Transformations of the Welfare State. Small States, Big Lessons


Transformations of the Welfare State. Small States, Big Lessons Obinger, H., Starke, P., Moser, J., Bogedan, C., Gindulis, E. and S. Leibfried ( eds .) Oxford : Oxford University Press ( 2010 ), 334 p , ISBN: 978-0-19-929632-3

Since the publication of Peter Katzenstein’s seminal “Small states in world markets”, small countries have intrigued political economists. Noteworthy was not only their above average economic performance, but also their capacity to adapt to economic conditions dictated by world markets. In particular, economic openness was compensated internally with a strong welfare state. To an extent, the economic insecurity that went with full participation in the international economy was mitigated by collective forms of social protection. This basic idea was found across most small states, but then individual countries found different ways to compensate for economic insecurity. In the Nordic countries and in Austria it was the welfare state. In Switzerland, it was selective protectionism and tolerance for cartels, and in New Zealand protectionism and labour market regulation.

As Katzenstein noted, small states did on average remarkably well during the crises of the 1970s and 1980s. But how are they doing in the current era of globalisation? International economic competition has intensified over the last two decades, and one can wonder whether the compensation approach will continue to guarantee economic competitiveness, prosperity and social cohesion to these small countries. Can small countries continue to afford relatively costly welfare states, or will they be forced to reduce social protection under the pressure of globalisation forces? In order to answer these questions, Obinger and colleagues, have carried out an in depth analysis of social policy developments in four small countries: Austria, Denmark, New Zealand and Switzerland.

The result is a very informative book, with highly developed case studies of social policy developments in the four countries spanning over a 30 years period. As good political scientists, the authors pay considerable attention to the political orientation of the actors (mostly governments, but not only) responsible for steering the welfare state in given directions.

The four countries studied have all reformed their welfare states, but not in the direction of a complete dismantling of protection. Austria has seen some path departing reforms, but also other ones that have strengthen the Bismarckian character of its welfare state. New Zealand is perhaps the country that as gone furthest in the direction of retrenchment, but has also invested much in active social policy. Activation, instead, is the leitmotiv of Danish reforms while for Switzerland, the main theme is a shift from a liberal towards a conservative welfare state. Overall, the authors conclude, the thesis of a race to the bottom among small welfare state is not confirmed by the evidence. On the contrary, the presence of cross-national variation and the different directions taken by reform suggest that there is still much room for manoeuvre in social policy making. Given small countries’ strong exposure to the international economy, we can also expect larger welfare state to be able to resist the forces of globalisation.

Though not particularly original, the overall claim is convincing. However, it is unfortunate that the impressive wealth of empirical material collected is not used to deal with more challenging questions. For example, can we identify a reform trajectory that is specific to small countries? This would have been the logical continuation of Katzenstein’s work. Unfortunately, this question is addressed only rapidly in the concluding chapter on the basis of some quantitative indicators, suggesting that there are still some specificities of small countries. A more thorough treatment of this question, including on the policy level, would have certainly made a major contribution to current debates.

A second remark concerns the rather “mechanical” quality of the comparison. Four countries are compared over a period of 30 years, from the early 1970s to 2008, but there is no real intellectual or policy problem driving the comparison. Rather than setting (arbitrary) dates for the beginning and the end of the period under scrutiny, one could have chosen a given development or event as the driver of the comparison. The presentation of the country cases, in alphabetical order, contributes to this impression, as does the division of the Swiss account into decades.

Perhaps this “mechanical” quality is most problematic in the case of Switzerland. This country entered the period under scrutiny with an underdeveloped welfare state, and while other countries were beginning to retrench some of the generous schemes inherited from the postwar years, Switzerland was still expanding its social protection system. But this delay in the establishment of a comprehensive welfare state can largely be explained with reference to political institutions such as federalism and direct democracy. The political decisions that resulted in the adoption of the 1982 law mandating occupational pensions for all employees with earnings above a certain level, had their origins in developments that had taken place nearly two decades earlier. In the 1960s, in Switzerland, like in other countries where the state provided only a limited degree of pension coverage, a debate developed on how to provide a better deal for the middle classes. Britain, Sweden and Denmark, which started off as Switzerland in the field of pensions, were simply much quicker in fixing this problem.

As a result, the 1982 occupational pension law was not a reform of the 1980s (in the sense that it was a response to problems emerging in the 1980s). It was a reform of the 1960s, with a delay. A better framing of the comparison, would have entailed to start from the identification of policy problems rather than simply comparing calendar periods.

As a result of this choice, the authors miss the activation turn that Switzerland has undergone in the 2000s. Though all the relevant reforms are mentioned in the chapter, the emphasis of the interpretation is put on the (delayed) expansion of the postwar welfare state. And yet, the activation turn in Switzerland is visible in unemployment insurance, invalidity insurance, social assistance, and family policy. But this is not emphasised in the book.

Perhaps a stronger focus on activation and on the development of pro-employment policies would have allowed the authors to come up with an account of what, if anything, remains of the specificity of small countries. It is true, in fact, that small countries are overrepresented among the countries that have led the reorientation in social policy. The authors sometime hint at the fact that what they call “supply side” social polices have become more common, but this notion is not turned into a full blown argument. Yet, countries like Denmark, and New Zealand, but also the Netherlands, Sweden, and Finland have been among the first to turn to active social policy (true, with the UK). Larger countries like Germany, France, not to speak of Italy, were clearly latecomers, sometimes reluctantly, in this respect.

Is active social policy the new trade mark of small welfare states? Certainly not exclusively. However, form a theoretical point of view, and following Katzenstein’s argument, one could put forward the hypothesis that given the extreme dependence on world markets, small states are forced to develop productive and growth promoting social policies, and to play down outright protection. This signals a big change form the period Katzenstein investigated, as clearly compensation took the form of protection. This sounds like a plausible hypothesis. Pity it was not tested in this book.

In spite of the above, the book is highly recommendable, especially for the quality of the empirical chapters. These provide very detailed accounts of policy developments in the fields of old age pensions, labour market policy, health care and family policy. While there are many such accounts around, I was struck by the accuracy (so far as I could tell) and the in depth character of the case studies.