against
Obamacare at the time of this publication (October 2013) it is evident that ideologies matter and
institutional change in LME-subsystems is possible even though there may be considerable
political resistance.
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