That the consensual democracies have the best chance to control costs of the popular social and labor-market policies now in place without sacrificing the principles of social right and universality is highlighted by what they have done in the past and are doing now. If we consider the leading big-cost core programs of the welfare state, pensions and related policies that must be linked to pension reform as well as health care, we see where accommodations between the social partners and political parties are essential. First, consider the problem of pensions and Finland’s solution as a model for reform; then the health-care crisis in the United States as a lesson in what not to do.

WHAT IS THE PROBLEM TO BE SOLVED BY PENSION REFORM?

All rich democracies have experienced twin trends that pose a serious issue for policy planners: a century-long decline in the age of exit of men from the labor force; and an increase in healthy older populations. In trying to contain exploding costs of pensions while they cope with an oversupply of healthy displaced older workers who prefer to work at least part time, many governments have tried to devise flexible retirement systems. It is good public policy to transform the healthy aged who want to work into taxpayers, part-time workers, and partial pensioners rather than pressuring them to retire fully. But it is extraordinarily difficult both technically and politically to craft social-security systems that would reverse the long-term slide in the age of exit from work. The first difficulty is the necessity of creating part-time jobs for older workers. A study of 10 of our rich democracies shows that countries that provide part-time work for the elderly have higher overall employment rates (Ebbinghaus, 2006: 102). Several countries, including Germany, the Netherlands, and the United Kingdom, have managed to create an abundance of part-timers among older populations. Ireland, the United States, and Italy are laggards in the creation of such jobs. The second obstacle to reversing the decline of age of exit from the labor force is the prevalence of disabilities of various kinds among the aged. The trick is to find the balance between reductions in benefits for very early retirement and generous partial pensions for continued part-time work for those aged say 60–70 while avoiding pressure on the worn-out workers in the least attractive jobs to postpone retirement.