Three Waves of Transformative Welfare State Change


Most comparative welfare state researchers divide the post-war era into two periods: a 30-year Golden Age of welfare state innovation and expansion, from the end of World War II to the mid-1970s, and one of fiscal austerity and retrenchment, from the mid 1970s to the early years of the twenty-first century (Marglin and Schor, 1990; Huber and Stephens, 2001; Pierson, 2002). The standard 'epochalist' view of the development of the welfare state in terms of expansion and austerity runs the risk of prejudging the recent period in rather negative terms, putting the social progress made over the era of social policy expansion in jeopardy. In this chapter, I put forward an alternative periodization by subdividing the post-war period to the early twenty-first century into three distinct phases of welfare state reconfiguration. These are: (1) the era of welfare state expansion and class compromise, starting at the end of World War II; (2) the period of welfare retrenchment and neoliberalism, which took shape in the wake of the oil shocks of mid to late 1970s, and; (3) the more recent epoch since the mid 1990s in which social investment policy prescriptions became popular. Each phase of welfare state development can be conceptualized by distinct policy expertise, designed to respond effectively to impending socio-economic challenges and to achieve shared policy objectives, supported by fairly robust political compromises (Hemerijck, 2012a). It should immediately be emphasized that no single country's specific change experience maps neatly onto the suggested threepronged developmental sequence. Moreover, the social investment perspective has not yet been fully accepted as a hegemonic policy paradigm. Rather, it is an emerging welfare edifice and its institutional fate lies very much in the aftermath of the current financial crisis.

Moments of fundamental policy change are often associated with successive waves of economic adjustment. Especially deep economic crises provide important political windows for policy redirection. At such junctures policy change is often guided by important cognitive innovations in policy analysis, better suited to the predicament of the day. In the first episode after 1945, economic security transformed from 'charity' into a 'right' for which potentially every citizen was eligible. Keynesian economic theory, the brainchild of the 1930s, provided the intellectual ammunition for post-war construction and the expansion of the modern welfare state, based on the notion of demand stabilization through income-transfer social insurance provision with male-breadwinner full employment as the prime objective. Second, the aftermath of the oil crises revealed the practical limitations of Keynesianism in fighting stagflation. It its wake a new economic policy consensus took root, inspired by neoclassical economics, favouring price stability, budgetary discipline, flexible labour markets, and retrenched welfare commitments.

In the absence of a deep economic crisis, on a par with the Great Depression of the 1930s or the Great Stagflation of the 1970s, the social investment turn is far more difficult to delineate than either the post-war era of Keynesian welfare expansion or the neoliberal epoch of retrenchment. Whereas the two preceding periods, economic turmoil critically influenced the realm of politics and, subsequently, the direction of welfare state adaptation to new social and economic realities, the social investment rise to prominence was primarily political, triggered by growing disenchantment with neoliberal policy prescriptions, long before the financial meltdown in the autumn of 2008.

The intellectual reception, collective expression, and political acceptance of any novel set of economic ideas and social policy expertise are coloured by many factors, ranging across power resources, political ideology, state structures, and institutional capacities to enact social policy innovation, processes of political coalition formation, and interest intermediation. In this chapter special attention will be given to the intellectual resources of the emerging social investment perspective.

I proceed in five steps. The next two sections describe the ideas of social and economic policy analysis of the first two waves of post-war welfare state expansion and retrenchment. Section 4 reveals how social investment ideas were triggered by the rise of new inequalities and growth deficiencies and broader political disenchantment with retrenchment and deregulation. Moreover, it is devoted to the policy analysis of social investment, based on the recognition of a shift from old industrial risk management to new post-industrial social risks, associated with intensified economic internationalization, demographic ageing, gender and family change, the shift to services, and labour market transformation. The social investment policy paradigm rests on the fundamental idea, similar to Keynesianism, that social policy can be a productive factor, potentially producing positive sum outcomes in which increased social equity goes hand in hand with increased economic efficiency, higher employment participation, and significant labour productivity growth. Beyond the underlying objective of providing effective capacitating resources, tailored to the different needs of individuals and families at risk of social exclusion, social investment expert economists and social policy thinkers do not share a singular theoretical core, on a par with Keynesian macro management and neoclassical micro-economics. If we wish to say anything profound about the relative economic proficiency of social policy, this diverse group of experts obliges us to direct our close attention to the particular combinations of institutions and policy choices under different problem constellations. Section 5 concludes.

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