The idea for this book came about four years ago when one of the authors was invited to a conference and asked to write a paper on the future of the welfare state. The writing of that paper required a kind of mental exercise that addressed the question of what would be given up if the welfare state were scaled down. This exercise inevitably led to the related question of what kind of societies and, more specifically, what level of public spending the industrial countries had had before some of them became welfare states? It was surprising to find that the level of public spending in the early part of this century had been very low even compared to the levels common in the present day's developing countries. Yet, at that time several of the industrial countries had vibrant and modern economies and societies.

Various programs that account for the lion's share of the current budgets of industrial countries, such as those for education, health, pensions, unemployment, and some others, were of marginal importance early this century. This realization led us to speculate on the relationship between public spending and social welfare. When public spending increases, it generates two effects. First it leads to a higher level of taxation and thus to a fall in the disposable income of individuals. Second, it reduces the need for the individuals who benefit from the public spending to take actions, in their capacity as private individuals, to protect themselves against various risks.