Inclusive Institutions and Civil Society Engagement

Acemoglu and Robinson begin Why Nations Fail with an intuitive tale of two cities, bearing the same name of Nogales, north and south of the border between the United States and Mexico.Footnote ⁹ Comparing household incomes, life expectancy, and educational attainment, the citizens of Nogales in Arizona do much better than their Mexican neighbours. This contrast, amid similarities in climate, geography, and ethnicity, inspires their research question: what factors determine whether a country is poor or prosperous? While adducing immense amounts of empirical material across place and time – and conceding that any complex social phenomenon must have multiple causes, they nonetheless privilege, as economists, a parsimonious explanation of the deeper logic of long-term economic and political change. For them, a successful theory does not have to faithfully represent all relevant historical facts and contingencies, but rather it should provide an empirically grounded argument about the main drivers of development and clarify the principal causal mechanisms.Footnote ¹⁰

What determines comparative prosperity and poverty? Abstracting from the maze of historical and geographic idiosyncrasies, Acemoglu and Robinson argue that it is all about the institutions embodying the rules of the game for politics and economics. They distinguish between “inclusive” and “extractive” institutions, their variance determined by politics. Inclusive institutions revolve around the rule of law and effective property rights, on the one hand, and civil liberties and equal political representation, on the other. This liberal institutional configuration allows the great majority of citizens to make the best use of their talents and skills, to enjoy access to education and healthcare, and to engage effectively in the economy. Voting rights in free elections, moreover, grant a say in policy developments. Inclusive institutions fundamentally require an effective state, not only to enforce law and order, protect private property and contracts, and exert anti-trust scrutiny, but also to provide essential public services, most importantly in education and health. According to Acemoglu and Robinson, inclusive institutions have a positive effect on economic development, as they foster the seamless diffusion of new technologies, while making it politically easy to achieve consensus on policy and reforms with high public support. Inclusive institutions prevail in the advanced liberal democracies of the European Union, North America, and Australasia.Footnote ¹¹

Extractive institutions, by contrast, concentrate economic and political power in the hands of small elites, who, in the absence of civil and political freedoms, experience very few constraints as they appropriate large shares of the country’s economic surplus at the expense of the majority. Without social mobility, there are few incentives for ordinary families to invest in their offspring, and this translates into suboptimal economic performance. Extractive institutions can be found in Russia, South America, Africa, and Asia, where conflicts over scarce resources easily feed into civil war.Footnote ¹²

Once institutions, whether inclusive or extractive, are in place, they tend to persist through path-dependent feedback loops.Footnote ¹³ Extractive institutions, although reinforcing poor economic performance, enrich elites with the means to consolidate their dominance. Inclusive institutions, conversely, contribute to sustained growth by fostering innovation, while political alternation is premised on the idea that proponents of rival policies are self-interestedly responsive to large electorates. Institutional configurations are stable until they reach a so-called critical juncture, often brought about by war or economic crisis, which provides a window of opportunity for political change to bring about institutional reform, transforming the rules of the game. Acemoglu and Robinson believe inclusive institutions to be more stable overall, because predictable markets and legitimate political compromises endow an investment-friendly environment for businesses and offer aspirational voters, caring about education and job opportunities for their offspring, a sense of optimism. By comparison, extractive institutions are inherently more unstable, particularly when they do not improve life chances for most of the population, as they require ever more intrusive and costly political impositions.

At critical junctures or revolutionary moments, relatively small shifts in political power can unleash major change. The Glorious Revolution of 1688 is a case in point, relocating power from the king to Parliament, opening up the political system to wider sections of society. This marked the beginning of inclusive institutions in Britain, its example later followed in North America and Australasia.Footnote ¹⁴

In their follow-up study published in 2019, The Narrow Corridor, again embracing a wealth of historical detail, Acemoglu and Robinson focus more explicitly on how successful nations sustain liberty and democratic values and keep despotic state intervention in the economy at bay.Footnote ¹⁵ Their more complex theoretical argument is that long-run success critically depends on a fine balance between effective state intervention and active civil-society engagement in public affairs: “strong” states require “strong” societies.Footnote ¹⁶

In his Leviathan, published in 1651 during the English Civil War, Thomas Hobbes suggested that maintenance of public order entailed that the denizens of an atomized society should voluntarily surrender their rights to an authoritarian power to pre-empt the “war of all against all”.Footnote ¹⁷ Acemoglu and Robinson side rather with John Locke’s more benign Two Treatises of Government, published in 1689, which argued that civil society could constrain state despotism through the constitutionalization of individual liberties.Footnote ¹⁸ They refine Locke’s notion of liberty in terms of emancipation from subordination, reaching beyond “negative” freedom to choose under the rule of law to “positive” freedom for citizens to flourish in the economy and society. They observe, however, that the “corridor” of liberty is extremely narrow and their book details a plethora of failures.

Repeatedly, they identify the conundrum as to who controls and monitors state capacity and how that capacity can grow in tandem with individual freedom. This requires a “shackled” state, where countervailing civil society organizations restrain its authority. This does not, however, invalidate the welfare state. Acemoglu and Robinson recall von Hayek’s 1944 pamphlet against the Beveridge Report,Footnote ¹⁹ envisaging that the welfare state would inescapably herald a new Leviathan. Yet, if its expanding power is effectively balanced by social forces, actively monitoring state intervention, liberty survives, as the advanced welfare states show.

The authors focus on the ambitious Swedish case. Already in the interwar years, Sweden increased the state’s capacity to regulate the labour market and income distribution. After the Swedish Socialist Party (SAP) shed its Marxist roots and received close to forty-two per cent of the popular vote, the farmers’ party was willing to enter a coalition government in 1928. By 1936, the government coalition reached out to representatives of business, trade unions, and farmers, paving the way for the Saltsjöbaden Accord, supporting the welfare state in exchange for cooperative labour relations. After World War II, the so-called Rehn-Meidner model – developed by two economists at the Swedish trade-union confederation and centred on solidaristic wage bargaining – turned Sweden into a high-wage, high-productivity economy. By the 1970s, maternity leave and free childcare, together with a further expansion of education, supported high female participation in employment. Throughout this long sequence of social policy reform, Acemoglu and Robinson emphasize how progressive state intervention was parallelled by a deepening of democracy and an extension of civil society involvement, with a central role for trade unions and employers’ organizations in many welfare policies and labour-market programmes.

States and societies are not mutually independent structures. Throughout history, civil society organizations and protest movements have defined themselves strategically in the context of governance arrangements. Nor do states merely respond to the demands of social groups: they also shape their interests through policy and consequential collective action. The intermediary fabric of parliaments, electoral systems, advisory bodies, and so on, connecting states and civil society, frames processes of coalition-building and decision-making. Not only does a welfare state require political and social consent, but an interventionist welfare state, such as in Sweden, accords status to societal interests, particularly organized business and labour, in governing the economy. Yet, if this conjures up an image of a semi-sovereign state, it is not a weak one.

International political economy bears heavily on the Swedish success, which also applies to comparators such as Austria, Belgium, Denmark, the Netherlands, and Switzerland. These small economies are essentially “price takers” in the global economy. Large economies, such as the US, France, and Japan, can – or, rather, could in the past – more easily export the costs of change through protectionism or ambitious industrial policies in support of national champions. This was never an option for the small economies of Western Europe. They are heavily reliant on imports and exports. Small domestic markets incentivize open economies to seek a competitive export advantage through product specialization and economies of scale. Being forced to live with economic change, the small nations of Western Europe have been at the forefront with welfare policies compensating for the existential imperative of economic flexibility. Through comprehensive welfare, sustained dedication to market discipline and international liberalization is rendered socially acceptable and politically legitimate, according to the political scientist Peter Katzenstein.Footnote ²⁰ Throughout the second half of the twentieth century, all small European polities developed a carefully calibrated balance of economic flexibility and social compensation, in close cooperation with trade unions and employers’ organizations, reminiscent of the power-dualism of the pre-modern guild and Ständestaat institutions.Footnote ²¹

The Narrow Corridor was published in the US during Donald Trump's first administration, and this is reflected in its conclusion. Acemoglu and Robinson affirm the power of economic globalization and digital technologies for prosperity, but in the American context this has resulted in a widening gap between workers at the bottom of the earnings distribution and those at the top. In addition, the deregulation of finance has emboldened the political power of the extremely rich top one per cent and top 0.1 per cent of the income distribution. Rising inequality, stagnant wages, and the concentration of wealth have, unsurprisingly, been parallelled by loss of trust in political institutions and the success of right-wing populism. Drawing on the Swedish formula, Acemoglu and Robinson advocate a more comprehensive US social safety net, extended collective bargaining, help for workers to make the transition from old to new jobs, improved training and education, expansion of research and development, and more readily available healthcare. All this requires a much stronger federal state, and a more independent civil service, to counter private capture by Wall Street and the technology giants of twenty-first-century capitalism – which is where the work of Torben Iversen and David Soskice and, especially, Thomas Piketty gains portent.

The Significance of Aspirational Voters

Democracy and Prosperity: Reinventing Capitalism through a Turbulent Century, by Iversen and Soskice,Footnote ²² is an impressive achievement, challenging the widespread belief that advanced capitalist democracies are abandoning middle-income workers and families. As with Acemoglu and Robinson, they present an optimistic view of a symbiosis between capitalism and democracy. For the turbulent twentieth century, their dynamic account pays attention to technological change and the political actors and interest organizations supporting markets and democracy. Central is the economic importance and political mobilization of skilled workers. In the post-war era of Fordist industrial production, organized labour acquired an important voice in the governance of advanced capitalism and the welfare state, which, in turn, entrenched its policymaking influence. Fordism thus represented an inclusive system, where democracy and capitalism were stably and mutually reinforcing, epitomized by prolonged male-breadwinner full employment.

The shift to a knowledge-based economy from the 1990s, facilitated by the revolution in information technologies, has been associated with job polarization, higher unemployment, and greater income inequality. Since the turn of the century, groups losing out due to this skill-biased technological change seem increasingly to be swayed by right- and left-wing populism. Yet, Iversen and Soskice do not believe this will uproot the equilibrium of capitalism and democracy, for two reasons.

First, contrary to popular belief, large multinational enterprises in the informational economy are not footloose. Amid this immobility of leading firms, nation states have remained strong in advanced capitalist democracies. Knowledge-based firms rely heavily on immobile clusters of expertise and skills in major metropoles – such as Amsterdam, Barcelona, Dublin, London, and Stockholm – where affluent, high-skill workers and families prefer to live. Public education and welfare services help cement the symbiosis of capitalism and democracy, serving middle- and upper-middle-class constituencies and aspirational voters who seek to join them.

Secondly, Iversen and Soskice maintain that when they do enter government, populist forces do not uproot the system: constituencies of “left-behind” communities, albeit significant, remain too small to disrupt advanced capitalism and democracy. With respect to governance and the rule of law, however, things look more serious. The second Trump presidency seems to effectively align anti-democratic sentiments among “losers of globalization” with those of “globalization winners” – embodied by the initially powerful Elon Musk – in a Faustian cocktail of trade tariffs, forced “remigration”, deregulation, tax cuts, and extremely high public debt.

However much I share (see below) the way Iversen and Soskice understand capitalism and democracy in fundamentally symbiotic terms, I take empirical and theoretical issue with anchoring this so narrowly on aspiring middle-class electorates. The proper functioning of an informational economy depends not only on knowledge workers, but also on many low- to mid-skilled workers, including in services, while large sections of the labour force work in the welfare state – childminders, teachers, doctors, and nurses among them. Given their numbers, these skill and sectoral groups have a strong political voice, largely favouring the staying power of a more inclusive welfare state, rather than one that only services knowledge-worker households in post-industrial capitals. Meanwhile, if not threatening to actually leave any advanced capitalist democracy, the political power of business is concentrated on lobbying for deregulation, tax cuts, and oligopolistic protection.

A hidden argument in Democracy and Prosperity should not be overlooked. At the beginning of the twentieth century, various electoral systems were adopted for extended franchises. Many countries of Western Europe – such as Denmark, Finland, the Netherlands, Norway, and Sweden – chose forms of proportional representation. In hindsight, these systems, requiring coalition governments, favoured cooperation between organized capital and labour, more generous welfare, solidaristic wage policies, and strong vocational training, paid for by progressive taxes, with lower income inequality persisting until today. More majoritarian, winner-takes-all electoral systems – such as in France, the United Kingdom, and the US – led to single-party governments for which cooperative relations with trade unions and employers’ associations, with respect to social security and vocational training, were dispensable. Unsurprisingly, majoritarian systems feature higher income inequality and seem more prone to populism. Building on an earlier argument,Footnote ²³ Iversen and Soskice argue that proportional systems clearly incentivize conservative Christian Democratic parties to form coalitions with (moderate) Social Democratic parties, historically resulting in more inclusive welfare states. Apparently, the non-reversibility of electoral rules and associated party systems carry major consequences for democracy, capitalism, and the welfare state.

Rising Inequality and Its Political Correlates

For Thomas Piketty, inequality is the core social problem of early twenty-first-century capitalism, epitomized by an unfettered concentration of income and wealth. In Capital in the Twenty-first Century, he showed how, over decades, a rate of return on capital greater than the rate of growth (“r > g”) had seen wealth accumulate at the very top of the distribution.Footnote ²⁴ Ever-growing inequality then becomes an unavoidable structural component of advanced capitalism – challenging, in the long run, the viability of democracy. In line with the work of the late Tony Atkinson,Footnote ²⁵ and along with collaborators Emmanual Saez, Gabriel Zucman, and Lucas Chancel, Piketty has done a tremendous job in bringing inequality, and particularly the distribution of wealth, to everyone’s attention.

In contrast to Acemoglu and Robinson, and Iversen and Soskice, for Piketty, twenty-first-century capitalism conjures up an “extractive” institutional order. In Capital and Ideology, Piketty turns to historical explanations of why different forms of inequality have persisted across time – although there is nothing natural about it.Footnote ²⁶ Its maintenance requires political power, whether exercised through brute suppression or polished institutions capable of providing inequality with a veneer of legitimacy. Bringing to light the succession since the late Middle Ages of “inequality regimes”Footnote ²⁷ across the globe, the geographical reach and temporal scope of Capital and Ideology is immense.

For reasons of space, below I focus mostly on Piketty’s assessment of the relative success of mid-twentieth-century advanced capitalism in containing inequality from the late 1940s to the mid-1970s, and its political failure to continue doing so from the 1980s onwards.Footnote ²⁸ Defining an inequality regime as “a set of discourses and institutional arrangements intended to justify and structure the economic, social, and political inequalities of a given society”,Footnote ²⁹ Capital and Ideology revolves around two important research questions. First, how do societies justify inequality? Secondly, under what conditions do inequality regimes break down and ultimately make room for an alternative set of ideas, around which novel regimes become institutionalized and gain staying power?

As with Acemoglu and Robinson, Piketty pays careful attention to the interplay between, on the one hand, economic rules delineating possible forms of ownership and legal and practical procedures for “regulating property relations between different social groups” and, on the other, political “rules describing the boundaries of community and territory, and the mechanisms of collective decision-making, and the political rights of members”.Footnote ³⁰ These two sets of rules form the institutional foundations of inequality regimes across time – again, akin to Acemoglu and Robinson, critical junctures are important, as wars, revolutions, and deep economic crises provide windows of opportunity for their breakdown and replacement. Falling inequality in Europe between 1914 and 1970 was inextricably bound up with the two World Wars, the Bolshevik Revolution of 1917, and the Great Depression of 1929. Piketty attributes about a third of the collapse in the stock of private wealth to war-related destruction. The remaining two thirds, he contends, was the result of a deliberate and durable political deconcentration of private wealth, through progressive taxation, expropriations, and various restrictions on returns to capital.

Yet, against the backdrop of the egalitarian success of post-war capitalism, Piketty presents the expansion of the modern welfare state, accompanying the abatement of inequality, as something of a political failure.Footnote ³¹ He blames mainstream social democracy for not pushing to redefine property relations and taxation regimes more radically after 1945. However, his preoccupation with vertical redistribution of ownership obstructs a fair assessment. The post-war welfare state provided workers and their families with insurance against capitalist market volatility through income protection in the advent of unemployment, sickness, and old age, while minimum-wage legislation and job protection significantly improved working conditions. Access to education and healthcare became universal. All these novel interventions greatly contributed to curbing inequality, far beyond the progressive taxes that helped pay for this historical breakthrough. The key political objective of the post-war welfare state was (male) full employment to overcome Beveridge’s great evils, of want, disease, ignorance, idleness, and squalor – not vertical redistribution per se.

Consistent with his zero-sum distributive outlook, Piketty meanwhile also ignores the successes of Keynesian counter-cyclical macroeconomic management to foster full employment, underwritten by inclusive social security. In this context, Iversen and Soskice add that today large portions of the wealth Piketty attributes to greater inequality come in the form of housing and pensions, owned in large quantities by the lower and middle classes. This, then, brings us to the post-1980s politics of rising inequalities.

Piketty’s historical account of this latest episode is, in comparison with the rest of the 1,000-page monograph, rather narrow in comparative scope. He selectively focuses on the US and the UK, where inequality has, indeed, increased quite dramatically. The only continental European case he describes in any depth is France. Yet, similarly generous European welfare states – such as Finland, France, Germany, Italy, Norway, and Sweden, which all devote between twenty-six and thirty-one per cent of GDP to public social expenditure – perform strikingly differently in terms of growth, unemployment, female employment, gender equity, income equality, intergenerational social mobility, and fiscal sustainability. Finland, Norway, and Sweden perform well in terms of employment, poverty, and robust public finances. Other big welfare spenders, such as Belgium and France, do well in terms of redistribution, but underperform with respect to employment and fiscal sustainability. Most problematically, Southern European countries fall short on all objectives: they preside over low (female) employment, high inequality, and large public debt, despite sizeable welfare expenditures. This underlines that welfare state design is crucial and, by implication, that taxation and aggregate social spending indicators are not sufficiently illuminating in themselves.

In conclusion, Capital and Ideology outlines a comprehensive vision of what Piketty calls “participatory socialism”, proposing reform of the taxation of wealth, capital, and international transactions, within-firm worker codetermination, educational vouchers, and cash transfers – one recommendation is a “wealth grant” as a one-time lump sum for everyone. He provides ample information on how to collect taxes better, but leaves the reader wondering about how precisely to deploy tax revenue. The Nordic countries’ experience underscores that a policy mix of income protection, unemployment and sickness benefits, pensions, capacitating services in childcare, parental leave, active labour market and rehabilitation policies, housing, and flexible retirement generates distributive success.Footnote ³² Piketty’s narrow focus on redistribution of high incomes and wealth leaves a blind spot of country-level variation at the lower end of the income distribution. Sweden probably does not underperform compared to the US, in terms of number of millionaires per capita, but life chances at the bottom end of the stratification ladder are far superior.Footnote ³³ In passing, Piketty acknowledges that “Sweden remains more egalitarian than other countries”Footnote ³⁴ but declines to consider seriously why this is so.

Moving on to the political correlates of the rising tide of inequality since the 1980s in advanced liberal democracies, Piketty notes that in prior post-war decades all classes had voted in roughly equal numbers. From around 1990, however, turnout among the disadvantaged classes dropped dramatically. Political competition turned into a contest between elites, which Piketty calls the Brahmin Left versus the Merchant Right.Footnote ³⁵ More educated voters became the core constituency of the left while the right catered to rich voters, leaving the disadvantaged out in the cold. According to Piketty, redistribution ceased to be a political priority for any mainstream party. In recent years, insecure voters have turned to populist leaders promising to counter immigration and introduce anti-globalization trade protection, as Trump pledged. Piketty suggests that parties on the left should return to their original materialist agenda of defending the disadvantaged. Such a strategy however belittles highly consequential structural changes in economies and societies, relating to the shifts from post-war industrial production to the post-industrial knowledge economy and, in terms of demography, from the post-war baby boom to population ageing.

Piketty’s singular focus on vertical redistribution unwittingly stands in the way of forging a strong political coalition to rein in inequality effectively. For any redistributive and capacitating policy agenda, broad-based political support is a sine qua non. In this context, the sheer expansion of education over past decades implies that the composition of the educated classes has altered significantly. In the 1950s and 1960s, educated voters were high-paid professionals, such as lawyers, bankers, and doctors. Today, educated voters in knowledge economies have diverse professional backgrounds and many do not earn the highest wages. But they have pensions and own houses and therefore have a political interest in policies helping to secure and increase the value of these assets and thus require from politics competence in governing the economy. The corollary is that while there used to be a natural affinity of educated voters with conservative parties, this is no longer the case per se. Another consequence of the transition to the knowledge economy is the growth of the service sector and, alongside that, increased female employment. While male industrial workers in the past were highly unionized, service sector workers, especially those in low productivity and low-wage jobs, are more diverse and therefore more difficult to organize.Footnote ³⁶ Today, progressive coalitions of Social Democratic, new Green, and left-liberal parties must take heed of gender as well as environmental concerns in their policy platforms.Footnote ³⁷ More importantly, effective political support across income groups today depends more on concrete policy choices than on an elusive promise of progressive taxation.

Capital and Ideology is a monumental book, tracing numerous inequality regimes and their change across history, underpinned by impressive historical detail drawing upon laborious and meticulous research. Yet, unlike Acemoglu and Robinson, Piketty does not really elaborate on theoretical assumptions or the implications of social change for his analysis. Despite the overwhelming historical evidence that he presents, there is little effort to abstract more causal explanations from the numerous cases of regime change. In social science jargon, Piketty can be accused of “selecting on the dependent variable” – of looking for ideologies of economic inequality in places of economic inequality, without taking into consideration alternative findings and competing explanations.

With his two important and enormous books, published within the span of just over five years, Piketty has emphatically put distributive fairness back on the political agenda. Numerous reports from the OECD,Footnote ³⁸ a former cheerleader of market-liberalizing “structural reform”, today single out inequality as the economic ill of our times. In the background, Piketty has surely played an important role in this volte-face. Yet, behind his call to radically “transcend” capitalism, targeting the top ten per cent of the wealth and income ladder, lies a deep misunderstanding of the welfare state. If, as we should, we include public education and healthcare, the modern welfare state is arguably the greatest equalizer of all time. The sociological complexities of inequality, disadvantage, precarity, and insecurity have many sources, which cannot be reduced to property relations as in the nineteenth century. They result from the family circumstances into which we are born. They are shaped by the changing social risks to which we are exposed and the decisions we make over the course of our lives. They are affected by economic change and by employment and investment decisions by firms. Finally, and most prominently, they are moderated by public-policy choices, including taxes, but mostly by welfare policies enacted by representative governments.

At the heart of the progressive project out of which the modern welfare state was born lay a commitment to civilize capitalism, not to overturn it – to make of apparent equity-efficiency trade-offs positive synergies among high employment, inclusive social services, quality healthcare and education, and fair income distribution. This requires us to complement Piketty’s advocacy of egalitarian taxation with better diagnoses of social misfortune across time and concrete policy innovation on minimum wages, labour-market regulation, social security, pensions, family policy, active-labour-market policies, and rehabilitation programmes. This requires a reconstruction of history in terms of the politics of social policy change, as against the distributive consequences of inequality regimes. That is what the monograph by Ayşe Buğra provides.

The Politics of Social Policy Emancipation

Buğra’s well-crafted, empirically rich, and wonderfully written monograph, Social Policy in Capitalist History: Perspectives on Poverty, Work and Society, concisely examines – in a mere 200 pages – the intimate ties that bind capitalist expansion and social policy in modern history.Footnote ³⁹ Rather than presenting an historical account of policy practices from sixteenth-century poor houses to fully fledged twentieth-century welfare states in rich democracies, Buğra focuses on the cumulative impact of transformative policy ideas at moments when political authorities were confronted with social destitution and economic crisis.

Inspired by the Hungarian polymath Karl Polanyi’s magisterial The Great Transformation Footnote ⁴⁰ of 1944, on the rise of the capitalist market economy in England in the nineteenth century, Social Policy in Capitalist History covers a longer period, going back to the fifteenth century, while spanning Western Europe.Footnote ⁴¹ Buğra distinguishes between two drivers in the dialectic of expanding market capitalism and progressive welfare. On the one hand is the unbounded expansion of markets, with its destructive impact on households and families and on social cohesion at the macro-level. On the other hand, such predicaments engender various political counter-mobilizations, bringing forward emancipatory policies constraining and embedding markets, in Polanyi’s terminology, to maintain social and political order in hard times. Throughout the history of capitalism, the proliferation of “free labour”, accompanied by vagrancy, famines, economic crises, riots, and revolutions, has forced political authorities to tame the capitalist Prometheus with protective social legislation. Ever more commodification was countered by protective “decommodification”, culminating in the modern welfare state, upholding social citizenship rights rather than providing charity.

The volume is structured around four historical chapters, bookended by a theoretically astute introduction and a more forward-looking conclusion, reflecting on the legacy of the Great Recession and the coronavirus pandemic. The introduction underscores the lasting relevance of Polanyi’s insights.Footnote ⁴² Although Polanyi, like Marx, underscores the class nature of social change, his perspective is more voluntarist and less deterministic, in the sense that political authorities throughout history have intermittently proposed different forms of social protection in response to the political problems and popular demands generated by Schumpeter’s creative destruction. As capitalist expansion came along with rising poverty, migration, child labour, skill degradation, and unemployment, these conditions inspired new norms around deservingness, merit, and gender, and a plethora of practical ideas on how to improve working conditions and extend social protection, coming from different political directions. Often, market-decommodifying breakthroughs were only feasible when political compromises were reached beyond the narrow confines of class interests, via wider appeals to equality and fairness and cognitive understandings of managing the economy and social security. Such ideas proved particularly relevant when policymakers were confronted with the political correlates of social problems in tough economic times.

The core strength of Buğra’s book lies in her historically grounded portrayal of how ideas, values, and conceptualizations, prompted by concrete challenges of political order, inspired social policy innovation. How the sixteenth-century humanist Thomas More and the early-twentieth-century economist Alfred Marshall problematized inequality on similar grounds is particularly revealing. Another elective affinity conjoins the Spanish–Belgian early-sixteenth-century theorist Juan Luis Vives, the late-nineteenth-century German Chancellor Otto von Bismarck, and the mid-twentieth-century founding father of the British welfare state, William Beveridge – all three associated intrusive poverty with political instability. By the same token, employment degradation worried Adam Smith in the late eighteenth century, prefiguring Harry Braverman and Richard Sennett in the twentieth. Advocacy of a universal basic income today by Philippe van Parijs, and Piketty, can be traced back to the French Revolution and Thomas Paine in America. No less fascinating is the constant reminder that social policy progress is constantly challenged by reactionary writers – from Daniel Defoe in the eighteenth century to Alexis de Tocqueville in the nineteenth and von Hayek and Milton Friedman in the twentieth – in the belief that interventionist policies undermine the efficient functioning of markets and social cohesion.

In the late Middle Ages, there was an upsurge in Christian charity institutions, including orphanages, hospitals, and schools. By the sixteenth century, assistance to the poor became a public responsibility of cities. Changes in rural and urban economies increased poverty and, by the fifteenth century, this proved difficult for the church and private charity to address. Urban insurrection and vagrancy pressed municipalities to step into the breach. Poverty relief affected normative lexicons, distinguishing between the “deserving” poor of the elderly and sick and the “undeserving” poor of beggars and vagrants. Helping the poor became increasingly tied to the obligation to work, as advocated by Martin Luther in Germany and Vives in Belgium and Spain. Across the channel, More claimed more generally in his Utopia that a good society was one where the poor were not living in destitution.Footnote ⁴³

Over the course of the eighteenth century, municipal poor relief gradually broke down in Britain, requiring more intrusive public interventions, ultimately culminating in the New Poor Law of 1834. Bernard Mandeville lashed out against what he claimed to be excessive charity on the part of the rich, in terms of their pride and vanity, to the detriment of industry. Smith and Locke were less sanguine.Footnote ⁴⁴ Buğra underscores that Smith is often wrongly represented as the progenitor of laissez-faire markets and limited government. Akin to More, Smith argued in The Wealth of Nations and The Theory of Moral Sentiments that a society where large swathes of the population lived in poverty could not be flourishing or happy. He also worried about skill degradation in factory work and advocated more education for the poor.Footnote ⁴⁵ For Locke, the right to equal freedom – including to the fruits of one’s labour – should be bounded by a right to subsistence, tied to the obligation to work.Footnote ⁴⁶

In the aftermath of the French Revolution, the old preoccupations with poverty relief and the obligation to work gradually gave way to a language of rights. Paine advocated non-conditional cash transfers as a matter of universal rights, prefiguring more modern debates about a universal basic income. Mary Wollstonecraft added the gender dimension to equal civil and political rights, while underlining the potential of education to advance social mobility.Footnote ⁴⁷ Meanwhile, conservative thinkers, such as Edmund Burke in England and de Tocqueville in France, clung to charity as a quintessential Christian duty, best left to private discretion and voluntary organization. They counselled that where and when the state provided poverty relief the moral ties that bound rich and poor would be severed and social cohesion break down.Footnote ⁴⁸

With the Industrial Revolution, public attention shifted from a preoccupation with poverty to concerns about working conditions. In Britain and France, legislation was introduced to limit the length of the working day and child labour was outlawed. None of these breakthroughs was accepted without widespread resistance. Karl Marx was impressed by how the labour movement had won these changes. However, he envisaged that technological progress would nonetheless create an “industrial reserve army” of the unemployed, effectively keeping wages down and working conditions poor.Footnote ⁴⁹

By the late nineteenth century, concerns about working conditions gave way to the strong push for universal suffrage. Conservatives feared that the universal right to vote would release the non-propertied classes to make laws, ushering in an ever-expanding budget for redistribution that would stifle economic progress, most likely resulting in tyranny. In an original Polanyian counter-movement, in Germany the rise of the industrial working class as a political force brought Bismarck to introduce social insurance as a strategy precisely to pre-empt universal suffrage.Footnote ⁵⁰ Buğra acknowledges though that belief in a self-regulating market economy “disembedded” from society never really gained currency in Germany, given the influence of such thinkers as Friedrich List and Gustav von Schmoller.Footnote ⁵¹ With or without universal suffrage, work-injury compensation quickly followed in Belgium, Denmark, the Netherlands, and Switzerland. Marx, however, remained sceptical about the transformative nature of social insurance without taking over the means of production through a socialist revolution.

In the early decades of the twentieth century, further extensions of social legislation, including in the areas of labour regulation, old age pensions, and general education, could not buffer the gigantic economic and social disruption caused by the 1929 financial crash. As the Great Depression paved the way for World War II, belief in self-regulating markets, separate from politics and society, took a severe beating. The social right to economic security became an integral part of post-war citizenship regimes. New insights in macroeconomic stabilization with social insurance brought an awareness that employment and income protection were not in conflict with growth and political stability, ushering in a mixed-economy welfare capitalism.Footnote ⁵² Post-war government intervention, premised on full-employment Keynesian economics, was strongly supported at the international level by the newly founded Bretton Woods institutions of the International Monetary Fund, the World Bank, the OECD, and the General Agreement on Tariffs and Trade. The memory of the Great Depression, World War II, and the Holocaust cemented the belief that a vibrant democracy required not just civil and political rights but also social-citizenship rights, echoing Smith’s eighteenth-century contention that no society could survive without social justice. As I have noted, though,Footnote ⁵³ the Keynesian welfare state, however progressive in design, was conservative in intent in the quest for political stability. For managing full employment, organized labour and capital became key interlocutors in systems of national social partnership. In general, there was a widespread political consensus that the welfare state put in place something positive in advanced democracies.

The golden age of post-war welfare capitalism and sustained growth was not to last. From the late 1970s, old ideas about the incompatibility of progressive taxation with inclusive social protection and a thriving economy resurfaced with a vengeance. In economics, von Hayek and Friedman, arch critics of the welfare state, received Nobel Prizes, true to the spirit of the times, in 1974 and 1976, respectively.Footnote ⁵⁴ On the left, the Marxist political theorist James O’Connor invoked an impending fiscal legitimacy crisis of the welfare state. Richard Sennett and Jonathan Cobb exposed the hidden class anxieties behind the post-war economic miracle, whilst Harry Braverman lamented the deskilling of labour associated with Taylorist managerial control.Footnote ⁵⁵ Politically, the neoliberal critique carried the day, bringing Margaret Thatcher and Ronald Reagan into prolonged periods of power spanning the 1980s and beyond. By the mid-1990s, the IMF, the World Bank, and the OECD signed up to the new Washington Consensus, premised on hard currencies, sound budgets, market liberalization, and welfare retrenchment. The establishment of the World Trade Organization in 1995 launched a new phase of globalization. With the fall of the Berlin Wall in 1989, capitalism as an economic system no longer had any serious political rival.

In her analysis of the neoliberal moment, from the early 1980s to the 2008 Great Recession, a sense of powerlessness and pessimism creeps into Buğra’s narrative.Footnote ⁵⁶ If countries were to prosper in the new epoch of economic internationalization, the margins for progressive counter-movement were considerably narrowed. Partisan differences disappeared in the political centre, forcing centre-left governments, often compelled by international organizations – including the EU – to pursue liberalizing reforms. Unmistakably, these have increased inequality and poverty in the US and UK, but also in Sweden, although the latter comes from a high social plateau. Yet, this is less true of Austria, Belgium, France, and the Netherlands. According to Buğra, social reform can be adaptive but no longer transformative, and, politically, this plays into the hands of right-wing populism. Unquestionably, recession in the 1970s and 1980s enforced limits on welfare-state growth, and many governments, including left-leaning coalitions, introduced painful retrenchments and cost controls, while fighting inflation as the perceived overriding economic priority. Nevertheless, policymakers in rich democracies did not give up on what had been achieved. Social insurance programmes prevented growing numbers of unemployed workers and their families from falling into destitution. Social spending continued to grow, albeit at a slower pace. The welfare state was certainly not dismantled.

Arguably, the welfare state came back with a vengeance during the turbulent times of the Great Recession and the pandemic. Indeed, the reason we refer to the Great Recession (2007–2014) is that a rerun of the Great Depression of the 1930s was avoided, precisely because mature European welfare states absorbed the social aftershocks of the initial downturn well. This is where Peter Lindert’s latest book, Making Social Spending Work, published in 2021, provides important insights on the enduring economic proficiency and political staying power of the welfare state.Footnote ⁵⁷

Buğra has written an eminently welcome study of the forces shaping social policy throughout history, from the fifteenth century to the twenty-first. However, a separate chapter on ideas of the role of the state in the history of social expansion could have added even more depth to a very informative and highly readable book. Where and when social policies become more ambitious, questions of public administration and policy implementation loom large. Most work on the making of the modern welfare state is noticeably “society centred”, emphasizing organized interests of labour and capital and/or political cleavages, mobilizing parties on the left and the right. Yet, prior legacies shape the organization of the modern welfare state.

French indicative planning follows from a dirigiste interventionist tradition going back to the ancien régime. The British or Anglo-Saxon state tradition, by contrast, prioritizes marketization and local administration. What liberal England and Jacobin France have in common is perceiving civil society associations as corrupting. Jean-Jacques Rousseau looked upon guilds and churches as dangerous associations partielles, prefiguring the Chapelier laws. In line with the British state tradition, Smith famously argued in The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”Footnote ⁵⁸ In Protestant Denmark, northern Germany, and Sweden, faith-based organizations remained important in welfare provision. In these countries, pre-modern Ständestaat traditions survived the rise of the absolutist state in the sixteenth century and the liberal revolutions of the mid-nineteenth. In sum, the administrative origins of the best-run welfare states today appear to lie not in interventionist largesse but in pre-modern corporatist traditions of shared political space.

The Primacy of Egalitarian Public Spending

Lindert’s original and masterful monograph, much in agreement with Buğra, testifies in its introduction that human societies have always organized solidaristic support structures for those in need, because of unlucky endowments, personal mistakes, or hard economic times.Footnote ⁵⁹ In the longue durée of building orphanages, hospitals, schools, and workhouses, and, moreover, subsequently providing for economic security through social insurance and income support, societies discovered through trial and error that welfare support comes with many positive externalities: smoothing consumption; mitigating poverty; developing and maintaining human capital; containing unemployment; and ensuring macroeconomic stability. Lindert’s book is a tale of social progress, explaining why social spending has increased everywhere to leverage inclusive growth. It embraces progressive history across the domains of education, healthcare, and pensions, just as Acemoglu and Robinson, Piketty, and Buğra go back to early-modern Europe.

Then again, social progress did not come about in a trouble-free, enlightened, and expert-led fashion. Political will and state capacity were decisive. The modern welfare state is fundamentally a product of political struggle and electoral competition. Against a background of continuous socio-economic restructuring, in a dialectal process misguided ideological arguments about welfare largesse enticing people to adopt unproductive and unhealthy lifestyles competed with sound empirical arguments about the synergies among poverty mitigation, employment, and economic growth. This tension instigated democratic reform dynamics that ultimately, and in a transformative fashion, gave the modern welfare state considerable staying power in capitalist economies and liberal democracies.Footnote ⁶⁰

In the first two chapters, following in the footsteps of his equally impressive Growing Public: Social Spending and Economic Growth since the Eighteenth Century,Footnote ⁶¹ Lindert debunks several myths about the negative consequences of social spending with respect to economic growth. He maintains that, since 1880, high social spending has never produced any net loss of GDP. More importantly, welfare state expansion was accompanied by less poverty, greater income equality, longer lives, fiscal stability, and more transparent respect for civil, political, and social rights. Elevated social spending and growth went hand in hand. Public health and education, particularly the latter, played an important role in reinforcing these positive externalities. In recent decades, Lindert underlines, greater gender equality in education has spilled over into better life chances for children in most countries. More commitment to the education of females has been associated with considerable cumulative gains in life expectancy and GDP per capita.Footnote ⁶²

This abundance of good news immediately begs the question as to why it took so long for the political powers that be to develop welfare. According to Lindert, welfare states have expanded in phases. In the late nineteenth and early twentieth centuries, very few social policy advocates – with the exception perhaps of Beatrice and Sydney Webb in Britain – would have argued that improvements in health and education contributed to national prosperity. Social insurance gained purchase in the 1920s, but it was not until the Great Depression and World War II that Keynesian macroeconomics offered a persuasive rationalization of how social security buffered international business cycles. As Buğra also indicated, the post-war era gave way to a more general expansion of the welfare state. Only then did social security come to be understood as good economics, serving the political objectives of full employment and productivity growth, and so sustainable public finances.Footnote ⁶³

In explaining the late but steady arrival of the welfare state, and alluding to the many articles and books of Acemoglu, Johnson, and Robinson, among others, Lindert maintains that social spending hikes have been intimately associated with democracies becoming more equal and universal. Social spending accelerated after 1914, and more so after 1945, largely in response to democratization. To all intents and purposes, post-war public expenditure redefined the social needs and interests of the newly empowered lower half of the income ranks. Beyond political will, an intimately related lever was state capacity. Any sizeable welfare state requires an efficient tax apparatus and an effective bureaucracy to administer social insurance funds, public healthcare, and education at low cost, and to realize the externalities of social spending.

In a veiled critique of Piketty, whom he otherwise generously cites along with his close colleagues, Lindert maintains that the rise in income inequality since the 1970s owes little to the alleged retreat from progressive politics, because “such a retreat did not happen”. His larger contention is that progressivity has been achieved more through egalitarian social spending than progressive taxation. He argues that cross-sectional measures of synchronic redistribution between richer and poorer cohorts in the population cannot really capture the diachronic effects on lifetime income inequality, which we should really care about the most.Footnote ⁶⁴ Each generation’s increasing subsidies to the education of their offspring strongly reduces later inequalities by simply improving future earning power. This educational knock-on effect of greater intergenerational equality is particularly pronounced in Japan and South Korea.Footnote ⁶⁵ Investments in primary and secondary education, equalizing incomes downstream, are overlooked by Piketty and his colleagues’ conventional measures of fiscal redistribution. The effects of social policy changes play out over many years, and their long-term redistributive impact requires a much wider research agenda than one confined to income redistribution and taxes.

Paradoxically, even non-progressive taxes can have ultimately egalitarian impacts. The Nordic welfare states collect close to forty per cent of their tax revenue from progressive taxes. A larger chunk of the funding base is, however, covered by regressive taxes, such as value-added tax whose flat rates have more impact on individuals and households lower in the income scale. Yet, VAT is much cheaper to administer and harder to evade than, for example, wealth taxes. And if the social spending drawing on the revenue raised privileges vulnerable groups, this is a progressive outcome.Footnote ⁶⁶

In the final part of the book, Lindert shifts his attention to the challenge of ageing populations for the future of the welfare state in advanced capitalist democracies.Footnote ⁶⁷ Here uneasiness creeps into an otherwise optimistic narrative of social progress. Keeping the welfare state on a stable fiscal footing will become increasingly difficult as the number of elderly rises relative to the working adults who effectively pay for it. This invites the question as to whether it is possible to “outgrow” adverse demography. Quintessential for Lindert is that the average income of (future) workers should increase at a faster pace than that of the growing elderly population. In twenty-first-century knowledge economies, the return on good skills is what really matters. The younger a person, the greater the potential long-term well-being returns on social investment. On average, education is more pro-growth and pro-equality than spending the same amount on public pensions for the well-off. In the long run, while all public safety nets serve to stabilize purchasing power, the strongest, from a comparative perspective, are those that buttress the young. Particularly important are family-friendly policies that foster career continuity and skill development, especially for mothers, which indirectly bolster also children’s cognitive and social skills – including paid parental leave, public childcare, and preschool educational investments. The more generous are family programmes, the higher is the budget revenue reaped from increased female employment.

Lindert suggests a transition to a so-called Notional Defined Contribution (NDC) pensions system, based on a fixed rule for adjusting pensions to changing demographic conditions, alongside the economy. Ideal-typically, annual pension funding would be indexed to the projected ageing of the population in terms of senior citizens’ life expectancy: the longer a cohort was expected to live, the less it should receive in pension benefits each year, according to a politically agreed formula. Over the course of a lifetime, however, benefits would continue for a greater number of years.Footnote ⁶⁸ At the same time, it is imperative to maximize employment and productivity by investing in lifelong learning, starting from early childhood. Given that senior citizens’ life expectancy and health have improved dramatically, there are also ample opportunities to raise the effective retirement age, through active ageing and flexible retirement measures.

For Lindert, it is imperative to avoid an anti-growth scenario, whereby pension generosity holds down investments in the human capital of the young. This, sadly, is taking shape in Southern Europe, in countries such as Greece and Italy, which combine high pension spending with restrictive employment-protection legislation and poor educational performance – resulting in lower GDP per person, low employment (especially among mothers), higher inequality, and unsustainable public debt.Footnote ⁶⁹ An NDC pension system, based on a predetermined formula, could help secure politically an adequate commitment to address gradually the ageing predicament.

The Welfare State in Times of Populist Backsliding

The books featured here make first-rate contributions to the study of growth, prosperity, inequality, democracy, and the welfare state. By taking the long view, they enable us to understand better the dynamic relationship between egalitarian democracy and inegalitarian capitalism. The five contributions are built on strong theoretical footings, from which follow important insights: the Acemoglu and Robinson dichotomy of inclusive and extractive institutions and the importance of the state being “shackled” by a vibrant society; the primacy of middle-class electorates in making, according to Iversen and Soskice, capitalism and democracy thrive together; the more pessimistic political corollary of Piketty’s assessment, “r > g”; Buğra’s Polanyian elaboration of capitalist expansion challenged by political counter-movements to embed markets, revealing historical successes and failures, and, finally, Lindert’s progressive account of policy learning by democratization, in a trial-and-error fashion, reinforcing the staying power of the welfare state in the twenty-first century.

In conclusion, I return to how the welfare state has mediated and change the relationship between capitalism and democracy over time. Looking back from the early twenty-first century on the expansion of the welfare state since the 1950s, we can agree with Acemoglu and Robinson that the expectations of Schumpeter and von Hayek that democracy would ultimately undermine capitalism by voting into power parties hostile to creative destruction and entrepreneurship has not been borne out. Why Nations Fail, researched in the early 2000s when global trade integration was at its peak, while democracy was spreading untroubled across the world, is more optimistic and naïve than The Narrow Corridor, written during the first Trump administration in the US. The latter book is also far more assertive on state-based welfare.

Truly inclusive institutions should, in principle, produce “inclusive growth”, understood by the OECD as growth that provides opportunities for jobs, skills, and healthcare to all segments of the population while distributing the dividends of prosperity fairly.Footnote ⁷⁰ In the rather narrow treatment by Iversen and Soskice, a welfare state that caters to the middle classes through transfers or services binds their interests to the ever-growing wealth produced by capitalism. If, however, the joint survival of capitalism and democracy ultimately lies in the production of immobile skills for aspirational voters, declining social mobility for left-behind workers and families may still undermine the legitimacy of this symbiosis. This is where Piketty’s work becomes relevant, yet he dismisses the modern welfare state as a major feat of social progress. His exclusive focus on vertical redistribution discounts the long-term equalizing successes of the modern welfare state and Keynesian economic management, civilizing democratic capitalism. Coming from the left of the French academic spectrum, Piketty favours his participatory socialism over welfare capitalism. By comparison, Lindert and Buğra appreciate the modern welfare state, but disagree on its staying power, with Buğra the more gloomy.

Her book is extremely informative on major social policy breakthroughs in capitalist history and how political ideas played important roles in the making of the modern welfare state: she approvingly cites John Maynard Keynes’ evocative phrase that the “ideas of economists and political philosophers […] are more powerful than is commonly understood”.Footnote ⁷¹ From Max Weber (1904/05), we know that ideas gain staying power when they can be given credence through concrete practices and effective organization.Footnote ⁷² Indeed, Keynes’ General Theory of Employment, Interest, and Money, published in 1936, played a formative role in modern welfare policy by indicating that monetary and fiscal stimuli in times of recession could fight unemployment and protect households from falling into poverty.Footnote ⁷³ For Lindert, policy solutions gain staying power when they can be shown to work. As Buğra highlights, the modern welfare state has its origins in the politics of counter-movement against markets, establishing rights to income security against the social risks of unemployment, sickness, and old-age poverty.

The welfare state is first and foremost a product of the spread of democracy. But, in substance, modern welfare policy reaches beyond Polanyian decommodification. During the prolonged expansion of welfare states, many more practical solutions for human betterment have been introduced. Lindert identifies general education, compulsory social insurance, collective health insurance, work-life balance policies, and public pensions, which, in turn, have come to support investment-led productivity and employment growth. With the shift to the knowledge economies in rapidly ageing societies, the nature of social risks is changing once again. The risks of atypical and precarious employment, in-work poverty, rapid skill depletion, difficulties of reconciling work and family obligations, and skill shortages in care all transcend the decommodification function of the welfare state. Ensuring social justice in the twenty-first century therefore requires a far wider array of capacitating social-policy interventions across more heterogeneous life courses. Still, capacitation cannot replace decommodification: the buffer function of social security remains vital in turbulent times.

Studying recent welfare policy responses to the global financial crisis and the pandemic with Manos Matsaganis,Footnote ⁷⁴ I found that, beyond inclusive European welfare states effectively buffering the Great Recession, the welfare state did not have to be (re-)invented when that crisis and, later, Covid-19 struck. A Great Depression was averted precisely because there were automatically stabilizing welfare buffers across most EU member states. After some hesitation, these were reinforced by unconventional monetary policy from the European Central Bank. If, in hindsight, the welfare state was the “unsung hero” of the Great Recession, the pandemic represented an even more salutary lesson. The freezing of the economy by lockdowns and social distancing, to buy time to develop vaccines, was eased by a wide range of furlough schemes and progressive fiscal stimuli, with social safety nets strengthened by increasing benefit generosity and broadening eligibility to non-standard workers, such as the solo self-employed. By the summer of 2020, EU leaders agreed on the NextGenerationEU fund, endowed with €800 billion, to support recovery. Again, in hindsight, the speed with which fiscal, monetary, and social policy interventions were rolled out fundamentally relied on the availability of well-functioning welfare states.

The same holds true for the US. Food stamps and Medicaid helped check the rise of poverty in the Great Recession, while massive temporary social spending increases under the first Trump administration in 2020 were backed by Republicans and Democrats.

Yet, the welfare state does not represent a static policy repertoire. The Great Recession and the pandemic revealed dynamic portfolios, their constituent instruments in constant evolution, responding to internal and external pressures. A year into the pandemic in Europe, The Economist detected the “greatest expansion” of the welfare state in history. The existential threat of Covid-19 met the experiential legacy of the Great Recession, consolidating automatic stabilizers with heterodox monetary policy and fiscal solidarity. This introduced an important change in the EU’s economic-governance repertoire, towards a “holding environment for active EU welfare states to flourish”,Footnote ⁷⁵ rather than keeping allegedly “wasteful” welfare states in check by European Central Bank inflation-targeting and the budgetary rules of the Stability and Growth Pact.

Coming back to the purportedly uneasy relationship between inegalitarian capitalism and egalitarian democracy, the modern welfare state has adjoined a sui generis institutional layer to advanced capitalist democracies, in addition to and relatively independent of the rule of law, protecting property rights, and political equality, obliging democratic decision-making. Beyond a debatable threshold – let us say when social spending approximates one third of GDP – the twists and turns of capitalist welfare democracies no longer adhere to Polanyi’s pendulum swings of disembedding market liberalization and, eventually, re-embedding social regulation. Buğra’s historical tour de force does not really reflect on how social policy breakthroughs induced by such counter-movement can, in the end, endure to transform downstream economic and political behaviour in twenty-first-century advanced capitalist democracies.

The welfare state is no longer singularly understood as a trade-off between equity and efficiency and/or as politics against markets, but increasingly – including by the OECD – in terms of positive externalities. Buğra holds dear Polanyian decommodification as the touchstone of social progress and is critical of the “social investment” agenda, arguing that it overlooks poverty and inequality. Yet, from the earliest (2002) contribution to this agenda – Why We Need a New Welfare State, by Gøsta Esping-Andersen, Duncan Gallie, John Myles, and myself – a consistent thread has been that generous and inclusive income buffers are preconditions.Footnote ⁷⁶ In ageing societies, as Lindert underscores, the long-term strength of the knowledge economy is ever more contingent on the contribution social policy can make to the productive arena.

In other words, there is a synergy between decommodifying social protection and capacitating social investment in twenty-first-century welfare-capitalist democracies, requiring gender-sensitive policy interventions across the entire life course. Early childhood education and care is crucial for parental employment, especially for working mothers, reducing gender imbalances while fostering children’s cognitive and social skills, which is good for quality employment and productivity in the long run. High-quality education correlates with improved employment and reduced poverty among young adults, nurturing skilled labour for knowledge economies facing shortages because of adverse demography. Active labour market policies reinforce employment participation, through rehabilitation and training, thus reducing unemployment and poverty and, in turn, underpinning the fiscal sustainability of inclusive welfare states. Finally, active ageing, including late-career training, flexible retirement, and long-term care, prolongs careers and continuous female labour-market participation. In a nutshell, social investment pays for itself as it increases productivity and output in three ways: bringing more people into paid work; making people in paid work more productive; and keeping people in paid work for longer.

Despite its proven economic proficiency, the welfare state’s relationship to democracy has become ever more tenuous in the face of augmented polarization and political fragmentation, including of right-populist backsliding on the rule of law. Then again, except for diehard libertarian ideologues, there is little political desire to repeal minimum wages, work-injury legislation, unemployment compensation, minimum-income protection, child support, and public pensions when the radical right participates in coalition governments, as in Finland, Italy, the Netherlands, and Sweden. Income inequality has not risen between the poor and the middle classes in the aftermath of the Great Recession and the pandemic. Stagnation of income among middle-income households, relative to the rich and super-rich, has, however, intensified political disenchantment with mainstream parties in North America and the EU, especially in recent years of higher inflation. Can the welfare state, by substantiating the principles of individual liberty and political equality with a commitment to economic security and human flourishing and capacitation, succeed in sustaining liberal democracy in our trying times?

The modern welfare state is a political product of democratic struggles and policy compromises. Over the long term, it has institutionalized an intergenerational contract, which David Bokhorst and I call “the welfare commons”.Footnote ⁷⁷ This aggregates the budgetary commitments to the young, in terms of education, to the old, in terms of pensions, and to the adult working population, in terms of unemployment insurance, social assistance, and healthcare, as rights of social citizenship. When parties are voted into government in countries with extensive welfare commitments, they effectively become governors of the commons. This obliges them to balance, as best as they can, the intergenerational contract with fostering inclusive growth, keeping pace with population ageing by investing in the younger cohorts and families constituting the unexploited revenue base of future welfare. Of course, policymakers face budgetary constraints. Nevertheless, presiding over a large and popular welfare commons can help make democratic governments responsible: suspending or downgrading popular welfare measures and/or flunking fiscal sustainability can easily incur electoral retribution in mature welfare states that effectively bind generations to the commons. As constituent stakeholders, voters can, in turn, be expected not to be entirely ignorant of the tensions between the long-run benefits of childcare and education, on the one hand, and on the other the legitimate short-term exigencies of pension sustainability and long-term care, with some understanding of fair burden-sharing across income groups and generations.

Acemoglu and Robinson remind us that we can never discount the (re-)appearance of extractive economics and politics under seemingly inclusive institutions. Illiberal populism and crony capitalism are on the rise across rich OECD democracies. Most worrisome is the right-populist impulse to restrict the rule of law, the bedrock of inclusive institutions. Victor Orbán, heading the Hungarian government for a decade and a half, is a case in point, although, as an EU member, Hungary cannot simply tear up the rule of law: to do so would require a majority of illiberal democrats at the helm of member state governments. Trump’s 2024 re-election in the US was surely based on an extractive agenda of steep tariffs, purportedly to protect working-class jobs in the industrial rust belt from overseas competition, finance and corporate deregulation, while furnishing tax cuts to America’s super-rich.

In mature European welfare states, such fictitious promises are unsurprisingly not being tabled – not even by populists. They are, however, prone to pursue “welfare chauvinism” by reducing eligibility for migrants, who may nonetheless be important to relieve adverse demography and looming labour market shortages in the future.

Across the EU, popular and hefty intergenerational welfare commitments, and associated fiscal constraints, seemingly enforce self-interested wisdom on policymakers and encourage attentive political engagement by electorates, reinforcing the economic, social, and political compromise built over many decades of social-policy development and reform, and binding the generations in mature welfare states. Conversely, where the welfare commons is restricted in terms of fiscal weight and limited in terms of life course scope, as in the US, responsibility-enhancing reform politics and civilizing democratic deliberation are indeed easily overrun by brutalizing, dog-eat-dog, zero-sum political polarization. In the current context of right-wing populism and democratic backsliding, it is a blessing in disguise that most European liberal democracies – as they face the challenges of adverse demography, climate change, and artificial intelligence – preside over sizeable welfare commons, together with electoral systems based on proportional representation, and policymaking routines that engage important societal interests, leaving them less prone to tribal polarization. With these institutional background conditions, they may also be better able to coalesce around the pursuit of inclusive growth.

In any ranking of the quality of liberty, countries with these basic institutional features – negotiated governance and an inclusive welfare state – consistently top the league.Footnote ⁷⁸ The corridor is narrow indeed, but it is paved with progressive social policy stones shoring up the goodness of fit between capitalism and democracy, by making political authorities responsible for the welfare commons and electorates realistically attentive to what policymakers promise.