Who was Bismarck?
Why did a man famous for his iron grip on European politics become the creator of the first state pension? The answer is a love for the state as much as its workers
Greg Langley
© Getty Images
State pension provision continues to evolve, with today’s challenges of national deficits and aging populations the latest in a long line. While looking at different approaches going forward, and the different paths they could lead us down, it also pays to look to where it all began: the first ever implementation of a national pension scheme. Introduced by the German chancellor Otto von Bismarck in the late 1880s, it was a work of startling innovation, and quite why it came into being could force us to re-examine what we want from a state pension today.
Bismarck himself was a formidable and seemingly contradictory politician, known as the “Iron Chancellor” for his formidable grip on the politics and borders of the German Empire. He was: “the most important statesman for Germany of the 19th century,” says Michael Stolleis, a Professor of legal history at the University of Frankfurt and director of the Max Planck Institute for European Legal History, who “realized the long-desired unity of the nation.”
People forget: less than 10% claimed an old age pension; 90% got an invalid pension
That nation was at the heart of Bismarck’s politics. He was a conservative monarchist who helped drive unification of Germany in 1871 and a sworn enemy of both Catholics and socialism. Yet he was also an innovator, who oversaw a series of social reforms that would shape welfare provision in Germany and other countries for decades. The force behind them was socialism.
As a large working class in industrialized Europe led to the movement’s rising tide across the continent, the staunch nationalist Bismarck saw its international banner as a threat to the nation state. With socialism’s growth in Germany, the government engaged in a campaign to ban its assemblies and shut down supporting newspapers, but the canny chancellor also initiated a softer approach, choosing to undermine the support for socialism, by proving the state could address the basic reforms that workers sought.
He began by introducing health insurance in 1883; a move designed to provide access to health services and protect workers from poverty in the case of ill-health. It offered sick pay for up to 13 weeks, with contributions split between workers and their employers. The following year saw the introduction of accident insurance, designed to protect the growing numbers of people who were caught up in industrial incidents, and was financed entirely by employers.
“Bismarck was most interested in accident insurance because he wanted to block labor protection,” says Gerhard A. Ritter, Professor Emeritus, at the Ludwig-Maximilians University in Munich. “He thought it was an interference with industry and with the right of workers to earn. So social insurance and accident insurance were originally introduced as a means to prevent the extension of employers’ liability, and it worked quite well.”
Pensions were the third area of social legislation for Bismarck, with the Old Age and Invalidity Insurance Act of 1889. Individuals only qualified for the pension scheme at the age of 70; a landmark the vast majority of workers at the time would not live to see. It was limited, too, initially covering only those in industry – although it was later extended to agriculture – and paying out a low rate that would really only allow workers to contribute to living expenses, as part of a wider family unit.
“The level of contributions was very low and what people would get was very low, but it certainly helped,” says Ritter. “You couldn’t live on it, but if you went back to your family it made a difference whether you carried 200 Marks with you or not.”
Political Titan
Otto von Bismarck sat, and sometimes stood, at the heart of European politics for decades. It’s no surprise his legacy continues to this day.
While its high age requirement appears restrictive, this was overcome to a large extent by the inclusion of invalidity – which ensured nearly everyone benefited from a pension before they were 70, says Ritter. “That’s the important thing which is often forgotten; it was really an invalid insurance. Less than 10% claimed an old age pension; 90% got an invalid pension.”
Of all Bismarck’s social policies, the pensions law sparked the greatest controversy within the Reichstag, and the chancellor was forced by the parliament to compromise significantly on his original vision: an entirely state-funded scheme, along the lines that would eventually be introduced in the UK in. Ultimately, contributions were split between employer and employee, with the Reich paying a sum of 50 Marks per pension per year. It was a deal that he would have considered something of a failure.
“He was accepted by the public as the creator of the social insurance, but he was against this system. It is interesting that he did not mention social insurance in his memoirs; not a word,” says Stolleis. “He wanted to form the worker as a state pensioner and, in this sense, he was not successful.”
AMBITIONS UNFULFILLED
The significance of Bismarck’s achievements were not fully appreciated at the time, and even today they have not defined his legacy. If anything, they serve only to add to his contradictory and extraordinary career at the top of European politics. Ritter says: “He’s remembered for the reforms in a positive sense, but he’s also remembered for the anti-socialist law and the fight against Catholicism – the Kulturkampf – and that is very much criticized.”
For a man such as Bismarck, defeating socialism is a broad and incomplete answer to why he created the state pension. As befits such a complex character, there were a range of motivations for introducing reforms so radical for the time in which he lived. Ritter believes his motivations were a mixture of genuine concern for the welfare of German workers with the realpolitik for which he was renowned.
“He wanted an improvement in the position of, as he called it, the soldiers of industry, in parallel to the invalids of the war,” he says.
The image of a benevolent chancellor is an interesting one, but his plan to erode support for the socialists ultimately failed. However, in the respect of the state pension at least, Bismarck’s legacy was a creative and lasting improvement in the lives of most ordinary Germans. Indeed, the Iron Chancellor was way ahead of his time in developing the concept of a welfare state. “As the first system [of its kind], it was going into an unknown land,” points out Stolleis.
“The ministries in Berlin had no model to look at, so it was an interesting debate as to what they should do. It was a pioneer work, and all the social insurance systems in Europe picked up the model. They were not an exact copy, but they had the same intention.”
As we look towards the future of pensions, in established and developing economies, perhaps we should look at their beginnings to work out what motivates us to sustain them, refine them, and ensure they are fit for another 125 years.
