7 - The Struggle of the Welfare Society

Summary

In the early 1970s, triggered by two important structural changes, the long-term movement of the capitalist economies shifted gears from social protection to the release of market forces. As the First Oil Shock ended the era of high-speed economic growth in all advanced industrialized countries, various models created for social protection came under mounting pressure. In Western Europe, the welfare state began to face serious fiscal challenges in the 1970s as government spending, which functioned as a counter-cyclical tool, increased substantially. Meanwhile, two factors – the need to hedge against the risks of foreign exchange and the desire to pursue higher profits from the opportunities provided by the floating exchange rates after the collapse of the Bretton Woods system – led to the liberalization of finance. Efforts to remove the barriers to market forces soon spread over various industries and sectors, and this resulted in a neoliberal revolution represented by the widespread adoption of programs of deregulation, liberalization, and privatization in advanced industrialized countries. Against such a background, did the institutions and mechanisms established for social protection since the Great Depression and World War II survive? If they did, at what cost?

Since the 1970s, the conventional wisdom has predicted the decline of the welfare state. Because social provision accounted for an increasing share of gross national product, rates of expenditure growth that were well in excess of overall economic expansion could not possibly be sustained after the First Oil Shock. Yet a number of recent studies have argued that “the impact of electoral politics has not been dwarfed by market dynamics. Globalized markets have not rendered immutable the efficiency-equality tradeoff” (Garrett 1998, 2).