>THE WELFARE STATE AND THE POLITICS OF AUSTERITY

Andrew Gamble

Allegorical collage of economic decline and cuts in public services.

>ANDREW GAMBLE

Andrew Gamble is Professor of Politics at the University of Sheffield and Emeritus Professor of Politics at the University of Cambridge. He is a Fellow of the British without end? The unravelling of western prosperity (2014) and Can the welfare state survive? (2016). He was a joint editor of Political Quarterly and New Political Economy for more than ten years and he has published widely on political economy, British politics, and political theory. In 2005 he received the Isaiah Berlin Prize from the UK Political Studies Association for lifetime contribution to political studies.

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>THE WELFARE STATE AND THE POLITICS OF AUSTERITY

The welfare state faces intellectual, political and policy challenges which question its rationale, its legitimacy and its effectiveness. Tere have been distinct phases in the development of the welfare state which include the extension of social rights to all citizens in the first half of the twentieth century, the retrenchment in the 1970s, and the new ideas around social investment in the 1990s. A new phase has opened with the adoption of austerity programmes following the financial crash in 2008 and economic recession. The future of the welfare state is once again in question and to survive it needs continuing reforms and a new vision of democratic citizenship.

The welfare state is currently facing a battle for survival on several fronts.[1] The first is an intellectual battle. Everyone is agreed we need welfare, the condition of doing or being well, but do we need a welfare state to provide it. Are there other means by which the welfare of individuals can be assured? Secondly there is a political battle, centering on whether the welfare state is affordable, particularly in hard times, periods of austerity and slow growth such as the one the whole western world has been living through since the financial crash in 2008. One of the paradoxes of the welfare state is that the richer societies become, the less able or willing governments are to fund welfare collectively. Thirdly there is a policy battle. Can the welfare state adjust to changing circumstances and trends or have its own institutions and structures become too inflexible and incapable of reform to meet the challenges of rapidly changing societies?

These battles have been raging a long time. None of them are particularly new, but the questions at the heart of them have acquired a new urgency. It seems a long time ago that TH Marshall celebrated the establishment of the post-war welfare state as a triumph of democratic citizenship, adding social rights to the earlier winning of civil and political rights.[2] The creation of a welfare state became regarded as an indicator of economic success and political maturity, the institutional and policy reflection of the compromise which had prevented western capitalist democracies from tearing themselves apart. Welfare states were the means to reconcile democracy and capitalism, protecting the institutions of the capitalist economy, particularly private property, but also protecting the interests of all citizens by pooling resources to give every citizen a basic minimum of resources and opportunities across the life cycle. Conflict still persisted on how generous that minimum should be, and how it should be funded, but the principle was widely accepted, and became part of the governing framework for all advanced capitalist democracies.

Yet this period seems in retrospect short-lived. Since the stagflation crisis of the 1970s there has been, as far as public services are concerned, never-ending austerity and fiscal crisis. The public services have been underfunded and beset by controversies around levels of entitlements, costs and quality. This has led to continual pressure for restructuring, reorganization, and the search for efficiencies in existing service provision. For many people involved in the delivery of frontline services the welfare state has seemed to be always under siege.

The Historical Context of the Welfare State

To grasp the current problems and challenges of the welfare state it is important to situate it historically, and to understand the complexity of its ideological and political development. In its origins the welfare state was a project of both left and right. On the right in the nineteenth century leading conservative statesmen and business owners including Bismarck and Joseph Chamberlain advocated welfare programmes as a way of incorporating labour and blunting the appeal of the anti-capitalist movements which were developing so fast. They agreed that extremes of inequality should be moderated, and that collective provision should be made to give every citizen reasonable security and opportunity. The welfare programmes which resulted were in part a moral response to the plight of the working poor, as well as being a political response to the rise of radical working class movements and a pragmatic response to the need all Great Powers were experiencing for healthier and better educated workers and citizens.

“THE WELFARE STATE EXPRESSED A NEW COLLECTIVISM WHICH HAD ADVOCATES ON BOTH LEFT AND RIGTH.”

The welfare state as it developed was closely associated with projects of nationbuilding and common citizenship. It expressed a new collectivism which had advocates on both left and right. Treating nations as communities of fate gave governments obligations to ensure the welfare of citizens. This implied a move away from ideologies of laissez-faire and economic liberalism. As such it was part of a wider reaction to the self-regulating market, and reflected the desire for a much more active and interventionist state.[3] Significant elements in the governing classes in Europe at the end of the nineteenth century accepted that capitalism needed to be fundamentally reformed to head off the possibility of social revolution by providing a basic minimum of security, opportunity and income to all citizens at every stage of the life cycle. This shift in attitudes helped transform western politics and made possible the reconciliation of capitalism with democracy which many in the nineteenth century thought could not happen. It remains the rock against which attempts to dismantle welfare states have so far foundered.

The welfare states developed by Conservatives tended to be limited in scope and ambition, but they opened a way for the state to augment its powers and extend its operations and this was used by centrist and social democratic politicians to deepen and universalise the welfare state. One of the inspirations for this wave of social democratic reform was the Beveridge Report published in the UK in wartime in 1943. Beveridge identified the five giants of Want, Idleness, Disease, Ignorance and Squalour, and his framework provided the basis for the establishment of universal programmes of social security, full employment, health, education and housing, funded through much higher levels of taxation.[4] In quantitative terms the changes were dramatic. The UK for example had had very low levels of public spending and taxation in the nineteenth century, less than 10 per cent of national income before 1914. After the First World War and the granting of universal suffrage this rose to between 20-30 per cent between 1920 and 1940. After the Second World War the level rose again, to 38-45 per cent. 20-25 per cent of this represented social spending. It was this transformation of the role of the state in capitalist democracies and the long economic boom which started in the 1950s that convinced many observers that the secret of stable and prosperous democratic capitalism had been discovered.[5]

From Welfare Retrenchment to Social Investment

This period however proved temporary. It was succeeded by the long crisis of the 1970s during which the welfare state unexpectedly became a focus for attack from both right and left. The left critique of the welfare state argued that the reconciliation of capitalism and democracy was an illusion. The existence of the welfare state created a conflict between the priority given to maximizing economic growth by boosting profitability and investment and the priority given to maximizing democratic legitimation by expanding welfare programmes. The result was an increasingly debilitating fiscal crises, as there not enough resources to sustain both objectives.[6] A second line of criticism focused on the paternalism of welfare states; the stigmatizing and disciplining of claimants. Welfare states it was argued were not benign but instruments of social control. The expansion of the state served the interests of the state rather than its citizens. A third line of criticism focused on the gendered assumptions which informed so many welfare state programmes. The Beveridge report had very explicit assumptions about households being supported by a male breadwinner, and most domestic labour being performed by women and unpaid.

On the right some of the analysis mirrored that on the left, although very different political conclusions were drawn. Welfare states it was argued increasingly threatened prosperity rather than helping to sustain it. Spending on welfare had become a burden on taxpayers, because some key programmes, particularly social security, were too generous, and open to fraud. This attack was widened out at this time into a critique of welfare states which treated them as similar to command economies in non-western societies, and with similar results - misallocation of resources, no proper market discipline and no proper budget constraints. In more colourful depictions the welfare state was seen as a giant parasite, sucking the life out of the private sector because of its insatiable appetite for additional resources. In an influential critique two UK economists argued in 1975 that the public sector had grown too large because its workers were essentially unproductive (no matter how socially useful), and their wages had to be paid for by workers in the ‘productive' private sector.[7] This view of the relationship between the state and the market economy had a long history. What was significant was its revival in the 1970s and the particular uses to which it was put, supporting the argument that the welfare state was too generous, and employing too many people, and should be cut back.

Another line of attack was that in the decades since the publication of the Beveridge report there had been a retreat from the original insurance principle which Beveridge had proposed. Welfare was now being funded from general taxation, and welfare benefits were no longer regarded as something which had to be earned by paying in, but something which was a right, and therefore an entitlement. The contribution principle had been lost. The consequences of this shift led directly to fiscal crisis since the costs of welfare programmes as well as the demands and expectations of citizens were always increasing, leading to ever-greater demands for funding. In the gloomy prognostications of free market think tanks there was no end to this spiral. It was inevitably leading to fiscal crisis, the collapse of the public finances, the politicisation of welfare. The problem was often diagnosed as one of democracy. The structure of democratic institutions allowed claimants and public service employees to push their special interests, at the expense of the majority of citizens and taxpayers. It also led to the growth of dependency, the multiplication of claimants, and the infantilising of the poor, who were denied autonomy and a chance to liberate themselves.

Health, public education, and labor and salary conditions have been, are and will continue being very sensitive areas in the struggle for social welfare.

“THE STRUCTURE OF DEMOCRATIC INSTITUTIONS ALLOWED CLAIMANTS AND PUBLIC SERVICE EMPLOYEES TO PUSH THEIR SPECIAL INTERESTS, AT THE EXPENSE OF THE MAJORITY OF CITIZENS AND TAXPAYERS.”

These critiques from left and right of welfare states as they had emerged since 1945 atttracted different political responses. Before the 1970s it was assumed that all welfare states were on a journey to the same destination. Some were further on the way and some faced particular obstacles, but all were moving in the same direction. In the 1970s and 1980s it became clear that there were growing divergences in welfare states and that these were unlikely to be overcome, but rather were becoming increasingly embedded in different institutions and policies, reflecting different politics in the various states. This divergence was captured by Esping Andersen in his book, The Three Worlds of Welfare Capitalism, which contrasted Nordic welfare states with their generous provision, high taxation, and treatment of welfare provision outside the bounds of the market; continental welfare states which also had quite generous provision, but in line with conservative assumptions about society focused provision on the family, rather than on individuals; and Anglo-American states, whose welfare states had become primarily focused on income support, and were much less generous and comprehensivie, and had therefore become residual welfare states.[8] But Esping Andersen noted that what made all three types recognisably welfare states was that even in the residual welfare states there were programmes to combat insecurity arising in the life cycle of the labour market, as well as important universal programmes like the National Health Service or Medicare.

It was also the case that the differences between the different types of welfare state were less than the political rhetoric sometimes suggested. There remained strong political resistance to welfare retrenchment, so that even where governments were elected on anti-welfare programmes, as happened in both the UK and the US in the 1980s, the success of these radical right governments in rolling back the state was limited.[9] Both Thatcher and Reagan were frustrated in their attempts to bring fundamental change to the welfare state. What they did achieve was a great deal of reshaping, The new public management with its emphasis on the introduction of quasi-markets into public services, together with the target and audit culture helped precipitate the waves of reorganization and efficiency drives which a new class of managers arose to supervise.

Anton Hemerijk in his influential characterisation of the phases of the development of the welfare state since 1945 in the capitalist democracies, sees a first phase of welfare state expansion and class compromise lasting until the 1970s. This was then replaced by a phase of welfare retrenchment and neo-liberalism in the 1980s and 1990s. A third phase opened in the mid 1990s charactised by what became known as the social investment paradigm. This was based on a fundamental rethinking of the welfare state, and argued for a smart, active enabling state and the recognition of new circumstances, in particular globalisation, de-industrialisation and new social risks.[10] This paradigm was especially influential in the EU Commission, and in several of the member states. It focused in particular on labour market and life course transitions, and how government should intervene to make these as smooth as possible, as well as on raising the quality of the stock of human capital and capabilities, while maintaining strong minimum income universal safety nets as buffers to ensure social protection and economic stabilization.

The New Hard Times

A fourth phase opened with the financial crash of 2008. A financial meltdown was averted but at a heavy cost for the western democracies. There was a sharp recession in 2009, followed by a slow, weak recovery, the slowest and weakest since 1945. Western economies were still not back to normal nine years after the crash. Interest rates were still at record low levels, the financial sectors were still heavily dependent on quantitative easing, and the economies were plagued by secular stagnation, high levels of inequality and a standstill in pay and productivity, leading to a squeeze on living standards of most of those in work.[11] Welfare states both in the expansionist phase after 1945, and more recently in the 1990s and 2000s had relied on the growth dividend which meant governments could choose to increase in absolute terms the amount to money going to welfare. With the onset of recession governments once more resorted to austerity programmes, fiscal squeezes and fiscal consolidation, and a new onslaught on welfare states began. The eurozone crisis which developed after 2010 quickly became a threat to the European social model and to the principle of solidarity across the EU, because of the draconian austerity measures the leading creditor countries in the EU demanded in return for bailing out the debtor countries.

There was no uniform pattern across Europe. Countries tried different mixtures of expenditure cuts, tax increases and borrowing. Only Sweden avoided any fiscal squeeze. At the other end of the scale the UK and Lithuania put the balance of their fiscal adjustment heavily on spending cuts (more than 90 per cent) rather than tax increases. The new politics of austerity which emerged in many states revived old stigmas around those who received welfare benefits. New distinctions between strivers and shirkers, makers and takers, echoed a much older discourse about the deserving and the undeserving poor. The latter were stigmatised as benefit cheats, and as free riders on the labour and contributions of others. As in previous phases of austerity the burden of spending cuts fell most heavily on the poor and on households. Many costs were redistributed to households, particularly in respect to social and child care.

The political issue in every state was not austerity as such but what kind of austerity. The recession removed permanently a large amount of wealth from national economies. A fiscal adjustment to take account of that shift had to be made. The question was who should bear the main burden of getting the public finances back into balance. Whose taxes should be increased, and whose spending should be cut? This politics of redistribution could not be avoided, and electoral coalitions formed around the various alternatives. Welfare spending became a prime target, but not all welfare spending. It was politically much harder to attack some of the big universal programmes on health and education which benefited almost all citizens at some point in their lives, than to target welfare spending that went to minorities, such as the unemployed and the disabled.

In this new politics of redistribution, those seeking large cuts in spending have increasingly condemned the welfare state as a twentieth century form of capitalism. The new forms of capitalism which are emerging have no need for welfare states. Rising powers such as China are cited as examples of new successful economies which have not burdened themselves with the costs of providing a welfare state for its citizens. The argument is increasingly heard from free market thinktanks that western economies should dismantle their welfare states if they hope to compete with the rising economies of the East. The future is said to lie with flat taxes, or with very low tax rates, on both business and on individuals. The main counter to these ideas comes from those who think that the best hope for preserving welfare states lies in renewing and developing the social investment paradigm. But here too there are skeptics who criticise the social investment paradigm for focusing too much on new social risks at a time when old social risks in the shape of rising unemployment and more precarious forms of employment have returned to western economies. A second problem is the observation that middle class households benefit disproportionately from the effects of social investment policies. It is much harder to reach those who are marginalised and excluded from labour markets.

The Intellectual Battle

The new politics of austerity has re-energised those campaigning against the welfare state. They raise the fundamental question identified at the beginning of this chapter – why do we need a welfare state? Why cannot welfare be supplied in other ways by other agencies? Underlying these questions is a rejection of some of the assumptions which have underpinned the extraordinary success and achievement of welfare states in the twentieth century. These include whether welfare states are permanent features of modern societies or just a transitional stage, when for a variety of reasons it was easier and more practical for the state to be involved in the provision of key welfare programmes. But is it possible that welfare states belong with socialism, trade unions, collectivism, and planning to an earlier era?

Much of the most persistent and profound critique of the welfare state has come from various strands of neo-liberalism, both Hayek's revival of classical economic liberalism, and the market libertarianism prevalent in the United States.[12] These theorists argue that individuals should be free to make their own choices about the services they use and pay for the quality they want. The state should not interfere in these choices or tell individuals what they should do. The institutional framework, including the state, needs to take account of human imperfections. The core of the knowledge problem as set out by Hayek is that because human beings are limited in their cognitive capacities they are always making decisions in conditions of uncertainty and ignorance. He further assumes that individuals are primarily motivated by self-interest, hence the importance that any institutional framework should recognise the importance of incentives in channeling behaviour. Given limited information and ignorance Hayek maintains that evolutionary processes are better placed to discover solutions to their own deficiencies than are alternatives which reduce the scope for competitive experimentation. The Hayekian contention is that this is what the welfare state does. In the name of promoting the common good and social justice it assumes that a social order can only be maintained by deliberate authority. Hayek maintains that most of the benefits of modern society have only emerged when deliberate authority has been limited or absent altogether.

From a Hayekian perspective the state does not need to regulate voluntary exchange or provide financial support for civil associations. Solutions to social problems are not given uniquely to a single agency. Education and health do not need to be supplied by the state. Those who support the welfare state, Hayekian suggests, are arguing that the holders of political power should substitute their own view of the appropriate trade-offs in place of those reflected in the choices of millions of individuals and civil associations. The better approach is to promote decentralization, pluralism and many providers of services.[13] Paradoxically people are more likely to be atomized by the coercive nature of a tax financed welfare state. Such a state is also likely to interfere with free movement of goods, capital and people in other areas, by, for example, imposing strict immigration controls. The Hayekians by contrast want all state monopolies to be broken up. They envisage the restoration of a free economy and a minimal state, which would maximise choice and the quality of services. The Cato Institute has suggested that total government spending should never be higher than 25 per cent of GDP and could be as low as 15 per cent. The Ryan budget plan in the United States proposed a move in this direction. In terms of the welfare diamond, with its four interacting institutional sides – states, markets, households, and civil society – these proposals would eliminate the state altogether. The welfare diamond would become a welfare triangle, comprising the interactions between markets, households and civil society. This would no longer be a welfare state.

Unemployment, one of the worst consequences of the economic crisis. In the photo, people waiting to enter an employment office in the Santa Eugenia neighbourhood, Madrid.

The Political Battle

The end of the growth dividend and the plunge into recession was the context in which austerity became the new political reality. A new politics of the welfare state has emerged, reflected in the rise of new anti-welfare coalitions, evident in the Nordic countries as well as in the UK and the US. One of the drivers for these anti-welfare coalitions is a recognition of the extent to which societies have become consumerist, so that many citizens are prepared to consider contracting for welfare like any other service, and paying lower taxes as a result. There is evidence that during the recession and the slow recovery support for non-universal benefits, particularly those like social security, have come under particular attack. Older senses of solidarity and common purpose have been undermined.

Underlying the new politics of the welfare state are the key issues of affordability and competitiveness. Affordability reflects the gulf between what citizens are willing to pay in taxes and the services they expect. Voters demand both Swedish style public services and US style taxes. A common feature of democratic electorates is the growing resistance to paying high levels of taxes as individualist consumerist culture takes hold. This pressure constantly threatens to shrink the tax base because of the willingness of political parties to compete in seeking to lower taxes on both individuals and companies. This is a much bigger problem than the issue of avoidance and evasion of taxation, although these also play a part, and in the case of many transnational companies the ability to avoid paying taxes in high tax regimes which is built into their corporate strategies. If these pressure cannot be countered there is an irresistible drift to a regime of low taxes which gradually eliminates progressivity in the tax system by moving towards flat rates in either absolute or proportional terms, as well as eliminating some taxes such as inheritance tax altogether. The end result is at best a residual welfare state, since the state loses the capacity to fund anything else.

This is one of the great conundrums of democratic politics. Politicians of both left and right rule out tax rises, which affect the majority, in order to gain votes. Those that refuse to do so are often punished electorally. But the same politicians are also under intense pressure to respond to the rising tide of expectations and entitlements, as well as to find solutions to the tendency of costs in the public sector rising faster than costs outside because of the inherent difficult in raising productivity in services which are labour intensive. Politicians are obliged to promise to reduce the taxes individuals and companies pay while at the same time promising to maintain the open-ended universal benefits on which the majority of citizens have come to rely. The cost of health treatments and of pensions in particular constantly threaten to outpace the ability of states to fund them at the level citizens have come to expect. Politicians either have to disappoint voters on taxes or on spending, or they have to increase borrowing and try and postpone the problem. The dilemma is a fundamental constraint in contemporary democracies, and is exacerbated in times of austerity.

“IS IT POSSIBLE THAT WELFARE STATES BELONG WITH SOCIALISM, TRADE UNIONS, COLLECTIVISM, AND PLANNING TO AN EARLIER ERA?”

The second issue is competitiveness. The trends towards globalisation in the international economy in the 1980s and 1990s was associated with the end of full employment, the weakening of organized labour, and the creation of transnational production supply chains. They created understandable anxiety about a race to the bottom. Would any national economy be able to sustain the extra costs of a welfare state if mobile transnational capital could choose to locate in areas with much lower tax and regulation? What quickly became apparent was that there was no simple relationship. The variation in types of welfare states showed that. Some of the most successful economies in the globalisation era had some of the most advanced welfare states.[14] Despite this the anxieties have never completely gone away and have been revived since the advent of recession and austerity and the new hard times. Labour standards and welfare standards are both perceived to be under threat because of the ease with which companies can choose to outsource production. One of the things which make economies more attractive to companies is flexible labour markets and a willingness to accept high immigration. Having as few restrictions as possible on immigration is very attractive to employers, but only underlines how much welfare states are national creations while many forms of capital are transnational. In a time of austerity when the emphasis is on stripping costs, the higher wages and welfare benefits enjoyed by citizens in rich economies can look like economic rents which privilege these workers over workers in other parts of the world. Yet the maintenance of these privileges becomes an electoral imperative, and also fuels an anti-immigrant, anti transnational capital backlash.[15] From this perspective protection of welfare states has a strong element of economic nationalism, and must involve strict immigration control. Yet the political forces which tend to be most in favour of protecting welfare states are also those most in favour of a liberal immigration policy. These tensions are evident in the populist backlash against globalisation which has gained ground since 2008 in many parts of Europe, and has achieved its greatest successes in the vote in the UK to leave the European Union, and in the election of Donald Trump as U.S. President on an economic nationalist and anti-immmigrant platform.

The Policy Battle

The welfare state is also involved in a battle over policy, in particular responding to the new circumstances and social trends which have made many of the inherited forms of welfare states seem anachronistic or inadequate. Much attention has been devoted to new social risks, which pose different kinds of policy challenges, and also to the demographic changes that have altered the context in which welfare states operate. One of the biggest changes which has taken place in industrial services is the shift from manufacturing to services, with the former now accounting for 80 per cent of employment in many rich economies. With that has come new patterns of work and of households, very different from the patriarchal male bread-winner assumptions of the Beveridge report. The new patterns include the much higher female participation rate, the rise in single parent families and workless households, the growth of the precariat – those in insecure or temporary employment.[16] Another key trend has been the increasing financialisation of the economy, with citizens treated as autonomous and selfreliant financial agents, incurring debts to navigate the life cycle.

Many diverse sectors of society are concerned by the uncertainty triggered by the crisis in the welfare state.

“WELFARE STATES WITH ALL THEIR IMPERFECTIONS ARE VITAL FOR SOCIAL STABILITY AND LEGITIMACY.”

These trends are related to the rise of a more individualist society and political culture, and the evident weakening of many of the institutions which in the past nurtured solidarity, such as trade unions, churches, extended families, large factories and working class communities. This has been associated with evidence of a hardening of attitudes towards the poor and declining support for redistribution, particularly among millennials. At the same time there has been a marked change in the demographic profile of the rich economies. Declining mortality and increases in life expectancy have made the older generation an increasingly powerful voting force, and there has been a pronounced redistribution from young to old. As the costs of providing social care and pensions for the elderly rise, the numbers working and paying taxes has shown a tendency to decline. The policy solutions to these dilemmas include cutting spending on the older generations, raising the retirement age more rapidly, or encouraging immigration to boost the number of younger workers. All are politically difficult.

Conclusion

Joseph Schumpeter asked in 1944 whether capitalism could survive and answered in the negative. Some would now say the same about welfare states. This chapter has emphasised the various intellectual, political and policy challenges which welfare states face. Can they overcome them? The position of the welfare state is stronger than it sometimes appears firstly because in most countries there is still a broad coalition of support for welfare services which are universal and free at the point of use, and secondly because capitalism still needs the welfare state as much as the welfare state needs capitalism. There is a mutual dependence between them which has grown up over the last hundred years. Welfare states with all their imperfections are vital for social stability and legitimacy. They are an important creator of the non-market conditions which are necessary for the successful reproduction of capitalism as a political and economic system.

Contemporary welfare states undoubtedly face complex intellectual, political and policy challenges, but also a deeper moral one – how to renew the social contract on which the original welfare states were based. The challenge is how to make the case for higher taxes to sustain welfare states and prevent any further erosion in the tax base. If this cannot be done, more welfare states are likely to become residual in Esping Andersen's sense, or disappear altogether. Without a renewed sense of community and solidarity welfare states will not survive and will not deserve to survive. The result will be growing inequality, social fragmentation and conflict.[17] But the question can be posed another way. It is not only whether capitalism can survive without the welfare state, but whether democracies can survive without it. Welfare states even now ensure that social rights are given precedence over market performance, and this is a tangible demonstration that democracies, again with all their imperfections, can still work for their citizens.

For supporters of welfare states there are reasons to be cheerful, or at least not too despondent. Some battles are being won. The difficulties encountered by the Trump Administration in seeking to abolish Obamacare in the United States is an interesting example of the politics of the welfare state. The granting of new entitlements means also the establishment of new interests, and there is in every democracy great difficulty in rolling back these entitlements once they have been achieved. There are also new directions emerging for welfare states. The social investment paradigm still has great potential in finding new ways to combine protection and opportunity. There are ideas around new policies to promote full employment, and strengthen some of the institutions both in civil society and in households necessary to nurture a sense of community and solidarity so vital to welfare states. New visions of democratic citizenship are also abroad. They include basic income and capital grants.[18] They seek new ways to combine self-reliance with solidarity, and to affirm the basic principle of the welfare state, redistribution across the life cycle. The important goal in any reform agenda for the welfare state should be to ensure that all sides of the welfare diamond – state, market, household and civil society – are fully engaged.

None of these reforms on their own will be enough. There has to be a wider agenda as well if welfare states are to thrive. What is needed is a welfare state which not just helps individuals to adapt to circumstances and opportunities but which actively shapes those circumstances and opportunities.[19] This means among other things effective regulation of labour markets, financial markets, housing markets, and reforming corporate governance. The aim has to be the reconciliation of the old and the new social risks; the achievement of a true social investment state. The prize is a big one, since although not every individual benefits equally from the welfare state, all benefit from living in a society where every individual enjoys a basic security and opportunity to live a full life.

NOTES

1 The arguments of this chapter are developed in Andrew Gamble, Can the Welfare State survive? Cambridge: Polity, 2016.

2 T.H.Marshall, Citizenship and Social Class, Cambridge: Cambridge University Press, 1950.

3 Karl Polanyi, The Great Transformation: the political and economic origins of our time, Boston: Beacon Books, 2001.

4 Nicholas Timmins, The Five Giants: A Biography of the Welfare State, London: HaperCollins, 2001.

5 Seymour Martin Lipset, Political Man, London: Heinemann, 1960.

6 James O'Connor, The Fiscal Crisis of the State, New York: St. Martin's Press, 1973; Claus Offe, ‘Some contradictions of the modern welfare state', Critical Social Policy 2:2, (1982), 7-14.

7 Roger Bacon and Walter Eltis, Britain's Economic Problem: Too Few Producers, London: Macmillan, 1976.

8 Gosta Esping-Andersen, The Three Worlds of Welfare Capitalism, Cambridge: Polity, 1990.

9 Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the politics of retrenchment, Cambridge: Cambridge University Press, 1994.

10 Anton Hemerijck, Changing Welfare States, Oxford: Oxford University Press 2013.

11 Andrew Gamble, Crisis without end? The unravelling of western prosperity, London: Palgrave-Macmillan 2014.

12 F.A.Hayek, The Constitution of Liberty, London: Routledge 1960; Milton Friedman & Rose Friedman, Free to choose, New York: Harcourt Brace Jovanovich, 1980.

13 Mark Pennington, Robust political economy: classical liberalism and the future of public policy, Cheltenham: Edward Elgar, 2011.

14 Peter Katzenstein, Small states in world markets: industrial policy in Europe, Ithaca: Cornell University Press, 1985.

15 David Goodhart, The road to somewhere: the populist revolt and the future of politics, London: Hurst 2017.

16 Guy Standing, The Precariat: the new dangerous class, London: Bloomsbury Academic , 2011.

17 Wofgang Streeck, How will capitalism end? Essays on a failing system, London: Verso 2016.

18 Philippe van Parijs, Real Freedom for All: What (if anything) can justify capitalism?, Oxford: Oxford University Press, 1995; Rajiv Prabhakar, The Assets Agenda: Principles and Policy, London: Palgrave-Macmillan, 2008.

19 Colin Crouch and Martin Keune, ‘The governance of economic uncertainty', in Giuliani Bonoli & David Natali (eds) The Politics of the New Welfare State, Oxford: Oxford University Press, 2017.

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The Age of Perplexity: Rethinking the World we Knew

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Gamble, Andrew. "The Welfare State and the Politics of Austerity." In The Age of Perplexity. Rethinking The World we Knew. Madrid: BBVA, 2017.

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