Since the late 1970s European governments have been forced to change their traditional modes of governance in response to such trends as increasing international competition and deepening economic and monetary integration within the European Union. Strategic adaptation to the new realities has resulted in a reduced role for the positive, interventionist state and a corresponding increase in the role of the regulatory state: rule making is replacing taxing and spending. The paper's first part identifies three sets of strategies leading to the growth of the regulatory state as external or market regulator, and as internal regulator of decentralised administration. The second part examines major structural changes induced by changes in regulatory strategies. The institutional and intellectual legacy of the interventionist state is a major impediment to the speedy adjustment of governance structures to new strategies. It would be unwise to underestimate the difficulties of the transition from the positive to the regulatory state, but it is important to realise that international competition takes place not only among producers of goods and services but also, increasingly, among regulatory regimes. Regulatory competition will reward regimes in which institutional innovations do not lag far behind the new strategic choices.

In the most global of industries, such as telecommunications and finance, international competition remains governed primarily by national regulations. When multiple national regulators govern international markets, the regulators themselves compete. But do they compete in laxity, trying to reduce regulation as much as possible, or do they compete in regulatory subsidy, trying to rig regulations to favor domestic firms? These questions are examined in Britain and Japan. In telecommunications and finance there has been no single global trend toward regulatory laxity or regulatory subsidy; national regulations still set the terms for international competition; the game of regulatory competition is so complex that it is difficult to find any single strategy for winning; and national authorities will continue to have difficulty in shifting regulation to the international level.

All countries in Central and Eastern Europe require rapid and drastic restructuring of their public pension schemes for macro- and microeconomic reasons. While initial considerations were geared towards streamlining the unfunded scheme, reducing many distortions and making it financially sound, some transition economies initiated reform plans for a move from unfunded to funded retirement income provision. The paper reviews the need for reform and surveys the discussion and current plans before addressing three central open questions: How to structure the first and unfunded tier? How to finance the transition toward the second and funded tier? What are the minimum financial sector requirements before funded provisions can be initiated? The success of the current pension reform efforts in Central Europe will have an important bearing on developments throughout Europe. A failure in one transition economy caused by bad design, unprojected deficits, or insufficient financial market preparation could discredit a funded pension system in the whole region; a successful move towards an unfunded-funded multi-tier pension scheme in Eastern Europe could positively stimulate the discussion of pension reform in the European Union.

What is the impact of direct democracy, e.g. referendums, on public policymaking? The study will present data for Switzerland, the United States, Australia and Germany leading to the conclusion that direct democracy is an effective, but flexible veto player against expansive spending and taxation. The level of public expenditure and taxation is significantly lower in countries that have elements of direct democracy compared to pure representative democracies. Several theoretical arguments support this finding. For example, the social discount rate of voters is lower than that of politicians. Also direct democracy is related to the benefit principle in public finance. Taxpayers want their payments to be related to public services they receive. They are therefore inclined to veto projects not reflecting their preferences. Moreover, referenda have an implicit restraining effect on governments and the mere threat can reduce their capacity to act.