Alfred C. Mierzejewski. A History of the German Public Pension System: Continuity amid Change.

Alfred C. Mierzejewski. A History of the German Public Pension System: Continuity amid Change. The German public pension system created under Otto von Bismarck in 1889 was the first of its kind in the world. It also managed to survive the upheavals of two world wars, revolution, military occupation, and no fewer than five different forms of government in the twentieth century. In A History of the German Public Pension System: Continuity and Change, Alfred Mierzejewski seeks to account for the resiliency of this remarkable institution while also offering his readers a comprehensive new history of the German pension system from its inception to the major reforms implemented under the governments of Gerhard Schröder and Angela Merkel. Mierzejewski is well equipped to tell this story, drawing on extensive research in German archival and printed primary sources and demonstrating a complete mastery of this complex topic and its rich historiography throughout his narrative. The book begins by recounting a now-familiar story of the Bonapartist, anti-Socialist, and Pietist Lutheran origins of the idea of public pensions under Bismarck. It is to the author’s credit that he highlights how much the actual legislation passed in 1889 was altered from Bismarck’s original proposal during debate in the Reichstag and Federal Council. Unfortunately, little of the rich tenor of those debates over no fewer than forty-three Reichstag committee meetings and twenty-four plenary sessions was conveyed by the author’s brief summary of the legislative process (14–17). In any case, Bismarck, the “Iron Chancellor,” was highly dissatisfied with what was passed. Rather than a centralized and uniform system of generous worker pensions funded from taxation and the proceeds of a state tobacco monopoly, he got a compulsory insurance system financed primarily by worker and employer contributions, with very modest benefits scaled to employee contributions. The system’s administration was decentralized to some thirty-one self-governing regional state-insurance institutes, thirteen in the state of Prussia alone. Out of sheer expediency, it became a pay-as-you-go system with a modest reserve accumulated to protect against economic fluctuations. With minor modification, it would remain that way for most of the twentieth century. While initially rejected by the Social Democrats and resented by many blue-collar workers for its compulsions, by the eve of the First World War it had expanded and was widely popular. A similar system was extended to white-collar employees in 1911 with the Social Democrats’ support. World War I and the Weimar Republic ushered in a period of crisis for the system. The reserve was plundered to pay for the war, while postwar hyperinflation made pension benefits and the reserve’s remnants worthless. The system was stabilized in the mid-1920s only to be buffeted by deflation and the massive unemployment of the 1930s, yet it survived. Mierzejewski is one of the first historians to thoroughly analyze the public pension system’s fate under the Nazis. He reveals how their regime seized the reserve fund to pay for rearmament. As the economy recovered under the rearmament boom and prices rose, pension benefits were kept at Depression-era levels, squeezing pensioners. Remarkably, the pension system managed to stave off its complete Nazification and even continued to pay pensions to Jews still resident within the 1937 German borders into the 1940s. Pension benefits were nevertheless effectively stolen from those who emigrated before 1939 or were “evacuated” to the East after 1941, when Jews not in privileged marriages (i.e., those of Jewish men to “Aryan” women) were also stripped of their pensions. As Mierzejewski shows, a veneer of legality was preserved in the system’s discriminatory practices under Nazism. After Germany’s defeat in 1945, the pension system was revived in its old, decentralized form in the western zone of occupation. Meanwhile, in the Soviet zone, a unitary system modeled on Weimar- and Nazi-era initiatives was created. The author discusses how the West German system was reformed in the public pension system’s so-called “Golden Era” in the 1950s and 1960s, highlighting Konrad Adenauer’s surprising degree of influence over the shape of reform legislation in 1957, which expanded benefits and introduced automatic cost-of-living adjustments to ensure a comfortable standard of living through retirement. Interestingly, Mierzejewski argues that Adenauer’s influence over the shape of this legislation exceeded that of Bismarck over the original law (190–200, 221). In the (East) German Democratic Republic, by contrast, the pension system was given low priority and was mismanaged. Its benefits were meager and remained that way, as priority was given to supplemental retirement benefits for the Socialist Unity Party cadre and privileged workers, gradually eroding the regime’s legitimacy. Mierzejewski takes his narrative beyond reunification, discussing at length West Germany’s demographic challenges of increasing longevity, low fertility, lower economic growth, and high structural unemployment in the 1980s and 1990s. In West Germany, governments also frequently resorted to discretionary actions to increase pension benefits and reduce the retirement age to attract or reward voters, undermining the system’s long-term solvency. A welcome contribution of this book is a chapter devoted to the process of unifying the two countries’ pension systems (chap. 10) and one on the many reforms implemented in the early twenty-first century in response to solvency challenges (chap. 11). This makes it as complete a history as one could hope for. Mierzejewski argues that the German public pension system has been a remarkable success in delivering benefits despite massive political upheaval, economic problems, demographic challenges, and discretionary political interventions that all threatened its survival. He attributes its stability to the concept of path dependency, the fact that it quickly grew into a highly complex and massive system for which no viable and cost-effective alternatives existed. Likewise, German federalism and the country’s long tradition of rule-based decision-making oriented toward bureaucratic consensus helped preserve many of its original features. Most importantly, Germans themselves have expressed an ongoing commitment to public pensions, even as perhaps its most radical reform, in 2001, introduced two new pillars of retirement income: company pensions and market-based retirement savings accounts. Given how many of the issues that would arise time and again were first raised in the Reichstag in 1888–1889 (e.g., moral hazard, economic efficiency, the ethics of compulsion, financing the system, benefit priorities, coverage), it is a pity that the author did not use any of the stenographic reports of the Reichstag debates in his first chapter. This relates to a second issue, namely, the somewhat wooden, omniscient bureaucratic perspective adopted by the author, conveying little of the lived experience of those reliant on public pensions during the many periods of political and economic upheaval covered. The author also peppered his narrative with some one hundred different German acronyms, not all of them identified in his list of abbreviations (GRV? RRG?). These criticisms aside, this is a readable, well-organized, authoritative, and original book on the German public pension system. With its chapters on pensions during National Socialism, military occupation, and in East Germany, it makes a novel and much welcomed contribution and earns this book the distinction of being the first truly complete history of the German pension system in any language, one that should find wide readership in history, economics, political science, and sociology. © The Author 2018. Published by Oxford University Press. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The American Historical Review Oxford University Press

Alfred C. Mierzejewski. A History of the German Public Pension System: Continuity amid Change.

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Publisher
Oxford University Press
Copyright
© The Author 2018. Published by Oxford University Press.
ISSN
0002-8762
eISSN
1937-5239
D.O.I.
10.1093/ahr/123.1.318
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Abstract

The German public pension system created under Otto von Bismarck in 1889 was the first of its kind in the world. It also managed to survive the upheavals of two world wars, revolution, military occupation, and no fewer than five different forms of government in the twentieth century. In A History of the German Public Pension System: Continuity and Change, Alfred Mierzejewski seeks to account for the resiliency of this remarkable institution while also offering his readers a comprehensive new history of the German pension system from its inception to the major reforms implemented under the governments of Gerhard Schröder and Angela Merkel. Mierzejewski is well equipped to tell this story, drawing on extensive research in German archival and printed primary sources and demonstrating a complete mastery of this complex topic and its rich historiography throughout his narrative. The book begins by recounting a now-familiar story of the Bonapartist, anti-Socialist, and Pietist Lutheran origins of the idea of public pensions under Bismarck. It is to the author’s credit that he highlights how much the actual legislation passed in 1889 was altered from Bismarck’s original proposal during debate in the Reichstag and Federal Council. Unfortunately, little of the rich tenor of those debates over no fewer than forty-three Reichstag committee meetings and twenty-four plenary sessions was conveyed by the author’s brief summary of the legislative process (14–17). In any case, Bismarck, the “Iron Chancellor,” was highly dissatisfied with what was passed. Rather than a centralized and uniform system of generous worker pensions funded from taxation and the proceeds of a state tobacco monopoly, he got a compulsory insurance system financed primarily by worker and employer contributions, with very modest benefits scaled to employee contributions. The system’s administration was decentralized to some thirty-one self-governing regional state-insurance institutes, thirteen in the state of Prussia alone. Out of sheer expediency, it became a pay-as-you-go system with a modest reserve accumulated to protect against economic fluctuations. With minor modification, it would remain that way for most of the twentieth century. While initially rejected by the Social Democrats and resented by many blue-collar workers for its compulsions, by the eve of the First World War it had expanded and was widely popular. A similar system was extended to white-collar employees in 1911 with the Social Democrats’ support. World War I and the Weimar Republic ushered in a period of crisis for the system. The reserve was plundered to pay for the war, while postwar hyperinflation made pension benefits and the reserve’s remnants worthless. The system was stabilized in the mid-1920s only to be buffeted by deflation and the massive unemployment of the 1930s, yet it survived. Mierzejewski is one of the first historians to thoroughly analyze the public pension system’s fate under the Nazis. He reveals how their regime seized the reserve fund to pay for rearmament. As the economy recovered under the rearmament boom and prices rose, pension benefits were kept at Depression-era levels, squeezing pensioners. Remarkably, the pension system managed to stave off its complete Nazification and even continued to pay pensions to Jews still resident within the 1937 German borders into the 1940s. Pension benefits were nevertheless effectively stolen from those who emigrated before 1939 or were “evacuated” to the East after 1941, when Jews not in privileged marriages (i.e., those of Jewish men to “Aryan” women) were also stripped of their pensions. As Mierzejewski shows, a veneer of legality was preserved in the system’s discriminatory practices under Nazism. After Germany’s defeat in 1945, the pension system was revived in its old, decentralized form in the western zone of occupation. Meanwhile, in the Soviet zone, a unitary system modeled on Weimar- and Nazi-era initiatives was created. The author discusses how the West German system was reformed in the public pension system’s so-called “Golden Era” in the 1950s and 1960s, highlighting Konrad Adenauer’s surprising degree of influence over the shape of reform legislation in 1957, which expanded benefits and introduced automatic cost-of-living adjustments to ensure a comfortable standard of living through retirement. Interestingly, Mierzejewski argues that Adenauer’s influence over the shape of this legislation exceeded that of Bismarck over the original law (190–200, 221). In the (East) German Democratic Republic, by contrast, the pension system was given low priority and was mismanaged. Its benefits were meager and remained that way, as priority was given to supplemental retirement benefits for the Socialist Unity Party cadre and privileged workers, gradually eroding the regime’s legitimacy. Mierzejewski takes his narrative beyond reunification, discussing at length West Germany’s demographic challenges of increasing longevity, low fertility, lower economic growth, and high structural unemployment in the 1980s and 1990s. In West Germany, governments also frequently resorted to discretionary actions to increase pension benefits and reduce the retirement age to attract or reward voters, undermining the system’s long-term solvency. A welcome contribution of this book is a chapter devoted to the process of unifying the two countries’ pension systems (chap. 10) and one on the many reforms implemented in the early twenty-first century in response to solvency challenges (chap. 11). This makes it as complete a history as one could hope for. Mierzejewski argues that the German public pension system has been a remarkable success in delivering benefits despite massive political upheaval, economic problems, demographic challenges, and discretionary political interventions that all threatened its survival. He attributes its stability to the concept of path dependency, the fact that it quickly grew into a highly complex and massive system for which no viable and cost-effective alternatives existed. Likewise, German federalism and the country’s long tradition of rule-based decision-making oriented toward bureaucratic consensus helped preserve many of its original features. Most importantly, Germans themselves have expressed an ongoing commitment to public pensions, even as perhaps its most radical reform, in 2001, introduced two new pillars of retirement income: company pensions and market-based retirement savings accounts. Given how many of the issues that would arise time and again were first raised in the Reichstag in 1888–1889 (e.g., moral hazard, economic efficiency, the ethics of compulsion, financing the system, benefit priorities, coverage), it is a pity that the author did not use any of the stenographic reports of the Reichstag debates in his first chapter. This relates to a second issue, namely, the somewhat wooden, omniscient bureaucratic perspective adopted by the author, conveying little of the lived experience of those reliant on public pensions during the many periods of political and economic upheaval covered. The author also peppered his narrative with some one hundred different German acronyms, not all of them identified in his list of abbreviations (GRV? RRG?). These criticisms aside, this is a readable, well-organized, authoritative, and original book on the German public pension system. With its chapters on pensions during National Socialism, military occupation, and in East Germany, it makes a novel and much welcomed contribution and earns this book the distinction of being the first truly complete history of the German pension system in any language, one that should find wide readership in history, economics, political science, and sociology. © The Author 2018. Published by Oxford University Press.

Journal

The American Historical ReviewOxford University Press

Published: Feb 1, 2018

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