Coping with Permanent Austerity PDF

Coping with Permanent Austerity 411 The argument proceeds in three stages. In the first, I outline a basic frame-...

Coping with Permanent Austerity 13 Coping with Permanent Austerity Welfare State Restructuring in Affluent Democracies Paul Pierson THE welfare states of the affluent democracies now stand at the political discussion and social conflict. Analysts frequently portray these conflicts as fundamental struggles between supporters and opponents of the basic principles of the post-war social. contract. They often emphasize that the politics of social policy are played out against the backdrop of a transformed global economy that has undercut the social and economic foundations of the welfare state. While containing elements of truth, such , portrayals distort crucial characteristics of the contemporary politics of the welfare state. Changes in the global economy are important, but it is primarily social and economic' transformations occurring within affluent democracies that produce pressures on mature welfare states. At the same time, support for the welfare state remains widespread almost everywhere. In most countries, there is little sign that the basic commitments to a mixed economy of welfare face a fundamental political challenge. Nor is there much evidence of convergence towards some neoliberal orthodoxy. Yet the chapters in this volume have also stressed that welfare states are undergoing quite significant changes. In this conclusion, I argue that the contemporary politics of the welfare state take shape against a backdrop of both intense pressures for austerity and enduring popularity. In this con- text, even strong supporters of the welfare state may come to acknowledge the need for adjustment, and even severe critics may need to accept the political realities of continuing popular enthusiasm for social provision. Thus, in most of the affluent democracies, the politics of social policy centre on the renegotiation, restructuring, and modernization of the terms war social contract rather than its dismantling. The crucial issue is whether particular national settings facilitate the emergence of such a effort, and if so, on what terms. Thanks to Andrew Karch and Effi Tomaras for research assistance. I have benefited from many conversations with participants in the New Politics project and at the EUI. I owe special thanks to John Myles and Ann Orloff, although be unfair to hold them responsible for the end result. 412 Paul Pierson 45 r IS Sweden 40 - 35 - L Germany J United States 30 - 25 - 20 15 10 5 0 1950 1960 1970 Years Fro. 13.1. Welfare state clienteles as a percentage of the electorate, Sources: Welfare state clienteles include public social welfare employment as well as recipients of pensions, disability, social assistance, and welfare state clientele date comes from tables 4.5, 4.16, 6.3, 6.10, Public Employment in Western Nations (Cambridge: Cambridge University Press, 1985). Electoral data comes from Thomas T. Mackie and Richard Rose, The International Electoral History (London: Macmillan, 1991), fully revised, third edition. state data covers 1952, 1962, 1972, and 1982. American electoral data and 1984. German electoral data covers 1949, 1961, 1969, and 1980. covers 1952, 1960, 1970, and 1979. support consistently reveaWd in polls stems from several sources. As the wel- fare state has expanded, so has the size of its constituencies. As Peter Flora has noted, 'including recipients of [pensions,] unemployment benefits and social assistance and the persons employed in education, health and the social 1 services, in many countries today almost /2 of the electorate receive transfer or work income from the welfare state' (Flora 1989: 154). Figure 13.1 and Table 13.1 offer a very rough indication of the political transformation asso- ciated with welfare state expansion. Figure 13.1 shows the dramatic impact of welfare state growth from roughly 1950 to 1980. It tracks a conservative measure of welfare state employment, plus a very conservative estimate of transfer recipients, as a. share of the total electorate for three representative countries. From the beginning of the post-war expansion (1960) to the rough end of the maturation period (1980) these ratios increase markedly in all cases. Table 13.1 provides snapshots from the mid-1990s for the same coun- tries. Again measured on a conservative basis, one can see both that the core constituencies of the welfare state are very large, And that there are marked variations across countries. These crude indicators considerably underestimate the scale of the wel- fare state's reach into contemporary political life. Many voters who do not 414 Paul Pierson Institutional 'Stickiness Those seeking policy reform must confront not only the potential opposition of voters and programme beneficiaries but the stickiness of existing policy arrangements. By stickiness I have in mind two features of developed polities that reinforce the electoral obstacles to radical reform: formal and informal institutional 'veto points', and 'path dependent' cases tend to lock existing policy arrangements into place. Each of these char- acteristics pushes reform agendas in the direction of incremental adjustments to existing arrangements. The basic point about veto points is straightforward and clearly spelled out in Bonoli's contribution to this volume (see more broadly Scharpf 1986; Tsebelis 1995). Most political systems make policy reform dependent on more than a simple 51 per cent majority, allowing minorities (including in some cases quite small ones) opportunities to block reforms. Examples of such institutional arrangements include federalism, a strong judiciary, bicamer- alism, use of referenda, requirements of super-majorities, and coalition-based governments.' Difficult as it is to create a majority coalition in favour of restructuring the welfare state, even that may not be enough. The multiplica- tion of veto points can hamstring efforts at policy change, frustrating even an ambitious and aggressive reform coalition such as the Republican congres- sional majority in the United States after 1994, or an enduring conservative coalition such as the one governing Germany from 1982 to 1998. A second major source of stickiness, path dependence, is more complex. Because path dependence is often invoked as an explanation without fur- ther explication, some elaboration is necessary.' Certain courses of political development, once initiated, are hard to reverse. It is not just that institu- tional veto points may make a reversal of course difficult. Individual and organizational adaptations to previous arrangements may also make reversal unattractive. Recent work on, path dependence has emphasized the ways in which initial social outcomes concerning institutional, organizational, or policy design even suboptimal ones—can become self-reinforcing over time (Krasner 1989; North 1990). These initial choices encourage the emergence of elaborate social and economic networks, greatly increasing the cost of adopting once- possible alternatives and therefore inhibiting exit. Major social arrangements have major social consequences. Individuals make important commitments in response to government actions. These commitments, in turn, may vastly increase the disruption caused by institutional reforms, effectively 'locking- 2Veto points may also be policy-specific. The Canada Pension Plan (CPP), for example, cannot be reformed without a large super-majority among provincial See also the discussions in the chapters by Myles and Pierson discussion can be found in Pierson (2000). 416 Paul Pierson One of the major themes of this volume is that contemporary welfare states, and the politics that surround them, strongly reflect these path-dependent effect& As Myles and Pierson argue, old-age pension systems provide a power- ful example. Most countries operate pensions on a pay-as-you-go basis: current workers pay 'contributions' that finance the previous retirement. Once they have been in place for a long time, pay-as-you-go sys- tems may face incremental cutbacks and adjustments, but they are highly resistant to radical reform. Shifting to private, funded arrangements would place an untenable burden on current workers, requiring them to finance the previous generation's retirement while simultaneously saving for their own. Even partial privatization has generally proven possible only in the relatively few countries lacking extensive and mature pay-as-you-go systems. Similar if less severe path-dependent effects are likely in areas of social policy where complex sets of institutions and organizations have over extended periods. The chapters by Giaimo, Manow, and Wood all emphasize this type of dynamic. In health care provision and many aspects of labour market systems, social actors need to coordinate their activities and they invest resources in line with the incentive structures of their existing environment (see also Giaimo and Manow 1999; Hacker 1998). This prob- ably helps to explain why employers, for instance, have often been more half- hearted and internally divided over policy reform than many theories of political economy might have anticipated (Thelen 1999). Both the popularity of the welfare state and the prevalence of must be at the centre of an investigation of restructuring. The essential point is that welfare states face severe strains and they retain deep reservoirs of political support.'For political analysts, the central question can thus be put as follows: What happens when the irresistible forces of post-industrialism__ meet the immovable object of the welfare state? Acknowledging the strength of both sides of this collision generates several implications for investigating the politics of reform. There are strongthe grounds for scepticism about the prospect for any radical revision of welfare state in most countries. Almost nowhere have politicians been able to assemble and sustain majority coalitionsfor a far ,reaching contraction of social policy (Stephens, Huber, and Ray 1999). — The- reasons have already been outlined. The broad scale of public suppbrt, the intensity of preferences among programme recipients, the extent to which_ a variety of actors (including employers) have adapted to the existing con- toilirTaf the social market economy, and the institutional arrangements which - - favour defenders of the status 061 riake a frontal assault oil the welfare state politically suicidal in most countries. Yet the chapters in Part I of this volume also suggest that pressures asso- ciated with post-industrialism, intensified in some respects by globalization, have rendered the maintenance of the status quo an increasingly unrealistic 418 Paul Pierson institutional environment governing choice. Depending on the significance of multiple vetoes and super-majoritarian systems, the pivotal voter will generally be closer to the status quo than the median voter—often much closer. In the United States, for instance, if a President is prepared legislation, the pivotal voter in the legislature is not the one generating a bare majority, but the one producing the two-thirds majority required for a veto override. 4 In practice, the political vulnerability of those seeking to modify popular social welfare programmes is such that they will often seek relatively broad consensus on reform rather than a `minimum winning coalition'. Broader consensus legitimates the claim that policy change is necessary and intended to sustain rather than gut the programme under review; it thus provides essential political cover (Weaver 1986). The desire to make reform durable generally points in the same direction. Especially with large, complex, and deeply institutionalized programmes like health care and pensions, social actors place a high value on predictability and continuity in policy. Reform is not enough; powerful interests seek reasonable assurance that the new policies can be sustained. This again encourages the assembly of grand coalitions. Such coalitions, often informal and issue-specific, extend the range of actors with a stake in the reform outcome, and increase confidence that the next election will not overturn the new initiatives. In other words, the pivotal actor in practice will generally be closer to the status quo than the actor identified by a formal analysis of the institutional preconditions for minimum winning coalitions. In a wide range of countries, the coalitions engaged in the restructuring of welfare states have been far broader than minimum size, incorporating key interest organizations as well as political parties outside the current government. Such a broadening pur- chases the increased legitimacy and potential durability of enacted Most often, the price is a more incremental adjustment than would have been (theoretically) possible with a smaller coalition. A final, related factor in pushing the 'pivot' towards possibility that the'governments capable of enacting reform at a limited polit- ical cost will be those possessing the greatest credibility with voters on the issue (F. Ross 1998). Following a 'Nixon goes to China' logic, it will often be those governments with reputations of support for the welfare state that have the greatest room to manoeuvre. Yet the very factors that produce such credibility (past commitments, ideological orientations, and the nature of a party's core constituencies) make it unlikely that the favoured party will use its enhanced manoeuverability to dismantle established social policies. political incentives point towards more moderate, modernizing reforms. 4More precisely, it is the voter producing a two-thirds majority voter's preferences are closest to the status quo. 420 Paul Pierson welfare states changed since the end of the post-war boom? The authors in this volume generally depict most reforms in most countries as incremental rather than radical, and focused on restructuring rather than straightforward dismantling. However, some have argued that the degree of cutbacks has been more severe (Clayton and Pontusson 1998). Even among those who see the overall degree of change as fairly limited, there may be little agreement about how to characterize the nature and scope of change cross-nationally. It is difficult to exaggerate the obstacle this dissensus creates for comparat- ive research. As Kitschelt notes in his chapter, it is impossible to seriously evaluate competing explanations when there is no agreement about the pat- tern of outcomes to be explained. Thus, it is important to ask why researchers have so much trouble with the dependent variable. The problem lies partly in the concept of the welfare state itself, partly in data limitations, and partly in limitations of current theorizing about welfare state change. 'The welfare state' is generally taken to cover those aspects of government policy designed to protect against particular risks shared by broad segments of society. Standard features, not necessarily present in all countries, would include: protection against loss of earnings due to unemployment, sickness, disability, or old age; guaranteed access to health care; support for households with many children or an absent parent, and a variety of social services—child care, elder care, etc.—meant to assist households in balan- cing multiple activities which may overtax their own resources. Needless to say, this list covers an extremely wide range of government activity. Furthermore, the trend in scholarship has been to broaden the already extensive domain of the subject matter. Recent analyses have advocated more attention to public/private interplay (e.g. Shalev 1996; Howard 1997) and to the.interfaces between the public sector, the market, and the household (Orloff 1993; Esping-Andersen 1999; O'Connor, Orloff, and Shaver 1999). In this volume, Schwartz makes a similar appeal for extending attention to systems of social protection built into the regulatory arrangements govern- ing particular economic sectors. There is little doubt that this broadening has had salutary effects; forcing attention to dimensions of social life that had,previously received scant attention, and illuminating the extent to which welfare states are nested in a set of broader institutional arrangements. Yet as the concept of the welfare state, or welfare regime, 'stretches', comes inevitable that quite distinct processes and outcomes will be joined together under the umbrella of a single master variable (Collier and 1997). This in turn spreads confusion in two ways. First, it fuels a process where analysts discussing what has happened to 'the welfare state' find themselves talking past each other because each is concerned with distinct dimensions. Second, it makes efforts to develop summary measures of what has happened extraordinarily difficult. The complexity of this multifaceted 422 Paul Pierson is about. For any welfare state, or any particular weilare state programme, we can fruitfully think about the extent to which reform agendas and policy outcomes involve change along each of these dimensions. Re-commodcation De-commodification, in Esping-Andersen's influential formulation, 'occurs when a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market' (1990: 21-2). For Esping-Andersen, the centrality of de-commodification stems from his earl- ier reflections on the construction of the social democratic welfare regime (Esping-Andersen 1985). He argued that this regime was fashioned through the efforts of a highly mobilized and well-organized working class, which sought to use political power to overcome its vulnerabilities in the labour market. Re-comraodification essentially involves the effort to reverse that process to restrict the alternatives to participation in the labour market, either by tightening eligibility or cutting benefits. Particularly for those who see the current era as defined by the rise of business power, re-commodification stands as the key dimension for an investigation of welfare state restructuring. The transformation of social pro- vision, froM this perspective, is primarily about dismantling those aspects of the welfare state that shelter workers from market pressures, forcing them to accept jobs on employers' terms. This formulation has proven particularly central to analyses. of welfare state reform produced by those who come to the topic from previous work on industrial relations. For these scholars, the shifting balance of power between employers and unions stands at the centre of political analysis (Clayton and Pontusson 1998; Swenson 1991b). Re-commodification clearly represents an important dimension of wel- fare state change. Yet it is increasingly evident that the basic logic of de- commodification outlined in Esping-Andersen's Three Worlds was at least somewhat misleading even for the period of welfare state expansion dur- ing the post-war period.' It suggests an image of welfare states foisted. on capitalists. The problem with this line of thinking is not that it takes capitalism too seriously, but that it fails to take capitalism seriously enough. These are, after all, economies where investment depends on the capacity of capitalists to earn profits, and where the need to induce investment therefore confers substantial political power (Lindblom 1977). The question thus arises: How would programmes seriously damaging to economic performance thrive so extensively for so long? 8As Ann Orloff has stressed to me, commodification's connotation nomy or choice is also problematic when applied to women, for whom the shift from unpaid household work to participation in the paid labour market may enhance autonomy. 424 Paul Pierson to services, demographic and household change, and the maturation of governmental commitments are placing inexorable demands on government budgets. Deficit reduction is a high priority for many of the countries that have joined or seek to join the European Monetary Union. In many con- texts, powerful actors are concerned first and foremost with the implications of reform for levels of government expenditure. Of course, the imposition of austerity may become a vehicle for the pursiiii of other ambitions, but often the principal focus is cost containment itself. With the exception of Wilensky's important work (Wilensky 1981), social scientists have generally treated social expenditure and taxation as two dis- tinct realms of research. In reality, of course, they are two sides of the same coin, inextricably linked. The'need to finance public spending in the current environment often becomes the most powerful constraint on existing social policy arrangements. Employers and financial interests worry about high tax levels because of their potential impact on profits—an impact that may be felt through a number of distinct channels. In many countries, for instance, a major preoccupation is the fear that high fixed labour costs, generated in part by payroll tax rates, are seriously impeding the ability of employers to hire low-skilled workers. Of course, the other political channel for opposition to taxes runs through the electorate. As the welfare state has expanded, its financial underpinnings have shifted, necessarily, to heavy reliance on funds from middle-income households. Higher taxes, combined with slower growth of real incomes, have generated popular discontent. In most countries, politicians must also cope with the downside of pay-as-you-go financing. As Myles and Pierson argue, the current era marks the reversal of the favourable political dynamic that accompanied the phase-in of pay-as-you-go pension systems. During the 'golden age' politiCians could make generous promises while deferring the cost (i.e. high payroll tax rates). Today's politicians, rather than being in a position'to claim credit for new initiatives, act primarily as the bill- collectors for yesterday's promises. Although voters almost everywhere retain widespread allegiance to public social provision, these sentiments are now intermingled with stiff resistance to significant tax increases (Bonoli, George, and Taylor-Gooby, forthcoming). Governments face the unenviable task of reconciling strong tendencies for higher outlays with the potential for voter backlashes and the possibility that new taxes will damage economic performance. At the same time, most countries face tighter constraints on their ability to run deficits (most obviously in countries subject to the convergence criteria of EMU). In this climate, cost containment itself emerges as a top priority. Again, the ques- tions for analysts are to identify the circumstances where a focus on cost containment becomes prominent, to establish the degree to which that goal is achieved, and to explain the patterns identified. 426 Paul Pierson produced considerable reorganization and resulted in public employment reductions, particularly among the low-skilled. From one vantage point (Clayton and Pontusson 1998) this represents a fundamental assault on public sector workers. From another, however, it represents an attempt to increase productivity in the public sector in order to provide high-quality and flexible services to consumers at a politically sustainable cost. The equation of public sector reform with simple retrenchment or the roll-back of the state is highly questionable without evidence that cost-savings have reduced service quality. Updating involves the modification of existing programmes, or the initi- ation of new ones, in response to newly recognized social needs. A defining characteristic of the current era is the coexistence of social conditions which are in many ways 'new' with welfare states which are in many respects decidedly 'old' (Esping-Andersen 1999). As has been discussed, mature wel- fare states will tend to be characterized by various forms of stickiness. In addition, many current policy outcomes are the lagged effects of decisions taken decades ago. There is thus often a considerable 'mismatch'. between emerging social risks and shared understandings of appropriate targets for state intervention, on the one hand, and the existing array of government social, policies, on the other. The various aspects of this mismatch con- stitute an important dimension of restructuring agendas in contemporary welfare states. Problematic as the concept of recalibration might be, it is more problematic to reduce the nature of current welfare state restructuring to simple cost containment plus re-commodification. A variety of initiatives, dealing with issues such as gender equity and social exclusion, simply cannot be squeezed into these other categories. Consider some of the most striking initiatives of recent years: the introduction of 'private' but essentially mandatory super- annuation in Australia (C. Pierson 1998); the establishment of long-term care insurance in Germany (Getting, Haug, and Hinrichs 1994); the enactment or expansion iri many countries of a range of subsidies or 'contribution credits' for unpaid caring work (Daly 1997); and the marked expansion of various initiatives to 'make work pay' by subsidizing the terms on which workers enter the low-paid labour market (Myles and Pierson 1997). None of these initiatives can be incorporated into a simple vision of expanding markets (commodification) and contracting states (cost containment). Introducing these three dimensions of welfare state restructuring confers several very considerable analytical advantages. First, breaking down the very broad category of 'change' into discrete dimensions sharpens our capacity to discern distinct patterns in outcomes. One can identify striking variations both across policy arenas and across countries. Particular sectors of the wel- fare state tend to be much more preoccupied with one or another dimen- sion of welfare state restructuring. The differences are clearly highlighted in 428 Paul Pierson Three Distinct Welfare State Regimes The second necessary complication of my initial framework stems from the need to recognize the existence of very distinct political and policy configurations--distinct regimes—within the ranks of the affluent demo- cracies. Up until now I have spoken of essentially a single 'logic' state reform. Just as we have to distinguish different reform dimensions, how- ever, we also need to recognize the existence of quite different settings for the emerging politics of restructuring. 9 Esping-Andersen's typology of three worlds of welfare capitalism—liberal, conservative, and social democratic—has been enormously influential. At the same time, it has been subjected to frequent criticisms, mostly stress- ing that particular countries are poorly categorized, or arguing that other dimensions of variation are neglected. Any typology covering the com- plex realities of a large number of countries is vulnerable to this kind of challenge. Yet there are excellent theoretical and methodological reasons to organize the explanation of variance in outcomes around an analysis of distinct regimes rather than lumping all OECD countries into a single pool in which one scrutinizes variance along a single, continuous range of `independent' variables. `To talk of a regime', Esping-Andersen maintains, 'is to denote the fact that in the relation between state and economy a complex of legal and organizational features are systematically interwoven' (1990: 2). What was most compelling in Esping-Andersen's analysis of modern welfare states was his insistence that welfare states be seen as part of complex historical configurations. 10 The 'three worlds' did not result from a few discrete, independent master variables, but from the interactive and cumulative effects of a number of interdependent causal factors. 'Variables' may have a particular impact only when accompanied by a set of addi- tional factors. This perspective has strong affinities with Ragin's concept of `complex conjunctural causation' (Ragin 1987). As Shalev has put it, the argument is that welfare regimes should be seen as 'a limited number of 9 In case it is not obvious, I should acknowledge that many of the arguments in Pierson '1994 and Pierson 1996, especially those which de-emphasize of organized labour, suffer from precisely this defect. This criticism in Visser and Hemerijck 1997. 10 In this respect, the analysis runs directly parallel to a very parative political economy, emphasizing the varieties of contemporary et al. 1999b; Hall 1999; Soskice 1999). In Soskice's influential interlocking cornpletnentarities between different parts of the institutional system depends on the other systems to function effectively' (1999: Esping-Andersen's work, a number of researchers have begun to production systems and welfare state regimes (see Ebbinghaus and Manow 1998; Huber and Stephens, Manow, Rhodes, and Wood, in this volume). 430 Paul Pierson which might lead to difficulties in pursuing unpopular policies. This accountability/blame avoidance dynamic is important for understanding why even unified governments will often be cautious, for explaining the strategies that such governments employ, and for highlighting the possibility that aggressive action may lead to electoral backlash. By now, however, the evidence would seem to show pretty clearly that on balance the concentration of political authority is an asset for those seek- ing reform.' 2 As Huber and Stephens argue, the experiences of the two pure Westminster cases, New Zealand and the United Kingdom, are particularly striking. New Zealand's National government was able to move aggressively on multiple fronts. The British Conservatives gradually learned to shift from- a strategy of frontal assaults to one of relentless, low-profile adjustments, which whittled away important elements of the welfare state over time. By contrast, veto points in other countries have generated significant, sometimes overwhelming, obstacles to radical change. Yet it is no accident that both these examples of major retrenchment in the absence of formal institutional veto points concern liberal welfare states, where social actors are disorganized and popular support for the welfare state is (while still extensive) more limited than elsewhere. It seems highly unlikely that the same 'value' on this particular independent variable would have similar consequences in a configuration where popular 'support welfare state was broader and/or the power resources of labour were greater —a conclusion which Bonoli's discussion of the French reform experience supports. The 'freedom' to produce radical reform stems not just from a high concentration of political authority, but from that factor combined a number of other features of a particular configuration. In analysing the dynamics of social policy restructuring, one needs to attend to both the particular scale and shape of welfare states and par- ticular political- contexts. With respect to the latter, the scope of popular support for social provision, the connections between social provision and systems of economic production, and the relationship between the electoral/ partisan arena and systems of interest intermediation are especially critical. In short, we need-to recognize the existence of distinct worlds of welfare capitalism. 12 Again though, Swank's chapter suggests that while fragmented retrenchment efforts, they are also likely to slow welfare state expansion This slowdown occurs both because of institutional fragmentation's reform and because of its indirect negative effects on social solidarity of interest heterogeneity. This is in keeping with a general presumption research, namely, that the effects of institutions will generally be rather than simply direct and unidimensional. A different way to put distinguish between the short-term and long-term causal effects of For a discussion of this point, see Shalev 1999. 432 Paul Pierson By distinguishing among regimes, and disaggregating different dimensions of restructuring, one can identify patterns that would not be evident in a more unified analysis which tried to explain a single outcome (e.g. 'retrenchment') over the whole set of cases. In these respects, I follow Esping-Andersen's regime typology (although utilizing different outcome dimensions). On the other hand, our accounts of the political dynamics in the three regimes are quite different.' 4 The goal is to make the investigation complicated enough to cap- ture and account for crucial elements of diversity, but not so complicated that it becomes impossible to identify general patterns. The Liberal Regime The liberal cases include Australia, Canada, Great Britain, New Zealand, and the United States. 15 The most politically salient features of state constellations in these countries include the following (data on most of these features can be found in the Huber and Stephens chapter in this volume). Taxes, and spending, have remained low by international standards. Public sector service employment is also low. Many transfer programmes are income-tested, although the range of coverage varies from very narrow (the United States) to quite broad (Australia). In part as a consequence of... the failure of the welfare state to meet demands for social provision, sector activity in pensions and social services such as child care (as well as health care in the United States and New Zealand) is extensive. In many cases, tax expenditures subsidize private provision for the upper middle class (e.g. Howard 1997). Finally, these welfare state arrangements operate in the context of liberal market economies. There is no overlap between the world of libefal welfare states and the world of 'organized market economies'. Thus, there are numerous linkages, explored below, between liberal welfare state arrangements- and the liberal or 'disorganized' model of capitalism. This is not an issue that Esping-Andersen has pursued in detail. identified distinct political cleavages in each regime. In Postindustrial maintain, although without much elaboration, that 'path dependence' will prevent major policy change. The current analysis points to quite ages in the three worlds and argues that while path dependence and reform, they are unlikely to prevent it. 15 F. G. Castles and Mitchell (1993) have persuasively argued that tries should be seen as a distinct 'wage-earner' model, in intensive labour market regulation to produce relatively egalitarian ive formal welfare states. However, the wage-earner model, grounded under acute pressures from a changing international economy. For these tion has clearly mattered enormously. This alternative model began to break down in the mid-1970s, forcing a gradual shift towards broadly liberal arrangements. ticular, remains somewhat distinct from other liberal cases in the mediated wage bargaining. The differences are less pronounced than they were two decades ago, however, especially following the recent period of Liberal—National governance. 434 Paul Pierson To be absolutely clear, the claim is not that a majority of voters tend to oppose the welfare state in these countries; nowhere is this true. Compared to the social democratic and Continental countries, however, pivotal voters are likely to possess weaker attachments to social provision, and to be more susceptible to alternative political appeals (such as the demand for tax cuts). Liberal welfare states thus provide the greatest potential for parties to re- concile political success and a relatively aggressive, even openly hostile stance vis-a-vis significant components of the welfare state. Under particular con- ditions, pivotal voters may be within reach, and in some of these countries labour can be essentially excluded from playing a significant role. Thus, the political conflict between advocates of moderate restructuring and radical retrenchment is more equally matched than it is in the other two regimes. This is reflected in the pattern of outcomes. By comparative standards, quite radical cutbacks have been achieved in New Zealand, and, to a lesser extent, in Great Britain (Stephens, Huber, and Ray 1999; Castles and Pierson 1996). Canada and Australia, on the other hand, have pursued a distinctive course, also marked by efforts at cost containment and commodification, but balanced by serious efforts to protect the most vulnerable. In the United States, change has been more limited, and contains elements of both tendencies. Although the variations across countries both in policy outcomes aqd in inequality trends are quite striking, these outcomes are not sufficientry- stable to allow firm conclusions about national trajectories. Australia's cur- rent National–Liberal government is seeking to erode many of the provisions that marked the accords reached between the Australian Labour govern- ments and the trade unions between 1983 and 1995. Under the current,British Labour government, important new policy initiatives emulate' some of the Canadian and Australian strategies which combine a strengthening of work incentives with compensatory policies for those affected (Hills 1998). These recent developments suggest that partisan control of government may be most important in the liberal regime. This is indeed what we should expect given the relatively narrow base of welfare state support in these countries, and the dominance a the electoral/partisan arena for political action. A defining characteristic of restructuring in all the liberal welfare states has been the priority placed on re-commodification. Indeed, both the emphasis placed on commodification and the degree of change has clearly been greater than in the other welfare state regimes. In all the liberal welfare states, programmes providing transfer payments to those of working age but out of the labour force—unemployment benefit and social assistance—have faced major cutbacks. Eligibility rules have been tightened, and benefit levels have been reduced significantly. Coverage rates (in Canada and the United States) and benefit levels (everywhere) for the unemployed have fallen sharply. Most dramatically, in Canada and the United States, national commitments to 436 Paul Pierson foster the development of human capital. Many of these supplements are targeted on groups that are considered particularly vulnerable and/or par- ticularly deserving of support, especially households with children. The particular package of supplements varies, but may include some or all of the following: improved child allowances and access to affordable child care, reductions in social insurance contributions for the low-paid, an increased minimum wage," expanded access to public health insurance (in Ithe United States), and the expansion or introduction of tax-based wage sup- plements. The last provision has been particularly important. All the liberal countries have introduced significant wage subsidies, operated through sys- tems of taxation, for at least some of the working poor—usually families with children. Most dramatic has been the major expansion of the Earned Income Tax Credit in the United States and of the Working Families Tax Credit (formerly Family Credit), in Great Britain. In Australia, the univer- sal child benefit was means-tested (although 60 per cent of the population remain eligible), but an expanded Additional Family Payment provided significant additional cash on a per child basis to working families. Some of these subsidization initiatives could be dismissed as cosmetic embellishments to harsh exercises in retrenchment. Yet the overall scale of these mediating efforts is difficult to ignore. In the United States, for instance, while there were considerable cutbacks in AFDC and Unemplo)k ment Insurance even before the 1996 welfare reform, overall federal spending on low-income groups rose significantly in the late 1980s and the first half of the 1990s (Weaver 1998). By the time AFDC was transformed and largely handed over to the states, the federal government was spending twice as much 411 The argument proceeds in three stages. In the first, I outline a basic frame- work for studying the politics of reform in a context of permanent austerity. In the second, I discuss two complications: the need to incorporate different dimensions of social policy reform and the need to recognize three quite distinct configurations of welfare state politics among the afOuent.democra- cies. In the third, I apply these arguments to analyse the politics of restruc- turing in the liberal, social democratic, and conservative 'worlds' of welfare capitalism. 1. AN INITIAL FRAMEWORK FOR STUDYING THE POLITICS OF PERMANENT AUSTERITY' centre of Despite some disagreement concerning the main sources of pressure on mature welfare states, the chapters in Part I all conclude that the welfare state now faces a context of essentially permanent austerity. Changes in the global economy, the sharp slowdbwn in economic growth, the maturation of governmental commitments, hpd population ageing all generate consider- able fiscal stress. There is little reason to expect these pressures to diminish over the next few 'decades. If anything, they are likely to intensify. Underlining the severe pressures confronting mature welfare states does not, however, imply that the expected result is a collapse or radical retrench- ment of national welfare states. Major policy reform is a political profess, dependent on the mobilization of political resources sufficient to over- come organized opponents and other barriers to change. The welfare state's opponents have found it very difficult to generate and sustain this kind of political Mobilization. I have developed this argument elsewhere (Pierson 1994, 1996) and present only a condensed version here. The sources of the welfare state's political strength are diverse, but are of two basic types: the electoral incentives asso- ciated with programmes which retain broad and deep popular support and the institutional 'stickiness' which further constrains the possibilities for policy reform. Together, these features have created tremendous resilience in the face of two decades of welfare state 'crisis' (Stephens, Huber, and Ray 1999). of the post- Electoral Incentives centrist reform In market democracies, voters play a crucial role. Implementing and sus-. taming policy reforms over time generally requires electoral vindication. Voters, however, amain strongly attached to the welfare state. The broad public the European Forum I suppose it would 1 This section draws on material presented in Pierson 1998. Coping with Permanent Austerity 413 TABLE 13.1. Major welfare state clienteles in three countries, 1995 Sweden Germany United States Pensions 1,584,304 21,630,000 43,388,000 Disability 408,576 1,180,000 5,857,656 Unemployment 37,734 1,990,000 7,900,000 Social assistance 474,159 2,080,000 4,869,000 Public welfare employment 1,245,800 1,590,000 2,540,000 TOTAL 3,750,573 28,470,000 64,554,656 Electorate 6,551,591 56,090,000 ; 196,089,000 Percentage 57.25 50.76 32.92 Sources: Sweden—Statistiska Centralbyran, Statistisk Arshok '97 (1997). Germany—Statistiches 1980 Bundesamt, Statistiches Jahrbuch Jiir die Bundesrepublic Deutschland (1998). United States— Committee on Ways and Means, 1996 Green Book (1996). German welfare state clientele data and American electorate data cover 1996. 1950-80 (excluding education) unemployment benefits. All 7.4, and 7.14 in Richard Rose. currently receive social benefits expect that they may at some point in their lives. Or they may be in the same household with someone who receives bene- Almanac of All American welfare fits from, or is employed by, the welfare state. In most countries, universal covers 1952, 1964, 1972, programmes, especially health care but also other social services, generate Swedish electoral data widespread support. Furthermore, the welfare state retains considerable legitimacy as a source of social stability and guarantor of basic rights of citizenship. Popular support generally appears to extend well beyond the confines of narrow economic self-interest. Support for the welfare state is intense as well as broad. Intensity of preference matters because it is associated with higher rates of political mobilization and with voters' actual choices at election time. The intensity of support for the welfare state stems from two factors. First, while the bene- fits of retrenchment for welfare state opponents are generally diffuse and often uncertain, the large core constituencies for the welfare state have a con- centrated interest in the maintenance of social provisiob. Huge segments of the electorates of advanced industrial societies rely on the welfare state for a large share of their income. It is one of the few basic axioms of polit- ical science that concentrated interests will generally be advantaged over diffuse ones. The second source of intensity stems from the fact that welfare state sup- porters are in the position of fighting to sustain already existing benefits. Students of electoral behaviour and political psychology have found that voters exhibit a 'negativity bias'—they react more intensely to potential losses than to commensurate potential gains. Thus, the welfare state's electoral base is not pnly enormous, but primed to punish politicians for unpopular initiatives. Coping with Permanent Austerity 415 in' previous decisions. As a result, as Douglass North has emphasized, change in well-institutionalized polities is typically incremental. Research on technological change has revealed some of the circumstances conducive to path dependence (David 1985; Arthur 1994). The crucial factor is the presence of increasing returns, which encourages actors to focus on a single alternative and to continue movement down a particular patkonce processes, which in many initial steps are taken. Large set-up or fixed costs are likely to create increas- ing returns to further investment in a given technology, providing indi- Viduals with a strong incentive to identify and stick witla, a single option. Substantial learning effects connected to the operation of complex systems provide an additional source of increasing returns. Coordination effects (or network externalities) occur when the individual receives increased bene- fits from a particular activity if others also adopt the same option. Finally, adaptive expectations occur when individuals feel, a need to 'pick the right horse' because options that fail to win broad acceptance will have draw- backs later on. Under these conditions, individual expectations about usage patterns may become self-fulfilling. As North has argued, all of these arguments can be extended from studies of technological change to other social processes, particularly to the development of institutions. In contexts of complex social interdependence, new institutionsior policies often entail high fixed or start-up costs, may involve considerable learning effects, and generate coordination effects and adapt- ive expectations. Established institutions generate powerful inducements that reinforce their own stability and further development. 'In short', North con- cludes, 'the interdependent web of an institutional matrix produces massive increasing returns', making path dependence a common feature of institu- tional evolution --(North 1990: 95). Over time, as social actors make commitments based on existing institu- tions, the cost of 'exit' rises. Learning from past rents may lead actors to act differently in launching new initiatives. Recapturing ground in previously institutionalized fields of activity, however, will often be quite difficult. Actors do not inherit a blank slate that they can remake at will when their preferences change or the balance of power shifts. Instead, they find that the dead weight of previous institutional choices seriously limits their room to manoeuvre. Because this point is so often misconstrued, it should be stressed that the claim is not that path dependence 'freezes' existing arrangements in place. Change continues, but it is bounded change. North (1990: 98-9) summarizes the key point well: 'At every step along the way there [are] choices—political and economic—that provide... real alternatives. Path depende,nce is a way to narrow conceptually the choice set and link decision governments. and Wood. A more detailed making through time. It is not a story of inevitability in which the past neatly predicts the future.' Coping with Permanent Austerity 417 option. Continuing low growth coupled with the challenges of creating service sector employment, population ageing, and the overcommitments of existing policies are already generating intense pressures. Tax levels strain public tolerance. Payroll tax burdens and their possible adverse impact on employ- generation's ment and wages create tensions within the traditional support coalitions of the welfare state (Visser and Hemerijck 1997). Barring an extremely unlikely return to an era of high economic growth, fiscal pressures on welfare _states are certain to intensify. While tax increases may contribute to the gap between commitments and resources, it is difficult to imagine that in many European countries changes in revenues alone could be sufficient to maintain fiscal equilibrium. Thus, even strong supporters of the welfare state increasingly acknowledge that sustaining basic arrangements will require significant reforms. It is a context of permanent austerity. 'co-evolved' The prospect of permanent austerity transforms political conflicts over the restructuring of social policy. Welfare state conflict is often portrayed as a clash between those wedded to the status quo and those eager to dismantle basic social protections._ In countries where aggressive advocates of neoliber- alism have been in power, such as New Zealand and until recently the United Kingdom, this has not been too inaccurate a portrayal. Yet in a climate where social trends make pressures on budgets intense and unrelenting, political cleavages are likely to become more complex. Those, advocating restructur- ing will include many who wish to preserve and modernize key elements of 'stickiness' the social contract, but seek to do so in a manner which does not create unsustainable budgetary burdens, contributes to economic performance, and gives emerging social demands some chance of competing for public attention and resources with well-established ones. In the current climate, restructuring must be distinguished from retrenchment or dismantling. My central contention so far is that neither the alternatives of standing pat or dismantling are likely to prove viable in most countries. Instead, as in many aspects of politics, we should expect strong pressures to move towards more centrist and therefore more incrementalist—responses. Those seek- ing to generate significant cost reductions while modernizing particular aspects of social provision will generally hold the balance of political power. In Claus Offe's words, the objective for those wielding electoral power in most coun- tries will be 'smooth consolidation' (Offe 1991). A useful initial framework for fleshing out this claim is a simple version of the pivotal politics argument suggested in recent studies of American politics (Krehbiel 1998; Brady and Volden 1998). In any collective choice situation where policy preferences can be arrayed on a single continuum, there is a pivotal actor whose vote determines whether an initiative moves forward or is blocked. This pivotal voter is likely to wield disproportionate power, and policy outcomes should generally gravitate towards that loca- tion. Pivotal voters need not be median voters. A great deal turns on the Coping with Permanent Austerity 419 Q C V R FIG. 13.2. Identifying the viable space for policy reform. to veto Of course, students of comparative public policy have long recognized the role of positive-sum bargaining among crucial organized interests and political parties. In most advanced industrial democracies the new economic and fiscalenvironthent has transformed, but not undermined the conditions for consensus-oriented policy making based on political exchange. What has changed is the 'currency' for such exchanges. Traditionally, labour's contribu- tion to consensus was wage restraint. As Rhodes argues, even following the demise of Keynesianism this contribution remains important. Yet reformers of the welfare state also require credibility and legitimacy, particularly in the eyes of voters. Left and centre-left parties, and/or trade unions, gener- ally need to be brought into reform coalitions to Make the restructuring of welfare states politically sustainable. The implications of the discussion so far can be seen in Figure 13.2. Depicting policy reforms on a continuum from the status quo (q) to a full- fledged neoliberal agenda of radical retrenchment (r), one would expect the median voter (m) to be a considerable distance from (r). The need to 1.1r- mount institutional veto points pushes the government reform agenda back to (v), and the desire to gain legitimacy-enhancing and stability-inducing consensus promotes a further move to (c). My argument is thus that in most of the affluent democracies the viable reform space will be, at a maximum, in the region (c)–(v). Reform thus entails a substantial shift from (q), but it is a long way from (r). reforms. 2. TWO MAJOR COMPLICATIONS the status quo is the This is of course an extremely stylized treatment of reform politics. A more satisfying account would need to complicate the analysis in two crucial respects. First, one needs to develop a more nuanced conceptualization of the reform agenda, or, in social science terms, the dependent variable. Second, one needs to consider the distinctive reform dynamics of different welfare state regimes. Each of these complications represents an important part of the current agenda for research on the politics of the welfare state. Again, Three Dimensions of Welfare State Restructuring in the chamber where that One of the'''striking features of current comparative research on the welfare state is the lack of consensus on outcomes. How much, and in what ways, have Coping with Permanent Austerity 421 concept cuts against our attempts to generate the relatively parsimonious measures of outcomes that make a serious enterprise of comparative explana- tion possible. A second problem stems from data limitations. Even if we agree about the outcomes that we are interested in measuring, how do we carry out the measurements? This problem has become more acute as—again for quite good reasons—analysts have criticized simple efforts to characterize out- comes through indicators of public or social expenditure. Following Esping- Andersen's lead, there has been a broad recognition that many of the theoretically relevant outcomes of welfare state change will simply not be captured by expenditure data. Indeed, I have argued elsewhere (Pierson 1994) that this is especially true in the current environment. There is every reason to believe that policy makers will seek systematically to engineer changes that produce their major expenditure implications only at a later point in time. In short, there is probably no substitute for investigations that pay attention to fairly detailed dimensions of policy change, including attempts to map their (perhaps uncertain) long-term implications. Rigorously applying con- sistent criteria to even a small subset of the affluent democracies is a time-. consuming and expertise-taxing enterprise. 5 Carrying out such research-Tor' the affluent democracies as a whole would require the efforts of a large and well-funded team.'So far no one has carried it out. 6 The final element of the 'dependent variable' problem stems from limita- tions of theory. It is this issue that I want to explore in more detail here. One of the hidden premisses of much recent writing on the welfare state has been a return to the simple dichotomy of 'more' vs. 'less'. Implicitly, change is measured along a single continuum, stretching from the intact (or even expanding) welfare state on one end to the seriously eroded or dismantled on the other. Yet here again Esping-Andersen's core insights retain force. In a context where actors have complex motives, and the dependent variable is so heterogeneous, attempts to reduce change to a single dimension will be counterproductive. Instead, starting from the perspectives of prominent actors in the reform process, we can think about change along three dimensions: re-commodification, cost containment, and recalibration. 7 Each constitutes it be- a potentially important dimension of welfare state restructuring. Any effort to focus on only one will necessarily distort what the process of restructuring Levitsky Two excellent examples are Alber 1998b and Lindbom 1999. Alber covers three countries, although he limits himself largely to transfer programmes. Lindbom covers one country. 6 The voluminous Scharpf/Schmidt project probably comes closest, but it does not attempt to systematically measure policy outcomes at the level of programmes across the countries in their study* I am grateful to Jonathan Zeitlin for suggesting the term `recalibration'. r Coping with Permanent Austerity 423 As Manow stresses in his chapter (see also the contributions of Rhodes, Swank, and Huber and Stephens) the attitude of private firms to the expan- sion of the welfare state cannot be reduced to one of recalcitrant opposi- tion to de-commodification. To argue that employers have been enthusiastic builders of the welfare state would be revisionism run amok. Yet particular elements have been enormously appealing to particular employer inter- ests, facilitating rather than impeding their core strategies (Mares 1998). Moreover, in many other respects employers have adjusted to welfare state arrangements—and policy makers have accommodated the welfare state to employep—over extended periods of time. As Soskice (1999) has argued, particular types of firms are likely to thrive in particular institutional settings. Thus, there is often a strong co-evolutionary aspect to the intersection between varieties of capitalism and systems of social provision. This is not to suggest that commodification has not been a relevant dimen- sion in recent struggleS over the welfare state. For particular actors, in par- ticular countries, with respect to particular programmes, this dimension has been highly salient. 'Work incentives' have been the focus of concern in many cases, ranging from the reform of Dutch disability pensions to the abolition of AFDC in the United States. Yet there remains considerable variation in the extent to which welfare state reform has focused on improving work incentives. All of the studies in Part IV emphasized that reform is often not primarily about re-commodification. As Wood argues, even actors who one might think would make this a high priority—e.g. German employers—have often had more pressing concerns. The task for analysts then becomes three- fold: to identify the conditions under which a focus on re-commodification is significant, to establish the degree of change along that dimension, and to explain the observed patterns. At the same time, one must avoid the temptation to reduce the discussion of welfare state restructuring to this single aspect. Cost Containment In his powerful critique of expenditure-based analysis of welfare state variations, Esping-Andersen observed that spending levels were essentially derivative of, and often not a good proxy for, other outcomes (such as de- commodification, poverty relief, or status maintenance) which actors valued. During the period of welfare state expansion, he argued pointedly, 'it is diffi- cult to imagine that anyone struggled for spending per se' (Esping-Andersen 1990: 21). of diminished auto- In the current climate, however, people do fight against spending per se. rather than diminish Indeed, this is a defining characteristic of the era of austerity. As I argued in Chapter 3, a range of pressures, including the shift from' manufacturing Coping with Permanent Austerity 425 Recalibration Still, the agenda confronting contemporary welfare states cannot be reduced to cost containment plus commodification. By recalibration I mean reforms which seek to make contemporary welfare states more consistent with con- temporary goals and demands for social provision. Two different types of recalibration should be distinguished. Rationalization involves the modifica- tion of programmes in line with new ideas about how to achieve established goals. Updating concerns efforts to adapt to changing societal demands and normg—e.g. changes hr the household, the life course; the nature of the labour market, or the age composition of societies. Rationalization includes attempts to correct obviously 'incentive-incompatible programmes' or cases of overshoot which may become evident over time, especially if external circumstances change in a way which greatly changes the function- ing of programmes. Examples might include disability programmes in the Netherlands, or public service pensions in France and Italy. This kind of modernization would also include reforms of service systems, including health care, designed to improve the efficiency of provision or the responsiveness of such systems to consumer needs and demands. The reform of Sickness Pay in Sweden can serve as an example of ration- alization. By the mid-1980s, absenteeism rates in Swedish workplaces began to reach extremely high levels. There was fairly broad agreement that sick pay programmes were being abused—that these programmes were helping to produce high rates of absence from work rather than, as intended, pro- viding protection against an important social risk. Spending rose sharply, from under 2 per cent of GDP in the early 1980s to almost 3 per cent Of GDP in 1988 (Benner, Vad, and Schludi 1999: graph 23). The result was a consensus—partial and not without conflict—on a set of reforms to cor- rect these tendencies. Replacement rates were cut, and waiting' days added. Revenue-neutral changes were introduced to increase the incentives of employers to monitor use of sick pay provisions. Both the pattern of reforms and their timing suggest that the dominant concern was to restore sick pay to its originally intended role rather than to worsen the terms on which genuinely sick workers could choose to be absent from work. This is tricky territory analytically. Since in the current context these reforms will often be designed to save money, how do we distinguish the impact of new ideil about how to do things, or efforts to recalibrate errant programmes, from simple cutbacks in provision? Yet clearly we do not want to smuggle all modifications of programmes into a framework of 'assaults on the welfare state'. Over time actors will sometimes discover that particular pro- grammes der not work as intended, or they will determine that there may be better ways of achieving their goals. In such a context, they will push for changes. Thus, recent reforms in Swedish health care provision have Coping with Permanent Austerity 427 this volume's 'policy domain' chapters (Part IV). Wood sliows that in the case of labour market reform the primary agendas are re-commodification and recalibration, in differing and quite interesting configurations. By con- trast, cost containment is a much less significant motivation for policy reform. An the case of health care and pensions, on the other hand, cost contain- ment is the issue in most countries, though flanked in some cases by efforts at modernization. Only rarely will re-commodification provide the primary lens for analysing the character of reform in these core welfare state sectors. To take a third example, in the case of family policies, the main pressure all welfare states face is the need to adapt social policy arrangements to the radically transformed interfaces between market, state, and households. Distinct dimensions of welfare state restructuring will be of varied salience not only across programme areas, but across countries and over time. For instance, acute fiscal crises or the dash to meet EMU's convergence criteria obviously place a premium on cost-containment efforts. More generally, I will argue in the next section that the three different 'worlds' of contemporary welfare capitalism give rise to distinct policy agendas and, in part as a result, distinct competing political coalitions and reform dynamics. It has been in the liberal welfare states that a focus on re-commodification has been most pronounced. These already highly commodified welfare states have become more so—especially in Britain, New Zealand, and the United States. By contrast, recalibration and cost containment have been more central to the policy agenda in Continental welfare states, while cost containment has been the principal issue in the social democratic welfare states of Scandinavia. A focus on multiple reform dimensions thus , allows the analyst to highlight the distinct problem loads of different welfare states. Finally, disaggregating these reform dimensions increases our capacity to make sense of relevant political processes, facilitating more nuanced accounts of actor interests and political activity. Different actors may be concerned about distinct dimensions of reformuarticular actors may have multiple but partly, conflicting objectives. Furthermore, because of these multiple priorities /there may be unsuspected opportunities for issue-linkage and negotiated change in which different actors trade off lesser concerns for greater ones. As noted in the chapters by Bonoli, Rhodes, and Myles and Pierson, one of the striking observed outcomes in some configurations is unexpected coalitions based on quid pro quos. One can place this in the framework outlined in the first part of this chapter. Recognizing the multi- dimensionality of reform is crucial in a context where many actors agree on the need for 'change' but have different interests and priorities. Analysts elsewhere (Levy 1999; Myles and Pierson 1997) have stressed the centrality of compromise and the search for positive-sum trade-offs under condi- tions where broad political coalitions are necessary and straightforward retrenchment is politically difficult to sell. r Coping with Permanent Austerity 429 qualitatively different configurations with distinctive historical roots'. Caus- ally, the claim is that 'countries cluster on policy because they cluster on politics' (Shalev 1999: 13, emphasis in original). In this framework, it makes no sense to argue for a linear relationship between independent variables /and dependent variables, e.g. that 'any discrete increment of Catholicism or of welfare absolutism ought to yield a discrete and uniform increment in pension "corporativism" ' (ibid.)." The arguments about path dependence discussed earlier in this chapter and elsewhere in this volume (Myles and Pierson, Wood), as well as the contributions which focus on linkages among regime features (Manow, Huber and Stephens) point in the same direction. Path-dependent processes are very likely to be prevalent in contexts where a set of organizations and institutions develop together over extended periods of time, reinforcing each other through processes of mutual adaptation and competitive selection. Institutions and organizational actors that constitute a poor fit are less likely to survive over time. Such processes foster the emergence of quite distinct configurations, containing many elements which 'make sense' in the context of the others. To take a prominent example (Huber and Stephens 1999) a number of factors operated together to create the 'Social Democratic service state'. In particular, the rapid entry of women into the workforce, in a con- text marked by social democratic party and union strength, fuelled demand for supportive social services. Efforts to meet that demand through public sector expansion both created additional opportunities for women's employ- ment and strengthened political forces pushing for further expansions. Different welfare state configurations are the products of complex con- 'more' or 'less' of junctural causation, with multiple factors working together over extended periods of time to generate dramatically different outcomes. There is no theoretical justification for arguing that a 10 per cent shift in the value on one variable or another will have a simple, direct, linear effect On outcomes across all cases. To clarify, let me discuss one example: the impact of political institutioni. on the prospects for reform in the current period. Most discus- sion of this issue has addressed welfare states in genefal. Pierson and Weaver (1993) stressed that there was no clear theoretical basis for believing that increased institutional fragmentation necessarily made retrenchment more the contemporary role difficult. The concentration of authority also concentrated accountability, is effectively advanced prominent theme in com- " Esping-Andersen himself employed such regressions, but as Shalev argues persuasively, capitalism (Kitschelt there is an 'obvious mismatch between Esping-Andersen's claims and his methods... The account, 'there are strong regression approach... treats both policy and politics as continuous variables.... It is hard framework. Each to exaggerate the fundamental incompatibility between [multiple regression] and Esping- 109). Spurred in part by Andersen's regime approach.... In his hands [multiple regression] was simply a blunt explore the connections between instrument lor tapping gross differences between groups of countries that could have been conveyed by the use of tables and charts without the implication of constant linear effects across countries' (Shalev 1999: 13). Coping with Permanent Austerity 431 Even if one accepts the basic case for treating cases holistically, as con- figurations rather than compilations of variables, one can nonetheless chal- lenge Esping-Andersen's specification of regimes. A number of reasonable objections have appeared, and for particular purposes one might prefer a different typology. Yet I am struck by the extent to which other analysts, -including those studying broader shifts in political economy, have gravitated towards similar demarcations (Iversen and Wren 1998; Kitschelt et al. 1999a; Scharpf 1997b). My view is that this reflects a reasonably tight fit between particular welfare state configurations and particular political configurations. This is indeed what one should expect if Esping-Andersen was correct in arguir}g that each regime type emerges from a particular political milieu. As 'Walter Korpi has argued, in evaluating the heuristic merits of typo- logies, 'the analysis of causes and consequences of welfare states shduld be in the foreground' (Korpi 1999: 35). Ultimately, the crucial issue is whether the distinction among regimes provides leverage for explaining important variations across the relevant cases. In Section 3 of this essay, I argue that it does—although not always in the manner suggested by Esping-Andersen's own discussions. When combined with the disaggregation of reform dimen- sions outlined above, one can begin to make sense of variations both across regimes and among cases within each regime. for the 3. RESTRUCTURING THE THREE 4,k WORLDS OF WELFARE with What follows i a preliminary, attempt to outline the distinct politics of welfare state reform in the three 'worlds', or regimes, of liberal, social democratic, and conservative welfare states." I argue that the basic frame- work developed in Section 1 is helpful for making sense of what is happening in each of these three worlds. Each world, however, is composed not only of particular types of welfare states, but also of distinct political settings. Thus, the agendas for welfare state restructuring and the dominant polit- ical coalitions will vary. Furthermore, we can expect additional variation across cases within each world, and one of the major tasks for analysts should be to identify and explain that variation. institutions might impede in the first place. direct role in blocking " A number of the cases sometimes considered in such comparisons are excluded from through the promotion this analysis. Greece, Ireland, Portugal, and Spain are late developing welfare states, which in much institutional were still very much in the process of welfare state construction at the end of the golden multiple and cross-cutting age. In my view this context raises quite different issues from those cases where affluence this is that we need to had been achieved and welfare states were already close to maturity by the mid-1970s. institutional fragmentation. Switzerlancrand Japan represent distinct configurations that do not fit easily into any of the three regimes. Coping with Permanent Austerity 433 The political constellations of these cases also share a number of common features. First, and most crucial is the weakness of encompassing interest organizations. By comparative standards these are cases where organized labour has modest political capacities. Again, there is considerable variation 9. mong these countries, ranging from Australia at one end to the United States at the other. It is not only that labour is weak in these cases; the capacities of employers for collective action are also limited. In Soskice's words, `comp,anies have little capacity to coordinate their activities collectively. Their inability to act collectively means that they cannot combine to negotiate dis- cretionary framework solutions with the state' (1999: 110). In short, with the partial exception of Australia, not only does labour lack the power to veto change, but the capacity of these systems to pursue negotiated reform through systems of organized interest intermediation is very low. Unlike the case in other welfare state regimes, policy changes must be executed almost the welfare exclusively through electoral and partisan politics. Several crucial features of the electoral/partisan environments thus deserve special emphasis. First, until New Zealand's recent reform, none of these cases employed proportional representation. Instead, 'first-past-the-post' 16 electoral systems have been the norm. Thus, all of these countries have had strong tendencies towards two (or two-and-a-half) party systems. With the exception of the United States, where division between Congress and the private'''. President has become the norm, these systems tended to produce single-party governments. They varied, however, in the extent to which political institu- tions provided checks on these governments. New Zealand (pre-1996) and Great Britain conslitute pure 'Westminster' models of 'elected dictatorship'. By contrast, the fetleral systems of Australia, Canada, and the United States create additional veto points, the severity and nature of which varies across countries, issue area, and electoral context. - Furthermore, there is little question that the scope of popular support for public social provision tends to be more conditional in these cases, although again with considerable variation (Svallfors 1997). One can see here how In Three Worlds he multiple features of a particular configuration point in the same direction. Economies he seems to Because these welfare states are relatively small, the 'core' support group and 'median voters' for social provision is also relatively small. Reliance on means-testing may different political cleav- divide those who benefit from many taxpayers. The political clout of labour pivotal voters channel unions, a traditional bastion of support, is also relatively modest. The the two Antipode coun- institutionalizaticin of (often state-subsidized) market alternatives weakens which protectionism combined with middle-class attachments to public provision. High levels of inequality are also outcomes without extens- associated, in many countries, with large class biases in electoral turnout. in protectionism, came countries globaliza- Low turnout among the economically vulnerable further diminishes their already liwited political influence. Australia, in par- continuing role of politically " Australia employs a 'preferential' voting system. Because voter's second choice matters, this will generally induce parties to moderate their policy stance. Coping with Permanent Austerity 435 social assistance have been severely weakened. Provincial and state author- ities have often moved aggressively to push the poor off social assistance rolls and into the workforce. At first glance, this characteristic of liberal regime reform is puzzling. Why would these systems, already the most `commodified' in the OECD, I rush so much more aggressively in this direction? Part of the answer lies in the political weakness of those who might resist commodification. Equally i mportant, however, is the connection between income support and the labour'market in political economies where wage flexibility is treated as the principal buffer against high unemployment. The deteriorating market position of low-skilled workers has confronted policy makers everywhere with difficifit trade-offs (Iversen and Wren 1998; Scharpf 1997b). Consistent with the basic workings of a liberal, 'disorganized' market economy, all of these liberal countries have implicitly accepted that the new environment requires larger wage differentials, and, in particular, deteriorating relative wage conditions among the low-skilled. Yet this deterioration can only be carried out if exit options (`reservation wages') are not attractive. That is, the push for (downward) flexibility among the low-skilled implies a hardening of conditions for income support to those out of work. Improving 'work incentives' has thus been a common frame of reform, justifying stricter eligibility, benefit cigs, or even outright abolition of programmes. Many comparative analysts view the liberal welfare states primarily as an analytical or normative foil for the 'real' welfare states of Continental Europe and Scandinavia. For these analysts, the policy changes just described are taken to definF the essential outcomes for/these cases. From this per- spective, the Unified States is taken to typify the liberal world, and the welfare 'reform' which abolished Aid to Families with Dependent Children is taken as the paradigmatic policy change in the USA. Social policy dis- mantling and re-commodification are portrayed as the logical political destination for liberal welfare states in the new era. The actual patterns, however, are both more complex and more inter- esting. All the liberal welfare states have shared in the shift towards re- commodification, albeit at different paces and to differentdegrees. Yet there has been considerable variation in the extent to which this transition has been subsidized or buffered. The main political debate in the liberal welfare states has not focused on whether or not low-skilled workers should be in the labour market, but on the terms under which their participation should take place. The key issue is the extent to which commodification should be sub- sidized. Those advocating subsidization have accepted demands for reform in social assistance and unemployment benefit, but have sought to 'make work pay' by supplementing poverty-level wages available in an unregulated market withi'various forms of targeted social provision. Arguments in favour of such provisions emphasize both social equity concerns and the need to Coping with Permanent Austerity 437 appears to facilitate a focus on expenditure (and tax) restraint, along with deficit reduction, even in the absence of an institutional forcing mechanism such as EMU." Cost containment efforts, however, have not on the whole generated the kjnd of radical roll-backs popularly associated with neoliberalism. Indeed, it is hard to discern a distinct liberal response in the big spending areas of health and pensions. Unlike the case of income maintenance for the able- bodied, there is no clear policy imperative. In both health care and pensions, outcomes appear to be heavily constrained by the particular policy arrange- ments established before cost-containment demands became paramount. Where there were well-established, deeply embedded policy frameworks in these areas, continuity has been more evident than change. Thus, in health care, Australia, Britain, and Canada have all made modifications of their pre-existing systems in an attempt to cut costs, but without challenging basic rights to quality care and in contexts where overall expenditures were increasing. In the United States, the major policy initiative was a failed attempt to dramatically expand health care coverage, albeit as part of a cost- containment strategy. New Zealand again stands out as a divergent case. Only there was a major effoirt undertaken to roll back the contours of state provision for health care. I As Giaimo's chapter demonstrates, there is no logic of liberal market economies that generates a strong push for market expansion and state con- traction in the area of health care. On the contrary, a good case can be made for the opposite proposition: a strong state-role in health care will gener- ally serve the interests of most employers. The Clinton administration's reform

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