Trustees of Princeton University
The New Politics of the Welfare State
Author(s): Paul Pierson
Source: World Politics, Vol. 48, No. 2 (Jan., 1996), pp. 143-179
Published by: Cambridge University Press
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THE NEW POLITICS OF THE
WELFARE STATE
ByPAULPIERSON*
THE
much-discussed crisis of the welfare state is now two decades
old. The tremendous twentieth-century expansion of social pro
grams has been a remarkable feature of advanced industrial societies. In
all these countries the welfare state is a core institution, accounting for
between one-fifth and one-third of GNP. Ever since the postwar eco
nomic boom ended in the early 1970s, however, social programs have
faced mounting political challenges. Questions of expansion have long
since given way to an
acknowledgment of the limits to welfare state
growth and the prospect for extended austerity. Despite this funda
mental change, however, we still know stunningly little about the poli
tics of social policy retrenchment. In contrast to our vast
knowledge of
the dynamics of welfare state
expansion?arguably the most well-tilled
subfield of comparative public policy?welfare
state retrenchment re
mains largely uncharted terrain.1 Theoretically informed discussion has
been limited to very abstract commentaries or the rather reflexive, often
implicit application of propositions derived from the study of social
policy expansion.
This puzzling
state of affairs results in part from the very success of
earlier scholarship. The quality of historical research on the welfare
state has encouraged
a
simple process of borrowing already developed
models for the examination of a new environment. Iwould argue, how
ever, that there are
compelling
reasons to
reject such a
straightforward
extrapolation, that the new
politics of the welfare state is instead quite
different from the old. Welfare state
expansion involved the enactment
of
popular policies
in a
relatively undeveloped interest-group environ
ment.
By contrast, welfare state retrenchment generally requires elected
*
I am
grateful
to the Russell Sage Foundation for financial and administrative support and to
Miguel Glatzer for considerable research assistance, aswell as
helpful
comments.
1
On welfare state
expansion,
see G?sta Esping-Andersen, The Three Worlds
ofWelfare Capitalism
(Princeton: Princeton University Press, 1990); and Evelyne Huber, Charles Ragin, and John D.
Stephens, "Social Democracy, Christian Democracy, Constitutional Structure, and theWelfare State,"
American Journal of Sociology
99 (November 1993).
WorldPolitics 48 (January1996), 143-79
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144 WORLD POLITICS
officials to pursue unpopular policies that must withstand the scrutiny
of both voters and well-entrenched networks of interest groups. It is
therefore not
surprising that variables crucial to
understanding the for
mer process are of limited use for analyzing the latter one.
This essay seeks to
lay the foundations for an
analysis of welfare state
retrenchment. I emphasize the critical constraints on reform resulting
from the role of supportive interest groups and, ultimately, voters.2 The
growth of the welfare state itself transforms the politics of social policy.
As a result, the welfare state has proved
to be far more resilient than
other key components of national political economies and far more
durable than existing theories of the welfare state would lead one to ex
pect. The argument is presented in four stages. Section I highlights the
characteristic qualities of retrenchment politics. Section II discusses in
more detail the principal theories of welfare state
expansion and sug
gests why the distinctiveness of retrenchment makes a
straightforward
application of these arguments to the contemporary welfare state
prob
lematic. Section III explores the dynamics of retrenchment in four
cases: Great Britain, the United States, Germany, and Sweden. Section
IV builds on this theoretical and empirical analysis to offer some basic
propositions about retrenchment politics.
I.Why the Politics of Retrenchment IsDifferent
This essay s central claim is that because retrenchment is a distinctive
process, it is unlikely
to follow the same rules of development that op
erated during the long phase of welfare state
expansion. There are two
fundamental reasons for this. First, the political goals
of policymakers
are different; second, there have been dramatic changes in the political
context. Each of these points requires elaboration.
There is a
profound difference between extending benefits to
large
numbers of people and taking benefits away.3 For the past half century,
expanding social benefits was
generally
a process of political credit
claiming. Reformers needed only
to overcome diffuse concern about tax
rates (often sidestepped through
resort to social insurance "contribu
tions") and the frequently important pressures of entrenched interests.
Not surprisingly, the expansion of social programs had until recently
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." Daniel Verdier, Democracy and International Trade: Britain,
France and the United States, 1860-1990 (Princeton: Princeton University Press, 1994), xv.
3
R. Kent Weaver, "The Politics of Blame Avoidance," Journal ofPublic
Policy
6 (October-Decem
ber 1986).
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POLITICS OF THE WELFARE STATE 145
been a favored political activity, contributing greatly to both state
building projects and the popularity of reform-minded politicians.4
A combination of economic changes, political shifts to the right, and
rising
costs associated with maturing welfare states has provoked grow
ing calls for retrenchment. At the heart of efforts to turn these de
mands into policy have been newly ascendant conservative politicians.
Conservative governments have generally advocated major social pol
icy reforms, often receiving significant external support in their effort,
especially from the business community.5 Yet the new
policy agenda
stands in sharp
contrast to the credit-claiming initiatives pursued dur
ing the long period of welfare state
expansion. The politics of retrench
ment is typically treacherous, because it imposes tangible losses on
concentrated groups of voters in return for diffuse and uncertain gains.
Retrenchment entails a delicate effort either to transform program
matic change into an
electorally attractive proposition or, at the least,
to minimize the political
costs involved. Advocates of retrenchment
must
persuade wavering supporters that the price of reform ismanage
able?a task that a substantial public outcry makes almost impossible.
Retrenchment is generally
an exercise in blame avoidance rather than
credit claiming, primarily because the costs of retrenchment are con
centrated (and often immediate), while the benefits are not. That con
centrated interests will be in a stronger political position than diffuse
ones is a standard proposition
in political science.6 As interests become
more concentrated, the prospect that individuals will find itworth their
while to engage in collective action improves. Furthermore, concen
trated interests are more
likely
to be linked to
organizational networks
that keep them informed about how policies affect their interests.
These informational networks also facilitate political action.
An additional reason that politicians rarely get credit for program
cutbacks concerns the well-documented asymmetry in the way that
voters react to losses and gains. Extensive experiments in social psy
4
Peter Flora and Arnold J. Heidenheimer, eds., The Development ofWelfare States in
Europe
and
America (New Brunswick, N.J.: Transaction, 1982).
5
As recent research has suggested, itwould be wrong to treat business as
always and everywhere
opposed
to welfare state programs. For illuminating studies of the United States, see, for example,
Colin Gordon, New Deals: Business, Labor, and Politics inAmerica, 1920-1935 (Cambridge: Cambridge
University Press, 1994); and Cathie JoMartin, "Nature or Nurture? Sources of Firm Preference for
National Health Reform," American Political Science Review 89 (December 1995). Nonetheless, it is
clear 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
Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge:
Harvard University Press, 1965); James Q?Wilson, Political Organizations (New York: Basic Books,
1973), 330-37.
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146 WORLD POLITICS
chology have demonstrated that individuals respond differently to pos
itive and negative risks. Individuals exhibit a
negativity bias: theywill
take more
chances?seeking conflict and accepting the possibility of
even greater losses?to prevent any worsening of their current
posi
tion.7 Studies of electoral behavior, at least in the United States, con
firm these findings. Negative attitudes toward candidates are more
strongly linked with a range of behaviors (for example, turnout, desert
ing the voters normal party choice) than are
positive attitudes.8
While the reasons for this negativity bias are unclear, the constraints
that it imposes
on elected officials are not. When added to the imbal
ance between concentrated and diffuse interests, the message for advo
cates of retrenchment is straightforward. A simple "redistributive"
transfer of resources from program beneficiaries to taxpayers, engineered
through
cuts in social programs, is generally
a
losing proposition. The
concentrated beneficiary groups are more
likely
to be cognizant of the
change,
are easier to mobilize, and because they
are
experiencing losses
rather than gains
are more
likely
to
incorporate the change in their vot
ing calculations. Retrenchment advocates thus confront a clash be
tween their policy preferences and their electoral ambitions.
If the shift in goals from expansion
to cutbacks creates new
political
dynamics,
so does the emergence of a new context the development of
the welfare state itself. Large public social programs are now a central
part of the political landscape.As Peter Flora has noted, "Including the
recipients of [pensions,] unemployment benefits and social assistance?
and the persons employed in education, health and the social services?
inmany countries today almost 1/2 of the electorate receive transfer or
work income from the welfare state."9 With these massive programs
have come dense interest-group networks and strong popular attach
ments to
particular policies, which present considerable obstacles to re
form. To take one
prominent example, by the late 1980s the American
Association of Retired People (AARP)had amembership of twenty
eight million and a staff of thirteen hundred (including a legislative
7
Daniel Kahneman and Arnos Tversky, "Prospect Theory: An Analysis of Decision under Risk,"
Econometrica 47 (March 1979); idem, "Choices, Values and Frames," American
Psychologist
39 (April
1984).
8
Howard S. Bloom and H. Douglas Price, "Voter Response
to Short-Run Economic Conditions:
The Asymmetric Effect of Prosperity and Recession," American Political Science Review 69 (December
1975); Samuel Kernell, "Presidential Popularity and Negative Voting: An Alternative Explanation of
theMidterm Congressional Decline of the President's Party," American Political Science Review 71
(March 1977); and Richard R. Lau, "Explanations for Negativity Effects in Political Behavior," Amer
icanJournal of
Political Science 29 (February 1985).
9
Peter Flora, "From Industrial to Postindustrial Welfare State?" Annals of the Institute
of
Social Sci
ence, special issue (Institute of Social Science, University of Tokyo) (1989), 154.
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POLITICS OF THE WELFARE STATE 147
staff of more than one hundred).10 The maturation of the welfare state
fundamentally transforms the nature of interest-group politics.
In
short, the emergence of
powerful groups surrounding social programs
may make the welfare state less dependent
on the political parties,
so
cial movements, and labor organizations that expanded social programs
in the first place. Nor is the context altered simply because welfare
states create their own constituencies. The structures of social programs
may also have implications for the decision rules governing policy
change (for example, whether national officials need the acquiescence
of local ones) and for how visible cutbacks will be. "Policy feedback"
from earlier rounds of welfare state
development is likely
to be a
promi
nent feature of retrenchment politics.11
In short, the shift in goals and context creates a new
politics. This
new
politics, marked by pressures to avoid blame for unpopular poli
cies, dictates new
political strategies.12 Retrenchment advocates will try
to
play off one group of beneficiaries against another and develop
re
forms that compensate politically crucial groups for lost benefits. Those
favoring cutbacks will attempt to lower the visibility of reforms, either
bymaking the effects of policies more difficult to detect or bymaking
it hard for voters to trace
responsibility for these effects back to
partic
ular policymakers.13 Wherever possible, policymakers will seek broad
consensus on reform in order to
spread the blame. Whether these ef
forts succeed may depend very much on the structure of policies already
in place. As I argue in the next section, theoretical discussions of the
welfare state have failed to take this point sufficiently
to heart.
II.The Limits of Existing Theories
Each of the main theories of welfare state
expansion?arguments about
economic development, arguments about the power of the left, and ar
guments about institutions?has been loosely appropriated for discus
sions of the contemporary welfare state. In this section Imake explicit
the kinds of claims that an inversion of existing theories of expansion
might suggest for a
theory of retrenchment. While each perspective
10
Christine L. Day, What Older Americans Think: Interest Groups and Aging Policy (Princeton:
Princeton University Press, 1990), 25-26.
11
G?sta Esping- Andersen, Politics against Markets: The Social Democratic Road toPower (Princeton:
Princeton University Press, 1985); Paul Pierson, "When Effect Becomes Cause: Policy Feedback and
Political Change," World Politics 45 (July 1993).
12
Weaver (fn. 3); Paul Pierson, Dismantling
theWelfare State? Reagan, Thatcher and thePolitics ofRe
trenchment (Cambridge: Cambridge University Press, 1994), chap.
1.
13
R. Douglas Arnold, The Logic ofCongressional
Action (New Haven: Yale University Press, 1990).
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148 WORLD POLITICS
contains insights, my main contention is that a
convincing analysis of
retrenchment must move
beyond these formulations.
A New "Logic of Industrialism'?
The earliest well-developed theory of welfare state
growth, associated
particularly with the work of Harold Wilensky, stressed the
relationship
of welfare state
expansion
to processes of economic growth.14 Welfare
state effort was correlated with affluence, suggesting that "strong
economies produce strong welfare states." Yet while this argument ex
plained broad social policy differences between rich and poor nations, it
proved to be far less helpful in explaining differences within the club of
rich democracies.
Nonetheless, versions of economic determinism have been promi
nent in discussions of the contemporary welfare state. The claim that a
new
"logic of industrialism" encourages a convergence of national so
cial policy models is based on asserted consequences of global economic
change.15 One possibility is that the globalization of capital markets re
moves crucial economic policy tools from national governments and
constrains social policy options. However, as Garrett and Lange have
persuasively argued, while monetary and fiscal policies may face new
restrictions, there is little evidence that supply-side policies of transfers
and services need be constrained, so
long
as tax bases remain sufficient
to insure relatively low deficits.16 Some social policies may in fact con
tribute to economic growth, for example, by encouraging the formation
of human capital and certain kinds of labormarket flexibility.
A related argument is that heightened economic integration will re
sult in what Europeans call "social dumping." The term refers to the
possibility
that firms operating where "social wages"
are low may be
able to undercut the prices of competitors, forcing higher-cost firms ei
ther to go out of business, or to relocate to low social wage areas, or to
pressure their governments to reduce social wage costs. In extreme sce
narios these actions could fuel a downward spiral in social provision,
eventually producing very rudimentary, lowest-common-denominator
national welfare states.17 The evidence for a process of social
dumping
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 ex
ample,
see Herman Schwartz, "Small States in Big Trouble: State Reorganization inAustralia, Den
mark, New Zealand, and Sweden in the 1980s," World Politics 46 (July 1994).
16
Geoff Garrett and Peter Lange, "Political Responses
to
Interdependence: What's Left for the
Left," International Organization
45 (1991).
17
For a classic treatment of this dynamic,
seeWilliam L. Cary, "Federalism and Corporate Law:
Reflections on Delaware," Yale Law Journal'83 (March 1974).
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POLITICS OF THE WELFARE STATE 149
remains limited. The social wage is only
one factor in investment deci
sions, and firms will not invest in countries with low social wages unless
other factors (for example, infrastructure,worker productivity) justify
such investments.18 Neoclassical trade theory suggests that countries
with high social wages should not face problems
so
long
as overall con
ditions allow profitable investment.19
A further, critical objection
to the economic determinist argument
has received less attention. Even if a
high social wage were associated
with poor economic performance, the assumption that downward ad
justments in social policy would necessarily follow is unjustified. As
North has recently reminded us, countries have maintained widely dif
ferent levels of economic performance for very long periods of time,
without marked pressures toward convergence.20 In aworld where par
ticular arrangements have been institutionalized and where local actors
have adopted strategies that succeed in local terms, there is no auto
matic or necessary movement toward any particular definition of effi
ciency?market dictated or otherwise. Politicians in democratic
systems generally worry first and foremost about getting elected. Help
ing improve the economy may make that easier, but not if it requires
hugely unpopular policies, and not if the economic benefits are
likely
to
appear at some
point
in the distant (that is, postelection) future.
Thus, even if social dumping arguments proved valid?a big if?
much would still depend on the balance of political forces favoring and
resisting
a substantial restructuring of the welfare state. Tendencies to
ward fragility
must be weighed against the considerable sources of wel
18
Peter Lange, "The Politics of the Social Dimension," inAlberta Sbragia, ed., Euro-politics (Wash
ington, D.C.: Brookings Institution, 1992). For evidence casting doubt on the proposition that sys
tems of social protection have significant negative effects on economic performance,
see Rebecca M.
Blank, ed., Social Protection versus Economic Flexibility:
Is There a
Trade-off? (Chicago: University of
Chicago Press, 1994).
19
"Unraveling" could occur in amore subtle way, as
heightened capital mobility strengthens the bar
gaining position of business, leading to the gradual erosion of "tightly coupled" systems of industrial
relations and, perhaps, welfare states. For a
good example of this kind of argument, see
Wolfgang
Streeck, "FromMarket-Making
to
State-Building? Reflections on the Political Economy of European
Social Policy," in
Stephan Leibfried and Paul Pierson, eds., European Social Policy: Between Fragmenta
tion 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, andWage Bargaining Institutions: The
Swedish Employer Offensive in Comparative Perspective," Comparative
Political Studies (forthcom
ing); and Kathleen Thelen, "West European Labor inTransition: Sweden and Germany Compared,"
World Politics 46 (October 1993). Industrial relations systems, however, seem more
fragile than welfare
state structures. Welfare states, Iwill suggest, have considerably broader bases of support, which pro
mote the restoration of equilibrium and inhibit the kind of unraveling that occurs in some industrial
relations systems.
20
Douglass C. North, Institutions, Institutional
Change,
and Economic Performance (Cambridge:
Cambridge University Press, 1990).
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150 WORLD POLITICS
fare state
stability. In short, policy
outcomes cannot be derived directly
from economic trends. The new
logic of industrialism suffers from
many of the defects of the old one.
Expansive claims of economic de
terminism pay insufficient attention to the
politics of policy change. The
same cannot be said about power resource and institutionalist argu
ments, to which I now turn.
Left Power Resources and the Politics of Retrenchment
The power resources
perspective, which attributes cross-national varia
tions in social provision largely to differences in the distribution of po
litical resources among classes, has been the leading approach in
comparative politics
to
explaining patterns of welfare state
expansion.21
Class-based struggle
over social provision
occurs because social pro
grams affect the
bargaining position of workers and employers. Many
social programs limit the economic vulnerability of wage earners and
increase worker solidarity. According
to power resource theorists,
strong unions and left parties contribute to the growth of these pro
grams. The power resources
approach has had considerable success in
accounting for cross-national variations in social provision during the
three decades followingWorld War II. Furthermore, the replacement
of crude social expenditure data with more
fine-grained distinctions
among patterns of social provision has greatly improved the model's
explanatory power.22
A straightforward application of power resource arguments to re
trenchment would suggest that welfare states are in
deep trouble. The
power of organized labor and left parties has shrunk considerably in
many advanced industrial societies. As Iwill argue in Section III, how
ever, there is very little evidence that this decline has had a funda
mental impact
on welfare states. Cutbacks in social programs have
been far more moderate than the sharp drop
in labor strength inmany
countries
might
lead one to
expect, and there appears to be little corre
lation between declines in left power resources and the magnitude of
retrenchment.
The shift in both context and goals that characterizes the new
poli
tics of the welfare state
helps
to
explain why this is so.
Analysis of the
contemporary welfare state's supporters must include not
only orga
21
John D. Stephens, The Transition from Capitalism
to Socialism (London: Macmillan, 1979);Walter
Korpi, The Democratic Class Struggle (London: Routledge, 1983); Esping-Andersen (fn. 11);Walter
Korpi, "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).
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POLITICSOF THEWELFARE STATE 151
nized labor and left parties but also the more varied constituencies of
individual programs. Interest groups linked to
particular social policies
are now
prominent political
actors. The rise of these interest groups is
one of the clearest examples of how policy feedback from previous
political choices can influence contemporary political struggles. Groups
of program beneficiaries did not build thewelfare state, but thewel
fare state contributed mightily
to the development of these groups. By
the time a
politics of austerity began
to emerge in the mid-1970s,
most welfare state programs were connected to extensive networks of
social support. Most prominent
were the recipients of the various ben
efits?pensioners, the disabled, health care consumers. The providers of
public services also had a
major stake in sustaining expenditure and
were
usually well organized.23 Finally, there was a range of public
interest organizations seeking
to protect those too weak to mobilize on
their own. Indeed, even when groups of recipients
are not
particularly
well organized, politicians may have reason to be attentive to their
concerns. Cutbacks, if recognized,
are
likely
to incense voters, and polit
ical competitors stand ready
to
exploit such opportunities. The possibil
ity of exacting punishment
at the polls
means that the
potentially
mobilized'influence policymakers
even in the absence of ongoing orga
nized activity.24
Thus, there are
good
reasons to believe that the centrality of left
party and union confederation strength
to welfare state outcomes has
declined. The diminished relevance of power resource arguments re
flects the fact that welfare states are now mature and that retrenchment
is not
simply the mirror image of welfare state
expansion. In a context
where public social provision is just emerging, the existence of very
broad organizations pushing
an
expansionist policy agenda may be cru
cial. However, the unpopularity of program cutbacks and the emer
gence of new bases of support will give politicians pause even where
unions and left parties
are weak. Equally important, maturing social
programs develop
new bases of organized support that have substantial
autonomy from the labor movement. This shifting base of support may
have consequences for the dynamics of policy development, but the
weakening of organized labor need not translate automatically into a
commensurate
weakening of the welfare state.
23
In this respect, organized labor (public employee unions) continues to be of significance, although
not in theway posited by power resource theorists. Union interests are now linked primarily
to the em
ployment-generating effects of specific public programs rather than to the broad consequences of gen
erous
public provision for the bargaining position of workers.
24
On this point,
see Arnold (fn. 13).
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152 WORLD POLITICS
New Institutionalism and Welfare State Politics
Patterns of governance matter. The "new institutionalist" resurgence in
political science reflects a renewed appreciation of how relatively stable,
routinized arrangements structure
political behavior.25 The political in
stitutions of different countries vary along crucial dimensions, such as
the rules of electoral competition, the relationship between legislature
and executive, the role of the courts, and the place of subnational gov
ernments in politics. Institutions establish the rules of the game for po
litical struggles?influencing group identities, policy preferences, and
coalitional choices, and enhancing the bargaining power of some
groups while devaluing that of others. Institutions also affect govern
ment
capacities?their administrative and financial resources for fash
ioning policy interventions.
In the field of comparative social policy, the claim that political
institutions must be considered consequential
structures has been de
veloped primarily in thework of Theda Skocpol and her collabora
tors.26 These researchers have raised significant questions about the
dynamics of welfare state
development, pointing out, for example, that
the power resources
approach has had little success in accounting for
pre-World War II social policy developments. The new institutionalist
research agenda, however, has centered on
explaining "American excep
tionalism"?the belated and halfhearted development of socialwelfare
policies
in the United States. Just as a focus on Sweden was central to
the development of the power resources model, concentration on the
United States has underscored the importance of political institutions.
Institutionalists make two broad claims about welfare state
develop
ment. First, strong states are
likely
to
produce strong welfare states,
with state
strength defined in terms of governmental administrative ca
pacities and institutional cohesion. Extensive administrative and finan
cial resources make it easier to build expansive social policies.27 Where
political authority isfragmented, entrenched minorities will often block
social legislation.28 Federalism, separation of powers, strong bicameral
25
Peter Hall, Governing theEconomy (Oxford: Oxford University Press, 1986); James March and
Johan Olsen, Rediscovering
Institutions (New York: Free Press, 1989); North (fn. 20).
26
See, for example, Margaret Weir, Ann Shola Orloff, and Theda Skocpol, eds., The Politics of So
cial Policy
in the United States (Princeton: Princeton University Press, 1988); and Theda Skocpol, Pro
tecting Soldiers andMothers: The Political Origins of Social Policy
in the United States (Cambridge:
Harvard University Press, 1992).
27
Hugh Heclo, Modern Social Politics inBritain and Sweden (New Haven: Yale University Press, 1974).
28
Keith G. Banting, The Welfare State and Canadian Federalism, 2d ed. (Montreal: McGill-Queens
University Press, 1987); Ellen Immergut, Health Politics: Interests and Institutions inWestern Europe
(Cambridge: Cambridge University Press, 1992).
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POLITICS OF THE WELFARE STATE 153
ism or reliance on referenda all may restrict welfare state
development.
Although much of thework on institutions andwelfare states has been
based on
comparative historical case studies, this claim about formal in
stitutional veto
points has recently received support in an
important
quantitative study
as well.29
The second central institutional argument concerns
policy legacies,
or feedback?the consequences of previously introduced welfare state
programs. Arguments about policy feedback are
essentially arguments
about the consequences of big government. As policy decisions have
had increasingly pervasive effects on economic and social life, their im
pact on
political processes has expanded. Given that the welfare state is
at the very heart of big government, it should come as no
surprise that
studies of welfare state
development have generated
some of the most
persuasive arguments about policy feedback.
The possible consequences of preexisting policy
structures for wel
fare state
politics
are
quite diverse.30 Welfare state structures affect the
size and orientation of various societal groups as well as patterns of in
terest-group formation. Programs may provide the basis for processes
of social learning that affect prospects for future program expansion,
whether negatively
or
positively. Policies can create
long-term commit
ments?such as the pay-as-you-go intergenerational
contracts common
to
public pension systems?that lock in particular paths of policy de
velopment.31
How easily
can these arguments be applied
to the distinctive politics
of retrenchment? Again, there is no reason to assume that claims for
earlier periods
can
simply be turned on their heads. For example, there
is little reason to expect that bureaucratic capacities will be particularly
important in an age of retrenchment. Can we administer it?may be an
important question in a discussion of new or
greatly expanded public
initiatives, but for advocates of retrenchment the primary goal is to dis
mantle existing programs. Closing offices, curtailing services, and cut
ting benefits do not
require formidable administrative capacity.
Arguments about the consequences of governmental cohesion also
need to be reappraised
in this new context.32 At first glance,
one
might
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 Paul Pierson,
"
'Policy Feedbacks' and Political Change: Contrasting Reagan and Thatcher's
Pension-Reform Initiatives," Studies inAmerican Political Development 6 (Fall 1992).
32
This paragraph relies on Paul Pierson and R. Kent Weaver, "Imposing Losses in Pensions Pol
icy," in R. Kent Weaver and Bert Rockman, eds., Do Institutions Matter? Government Capabilities
at
Home andAbroad (Washington, D.C.: Brookings Institution, 1993).
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154 WORLD POLITICS
expect that systems with fewer institutional veto
points would be in a
stronger position
to pursue an
agenda of radical retrenchment. Because
retrenchment is generally unpopular, however, there are
compelling
reasons to
question this expectation. While cohesive systems concen
trate
authority, they also concentrate
accountability. The former ten
dency facilitates retrenchment, but the latter impedes
it.Where
authority is centralized, the public knows that the government of the
day
can
prevent groups from suffering cutbacks. Strong governments,
anticipating the high political
cost of retrenchment, may forgo the op
portunities provided by concentrated power. Thus, the theoretical basis
for believing that government cohesion facilitates retrenchment is
weak. We are left with the empirical question of whether concentration
of power effects outweighs concentration of accountability effects.33
The tremendous scope of modern welfare states suggests that insti
tutionalist arguments about policy feedback may be even more relevant
to the
politics
of retrenchment. There are, however, two
quite different
ways to
apply policy feedback arguments to retrenchment. First, one
could develop nuanced arguments that emphasize the distinctive char
acteristics of individual programs and their implications for successful
retrenchment. Alternatively,
one could present arguments about the
overarching
structures of particular welfare state
regimes, suggesting
that they are likely to promote a particular kind of politics.
The first approach has promise but is difficult to carry out in prac
tice. Previous policies help shape the distribution of political
resources.
Preexisting policy designs may influence interest-group networks, the
extent of long-term commitments, the rules governing programmatic
reform, and the availability of techniques
to reduce the visibility of cut
backs. These kinds of arguments have been used in qualitative
case
studies of both welfare state
expansion and retrenchment.34 Because
they often apply
to
idiosyncratic characteristics of individual programs,
however, it is hard to use them to generate general propositions about
variations across countries.
The alternative of developing broad arguments about how welfare
state
regimes affect contemporary politics is more
easily applied
to
cross-national comparisons. Esping-Andersen has developed proposi
tions that link welfare state structures to cross-national variation in oc
33
What seems more
likely is that the structure of formal institutions will influence the strategies o?
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).
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POLITICSOF THEWELFARE STATE 155
cupational
structures and, in turn, to contemporary political cleavages.35
He suggests, for example, that social democratic welfare states like
Sweden will face growing clashes between public and private
sector
workers, while conservative welfare states like Germany will produce
a
divide between labor market "insiders" and "outsiders." Such an ap
proach offers the tantalizing promise of linking the evident significance
of large welfare state structures to clear propositions about political
change. Unfortunately, the argument does not work. As Iwill docu
ment in the next section, the hypothesized political cleavages emerge
in only muted forms and have failed to generate a sustained backlash
against the welfare state. The flaw in these broad arguments about wel
fare state
regimes is that they greatly underestimate the difficulty of as
sembling and sustaining proretrenchment coalitions.
New institutionalist arguments have contributed greatly
to our un
derstanding of welfare state
politics. Moreover, unlike arguments about
the role of organized labor, there is no reason to think that the impor
tance of institutional structures and the legacies of previous policy
choices has declined. These arguments cannot
simply be transferred
from one context to another, however; they
must be recast to
apply
to
the specific settings and strategic problems that are characteristic of re
trenchment politics.
From Theories of Expansion to Theories of Retrenchment
It is commonly maintained that our
knowledge of welfare state expan
sion provides
us with considerable insight into the new
politics of the
welfare state.
Although this view is rarely stated explicitly, it undoubt
edly explains why political scientists, who are
usually preoccupied with
understanding contemporary or rather recent events, have become so
interested inhistorical studies of social policy.The presumed similarity
of expansion and retrenchment is evident in some of the most
impor
tant work on
comparative social policy. In their sophisticated quantita
tive investigation of welfare state effort from 1956 to 1988, for
example, Huber, Ragin, and Stephens acknowledge that their use of a
pooled cross-sectional time-series model assumes "that causal processes
are uniform through time." Esping-Andersen claims that"[t]he risks of
35
Esping-Andersen (fn. 1);G?sta Esping-Andersen, "Postindustrial Cleavage Structures: A Com
parison of Evolving Patterns of Social Stratification inGermany, Sweden, and the United States," in
Francis Fox Piven, ed., Labor Parties inPostindustrial Societies (Oxford: Polity Press, 1991); and idem,
"The Emerging Realignment between Labour Movements andWelfare States," inMarino Regini, ed.,
The Future
of
Labour Movements (London: Sage, 1992).
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156 WORLD POLITICS
welfare-state backlash depend
... on the class character of welfare
states. . . .
[T]he class coalitions in which the three welfare-state
regime-types
were founded, explain
not
only their past evolution but
also their future prospects." More generally, he maintains that "a theory
that seeks to
explain welfare-state growth should also be able to under
stand its retrenchment or decline."36
I see no reason to believe that this is true. Retrenchment is not sim
ply the mirror image of welfare state
expansion. Why should we assume
that theories designed
to
explain
outcomes in a
particular
context and
involving the pursuit of particular goals will still apply once the politi
cal environment and the goals of key
actors have undergone radical
change? The question of whether theories of welfare state
expansion
offer insights into the retrenchment process is still open, but this pre
liminary discussion suggests that major modifications are
probably
re
quired. In the following section, I draw on evidence from Great Britain,
the United States, Germany, and Sweden to demonstrate the distinc
tiveness of retrenchment politics. Of declining importance
are some
formerly critical factors, such as the role of organized labor. Others,
such as the design of political institutions, are of continuing signifi
cance but in new ways. Yet a crucial emerging factor is the mature wel
fare state itself, and its broad and deep reservoirs of public support.
III. Retrenchment Politics in Four Countries
To what extent have welfare states
undergone retrenchment? What
countries and programs have been most vulnerable to retrenchment ini
tiatives and why? In this section I address these questions by reviewing
the evolution of welfare states in four affluent democracies since the
late 1970s. The evidence supports a number of claims. (1) There is lit
tle evidence for broad propositions about the centrality of strong states
or left power resources to retrenchment outcomes. (2) The unpopular
ity of retrenchment makes major cutbacks unlikely except under con
ditions of budgetary crisis, and radical restructuring is unlikely
even
then. (3) For the same reason, governments generally seek to
negotiate
consensus
packages rather than to
impose reforms unilaterally, which
further diminishes the potential for radical reform.And (4) far from
creating
a
self-reinforcing dynamic, cutbacks tend to
replenish support
for the welfare state.
36
Huber, Ragin, and Stephens (fn. 1), 733; Esping-Andersen (fn. 1), 33,32. Of course, Esping-An
dersen has also emphasized that the growth of the welfare state affects welfare state politics.
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POLITICS OF THE WELFARE STATE 157
Measuring retrenchment is a difficult task. Quantitative indicators
are
likely
to be inadequate
for several reasons. First, pure spending lev
els are
rarely the most
politically important
or
theoretically interesting
aspects of welfare states. As Esping-Andersen put it in his analysis of
welfare state
expansion, "It is difficult to
imagine that anyone struggled
for spending per se."37 In particular, rising unemployment may sustain
high spending
even as social rights and benefits are
significantly
cur
tailed. Second, spending estimates will fail to capture the impact of re
forms that are
designed
to introduce retrenchment only indirectly
or
over the long
term.
Analysis
must focus on
qualitative and quantitative
changes in programs and on
prospective, long-term changes,
as well as
on immediate cutbacks. My investigation therefore relies on a combi
nation of quantitative data on
expenditures and qualitative analysis of
welfare state reforms.38 Rather than emphasizing
cuts in spending per
se, the focus is on reforms that indicate structural shifts in the welfare
state. These would include (1) significant increases in reliance on
means-tested benefits; (2) major transfers of responsibility
to the pri
vate sector; and (3) dramatic changes inbenefit and eligibility rules that
signal
a
qualitative reform of a
particular program.39 The selection of
countries to
investigate
was based on the desire to achieve significant
variation on what the welfare state
expansion literature suggests are the
most
plausible independent variables. The cases vary widely in the
structure of political institutions, the extent of shifts in the distribution
of power resources, the design of preexisting welfare states, and the
severity of budgetary crisis.
Beginning with the quantitative evidence, aggregate
measures pro
vide little evidence that any of the four welfare states have undergone
dramatic cutbacks. From 1974 through 1990 the expenditure patterns
across the four cases are
quite similar, despite widely different starting
37
Esping-Andersen (fn. 1), 21.
38
A recent draft paper by Stephens, Huber, and Ray presents the first sophisticated statistical analy
sis of retrenchment, utilizing newly assembled data that allow investigation of fairly detailed program
matic 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 al
lows 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. John D. Stephens, Evelyne Huber,
and Leonard Ray, "TheWelfare State inHard Times" (Paper presented
at the conference on the "Pol
itics 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 pro
grams. 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 re
tiree's earlier standard of living are clearly unable to do so).
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158 WORLD POLITICS
points. As Tables 1 and 2 show, social security spending and total gov
ernment
outlays
as a percentage of GDP are
relatively flat over most of
the relevant period. The exception is the recent surge in Swedish ex
penditures, which will be discussed below. There is a slight upward
trend overall, with fluctuations related to the business cycle. Table 3,
which tracks public employment, reveals a similar pattern (although the
expansion of Swedish public employment from an already high base
stands out). For none of the countries does the evidence reveal a
sharp
curtailment of the public
sector.
Table 4 offers more
disaggregated indicators of shifts in social wel
TableI
Social Security Transfers as % of gdp
(1974-90)
Britain
Germany
Sweden United States
1974
1980
1982
1984
1986
1988
1990
9.8
11.7
14.0
14.0
14.1
12.3
12.2
14.6
16.6
17.7
16.5
15.9
16.1
15.3
14.3
17.6
18.3
17.6
18.4
19.5
19.7
9.5
10.9
11.9
11.0
11.0
10.6
10.8a
SOURCE: OECD, Historical Statistics, 1960-1990 (1992), table 6.3.
a1989.
Table 2
Government Outlays as % of Nominal gdp
(1978-94)
1978
1980
1982
1984
1986
1988
1990
1992
1994a
Britain
41.4
43.0
44.6
45.2
42.5
38.0
39.9
43.2
44.8
Germany
47.3
47.9
48.9
47.4
46.4
46.3
45.1
49.0
51.4
Sweden
58.6
60.1
64.8
62.0
61.6
58.1
59.1
67.3
70.9
United States
30.0
31.8
33.9
32.6
33.7
32.5
33.3
35.1
33.9
SOURCE: OECD, Economic Outlook (December 1993), table A23.
a
Projection.
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POLITICS OF THE WELFARE STATE 159
Table 3
Government Employment as % of Total Employment
_(1974-90)_
Britain
Germany
Sweden United States
197419.6 13.0 24.816.1
198021.1 14.6 30.315.4
198222.0 15.1 31.715.4
198422.0 15.5 32.614.8
198621.8 15.6 32.214.8
198820.8 15.6 31.514.4
1990_19I2_151_317_14.4a
SOURCE: OECD, Historical Statistics, 1960-1990 (1992), table 2.13
a1989.
fare spending among the four countries; spending patterns
are
reported
for what the OECD terms "merit goods" (primarily housing, education,
and health care) aswell as for various income transfers. The figures sug
gest
a bit more
divergence among the cases, with the United States and
Germany emerging
as somewhat more successful in curbing spending.
A very few program areas?notably British housing and German pen
sions?experienced significant reductions. Nonetheless, similarities
across countries remain more
striking than differences. None of the
cases show major rises or declines in overall effort, and there are few in
dications of dramatic change in any of the subcategories of expenditure.
The data suggest a surprisingly high level of continuity and stabil
ity.40These figures
must be treated with caution, however, since major
changes in the spending for particular programs could be occurring
within these broad categories. Policy reforms could have imposed
lagged cutbacks that do not show up in spending figures. Furthermore,
many other features of programs, not
just spending levels, are of signif
icance. To investigate these issues and to get a better sense of the
processes that generated these aggregate outcomes, we turn to amore
detailed investigation of the four cases.
Great Britain
By themid-1970s Britain had developed amidsize welfare statewith a
mix of fairly modest income transfer programs and relatively extensive
40
This broad conclusion is echoed for amuch larger number of cases in Stephens, Huber, and Ray
(fn. 38).
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Table 4
Government Outlays by Function as {
(1979-90)
>OFTREND
Britain
Germany
Sweden
1979 1990 1979-90 1979 1990 1979-90 1979 1990 1
Total44.9 43.2 -1.7 49.9 45.8 -4.1 63.2 61.4
Public goodsb
9.5 9.7 +0.1 10.0 9.2 -0.8 10.5 8.8
Merit goods
13.6 12.2 -1.4 12.3 10.9 -1.4 15.9 13.4
Education 5.5 5.0 -0.5 5.2 4.2 -1.0 6.6 5.6
Healthc 4.8 5.1 +0.3 6.3 6.0 -0.3 8.1 6.9
Housing and
other3.4 2.1 -1.2 0.8 0.7 -0.1 1.2 0.8
Income Trans. 12.5 13.4 +0.9 20.2 18.5 -1.7 24.6 26.8
Pensions 6.7 6.5 -0.2 12.7 11.2 -1.5 11.0 11.5
Sickness 0.4 0.3 -0.1 0.8 0.7 -0.1 3.4 4.5
Family allow. 1.7 1.6 -0.0 1.2 0.8 -0.4 1.6 1.3
Unemployment 0.7 0.6 -0.1 0.9 1.3 +0.4 0.4 0.5
Other income
supports 0.1 0.8 +0.7 1.3 1.6 +0.3 0.1 0.2
Admin, and
other spend.
1.4 1.6 +0.3 2.6 2.4 -0.2 4.9 5.2
Add. transfer 1.4 1.8 +0.5 0.5 0.4 -0.1 3.2 3.7
Source: OECD, Economic Outlook (December 1993), table 21.
a
Numbers may not sum to total due to rounding.
b
Defense and other public services.
c
For the U.S., social security related to health spending is included under "additional transfers" below.
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politics of the welfare state 161
and interventionist policies in health care and housing. The past fifteen
years of Conservative rule represent
a
powerful
test of a number of
claims about retrenchment. There are few if any cases within the OECD
of such a radical swing
to the right in the distribution of power re
sources. A balanced two-party system gave way to Conservative hege
mony, as reflected in four consecutive electoral victories.41 A fairly
strong labor movement suffered repeated defeats in the face of high
un
employment and changes in industrial relations law; union density
declined from over 55 percent in 1979 to 35 percent in 1993.42 Fur
thermore, Britain's Westminster political system concentrates
political
authority. If a strong state with few internal veto
points is the key
to re
forming the contemporary welfare state, the British Conservatives were
in an
unusually favorable position. In short, a
simple inversion of wel
fare state
expansion arguments would suggest that Britain should have
been fertile ground for social
policy cutbacks. The evidence does not
support such a conclusion.43 While there are individual instances of sig
nificant retrenchment, notably in housing and pensions policy, these are
the exception rather than the rule. The British welfare state, if battered,
remains intact. As Table 4 indicates, social expenditure (merit goods
plus transfers) as a share of GDP remains almost unchanged after more
than a decade of Conservative governance.
It isworth starting with the two cases of retrenchment success, be
cause these experiences
are instructive. One of the triumphs of the
Thatcher government was the privatization of public council housing.
The sale of roughly 1.5 million homes to tenants laid the foundation
for a
major expansion of home ownership and sharp cutbacks in subsi
dies for those who remained in the public sector.44 Housing reform was
a
uniquely popular
case of retrenchment?in many respects, the excep
tion that proves the rule. The liquidation of extensive public
sector as
sets created a rare
opportunity for credit claiming rather than blame
avoidance, offering considerable benefits for both home purchasers and
taxpayers. Public sector tenants, who under other circumstances would
have fought the government, became disinterested or divided.
41
Geoff Garrett, "The Politics of Structural Reform: Swedish Social Democracy and Thatcherism
inComparative Perspective," Comparative
Political Studies 25 (January 1993).
42
The 1979 figure is from Robert Price and George Sayers Bain, "Union Growth in Britain: Retro
spect and Prospect," British Journal of
Industrial Relations 21 (March 1983), 47. The 1993 figure is from
Derek Bird and Louise Corcoran, "Trade Union Membership and Density, 1992-93," Employment
Gazette (June 1994), 193.
43
Pierson (fn. 12), chaps. 3-6.
44
Ray Forrest and Alan Murie, Selling theWelfare State: The Privatization of
Public Housing (Lon
don: Routledge, 1988).
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162 WORLD POLITICS
The government
s
pension reforms were also relatively successful.45
A less generous indexation rule for the basic pension produced gradual
but considerable budgetary savings. The government also introduced
significant cutbacks in the State Earnings-Related Pension Scheme
(SERPS), while introducing
a
private personal pension alternative. The
government's initial proposal?to abolish SERPS with a very limited
phase-in period?met with overwhelming opposition,
even from usual
supporters like theConfederation of British Industry (CBl).Forced into
an
embarrassing retreat, the government introduced more modest but
nonetheless substantial changes in SERPS,which will gradually expand
private pensions while reducing public
sector benefits. These changes,
though criticized, failed to generate the kind of outcry that often led
the government to back off from other reforms. Offering the carrot of
personal pensions diminished the pain of the cuts in public pensions
(although the required tax incentives also diminished the government's
budgetary savings). More important, the government's
use of in
cremental and seemingly technical reforms limited the emergence of
opposition.
Careful political planning in the context of programs that were either
weakly institutionalized (SERPS)or offered rareopportunities for credit
claiming (council housing) protected theThatcher government. These
cases were
exceptions, however. On the whole, the British Conserva
tives found the welfare state to be a
political minefield, as
popular sup
port for social spending remained strong. In fact, British public opinion
regarding social policy reveals the same
pattern found elsewhere: a
modest decline of support for the welfare state
preceded the arrival of
the Thatcher government but rebounded at the first hint of serious re
trenchment. Public opinion in Britain has run
strongly, and increas
ingly, in favor of maintaining
or even
expanding social provision.46
Thus while the government was
clearly hostile to much of the wel
fare state and had the political authority
to
implement dramatic
changes if it chose to do so, the fear of being held accountable for un
popular initiatives held it in check. Preserving theNational Health Ser
vice, for example, became far and away the Labour Party's best issue in
the 1980s. Initial exploration of various options for privatization pro
voked public outrage.The Thatcher government repeatedly backed off
45
Alan Walker, "Thatcherism and the New Politics of Old Age," in John Myles and Jill Quadagno,
eds., States, Labor Markets, and theFuture
of
Old
Age Policy (Philadelphia: Temple University Press,
1991); Pierson (fn. 31).
46
Peter Taylor-Gooby, "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).
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POLITICSOF THEWELFARE STATE 163
from
plans
for fundamental restructuring of the system.47 By the end of
the decade the government
s
repeated promise had become "the NHS is
safe with us."
While the government achieved some nontrivial incremental cut
backs in various programs, radical retrenchment efforts failed, often at
considerable political
cost. The universal Child Benefit, frequently
ru
mored to be in jeopardy, survived (although
at a somewhat reduced
level), due in part to
well-organized lobbying efforts. A massive and
highly publicized social security review promising
to offer a "new Bev
eridge" ended up making modest adjustments
to programs for low
income groups.48 Sickness Pay, touted as an instance of successful
privatization, remains a
thinly disguised public
sector benefit.49 Fur
thermore, attempts to foster retrenchment arguably caused Thatcher's
ultimate downfall. The tremendously unpopular poll tax?designed
to
cripple the social spending of local governments by cutting their finan
cial legs
out from under them?was a
major
source of the downward
spiral in the polls that forced Thatcher's resignation. Her successor,
John Major, followed a more moderate course. While attempting
to
consolidate Thatchers least unpopular reforms, he launched few initia
tives of his own and retreated on
unpopular issues like cutbacks in
Child Benefit.
Parts of the Conservative record demonstrate that major retrench
ment is not
impossible. Where a government can obscure the conse
quences of reform?or better yet, turn reform into a source of tangible
benefits?the welfare state may be vulnerable. Had the entire British
welfare state resembled council housing, the Conservative agenda
would have succeeded. Yet the government
s record reveals more cases
of incremental adjustments
or failed attempts to restructure programs.
Overall social expenditure remains almost unchanged; housing and
pensions aside, the government paid
a
significant price for the cutbacks
itwas able to
impose. This outcome stands in sharp
contrast to the
Thatcher government's remarkably successful efforts in other policy
areas, such as its overhaul of Britain's industrial relations system and its
privatization of publicly owned industries.
47
Rudolf Klein, The Politics of theNational Health Service, 2d ed. (London: Longman, 1989); Edwin
Griggs, "The Politics of Health Care Reform in Britain," Political
Quarterly 62 (October-December
1991).
48
Nicholas Deakin, The Politics ofWelfare (London: Methuen, 1987).
49
Nicholas Barr and Fiona Coulter, "Social Security: Solution or Problem?" in John Hills, ed., The
State ofWelfare: The Welfare State in Britain since 1974 (Oxford: Oxford University Press, 1990), 281;
Michael O'Higgins, "SocialWelfare and Privatization: The British Experience," in Sheila B. Kamer
man and Alfred J. Kahn, eds., Privatization and theWelfare State (Princeton: Princeton University
Press, 1989).
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164 WORLD POLITICS
The United States
Many have seen the United States as another likely candidate for a dis
mantling of the welfare state. Like Britain, the United States experi
enced a
significant rightward shift in power resources
during the 1980s.
Republicans captured the presidency in 1980 (aswell as the Senate
until 1986). Union power?never that extensive to
begin with?con
tinued a
seemingly inexorable decline. The American welfare state was
already fairly modest in scope, suggesting
to some observers that pub
lic support for maintaining itwould be weak. Unlike Thatcher, how
ever, retrenchment advocates in the United States operated in a context
of severely fragmented political authority. The combination of weak
parties, separation of powers, and federalism created an institutional
environment that was in many respects the polar opposite of that in
Britain.
Yet at least through 1994 theAmerican story reads like the British
one, minus most of Thatchers sporadic
successes.
Reagans first year
was the exception. Riding the antitax wave that had
helped
to elect
him, Reagan
was able to cobble together
a loose coalition of southern
Democrats and Republicans
in his first year to pass some cuts in social
programs, especially those affecting the poor. A decade-long expansion
of low-income housing programs was
rapidly reversed. Significant
cuts
were introduced in the main program for the poor, AFDC, and in Un
employment Insurance. The Reagan administration successfully
ex
ploited the fact that responsibility for these two programs was shared
with fiscally strapped
state governments. Both fared poorly in the
1980s, although many of the cutbacks occurred at the state level.50
This first-year record has shaped many appraisals of the Reagan
rev
olution.51 As in other countries, however, popular support for retrench
ment
dissipated rapidly. The Reagan assault petered
out in 1982, when
further budget
cuts were
overwhelmingly rejected. Reagan's single
major reform initiative, the New Federalism proposal, would have
transferred responsibility for AFDC and food stamps to the states (in re
turn for the federal governments assumption of complete control over
50
In the case of AFDC, which is not indexed, this happened largely because state governments failed
to index benefits to inflation. Given this structural feature of the program, "nondecisions" allowed quiet
retrenchment. This trend predated Reagans arrival in office. Indeed, cuts in real benefits were greater
during Carter s
presidency (when inflation was
high) than under Reagan.
51
See, for example,
two
frequently cited studies: Sara A. Rosenberry, "Social Insurance, Distributive
Criteria and theWelfare Backlash: A Comparative Analysis," British Journal of
Political Science 12 (Oc
tober 1982); and John Palmer and Isabel Sawhill, eds., The Reagan Experiment (Washington, D.C.:
Urban Institute Press, 1982).
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POLITICS OF THE WELFARE STATE 165
Medicaid). The proposal
was so
unpopular, however, that it could not
find even a
single congressional sponsor and died without ever
being
introduced.52 By Reagans second term incremental expansions of vari
ous social programs for the poor were back on the agenda, and Con
gress passed modest increases in food stamps and Medicaid and a
dramatic expansion of the earned income tax credit for poor working
families.53
Middle-class programs also weathered the storm. Trust fund diffi
culties forced significant reforms of Social Security, and there was a se
ries of efforts to trim Medicare s
exploding
costs
(mostly through
cuts
in
provider compensation). In all these efforts, however, Republicans
fearful of the electoral consequences of retrenchment refused to move
forward in the absence of bipartisan agreement. The need for consensus
in turn assured that reforms would be acceptable
to program defenders
within the Democratic Party. This was most
clearly evident in the 1983
Social Security amendments, where the reliance on a
bipartisan, quasi
corporatist commission assured that radical reforms would be rejected.54
It was also true, however, of the series of broad budget packages that
sought cutbacks in theMedicare system.55
Although it is generally argued that the residual nature of the wel
fare state in the United States creates a narrow
political base, the initial
backlash against the welfare state was short-lived. Declining support
for social programs preceded Reagans election. From 1982 onward?
that is, immediately following the first round of budget cuts?polls
re
vealed growing support for the welfare state.56 As is true elsewhere,
support for means-tested programs was far lower than that for middle
class programs, but the same
public opinion pattern of modest declines
in support followed by rapid recovery is evident for both targeted and
universal programs. Reagan became much more hesitant as
popular
en
thusiasm for retrenchment faded. In any event, the fragmented
nature
52
Tim Conlan, New Federalism:
Intergovernmental Reform from
Nixon to
Reagan (Washington,
D.C.: Brookings Institution, 1988), 95-238.
53
Paul E. Peterson, "The Rise and Fall of Special Interest Politics," Political Science Quarterly 105
(Winter 1990-91); Robert Greenstein, "Universal and Targeted Approaches
to
Relieving Poverty," in
Christopher Jencks and Paul Peterson, eds., The Urban Underclass (Washington, D.C.: Brookings In
stitution, 1991).
54
Paul Light, Artful
Work: The Politics
of
Social Security Reform (New York: Random House, 1985).
55
Joseph White and Aaron Wildavsky, The Deficit and the Public Interest (Berkeley: University of
California Press, 1989).
56
Fay Lomax Cook and Edith J. Barret, Supportfor theAmerican Welfare
State (New York: Columbia
University Press, 1992); Robert Y. Shapiro and John T. Young, "Public Opinion and theWelfare State:
The United States in Comparative Perspective," Political Science Quarterly
104 (Spring 1989). In line
with my general argument, Shapiro and Youngs research indicates similar patterns in other countries.
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166 WORLD POLITICS
of American political institutions assured that plans for further cut
backs met a hostile reception
in
Congress.
To be sure, with both the emergence of a
large structural budget
deficit during the 1980s and resistance to tax increases, little room was
left for social policy expansion. The American welfare state moved into
a zero-sum era, inwhich gains for some programs often came at the ex
pense of others. This atmosphere continued when the Democrats re
turned to theWhite House in 1992, although social spending for the
poor was a
prime beneficiary of the 1993 budget agreement. From the
late 1980s through 1994 the situation was one of reallocation within an
essentially stagnant budget.57
The 1994 elections, which ended forty years ofDemocratic predom
inance in Congress, precipitated the most
vigorous challenge yet to the
American welfare state.
Republicans had learned important lessons
from past defeats. Social Security
was taken off the table. The issue was
carefully framed as amatter of controlling the deficit and bringing gov
ernment "closer to the people." Efforts at institutional change (the line
item veto and balanced-budget amendment) preceded (though with
limited success) attacks on social programs. To diminish visibility,
most
of themajor cutswere scheduled for the year 2000 and beyond. If fully
implemented, the Republican budget proposals introduced in 1995
would represent
a fundamental reform of American social policy. It
will, however, be several years before the outcome of this latest battle is
clear. Republican cutbacks are
only
now
being formulated, and itwill
take some time for their impact
to
register with the electorate. While
the current
political environment poses a
major
test of the resilience of
the welfare state, both American precedent and the experience else
where cast doubt on the proposition that Republicans will discover a
deep reservoir of public tolerance for sharp
cuts in social programs.
Germany
Germany, like Sweden, has a very extensive welfare state, though the
German system is
geared toward transfer payments rather than
public
services, and toward redistribution over the life cycle rather than across
income groups. As in Britain and the United States, there has been a
considerable swing
to the right in elections during the period of auster
ity.A right-of-center coalition has been in office since 1982. In recent
57
On recent spending trends, see House Ways andMeans Committee, Background Material onPro
grams within theJurisdiction of the Committee on
Ways andMeans (Washington, D.C.: GPO,March
1994).
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POLITICSOF THEWELFARE STATE 167
years, however, the Social Democrats, with their majority in the Bun
desrat, have gained considerable influence. And although Germany's
powerful unions have been under pressure, compared with unions in
other countries their organizational strength has held up quite well.58
Thus, Germany represents a case of moderately diminished left power
resources and relatively fragmented political authority.
The German welfare state is based, not on
maximizing employment,
but on
providing subsidies to the "outsiders," who are
encouraged
to
leave the labor market to those who are
highly productive. Esping-An
dersen has speculated that the result is likely
to be an "insider-outsider"
conflict inwhich the employed (along with employers) increasingly
balk at the cost of subsidizing
a
large and growing "surplus popula
tion."59 Indeed, within the recent wave of commentary about the con
tribution of high wages and extensive social protection
to
Europe's
economic problems, Germany's huge wage costs
(including steeply ris
ing payroll taxes) have received particular attention.60 Adding
to the
stress has been the cost of unification, as theWest German welfare
state was extended to cover the far less productive East Germany.
The fiscal pressures facing Germany
are evident and are
unlikely
to
go away. Demographic shifts will increase costs even if expenses related
to unification begin
to subside. There is, however, little sign that these
pressures will translate into a
sharp insider/outsider conflict. This line
of potential cleavage isbased largely on age,with by far the largest and
most
expensive group of outsiders consisting of former insiders: pen
sioners and early retirees. There are formidable barriers to the develop
ment of political cleavages along generational lines.61 Where costs
associated with aging
are the main source of budgetary pressure, insid
ers will have to
recognize that in the future they
too will be outsiders.
This is likely
to temper any tendency toward a
polarization between
"them" and "us."62
Far from revealing
a
sharp
new
political cleavage, the reform of pen
sions in the late 1980s fits the general cross-national pattern for re
58Thelen(fn.l9).
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
Hugh Heclo, "Generational Politics," in John L. Palmer, Timothy Smeeding, and Barbara Boyle
Torrey, 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 itwould 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 amature, pay-as-you-go pension system make a
major
development along these lines highly unlikely. See Pierson (fn. 31).
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168 WORLD POLITICS
trenchment in popular social programs.63 With projections indicating
enormous
long-term deficits as a result of demographic trends, the
need for pension reform was
widely recognized. While some critics
pressed for a
rethinking of the entire scheme, the Kohl government in
stead searched for consensus among experts and the social partners, and
eagerly sought support from the opposition Social Democrats. Union
and business representatives submitted joint
statements on
pension
re
form. All parties except the Greens supported the Pension Reform Act
passed in November 1989.64 The resulting plan incorporated familiar
pruning techniques: slightly lower replacement rates, an increase in the
retirement age, and increased contributions. Combined with earlier
cutbacks, these reforms have generated substantial budgetary savings.
The basic structure of Germany's generous pension system remained
unaltered, however. In the case of health care reform aswell, corporatist
accommodation of entrenched interests and a search for cross-party
consensus has been the rule.65
The one indication of a
distinctly conservative cast to retrenchment
initiatives prior
to 1989 came in the pattern of benefit cuts. Most af
fected were welfare and unemployment insurance benefits that could be
considered a hindrance to labor market flexibility. While these benefits
were
relatively well protected under the SPD-led coalition of the late
1970s, they experienced disproportionate reductions after 1982.66 Still,
the differences were limited and did not overturn the basic reality that
social welfare policy operated within a
relatively consensual framework.
As Offe has argued, moderate cutbacks were
carefully designed by
a
"defacto bipartisan coalition" and orchestrated to prevent
a
political
outcry.67
The strains of the postunification period raised the possibility of
more dramatic reform. Germany's worsening fiscal situation, combined
with concern about industrial competitiveness, generated growing crit
63
Karl Hinrichs, "Public Pensions and Demographic Change: Generational Equity in the United
States and Germany," Centre for Social Policy Research Working Paper
no. 16/93 (Bremen: Univer
sity of Bremen, 1993); Winifried Schm?hl, "Die Finanzierung der Rentenversicherung im vereinten
Deutschland," Wirtschaftsdienst,
no. 1 (1992).
64
Friedbert R?b and Frank Nullmeier, "Altersiccherungspolitik in der Bundesrepublik,"
in Berhard
Blanke and Hellmut Wollmann, eds., Die alte Bundesrepublik'
Kontinuit?t und Wandel (Opladen: West
deutscher Verlag, 1991).
65
Douglass Webber, "Krankheit, Geld und Politik: Zur Geschichte der Gesundheitsreform in
Deutschland," Leviathan 16 (1988).
66
Jens Alber, "TheWest German Welfare State inTransition," in R. Morris, ed., Testing theLimits
of
Social Welfare (Hanover: Brandeis University Press, 1988); Claus Offe, "Smooth Consolidation in
theWest German Welfare State: Structural Change, Fiscal Policies, and Populist Politics," in Piven
(fn. 35).
67
Offe (fn. 66), 140.
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POLITICS OF THE WELFARE STATE 169
icism of the welfare state. Yet the response to unification emphasized
continuity: East Germans were
brought into theWest German social
policy regime
on
extremely generous terms. In response to
budgetary
pressures since then, a series of cuts have been introduced inmajor
so
cial programs, and more cuts are
probably
on the way.68 Again, how
ever, the pattern has been to trim benefit levels rather than challenge
the basic structure of programs.
The recent ambitious expansion of long-term
care
covering in-home
and nursing-home services is clear grounds for skepticism about the
prospects for radical retrenchment or a
generational backlash against
the German welfare state.69 The system will relieve the sickness funds
and local social assistance budgets of responsibility for long-term
care
expenditures. While the scheme partly
amounts to fiscal relief for
strapped L?nder (state) governments, it involves significant
new bene
fits as well. Its introduction at a time of budgetary
stress and wide
spread discussion of high social wage costs indicates the continuing
political attractiveness of social programs, as well as the electoral clout
of the elderly.70
There is a possibility that groups more easily defined as problem
cases, such as the long-term unemployed (especially disaffected youth,
immigrants,
or East Germans) could become the targets for political
attacks. Concern about mounting unemployment
rates and labor mar
ket inflexibilities point in the same direction. The Kohl government s
recent
proposals for cuts in social expenditures
do indeed concentrate
on
unemployment and welfare benefits. Sharp cuts, however, will pro
voke a strong challenge from the SPD and unions, since the conditions
of the unemployed
have significant implications for workers. Further
more, the force of demographic demands is such that even these polit
ically difficult reforms would have only a limited effect on the
long-term budgetary situation.71 The recent
history of retrenchment
suggests that most governments are
likely
to be skittish about pursuing
68
J?rgen Plaschke, "Die Sozialpolitik in den Monaten November, Dezember 1993 und ein
sozialpolitischer R?ckblick auf das Jahr 1993," Nachrichtendienst, no. 2 (1994).
69
Jens Alber, "The Debate over
Long-Term Care Insurance in Germany" (Contribution to an
OECD seminar on the Care of the Elderly, Paris, OECD, 1994); Ulrike G?tting, Karin Haug, and Karl
Hinrichs, "The Long Road to
Long-Term Care Insurance inGermany: A Case Study inWelfare
State Expansion" (Paper presented
at theWorld Congress of Sociology, Bielefeld, July 1994).
70
Tyll Necker, president of the Association of German Industry (bdi), described the original pro
posal (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).
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170 WORLD POLITICS
big social policy battles unless they promise to yield substantial bud
getary gains.
Demographic and budgetary pressures assure that an
atmosphere of
austerity will continue to surround the German welfare state. Indeed,
the German government has been quite successful in holding the line
on
spending. Yet, as Offe aptly puts it, it has been a
period of "smooth
consolidation.,, A fundamental rethinking of social policy
seems a re
mote
possibility. The structure of political institutions?both constitu
tional rules and corporatist policy networks?puts
a
premium
on
consensus. The SPD's significant gains in the October 1994 elections,
where Kohls coalition government retained only
a razor-thin majority,
are
unlikely
to
invigorate
a
governing coalition that has never shown
much appetite for radical initiatives.
Sweden
Sweden combines a
tremendously successful social democratic party,
powerful unions, and one of the world smost extensive and redistribu
tive welfare states. With the breakdown of centralized collective bar
gaining, union power has weakened in the past decade, and the political
hegemony of the SAP has given way to
periodic fluctuations between
SAP governance and coalitions of the bourgeois parties.72 Swedish insti
tutions, like British ones, provide for a considerable concentration of
political authority.
As with Germany,
an
analysis of trends in Swedish social policy
must
distinguish
two
periods?the cyclical patterns that Sweden shared with
other countries prior
to 1990 and the dramatic worsening of economic
and budgetary circumstances over the past four years. Despite the dis
tinctiveness of Swedish politics and the Swedish welfare state, the dy
namics of reform prior
to 1990 bears many similarities to the processes
discussed in the three preceding
cases.
Regardless of who was in office,
there was
only occasional trimming of social programs; no government
showed much enthusiasm for a
major revamping of the Swedish wel
fare state.
Esping-Andersen has tried to link the prospects for retrenchment to
policy feedback from the structure of Sweden's welfare state, positing
that Sweden s
system of extensive service provision and high public
sec
tor
employment promotes a
cleavage between workers in the public and
72
A bourgeois coalition government was in power from 1976 to 1982 and, following the SAP'sworst
showing in decades in the "earthquake" election of 1991, from 1991 to 1994.
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POLITICS OF THE WELFARE STATE 171
private sectors.73 In the 1980s both private
sector unions and employers
criticized public employees. This occurred in part because of the way
Sweden's centralized industrial relations system created linkages be
tween
public and private
sector pay, and in part simply because of the
high
tax costs of massive public
sector
employment expansion.74
It might be expected that the events of the past few years would ex
acerbate this tension. The Swedish economy came under extraordinary
pressure after 1990. The fall in output and the rise in unemployment
seem to have had relatively little to do with the welfare state itself.75 Yet
if the welfare state did not cause the economic crisis, it is clearly impli
cated in Sweden's current
predicament. Unemployment, including
those participating
in government-financed active labor market
schemes, rose from 3 percent in 1989 to over 12 percent in 1993.76 De
signed
to operate at full employment, the Swedish welfare state cannot
tolerate burdens of this magnitude. Sweden's generous and expensive
social benefits led to immediate fiscal trouble when rising unemploy
ment
produced falling
revenues and higher outlays. In only four years
Sweden went from having the largest surplus in the OECD to
operating
the largest deficit. Government outlays reached the extraordinary level
of 73 percent of GDP in 1993, and the deficit stood at over 14 percent of
GDP.77 Given existing levels of taxation, the adjustment burden was
bound to fall heavily
on the expenditure side.
The emergence of a true fiscal crisis after 1990 required extensive re
forms. Furthermore, between 1991 and 1994 Sweden was
governed by
a
bourgeois coalition?and one whose center of gravity
was consider
ably to the right of the one that governed between 1976 and 1982.
Conditions thus might have seemed uniquely favorable to a
complete
overhaul of social policy. What is striking is that even under these ex
traordinary circumstances there was no
sign that the welfare state
would be radically restructured. Instead, considerable care was taken to
operate within the structure of existing programs.78 Prominent ex
73
Esping Andersen (fn. 1); Esping-Andersen (fn. 35, 1992); see also Peter Swenson, "Labor and
the Limits of theWelfare State," Comparative Politics 23 (July 1991).
74
Schwartz (fn. 15); Pontusson and Swenson (fn. 19).
75
OECD, Economic Survey: Sweden (Paris: OECD, 1994); Evelyne Huber and John Stephens,"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.
77
Ibid.
78
John D. Stephens, "The Scandinavian Welfare States: Development and Crisis" (Paper presented
at theWorld Congress of Sociology, Bielefeld, Germany, July 1994).
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172 WORLD POLITICS
amples include an
expansion of waiting days for unemployment and
sickness benefits, a
lowering of replacement
rates for unemploy
ment benefits (from 90 percent to 80 percent), a freeze on adjustments
in child allowances, and a raise in the retirement age, from sixty-five to
sixty-six.
Ironically, the breakdown of other components of the Swedish eco
nomic model also diffused some of the pressure on the divide between
public and private
sector workers. The end of centralized bargaining
has made it easier for private
sector workers to
decouple pay settle
ments from the public sector.79 Higher unemployment made the option
of cutting the public
sector workforce less attractive and shifted atten
tion to transfer programs, where the provision of generous benefits has
always depended on keeping the cohort of recipients small. Both the
crisis package accepted by the unions and the SAPin late 1992 and the
government's 1993 budget
were
geared toward cuts in transfer pro
grams (sick pay, unemployment insurance, pensions).80 Thus, while
economic problems created added pressure for the welfare state, they
did so in away that encouraged
amore
dispersed and incremental pol
itics of austerity, rather than a
polarization between public and private
sector workers.
The government showed little inclination to use the opening for rad
ical restructuring of the welfare state.
Coping with the pain of admin
istering austerity weakened the bourgeois coalition's enthusiasm for
drastic measures. In any event, only the Conservatives within the gov
erning coalition expressed serious doubts about Sweden's universalist
welfare state. Polling data from 1992 indicated overwhelming support
for social spending, including increases since 1986 for the major pro
grams.81 The coalition carefully followed the principal rules of blame
avoidance. It sought
SAP and union support for crisis packages of re
form, purchasing political
cover at the price of forgoing opportunities
for radical change.82
A similar approach
was taken to
pension reform,
paralleling the process followed in Germany and the United States.
The pension reform introduced in June 1994, based on extensive con
sultations among the major parties and representative of labor and cap
79
Pontusson and Swenson (fn. 19).
80
Evelyne Huber and John Stephens, "The Swedish Welfare State at the Crossroads," Current
Sweden, no. 394 (January 1993), 1-7; OECD (fn. 75).
81
Bo Rothstein, "The Crisis of the Swedish Social Democrats and the Future of the Universal Wel
fare State," Governance 6 (October 1993). Rothstein himself argues that weakening middle-class at
tachment 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).
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POLITICS OF THE WELFARE STATE 173
ital, seeks to get Sweden's public pension system on a stable, long-term
footing without challenging itsbasic principles.83
Far from using its electoral breakthrough and the onset of a bud
getary crisis as a
golden opportunity
to remake the welfare state, Swe
den's bourgeois coalition chose a cautious course.
Throughout, the
coalition studiously avoided initiatives that might lend credence to the
accusation that it sought
to dismantle the welfare state. The October
1994 elections vindicated the coalitions concerns, but in away that re
vealed the unpopularity of even modest assaults on social programs. In
the face of Swedens economic difficulties, the SAP
triumphed, posting
one of its highest
vote totals ever. Moreover, the victory
was achieved
on a
platform that stressed the SAP's intention to reduce the deficit
largely through
tax increases rather than budget
cuts.
IV.The New Politics of the Welfare State
Economic, political, and social pressures have fostered an
image of wel
fare states under siege. Yet if one turns from abstract discussions of so
cial transformation to an examination of actual policy, it becomes
difficult to sustain the proposition that these strains have generated
fundamental shifts. This review of four cases does indeed suggest
a dis
tinctly
new environment, but not one that has provoked anything like a
dismantling of the welfare state. Nor is it possible
to attribute this to
case selection, since the choice of two
prototypical
cases of neoconser
vatism (Britain and the United States) and two cases of severe bud
getary shocks (Germany and Sweden) gave ample
room for various
scenarios of radical retrenchment. Even inThatcher's Britain, where an
ideologically committed Conservative Party has controlled one of Eu
rope's
most centralized political systems for over a decade, reform has
been incremental rather than revolutionary, leaving the British welfare
state
largely intact. In most other countries the evidence of continuity is
even more
apparent.84
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: Swe
den, 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 cata
logs add up to radical reform rather than the continuous tinkering
common in all modern public
sec
tors. 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 farmore reasonable to treat this case as an outlier than to view it as the paceset
ter in a global march toward radical reform of the welfare state. See Stephens, Huber, and Ray (fn. 38).
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174 WORLD POLITICS
To be sure, there has been change. Many programs have experienced
a
tightening of eligibility rules or reductions in benefits. On occasion,
individual programs (such as public housing inBritain) have undergone
more radical reform. In countries where budgetary pressures have been
greatest, cuts have been more severe. Over the span of two decades,
however, some
changes in social policy
are inevitable; even in the boom
years of the 1960s specific social programs sometimes fared poorly.
What is striking is how hard it is to find radical changes in advanced
welfare states. Retrenchment has been pursued cautiously: whenever
possible, governments have sought all-party
consensus for significant
reforms and have chosen to trim existing
structures rather than experi
ment with new programs or pursue privatization.
This finding is striking, given that so many observers have seen the
post-1973 period
as one of fundamental change in modern political
economies. A harsher economic climate has certainly generated de
mands for spending restraint. Additional pressures have stemmed from
the maturation of social programs and adverse demographic trends. Yet
compared with the aspirations of many reformers and with the extent
of change in fields such as industrial relations policy, macroeconomic
policy,
or the privatization of public industries, what stands out is the
relative stability of the welfare state.
I have suggested that to understand what has been happening
re
quires looking beyond the considerable pressures on the welfare state to
consider enduring
sources of support. There are
powerful political
forces that stabilize welfare states and channel change in the direction
of incremental modifications of existing policies. The first major pro
tection for social programs stems from the generally conservative char
acteristics of democratic political institutions. The welfare state now
represents the status quo, with all the political advantages that this sta
tus confers. Nondecisions generally favor the welfare state.
Major pol
icy change usually requires the acquiescence of numerous actors. Where
power is shared among different institutions (for example, Germany,
theUnited States), radical reformwill be difficult.
As the British and Swedish cases show, radical change is not easy
even in a situation of concentrated political power. A second and crucial
source of the welfare states
political strength
comes from the high elec
toral costs
generally associated with retrenchment initiatives. Despite
scholarly speculation about declining popular support for the welfare
state, polls show little evidence of such a shift, and actual political
struggles
over social spending reveal even less. On the contrary, even
halting efforts to dismantle the welfare state have usually exacted a
high
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POLITICS of the welfare state 175
political price. Recipients of social benefits are
relatively concentrated
and are
generally well organized. They
are also more
likely
to
punish
politicians
for cutbacks than taxpayers
are to reward them for lower
costs. Nowhere is there evidence to support the scenario of a self-rein
forcing dynamic, with cutbacks leading
to middle-class disenchant
ment and exit, laying the foundation for more retrenchment. Instead,
the recurrent pattern in
public-opinion polls has been a mild swing
against the welfare state in the wake of poor economic performance and
budgetary stress, followed by
a resurgence of support at the first whiff
of significant
cuts.
Nor does the welfare state's political position
seem to have been se
riously eroded?at least in the medium term?by the decline of its key
traditional constituency, organized labor. Only for those benefits where
unions are the sole organized constituency, such as
unemployment
in
surance, has labor's declining power presented immediate problems,
and even here the impact
can be exaggerated.85 The growth of social
spending has reconfigured the terrain of welfare state
politics. Maturing
social programs produce
new
organized interests, the consumers and
providers of social services, that are
usually well placed
to defend the
welfare state.
The networks associated with mature welfare state programs consti
tute a barrier to radical change in another sense as well. As recent re
search on
path dependence has demonstrated, once initiated, certain
courses of development
are hard to reverse.86 Organizations and indi
viduals adapt
to
particular arrangements, making commitments that
may render the costs of change (even to some
potentially
more efficient
alternative) far higher than the costs of continuity. Existing commit
ments lock in policymakers. Old-age pension systems provide
a
good
example. Most countries operate pensions
on a pay-as-you-go basis:
current workers pay "contributions" that finance the previous genera
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 re
cent quantitative appraisal of program generosity rather than simply spending levels. In the majority of
cases (twelve out of twenty), replacement
rates were
higher
m 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 OECDjobs Study: Facts, Analysis, Strategies (Paris:
OECD, 1994), chart 16, p. 24.
86
See Paul David, "Clio and the Economics of QWERTY," American Economic Review 75 (May
1985); andW. Brian Arthur, "Competing Technologies, Increasing Returns, and Lock-In by Histori
cal Events," Economic Journal 99 (March 1989), 116-31. For good extensions to political processes, see
Stephen A. Krasner, "Sovereignty: An Institutional Perspective,"
in James A. Caporaso, ed., The Elu
sive State: International and
Comparative Perspectives (Newbury Park, Calif: Sage Publications, 1989);
and North (fn. 20).
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176 WORLD POLITICS
tior?s retirement. Once in place, such systems may face incremental cut
backs, but they
are
notoriously resistant to radical reform.87 Shifting
to
private, occupationally
based arrangements would place
an untenable
burden on current workers, requiring them to finance the previous gen
eration s retirement while simultaneously saving for their own.
Over time, all institutions undergo change. This is especially
so for
very large ones, which cannot be isolated from broad social develop
ments. The welfare state is no
exception. But there is little sign that the
last two decades have been a transformative period for systems of so
cial provision. As I have argued, expectations for greater change have
rested in part on the implicit application ofmodels from the period of
welfare state
expansion, which can be read to suggest that economic
change, the decline in union power, or the presence of a strong state
creates the preconditions for radical retrenchment. I find little evidence
for these claims.
This preliminary investigation still leaves us some distance from a
coherent comparative theory of retrenchment politics. It does, however,
suggest some of the building blocks for such a
theory. The pressures of
a
shifting global economy, which have long been at the center of dis
cussions of the contemporary welfare state, continue to deserve major
(if more nuanced) attention. What needs more consideration iswhat
happens when these considerable pressures collide with popular, deeply
institutionalized public policies. I have emphasized that politicians
are
likely
to pursue strategies that will not
damage their chances for reelec
tion. The centrality of electoral considerations, combined with the gen
eral unpopularity of welfare state cutbacks, suggests some
plausible
hypotheses about the political preconditions for significant reform.
These hypotheses
are
only tentative and would need to be subjected
to
sustained comparative scrutiny. Each, however, is compatible with the
analysis of retrenchment outlined here and with the evidence pre
sented.
First, radical retrenchment may be facilitated when there is signifi
cant electoral slack, that is,when governments believe that they
are in a
strong enough position
to absorb the electoral consequences of unpop
ular decisions.88 Thus, one reason for Thatchers relative (though still
limited) success may have been the division among her opponents
87
Thus inGermany, Sweden, and the United States the maturity of existing schemes limited poli
cymakers to very gradual and incremental reforms of 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).
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POLITICSOF THEWELFARE STATE 177
within a
first-past-the-post electoral system. This may have given her
more room to pursue unpopular policies that would have been beyond
the reach of a government in a
precarious electoral position. However,
calculating electoral slack ex ante is a
tricky business, and most govern
ments are
likely
to
proceed cautiously. As I have indicated, even the
Thatcher government generally retreated when confronted with wide
spread opposition.
Second, moments of budgetary crisis may open opportunities for re
form. Advocates of retrenchment will try to
exploit such moments to
present reforms as an effort to save the welfare state rather than destroy
it. Framing the issue in this manner may allow governments to avoid
widespread blame for program cutbacks. Making the claim of crisis
credible, however, generally requires collaboration with the political op
position. In turn, the need for consensus makes it difficult to utilize
crises to promote radical restructuring. Thus, while the appearance of
fiscal stress encourages downward adjustments in social programs, it is
far less clear that it provides
a
platform for a radical overhaul of social
policy.
Third, the success of retrenchment advocates will vary with the
chances for lowering the visibility of reforms. Those seeking retrench
ment will try to avoid political outcries by diminishing the visibility of
their cutbacks or by trying to hide their own responsibility for unpop
ular outcomes. Success in these efforts, I have argued, depends partly
on the design of political institutions.Whether political authority is
concentrated or not
helps
to structure the choices available to retrench
ment advocates. Where authority is concentrated (as in Britain and
Sweden), governments will be hard-pressed
to avoid blame for unpop
ular decisions, but they will have a greater capacity
to
develop and im
plement strategies that obscure cutbacks. Governments in more
fragmented systems must fashion strategies that minimize the need to
force multiple policy changes through institutional veto
points. How
ever, they may find it easier to duck accountability for unpopular poli
cies. Federalism, for example, opened up considerable possibilities for
Reagan
to shift the blame for cuts in some programs, a tactic that is
central to the current efforts of congressional Republicans.
Finally, the prospects for changing institutions (the rules of the
game) may be of great significance. If retrenchment advocates can re
structure the ways in which trade-offs between taxes, spending, and
deficits are
presented, evaluated, and decided, they may be able to shift
the balance of political power. So far, these institutional shifts have
been rare, but several instances may be of growing relevance. In Europe
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178 WORLD POLITICS
the increasing policy significance of the EC may alter the terrain for
struggles
over the welfare state. If reforms can be presented
as
legally
required
or
economically imperative because of the single market or
moves toward monetary union, national governments may be freed
from some blame for welfare-state cutbacks.89 In the United States the
new
Republican majority in Congress deferred efforts to cut programs
until after a strong (but only modestly successful) push
to
change the
rules of the game. The intent of the rule changes
was to increase the
salience of taxes and create amore favorable climate for attacking social
spending.
If this analysis suggests
some
plausible
sources of cross-national vari
ation, it also highlights the need to
disaggregate welfare states and con
sider variations across programs. Indeed, in the four cases considered
outcomes often differed more across programs (for example, the con
trast between council
housing
and the NHS in Britain) than across
countries. It is commonly argued that the crucial distinction across pro
grams will be between universal programs and those that target the
poor, and that the latter will be especially vulnerable.90 Yet the current
investigation does not support this assertion. Rather, variations in out
comes across programs in the four countries do not
generally track the
universal/targeted divide. Among the likely
reasons that targeted pro
grams have generally
not
proved
more vulnerable: cuts in these pro
grams tend to
yield only minimal budgetary savings, and conservative
governments interested in radical reform object the most to the univer
sal programs that require high
tax rates and compete with plausible pri
vate alternatives. Instead, the current
investigation suggests that a
promising
area of research concerns the features of programs that allow
governments either to obscure the
impact
of retrenchment on voters or
to diminish their own
accountability
for unpopular reforms.91 Programs
that are
poorly indexed, for example, make it easier to pursue a low-vis
ibility strategy of allowing inflation to gradually erode the value of ben
efits.
All of these hypotheses build on the core argument of this essay: that
frontal assaults on the welfare state carry tremendous electoral risks.
89
For an argument about how EC institutions may allow blame-avoiding behavior on the part of
member state governments, see Andrew Moravcsik, "Why the EC Strengthens the State" (Manu
script, 1994).
90
Robert Kuttner has called this "the most fundamental principle
in the political economy of social
spending." Kuttner, "Reaganism, Liberalism, and the Democrats," in Sidney Blumenthal and Thomas
Byrne Edsall, 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.
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POLITICS OF THE WELFARE STATE 179
The contemporary politics of the welfare state is the politics of blame
avoidance. Governments confronting the electoral imperatives of mod
ern
democracy will undertake retrenchment only when they discover
ways to minimize the political
costs involved. But as I emphasize, such
techniques
are hard to come
by.While this analysis suggests some of
the possible keys
to variation in policy outcomes, the most
significant
finding
concerns not variation but commonality. Everywhere, retrench
ment is a difficult undertaking. The welfare state remains the most re
silient aspect of the postwar political economy.
Understanding why this is so
requires that old arguments be
rethought and recast to address the exigencies of a new
setting. At a
time when historical institutionalism has become fashionable, this con
clusion has broad implications for the study of comparative politics.
The strong calls to
incorporate historical analysis into the study of con
temporary politics
are
compelling.92 Yet we must remain cognizant of
the hazards of drawing
on
history in the wrong way. There are
signifi
cant
dangers in using historical
analogies
to
study contemporary social
politics, since the goals of social policy reformers and the context in
which they operate have undergone profound change. Instead, histori
cally grounded analysis should emphasize that social policy change is a
process that
unfolds
over time. My focus on the impact of inherited so
cial policy
structures draws on this precise point. The growth of the
welfare state has transformed the politics of social policy. A historical
perspective should stress that today's policymakers operate in an envi
ronment
fundamentally shaped by policies inherited from the past,
rather than suggesting that current
politics will echo the conflicts of a
previous
era.
92
Sven Steinmo, Kathleen Thelen, and Frank Longstreth, eds., Structuring Politics: Historical Insti
tutionalism in
Comparative Analysis (Cambridge: Cambridge University Press, 1992).
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