This essay seeks to lay the foundation for an understanding of welfare state retrenchment. Previous discussions have generally relied, at least implicitly, on a reflexive application of theories designed to explain welfare state expansion. Such an approach is seriously flawed. Not only is the goal of retrenchment (avoiding blame for cutting existing programs) far different from the goal of expansion (claiming credit for new social benefits), but the welfare state itself vastly alters the terrain on which the politics of social policy is fought out. Only an appreciation of how mature social programs create a new politics can allow us to make sense of the welfare state's remarkable resilience over the past two decades of austerity. Theoretical argument is combined with quantitative and qualitative data from four cases (Britain, the United States, Germany, and Sweden) to demonstrate the shortcomings of conventional wisdom and to highlight the factors that limit or facilitate retrenchment success.
1 On welfare state expansion, see Esping-Andersen, Gösta, The Three Worlds of Welfare Capitalism (Princeton: Princeton University Press, 1990); and Huber, Evelyne, Ragin, Charles, and Stephens, John D., “Social Democracy, Christian Democracy, Constitutional Structure, and the Welfare State,” American Journal of Sociology 99 (November 1993).
2 In this sense, my analysis parallels Verdier's recent effort to interpret foreign trade policy as “the outcome of a process influenced by voters.” Verdier, Daniel, Democracy and International Trade: Britain, France and the United States, 1860–1990 (Princeton: Princeton University Press, 1994), xv.
3 Weaver, R. Kent, “The Politics of Blame Avoidance,” Journal of Public Policy 6 (October-December 1986).
4 Flora, Peter and Hcidcnhcimer, Arnold J., eds., The Development of Welfare States in Europe and America (New Brunswick, N.J.: Transaction, 1982).
5 As recent research has suggested, it would be wrong to treat business as always and everywhere opposed to welfare state programs. For illuminating studies of the United States, see, for example, Gordon, Colin, New Deals: Business, Labor, and Politics in America, 1920–1935 (Cambridge: Cambridge University Press, 1994); and Martin, Cathie Jo, “Nature or Nurture? Sources of Firm Preference for National Health Reform,” American Political Science Review 89 (December 1995). Nonetheless, it is dear that most business organizations in all the advanced industrial democracies have favored—often vehemently—cutbacks in the welfare state over the past fifteen years.
6 Olson, Mancur, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge: Harvard University Press, 1965); Wilson, James Q., Political Organizations (New York: Basic Books, 1973), 330–37.
7 Kahneman, Daniel and Tversky, Amos, “Prospect Theory: An Analysis of Decision under Risk,” Econometrica 47 (March 1979); idem, “Choices, Values and Frames,” American Psychologist 39 (April 1984).
8 Bloom, Howard S. and Price, H. Douglas, “Voter Response to Short-Run Economic Conditions: The Asymmetric Effect of Prosperity and Recession,” American Political Science Review 69 (December 1975); Kernell, Samuel, “Presidential Popularity and Negative Voting: An Alternative Explanation of the Midterm Congressional Decline of the President's Party,” American Political Science Review 71 (March 1977); and Lau, Richard R., “Explanations for Negativity Effects in Political Behavior,” American Journal of Political Science 29 (February 1985).
9 Flora, Peter, “From Industrial to Postindustrial Welfare State?” Annals of the Institute of Social Science, special issue (Institute of Social Science, University of Tokyo) (1989), 154.
10 Day, Christine L., What Older Americans Think: Interest Groups and Aging Policy (Princeton: Princeton University Press, 1990), 25–26.
11 Esping-Andersen, Gosta, Politics against Markets: The Social Democratic Road to Power (Princeton: Princeton University Press, 1985); Pierson, Paul, “When Effect Becomes Cause: Policy Feedback and Political Change,” World Politics 45 (July 1993).
12 Weaver (fn. 3); Pierson, Paul, Dismantling the Welfare State? Reagan, Thatcher and the Politics of Retrenchment (Cambridge: Cambridge University Press, 1994), chap. 1.
13 Arnold, R. Douglas, The Logic of Congressional Action (New Haven: Yale University Press, 1990).
14 Wilensky, , The Welfare State and Equality (Berkeley: University of California Press, 1975).
15 One could fill a small library with books and articles that make this claim. For a good recent example, see Schwartz, Herman, “Small States in Big Trouble: State Reorganization in Australia, Denmark, New Zealand, and Sweden in the 1980s,” World Politics 46 (July 1994).
16 Garrett, Geoff and Lange, Peter, “Political Responses to Interdependence: What's Left for the Left,” International Organization 45 (1991).
17 For a classic treatment of this dynamic, see Cary, William L., “Federalism and Corporate Law: Reflections on Delaware,” Yale Law Journal 83 (March 1974).
18 Lange, Peter, “The Politics of the Social Dimension,” in Sbragia, Alberta, ed., Euro-politics (Washington, D.C.: Brookings Institution, 1992). For evidence casting doubt on the proposition that systems of social protection have significant negative effects on economic performance, see Blank, Rebecca M., ed., Social Protection versus Economic Flexibility: Is There a Trade-off? (Chicago: University of Chicago Press, 1994).
19 “Unraveling” could occur in a more subtle way, as heightened capital mobility strengthens the bargaining position of business, leading to the gradual erosion ot “tightly coupled” systems of industrial relations and, perhaps, welfare states. For a good example of this kind of argument, see Streeck, Wolfgang, “From Market-Making to State-Building? Reflections on the Political Economy of European Social Policy,” in Leibfried, Stephan and Pierson, Paul, eds., European Social Policy: Betzveen Fragmentation and Integration (Washington, D.C.: Brookings Institution, 1995). While such a scenario cannot be ruled out, the evidence for it remains quite limited. These arguments appear to be more popular among those, like Streeck, who focus on industrial relations systems. See, for example, Jonas Pontusson and Peter Swenson, “Labor Markets, Production Strategies, and Wage Bargaining Institutions: The Swedish Employer Offensive in Comparative Perspective,” Comparative Political Studies (forthcoming); and Thelen, Kathleen, “West European Labor in Transition: Sweden and Germany Compared,” World Politics 46 (October 1993). Industrial relations systems, however, seem more fragile than welfare state structures. Welfare states, I will suggest, have considerably broader bases of support, which promote the restoration of equilibrium and inhibit the kind of unraveling that occurs in some industrial relations systems.
20 North, Douglass C., Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press, 1990).
21 Stephens, John D., The Transition from Capitalism to Socialism (London: Macmillan, 1979); Korpi, Walter, The Democratic Class Struggle (London: Routledge, 1983); Espmg-Andersen (fn. 11); Korpi, Walter, “Power, Politics, and State Autonomy in the Development of Social Citizenship: Social Rights during Sickness in Eighteen OECD Countries since 1930,” American Sociological Review 54 (June 1989).
22 Esping-Andersen (fn. 1); Huber, Ragin, and Stephens (fn. 1).
23 In this respect, organized labor (public employee unions) continues to be of significance, although not in the way posited by power resource theorists. Union interests are now linked primarily to the employment-generating effects of specific public programs rather than to the broad consequences of generous public provision for the bargaining position of workers.
24 On this point, see Arnold (fn. 13).
25 Hall, Peter, Governing the Economy (Oxford: Oxford University Press, 1986); March, James and Olsen, Johan, Rediscovering Institutions (New York: Free Press, 1989); North (fn. 20).
26 See, for example, Weir, Margaret, Orloff, Ann Shola, and Skocpol, Theda, eds., The Politics of Social Policy in the United States (Princeton: Princeton University Press, 1988); and Skocpol, Theda, Protecting Soldiers and Mothers: The Political Origins of Social Policy in the United States (Cambridge: Harvard University Press, 1992).
27 Heclo, Hugh, Modern Social Politics in Britain and Sweden (New Haven: Yale University Press, 1974).
28 Banting, Keith G., The Welfare State and Canadian Federalism, 2d ed. (Montreal: McGill-Queen's University Press, 1987); Immergut, Ellen, Health Politics: Interests and Institutions in Western Europe (Cambridge: Cambridge University Press, 1992).
29 Huber, Ragin, and Stephens (fn. 1).
30 Pierson(fn. 11).
31 For examples of each of these arguments, see, respectively, Esping-Andersen (fn. 11); Skocpol (fn. 26); and Pierson, Paul, “‘Policy Feedbacks’ and Political Change: Contrasting Reagan and Thatcher's Pension-Reform Initiatives,” Studies in American Political Development 6 (Fall 1992).
32 This paragraph relics on Pierson, Paul and Weaver, R. Kent, “Imposing Losses in Pensions Policy,” in Weaver, R. Kent and Rockman, Bert, eds., Do Institutions Matter? Government Capabilities at Home and Abroad (Washington, D.C.: Brookings Institution, 1993).
33 What seems more likely is that the structure of formal institutions will influence the strategies of retrenchment advocates. I return to this point in the conclusion.
34 On expansion, see Heclo (fn. 27); and Skocpol (fn. 26). On retrenchment, see Pierson (fn. 12).
35 Esping-Andersen (fn. 1); Esping-Andersen, Gösta, “Postindustrial Cleavage Structures: A Comparison of Evolving Patterns of Social Stratification in Germany, Sweden, and the United States,” in Piven, Francis Fox, ed., Labor Parties in Postindustrial Societies (Oxford: Polity Press, 1991); and idem, “The Emerging Realignment between Labour Movements and Welfare States,” in Regini, Marino, ed., The Future of Labour Movements (London: Sage, 1992).
36 Huber, Ragin, and Stephens (fn. 1), 733; Esping-Andersen (fn. 1), 33, 32. Of course, Esping-Andersen has also emphasized that the growth of the welfare state affects welfare state politics.
37 Esping-Andersen (fn. 1), 21.
38 A recent draft paper by Stephens, Huber, and Ray presents the first sophisticated statistical analysis of retrenchment, utilizing newly assembled data that allow investigation of fairly detailed programmatic changes over a large number of countries. There are important limitations: much of the programmatic data end in 1986 or 1987; many programs are not covered; and the still-small sample allows the statistical testing of only a few broad hypotheses (essentially, the impact of partisanship) about the politics of program change. The results reported strongly support most of the analysis presented here, although they view Thatcher as more successful than I do. Stephens, John D., Huber, Evelyne, and Ray, Leonard, “The Welfare State in Hard Times” (Paper presented at the conference on the “Politics and Political Economy of Contemporary Capitalism,” University of North Carolina, Chapel Hill, September 1994).
39 Establishing what constitutes “radical” reform is no easy task. For instance, it is impossible to say definitively when a series of quantitative cutbacks amounts to a qualitative shift in the nature of programs. Roughly though, that point is reached when because of policy reform a program can no longer play its traditional role (e.g., when pension benefits designed to provide a rough continuation of the retiree's earlier standard of living are clearly unable to do so).
40 This broad conclusion is echoed for a much larger number of cases in Stephens, Huber, and Ray (fh. 38).
41 Garrett, Geoff, “The Politics of Structural Reform: Swedish Social Democracy and Thatcherism in Comparative Perspective,” Comparative Political Studies 25 (January 1993).
42 The 1979 figure is from Price, Robert and Bain, George Savers, “Union Growth in Britain: Retrospect and Prospect,” British Journal of Industrial Relations 21 (March 1983), 47. The 1993 figure is from Derek Bird and Corcoran, Louise, “Trade Union Membership and Density, 1992–93,” Employment Gazette (June 1994), 193.
43 Pierson (fn. 12), chaps. 3–6.
44 Forrest, Ray and Murie, Alan, Selling the Welfare State: The Privatization of Public Housing (London: Routledge, 1988).
45 Walker, Alan, “Thatcherism and the New Politics of Old Age,” in Myles, John and Quadagno, Jill, eds., States, Labor Markets, and the Future of Old Age Policy (Philadelphia: Temple University Press, 1991); Pierson (fn. 31).
46 Taylor-Gooby, Peter, “The Future of the British Welfare State: Public Attitudes, Citizenship and Social Policy under the Conservative Governments of the 1980s,” European Sociological Review 4 (May 1988).
47 Klein, Rudolf, The Politics of the National Health Service, 2d ed. (London: Longman, 1989); Griggs, Edwin, “The Politics of Health Care Reform in Britain,” Political Quarterly 62 (October-December 1991).
48 Deakin, Nicholas, The Politics of Welfare (London: Methuen, 1987).
49 Barr, Nicholas and Coulter, Fiona, “Social Security: Solution or Problem?” in Hills, John, ed., The Slate of Welfare: The Welfare State in Britain since 1974 (Oxford: Oxford University Press, 1990), 281; O'Higgins, Michael, “Social Welfare and Privatization: The British Experience,” in Kamerman, Sheila B. and Kahn, Alfred J., eds., Privatization and the Welfare State (Princeton: Princeton University Press, 1989).
50 In the case of AFDC, which is not indexed, this happened largely because state governments faile to index benefits to inflation. Given this structural feature of the program, “nondecisions” allowed quiretrenchment. This trend predated Reagan's arrival in office. Indeed, cuts in real benefits were great during Carter's presidency (when inflation was high) than under Reagan.
51 See, for example, two frequently cited studies: Rosenberry, Sara A., “Social Insurance, Distributi Criteria and the Welfare Backlash: A Comparative Analysis,” British Journal of Political Science 12 (Otober 1982); and Palmer, John and Sawhill, Isabel, eds., The Reagan Experiment (Washington, D.C.: Urban Institute Press, 1982).
52 Conlan, Tim, New Federalism: Intergovernmental Reform Jrom Nixon to Reagan (Washington, D.C.: Brookings Institution, 1988), 95–238.
53 Peterson, Paul E., “The Rise and Fall of Special Interest Politics,” Political Science Quarterly 105 (Winter 1990–91); Grcenstein, Robert, “Universal and Targeted Approaches to Relieving Poverty,” in Jencks, Christopher and Peterson, Paul, eds., The Urban Underclass (Washington, D.C.: Brookings Institution, 1991).
54 Light, Paul, Artful Work: The Politics of Social Security Reform (New York: Random House, 1985).
55 White, Joseph and Wildavsky, Aaron, The Deficit and the Public Interest (Berkeley: University of California Press, 1989).
56 Cook, Fay Lomax and Barret, Edith J., Support for the American Welfare State (New York: Columbia University Press, 1992); Shapiro, Robert Y. and Young, John T., “Public Opinion and the Welfare State: The United States in Comparative Perspective,” Political Science Quarterly 104 (Spring 1989). In line with my general argument, Shapiro and Young's research indicates similar patterns in other countries.
57 On recent spending trends, see Ways, House and Committee, Means, Background Material on Programs within the Jurisdiction of the Committee on Ways and Means (Washington, D.C.: GPO, March 1994).
58 Thelen(fn. 19).
59 Esping-Andersen (fn. 35, 1991 and 1992).
60 Combined employer and employee social insurance contributions were 26.5% of gross income in 1970,32.4% in 1980, and are forecast to hit 39.2% in 1994. Financial Times, July 2, 1993, p. 13.
61 Heclo, Hugh, “Generational Politics,” in Palmer, John L., Smeeding, Timothy, and Torrey, Barbara Boyle, eds., The Vulnerable (Washington, D.C.: Urban Institute Press, 1988).
62 Esping-Andersen (fn. 35,1992) rightly suggests that the development of private pension schemes could encourage such a polarization, since it would allow current workers to sever the link between their own retirement situation and that of the preceding generation. Yet the enormous institutional and political barriers to any radical change in a mature, pay-as-you-go pension system make a major development along these lines highly unlikely. See Pierson (fn. 31).
63 Hinrichs, Karl, “Public Pensions and Demographic Change: Generational Equity in the United States and Germany,” Centre for Social Policy Research Working Paper no. 16/93 (Bremen: University of Bremen, 1993); Schmähl, Winifried, “Die Finanzierung der Rentenversicherung im vereinten Deutschland,” Wirtschaftsdienst, no. 1 (1992).
64 Rüb, Friedbert and Nullmeier, Frank, “Altersiccherungspolitik in der Bundesrepublik,” in Blanke, Berhard and Wollmann, Hellmut, eds., Die alte Bundesrepublik: Kontinuität und Wandel (Opladen: Westdeutscher Verlag, 1991).
65 Webber, Douglass, “Krankheit, Geld und Politik: Zur Geschichte der Gesundheitsreform in Deutschland,” Leviathan 16 (1988).
66 Alber, Jens, “The West German Welfare State in Transition,” in Morris, R., ed., Testing the Limits of Social Welfare (Hanover: Brandeis University Press, 1988); Claus Offe, “Smooth Consolidation in the West German Welfare State: Structural Change, Fiscal Policies, and Populist Politics,” in Piven (fn. 35).
67 Offe (fn. 66), 140.
68 Plaschke, Jürgen, “Die Sozialpolitik in den Monaten November, Dezember 1993 und ein sozialpolitischer Riickblick auf das Jahr 1993,” Nachrichtendienst, no. 2 (1994).
69 Alber, Jens, “The Debate over Long-Term Care Insurance in Germany” (Contribution to an OECD seminar on the Care of the Elderly, Paris, OECD, 1994); Götting, Ulrike, Haug, Karin, and Hinrichs, Karl, “The Long Road to Long-Term Care Insurance in Germany: A Case Study in Welfare State Expansion” (Paper presented at the World Congress of Sociology, Bielefeld, July 1994).
70 Tyll Necker, president of the Association of German Industry (BDl), described the original proposal (which did not include the reduction of one paid holiday as an offset) as an official declaration of war against German industry. Alber (fn. 69), 17.
71 By 2040 pensions are expected to account for 61% of German social expenditure, compared with 40% in Britain and 44% in Sweden. OECD, Aging Populations: The Social Policy Implications (Paris: OECD, 1988).
72 A bourgeois coalition government was in power from 1976 to 1982 and, following the SAP's worst showing in decades in the “earthquake” election of 1991, from 1991 to 1994.
73 Esping Andersen (fn. 1); Esping-Andersen (fn. 35, 1992); see also Swenson, Peter, “Labor and the Limits of the Welfare State,” Comparative Politics 23 (July 1991).
74 Schwartz (fn. 15); Pontusson and Swenson (fn. 19).
75 OECD, Economic Survey: Sweden (Paris: OECD, 1994); Huber, Evelyne and Stephens, John, “The Future of the Social Democratic Welfare State” (Paper presented at the International Sociological Association Meeting, Oxford, September 1993), 7–11.
76 OECD(fn. 75), 36.
78 Stephens, John D., “The Scandinavian Welfare States: Development and Crisis” (Paper presented at the World Congress of Sociology, Bielefeld, Germany, July 1994).
79 Pontusson and Swenson (fn. 19).
80 Huber, Evelyne and Stephens, John, “The Swedish Welfare State at the Crossroads,” Current Sweden, no. 394 (January 1993), 1–7; OECD (fn. 75).
81 Rothstein, Bo, “The Crisis of the Swedish Social Democrats and the Future of the Universal Welfare State,” Governance 6 (October 1993). Rothstein himself argues that weakening middle-class attachment to the welfare state may have contributed to the SAP's 1991 election defeat, but his article provides no real evidence for this claim and the polling data he presents suggest otherwise.
82 Huber and Stephens (fn. 80).
83 Stephens (fn. 78), 19. Ministry of Health and Social Affairs, Pension Reform in Sweden: A Short Summary (Stockholm: Cabinet Office, 1994).
84 Schwartz (fn. 15) argues that there has been major change in the four small states he studies: Sweden, Denmark, Australia, and New Zealand. His study focuses on the internal organization of public service provision, rather than on the level and quality of services actually provided, and it does not even discuss the transfer payments that account for the majority of welfare-state spending. Even on its own narrow terms, however, Schwartz's study provides remarkably little evidence that the changes he catalogs add up to radical reform rather than the continuous tinkering common in all modern public sectors. The evidence looks credible only for New Zealand, a tiny country on the periphery of the world economy, which clearly faced severe adjustment problems in light of its long (and unusual) tradition of protectionism. It seems far more reasonable to treat this case as an outlier than to view it as the pacesetter in a global march toward radical reform of the welfare state. See Stephens, Huber, and Ray (fn. 38).
85 Indeed, a cross-national comparison of unemployment programs provides further support for this analysis. The OECD has measured replacement rates for UI (benefits as a percentage of previous income) over time in twenty countries, with data through 1991. This data thus permit, for one program, a recent quantitative appraisal of program generosity rather than simply spending levels. In the majority of cases (twelve out of twenty), replacement rates were higher in 1991 than the average rate for either the 1970s or the 1980s, while most of the other cases experienced very marginal declines. Organization for Economic Cooperation and Development, The OECD Jobs Study: Facts, Analysis, Strategies (Paris: OECD, 1994), chart 16, p. 24.
86 See David, Paul, “Clio and the Economics of QWERTY,” American Economic Review 75 (May 1985); and Arthur, W. Brian, “Competing Technologies, Increasing Returns, and Lock-In by Historical Events,” Economic Journal 99 (March 1989), 116–31. For good extensions to political processes, see Krasner, Stephen A., “Sovereignty: An Institutional Perspective,” in Caporaso, James A., ed., The Eluaw State: International and Comparative Perspectives (Newbury Park, Calif.: Sage Publications, 1989); and North(fn.20).
87 Thus in Germany, Sweden, and the United States the maturity of existing schemes limited policymakers to very gradual and incremental reforms ot earnings-related pension systems. More dramatic reform was possible in Britain because the unfunded earnings-related scheme was far from maturity, having been passed only in 1975. Pierson (fn. 31).
88 For an example of this argument, see Garrett (fn. 41).
89 For an argument about how EC institutions may allow blame-avoiding behavior on the part of member state governments, see Moravcsik, Andrew, “Why the EC Strengthens the State” (Manuscript, 1994).
90 Kuttner, Robert has called this “the most fundamental principle in the political economy of social spending.” Kuttner, “Reaganism, Liberalism, and the Democrats,” in Blumenthal, Sidney and Edsall, Thomas Byrne, eds., The Reagan Legacy (New York: Pantheon, 1988), 113. For a critique, see Pierson (fn. 12), 6, 170.
91 See Pierson (fn. 12), 17–26, 169–75.
92 Steinmo, Sven, Thelen, Kathleen, and Longstreth, Frank, eds., Structuring Politics: Historical Institutionalism in Comparative Analysis (Cambridge: Cambridge University Press, 1992).
* I am grateful to the Russell Sage Foundation for financial and administrative support and to Miguel Glatzer for considerable research assistance, as well as helpful comments.
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