Business and the Welfare State in France and Germany.

• Author: Janson, Nathalie
• Position: The Politics of Social Risk: Business and Welfare State Development - Book review

In The Politics of Social Risk: Business and Welfare State Development (New York: Cambridge University Press, 2003), Isabella Mares seeks to demonstrate that the business community is not necessarily against the development of the welfare state. On the contrary, business interests were major actors in the design of social policies throughout the twentieth century. This idea contradicts the large welfare-state literature built on the assumption of class conflict. The naive view centering on class struggle inherited from the Marxists, however, is no longer appropriate, if it ever was. Too much recent evidence runs against it.

Mares tries to establish her thesis by testing a set of theoretical assumptions about business preferences toward social policies, relying on historical evidence for France and Germany. She chose those two countries for analysis because despite the comparable sizes of their welfare states, the design of their social policies differs. She traces those differences to the differing composition of their business communities.

Why would firms promote social policy? According to the author, firms and employees may have a common interest that arises from the risks employees face in the labor market--contingencies of disability, unemployment, or sickness--that discourage them from investing further in skills. Firms share an interest in the employees' investment in skills because such investment increases labor productivity for the firms at the same time that it increases earnings for their employees. By promoting social policy, firms compensate their employees for their investment even if the employees leave the firm, which entails their sacrifice of the earnings increment associated with continuity of employment in a given firm.

Mares characterizes the main determinants of business preferences in a social-policy space along two dimensions: risk redistribution and control. Because firms aim at maximizing investment in skills, they are especially sensitive to their risk exposure in the labor market and to their ability to control the compensation of their employees in relation to their investment. Mares derives an objective function that models a firm's utility function over the social-policy space:

U(R,C) = λ R (relative incidence of risk) R + λC (size of the firm, skill level) C

With regard to risk redistribution, the higher the firm's exposure, the more it favors the socialization of risk in order to lower the costs of protecting employees. With regard to control, the larger the firm, the more it intends to control the administration of social policy. Moreover, if a company relies on a highly skilled labor force...