Small States in Big Trouble: State Reorganization in Australia, Denmark, New Zealand, and Sweden in the 1980s

Abstract

In Australia, Denmark, New Zealand, and Sweden in the 1980s, coalitions of politicians, fiscal bureaucrats, and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society: the state, particularly the welfare state. They exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services. The impetus for change came from rising foreign public and private debt. Rising public debt levels and expensive welfare states interacted to create a tax wedge between employers' wage costs and workers' received wages. This undercut international competitiveness, worsening current account deficits and leading to more foreign debt accumulation. Two factors explain variation in the degree of reorganization in each country: differences in their electoral and constitutional regimes; and the willingness of left parties to risk splitting their core constituencies. Introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s, and both to institutionalize limits to welfare spending and to change the nature of statesociety relations, away from corporatist forms of interest intermediation. In short, not just less state, but a different state.

Introduction: the diffusion of liberalization

“…86 The seminal study of this period remains Shonfield 1965. 87 See the essays in Kitschelt et al 1999;Scharpf 1991;Schwartz 1994;Schwartz 1998. 88 For a good review of the literature on tax harmonization see Oates 2001.…”

Permanent budget surpluses as a fiscal regime

“…All six countries where surpluses would later be preserved experienced unique fiscal and macroeconomic difficulties in the late 1980s and early 1990s (Schwartz 1994). They had all reacted to the macroeconomic upheavals of the 1970s with big public investment programs.…”

“…More often, though, these were rhetorical moments which captured the crisis mood in a single, powerful image. Paul Keating's diagnosis of Australia being in danger of becoming a "banana republic" (Schwartz 1994), David Lange's comparison of New Zealand's economy to a "Polish shipyard" (Goldfinch/Malpass 2007), or the Wall Street Journal's description of Canada as an "honorary member of the Third World" (Courchene 2002: 23) are still quoted regularly today.…”

“Seek and Ye Shall Find!”

“…Some argue that we face a process of a fundamental retrenchment of the welfare state due to the impact of heightened competition in an increasingly global market (Martin & Schumann, 1996;Streeck, 1995). Others may paint a less gloomy picture but nevertheless anticipate fundamental changes converging toward a less universally oriented welfare state model (Rhodes, 1995) or toward new organizational forms in the provision of services (Schwartz, 1994). Other scholars seem convinced, by contrast, that no major cutbacks or radical restructuring of the welfare state are occurring, nor should they be expected (Pierson, 1996; implicitly also Skocpol, 1992).…”