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European Sociological Review, Vol. 4 No. 3, December 1988 Oxford University Press 1988 181

Is there a crisis of the welfare state? Cross-national evidence from Europe, NorthAm erica, and JapanJENS ALBERA B S T R A C T Critics of the welfare state combine assumptions about likely trends in welfare state developmentwith hypotheses on its side effects on social integration and system integration. These assumptions areeleborated and confronted with empirical evidence for 16 major Western countries. The central findings are thefollowing: (i) Growth rates of social spending have declined sharply since 1975, albeit with markedcross-national variation. The slowdown of growth is related to a series of legislative cutbacks, (ii) There areneither signs of a general welfare backlash nor of a legitimation crisis caused by the cu rtailme nts. W elfare stateprogrammes still enjoy a high level of mass support, and there are no signs of new cleavages created by theunequal distribution of welfare entitlements, (iii) All welfare states have growing difficulties balancing theirbudg ets, but again the re are m arked cross-national v ariations. Th e growing deficits point to problems of systemintegration which cannot, however, be attributed to the growth of the welfare state, but should be seen asproblems of adaptation to a new historical macro-constellation which developed independently of thefunctioning of the welfare state.

CLARIFYING THE CRISIS CONCEPTThe historical ups and downs of the crisisconceptEver since its beginning at the end of the lastcentury the welfare state has been accused ofsurpassing its reasonable limits and of producingundesired side effects.1 A belief that the utmostlimits of expansion have been reached has beenexpressed at every stage of development. InGermany, for example, a heated debate over theexcessive economic burdens entailed byBismarck's social legislation already openedshortly after the turn of the century. Around1905 a mounting number of critics warnedagainst the negative side effects which generoussocial benefits exert on the functioning of theeconomy and the maintenance of civic morals.As a consequence, the pension insurance officewas ordered to wage a campaign against excess-ive pension claims. At that time the socialinsurance schem es spent 1-4 per cent of the grossdomestic product.

In the Weimar Republic an intense publicdeba te ov er the burdens of social policy floodedmajor newspapers and academic journalsbetween 1923 and 1928. Again the charge wasthat the public welfare schemes strangled theproductive forces of the economy and destroyedwork incentives. At that time the social expen-diture ratio in GD P am ounted to 14 per c ent.When it climbed to 21 per cent during the G reatDepression, chancellor von Papen complainedthat the welfare state induced the moral exhaus-tion of the German people and overburdenedthe government with tasks far beyond itscapabilities.

In the context of the post-war pension reform,a 1957 party convention of the Christian Demo-crats re-echoed these charges when a leadingparty spokesman warned that the 'utmost limits'separating current welfare provisions from a'highly socialist order' had now been attained.At that time the welfare expenditure ratio hadrisen from its initial 19 per cent in 1950 to 21 pe rcent. When reforms of the Social Democratic


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182 IS THERE A CRISIS OF THE WELFARE STATE?government in the early 1970s pushed the ratiofrom 25 to 33 per cent within five years, the olddebate on the limits of the welfare state openedup once mo re.It is noteworthy that the recent revival offundamental debates over social policy beganwell before the economic downturn followingthe oil-shock. The first wave of criticism grew inresponse to the accelerated expansion of thewelfare state rather than in response to manifestfiscal or economic problems. It was carried byauthors like Roland Huntford, Ivan Illich orHelmut Schelsky who received widespreadattention in the early 1970s. They couched theirwelfare state critique in political and sociologicalrather than economic terms. The basic argumentwas that the extended state penetrationweakened intermediate groups and jeopardizedindividual liberties, subjecting citizens toincreasing bureaucratic controls.

When the recession of the mid-1970s hit theWestern countries, this early wave of welfarestate criticism combined with a second attackthat was couched in economic terms. Now thefiscal crisis of the state was highlighted, togetherwith the adverse economic effects whichextended welfare benefits were perceived tohave on investment, on the competitiveness ofWestern producers in international markets andon the work ethic. Whereas the first wave ofcriticism may be characterized as the attack ofpolitical liberalism, the second one representsthe attack of economic liberalism.This historical review illustrates that funda-mental debates over the crisis of the welfarestate have come and gone for almost a century.The q uestion then is, how are we to interpret therecent phase of crisis consciousness? Is it justanother episode in the ups and downs of along-term issue-attention cycle, or is it rooted inprofound social changes about to reset theagenda of Western politics? Before we turn tosome empirical evidence on the alleged welfarestate crisis, it is useful to clarify the specificmeaning which various interpretations assign tothe crisis concept.

Major interpretations of a welfare state crisisIn social science discussions of the welfare state,

we can discern three basic modes of interpret-ation which are not only linked to variousstreams of political ideology but also to differentschools of classical sociological thought.Simplifying somewhat, we can distinguishbetween socialist, conservative and liberal inter-pretations which are at least loosely linked withthe Marxist, the Durkheimian and the Weberiansociological traditions. All three perspectivescontain assumptions about the causes and conse-quences of welfare state grow th, the latter beingof immediate relevance to the discussion of awelfare state crisis.

Marxists understand the welfare state as aproduct of the logic of capitalist development.Basically, their interpretation of its emergencerests on three arguments. Since the pursuit ofprofits leads to increasing exploitation, publicwelfare provisions become necessary in order toguarantee the reproduction of human labour onwhich the ex traction of a surplus value dep ends .Secondly, the cyclical nature of capitalist pro-duction necessitates social transfer paymentsand similar measures in order to make for amore steady demand. F inally, the conflict-pronecontradiction between capital and labour callsfor means which pacify mass discontent andperform social control functions. By makingentitlements to social benefits contingent uponvarious qualifying conditions, public welfareprogrammes contribute to fulfilling this need.While the welfare state is indispensable inserving the above stabilizing functions, it cannotresolve the tensions inherent in the capitalistmode of production, but creates new crisissymptoms instead. As the social costs of busi-ness are imposed upon the state, the publicdemand for resources grows and the loyalty ofthe citizens becomes increasingly dependentupon the delivery of public goods and services.Therefore, the state's dependency on the con-

tinuous flow of economic resources and steadygrowth increases. Since the means of productionare privatized, however, the development of theeconomy is beyond effective state control, and agrowing gap between the demands and theextractive capacities of the state is likely.In addition, the welfare state fulfils sociallyintegrative functions only at the price ofenhanced tensions at the level of system
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EUROPEAN SOCIOLOGICAL REVIEW 183integration, because it increasingly underminesthe functioning of the capitalist economy.Whereas capitalist crises were traditionally over-come because the sinking cost of labour even-tually re-stimulated investment, today thecollective bargaining system and public transferschemes set tight limits to wage reductions.Transfer payments increase the cost of labour,thus inciting employers to adopt labour-savingrationalization measures which exacerbateunemployment. Increasing unemployment notonly enhances the demand for transfers, but alsolowers public reven ues, thus obliging the state torely even more heavily on deficit spending. Inthe Marxist tradition, then, the crisis of thewelfare sta te is only another manifestation of thecrisis of capitalism. The modern state can eitherfulfil its social integration functions or buttressthe functioning of the capitalist economy, but itcannot successfully fulfil both functions at thesame time (cf. Miiller and Neususs, 1972;O'Connor, 1973; Gough, 1979).

In the Durkheimian perspective, the growthof the welfare state is understood as a conse-quence of more general problems arising duringthe process of modernization. The emergence ofwelfare state institutions is interpreted as aproduct of growing security demands resultingfrom the loosening of traditional social bonds inthe processes of industrialization and urbaniz-ation. The dissolution of traditional communitynetworks liberates individual aspirations fromlimiting group controls, thus triggering offhedonistic welfare demands. The processes ofmobilization and democratization help to chan-nel these demands effectively into the politicalsystem.

From this perspective, the post-war periodsaw an accelerated expansion of welfare statearrangements because the long-lasting pros-perity created ever-growing anomic aspirationsand because the two central mechanisms ofsocial integrationthe family and the edu-cational systemwere weakened owing togrowing divorce rates and a massive expansionof educational enrolment. The growing aspir-ations and the w eakened social controls led to anupsurge of political mobilization as the citizensnow sought to receive from the state gratifi-cations that they were unable to attain in the

market sphere. In response to the new wave ofparticipation, the politicians heavily expandedpublic welfare provisions. In the Durkheimianperspective, then, anomic tendencies inherent inthe process of modernization, and the growingdemands from highly mobilized citizens inunbridled democracies are at the basis of welfarestate growth.In this analysis, the crisis of the welfare state isunderstood as a manifestation of a more generalcrisis of modem democracy. Owing to theincreasing mobilization of the citizens and thegrowing veto-power of special interest groups,modern governm ents have difficulties in defininga public interest beyond specific group d em ands.The growing complexity of the social structureand the change from class to mass parties loosenthe linkage between social groups and parties.This results in a higher volatility of politicalpreferences and less stable parliamentary major-ities, making for an even greater dependence ofgovernments upon specific pressure groups. A s aconsequence, government spending increases inresponse to group demands, while its authoritydiminishes. Since all groups make claims, butnone can be obliged to accept sacrifices, thegovernment deficit grows, and long-term invest-ment is neglected in favour of short-term con-sumption expend iture. Ultimately, the fiscalcrisis of the state could lead to a generaleconomic crisis which might even jeopardize thelegitimacy of the democratic order. From theconservative perspective, then, the crisis of thewelfare sta te consists in the inability of demo cra-tic governments to restrain social expenditureand to impose moral obligations limiting ego-tistic group demands on the public household(cf. Janowitz, 1976; Huntington, 1975; Bell,1976).

Liberals founding their arguments on theWeberian sociology of domination represent athird variant of welfare state interpretation.From their perspective, the growth of thewelfare state is primarily related to eliteactivities spurred by the search for new bases oflegitimation. Owing to the creation of supra-national military alliances and the inter-nationalization of the economy, the traditionalstate functions of maintaining external securityand an internal judicial order lost their legitimiz-
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184 IS THERE A CRISIS OF THE WELFARE STATE?ing pote ntial. Th erefore, the elites had to searchfor new bases of legitimation which they foundin the expansion of services coping with socialproblems created by the modernization process.Assisted by their administrative staffs in the newsocial bureaucracies, they subjected more andmore realms of societal life to state regulationuntil the social responsibilities of the state nolonger extended merely to the relief of poverty,but to the distribution of life chances for theentire population.

In this interpretation the critical evaluation ofwelfare state growth is embedded in a moregeneral critique of the bureaucratization pro-cess. The rise of the new distributive elites doesnot only provide for security and equality butalso jeopardizes individual liberties, as it trans-forms previously self-reliant citizens into thepassive clients of state help. The institutionaliz-ation of a public responsibility for the distri-bution of life chances forces the bureaucracies toclassify the various demands according to theirurgency. This entails an official distinctionbetween approvable and non-approvablerequests and leads to an increasing marginaliz-ation of groups whose interests are not deemedworthy of public support. The public distri-bution of transfers and services ultimatelyresults in a new system of stratification basedupon varying deg rees of public subsidization (cf.Ba ier, 1977; Ba ier, 1984; Schelsky, 1976).In their assessment of future developmentsthe liberal critics of the welfare state vacillatebetween two scenarios. On the one hand, thevast increase in state penetration with an histori-cally unprecedented growth in the burden oftaxation and tightening bureaucratic controlsmay lead to a legitimation crisis and a backlashwith growing tax and welfare resistance andincreasing demands for wider participation. Thiscrisis could then lead to a reduction of public

involvement and to a revitalization of privateand occupational programmes leading to newmixes of welfare production (cf. Miegel, 1983).The liberals' second scenario depa rts from theassumption that the public remains placid. Inthis case, the expansion of the welfare statewould lead to a new authoritarianism where amass of state clients deprived of independentmeans of production would face a new ruling

class controlling the distribution of life chances.As the insecurity and dependence of the subjectswould effectively stabilize the power monopolyof the new distributive elites, a soft dictatorshipwould result, in which self-confident citizens arereplaced by passive subjects deprived of allpower resources. This would represent a newstage in the long history of expropriation, afterproducers were expropriated from the means ofproduction, and bureaucrats were separatedfrom the means of administration (cf. Baier,1984; Schelsky, 1976).

The intellectual schools outlined above pro-vide for broad cognitive maps rather than pre-cise testable hypotheses. Yet they contain somemore or less explicit propo sitions which n ot onlyhelp to clarify the crisis concept, but also set anagenda for empirical research on recent welfarestate developments. Beside being intellectualtools which help to structure empirical research,however, the 'grand theories' must also be seenas important social realities in themselves. Theydemonstrate that intellectual attacks on thewelfare state are now pervasive in all majorpolitical camps, whereas the defenders of thewelfare state have either been silenced or lostcredibility. The defection of intellectuals fromthe post-Keynesian social democratic consensusis itself an important social fact which will havean impact on future welfare state developments.Obviously we are witnessing at least a profoundintellectual crisis of the welfare state at thepresent time.The question to be examined here, however,is whether the crisis symptoms postulated in themajor welfare state interpretations actually existin the the real world. To clarify this issue, weneed to take a closer look at their empiricalcontent. All grand theories seem to deal withthree dimensions of analysis which provide auseful framework for empirical research: They

all combine assumptions about trends in welfarestate development with assumptions on its sideeffects in the spheres of social integration and ofsystem integration. Table 1 summarizes themajor hypotheses in these dimensions.With respect to the developmental trends ofthe welfare state the major interpretations implyrival expectations. Following the conservativeargument, we should expect to find uninterrup-
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186 IS THERE A CRISIS OF THE WELFARE STATE?ted welfare state growth even during the recentperiod of austerity. For conservatives, such con-tinuous growth of the welfare state would rep-resent a crisis symptom testifying that democra-tic governments lack the power and authority tocurtail social expenditure in a context of highmobilization and strong distributional coalitions.Marxist theories seem to suggest instead thatcurtailments may come about under businesspressure, but that their implementation wouldlead to mass disaffection and social unrest.Liberals, in contrast, see a potential for thedelegitimation of further welfare state growth,and, provided there is a welfare backlash, theyexpect curtailments in social programmes.

Secondly, all major theories assume that thewelfare state has important side effects upon thedegTee of social integration. Here they suggestdifferent topics for empirical research. While theconservative ideas about the disruptive effects ofthe welfare state on intermediary groups aredifficult to translate into cross-national researchrelying on aggregate data, the Marxist interpret-ation of the integrative functions of the welfarestate contains an easily testable proposition. Itimplies that curtailments of welfare programmescannot be legitimized, and bring about massdisaffection from the governing parties. Theliberal interpretation, on the other hand, sug-gests examining if there are any signs of a revoltagainst further welfare state growth and if socialprogra mm es give rise to new inequ alities with anincreasing impact on mass political attitudes andpartisan behaviour.Finally, all critical assessments of the welfarestate contain assumptions pertaining to negativeeffects on the degree of system integration inWestern societies. The common idea is that thewelfare state is insufficiently integrated with, oreven detrimental to, the functioning of otherinstitutional spheres of society. Here three

aspects seem crucial. First of all, the welfarestate's expenditure dynamic follows a logicindependent of, and different from, its revenuebase, which is closely tied to the business cycle.Structural deficits are therefore likely, and in aperiod of austerity we should expect to findgrowing imbalances in the public household.Second ly, the welfare state has side effects onthe functioning of the economy but lacks the

instruments to effectively control economicdevelopment. Thus, it loses revenues when itneeds them to compensate unemployment intimes of slackening growth, and its growingdemand for resources favours tax evasion andthe shift of production into the informal sectorsoutside the market sphere. The detrimentaleconomic side effects of social programmes arepinpointed by Marxist and liberal critics alike,and their arguments overlap to a remarkabledeg ree. The empirical test of specific hypothesesin this field is primarily the task of economists,however.

Thirdly, conservative critics point out that thewelfare state does not only have repercussions inthe sphere of production, but also affects thesphere of reproduction. Its expenditure isheavily influenced by demographic factors whichit cannot effectively control. On the other hand,it contributes itself to changes in family life andreproductive behaviour. Thus, while the exten-sion of pension benefits lowers the economicvalue of children and contributes to changes ingenerational structures, the solvency of the pen-sion schemes depends upon stable birth rates. Insummary, the common charge of the variousarguments pertaining to the insufficient degreeof system integration is that the welfare state notonly suffers from the maladjustment of differentinstitutional spheres but contributes to it.Apart from the common dimensions ofanalysis they suggest, the major schools ofwelfare state interpretation have two morecrucial aspects in common. Firstly, they makegeneral assumptions about common causes andconsequences of welfare state developmentrather than paying attention to the institutionalvariations between various types of welfarestates. Thus, they do not seem to foresee majorcross-national variations in the developmentalpaths of single welfare states and their conse-

quences. Secondly, they do not perceive thepresent difficulties of the welfare state as a mereoutgrowth of adverse conditions in its economicor social environment, but as a systemic crisis,produced by the very functioning of the welfarestate itself. In this sense, they a re genuine 'crisis'theories going beyond the diagnosis of mere'problems'.Within this common framework, their
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EUROPEAN SOCIOLOGICAL REVIEW 187assumptions about the driving forces andmechanisms producing the crisis symptomsdiffer. A further elaboration and empirical testof these rival assumptions concerning the crisismechanisms is beyond the scope of this contri-bution. The task here is rather to find outwhether the alleged crisis symptoms are actuallyobservable. More specifically, the subsequentsections will probe into the following q uestions:

(i) Has the welfare state continued to grow inthe recent period of austerity or has there been arupture in long-term trends signifying the onsetof a welfare state dismantling?(ii) Is there a general path of welfare statedevelopment during recent recession years or dovarious countries display discrepant policyresponses?(iii) Have curtailments of the welfare stateled to a declining m ass loyalty, or a re there signsof a welfare backlash indicating a legitimationcrisis of extended welfare states?(iv) Does the welfare state produce negativeside effects aggravating the problems of systemintegration in modern societies?The emphasis will be on the first two ques-tions, whereas the last two aspects can only bedealt with in a more summary and programmaticfashion.CROSS-NATIONAL EVIDENCE: SOCIALPOLICY RESPONSES TO THE ECONOMICCRISIS SINCE THE MID-1970SEmpirical patterns of expenditure developmentFrom 1965 to 1973 the economies of the 16countries studied he re grew at an average annualrate of 5 per cent. In 1974 the average growthrate suddenly dropped to 2 per cent, only to fallbelow zero in the subsequent year. Nine of the16 countries experienced negative growth in1975. In the period 1975 to 1984 the average ra teof growth rem ained at a low of 2 per cent. In thiscontext, the welfare state schemes came underheavy fiscal strain. The question now is how thedifferent countries reacted to the retrenchmentpressures. Did they curtail their welfare stateprogrammes or did they prove unable to restrainthe growth of social expenditure, as the con-servative argument suggests?

Table 2 shows that public spending has gen-erally continued to grow at a faster rate than

GDP in the period of austerity. In all countriesexcept Germany the public expenditure ratioand the social transfer expenditure ratio werehigher in 1984 than in 1975. Data on total socialspending are available only up to 1981. Up tothat year social outlays also increased faster thanGD P in 12 of the 16 countries. Thus, the incomeelasticity of welfare state spending has tended toremain higher than one. However, a closer lookat national expenditure profiles reveals aremarkable diversity in response patterns to theinternational economic crisis.

A cross-sectional analysis of the increases inthe public expenditure ratio shows threedifferent types of reactions. First, we find coun-tries where the state share continued to risesteeply between 1975 and 1984. This groupincludes the Scandinavian countries, Swedenand Den ma rk, and the C atholic countries, Italy,France, Belgium and Ireland. In these countriesthe public expenditure ratio grew by 9 to 15percentage points. In a second group of coun-tries the public expenditure ratio increased moremoderately with margins between 4 and 7percentage points. This group includes theNetherlands, Austria, and Finland, as well asCanada and Japan . Th e remaining five countriesmanaged to bring the increases in public spend-ing more closely into line with the growth ra te ofthe economy, so that increases in the publicsector share remained below 3 percentagepoints. This group includes the United States,Switzerland, Norway, the United Kingdom andGermany.

In order to judge the degrees of respon-siveness to the economic crisis, the cross-sectional comparison of the magnitude ofchanges needs to be complemented with a longi-tudinal analysis comparing the most recentdevelopments of the expenditure ratio withthose in the earlier period of prosperity. Acomparison of the period 1975 to 1984 with theper iod 1965 to 1975 shows tha t 11 of the 16countries actually reduced the growth dynamicof public expen diture. In six countries the rate ofincrease was more than halved. In France, Italy,Sweden, Denmark, and Ireland, on the otherhand, the public expenditure ratio grew evenmore steeply in the period of austerity than inthe years of prosperity.2
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188 IS THERE A CRISIS OF THE WELFARE STATE?

T A B I _ E 2 Econ omic growth ra t es a n d welfare expenditure growth af ter 1975 (rank orders)Average economicgrowth rate1975-1984

JAPANNORWAYIRELANDFINLANDUSAC A N A D AAUSTRIAFRANCED E N M A R KG E R M A N YITALYSWEDENBELGIUMNETHERLANDSUKSWITZERLAND

Mean

4.23.73.52.82.72.62.22.12.01.91.81.61.51.41.30.52.2

Changes in the publ ic expen-diture ratio 1975-1984% point reaction ratios'1'

SWITD AB EIRFRCAN EJAAUFlCHUSUKNOG E

14.814.212.510.99 .5 (c )9.16.76.0>5.83.93.82.52.5< c)1.61.0

- 0 . 7

6.5

(116.5)(177.5)(104.2)(d )(86.5)(91.3)

(178.4)(59.3)(39.5)(74.4)(50.6)(67.9)(29.8)(33.3)(15.1)

(8.1)( - )

Changes in social transferexpenditure ratios 1975-1984% point reaction ratios

FRNEUKITBESWIRJAD AAUCAFINOCHUSGE

5.94.93.33.22.92.21.91.61.40.7 W

- 1 . 0

2.9

(131.1)(41.9)

(161.5)(140.7)

(57.6)(65.5)(42.2)

(100.0)(57.1)(61.7)(53.6)(73.1)(42.1)(29.2)(11.5)

( - )

Changes in socia l expenditureratios 1975-1981% point reaction ratios'11'

SWFRIRBEAUJAITFIUKDACHNOUSCAN EG E

6.45.24.73.7< e)3.23.12.92.61.10.9


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EUROPEAN SOCIOLOGICAL REVIEW 189transfer payments. The longitudinal comparisonshows that the majority of countries curbed thegrowth rate of social transfers considerably inthe period of austerity. Only four countriesfailed to effectively control the rate of growth,namely the United Kingdom, Italy, France, andJapan.The growth dynamic of the total social expen-diture ratio declined between 1975 and 1981 inall countries except Sweden, France, Austria,and Japan. Despite the decline in income elas-ticities, the expenditure ratios continued toincrease sizeably in eight countries (Sweden,France, Ireland, Belgium, Austria, Japan, Italy,and Finland). In four of the remaining countriesthe increases in the expenditure ratios werelimited to about one percentage point (UK,Denmark, Switzerland, and Norway). The otherfour nations even reduced social expenditureratios (USA, Canada, Netherlands, andGermany).

The patterns of development are not fullyconsistent for the various measures of welfarestate activities. By and large, however, thefollowing conclusions are warranted.(i) Most countries succeeded in restrainingwelfare expenditure growth in the recent periodof austerity. While economic growth rates wereconsiderably shrink ing, the income elasticities ofwelfare state spending decreased.(ii) In most cases, however, the GDP sharesof public and social spending continued to rise.Severe restraints bringing the income elasticitiesof welfare expenditure close to one were onlyrealized in Germany, Switzerland, Norway, andthe United States. In most of the remainingcountries expenditure restraint remained limitedto a transitory period during the second half ofthe 1970s.(iii) A few nations stand out as expansionistcountries in which the growth trends in welfarestate spending remained largely unbroken up tothe early 1980s. These countries includeSweden, Denmark, Belgium, France, Italy, andJapan.(iv) Conspicuously inconsistent pattern s ofexpenditure development appear for the UnitedKingdom and the N etherlands. W hereas the UKeffectively curbed the growth of public outlaysand total social spending, its social transfer

payments have grown at an even acceleratedpace since 1975. The Netherlands witnessed asteep decline in public and social spendingbetween 1975 and 1977, but returned to anexpansionary course afterwards.In summary, we find a growing heterogeneityin welfare state developments in recent years.The marked differences in national expenditureprofiles illustrate that the analysis of welfarestate developments requires much more specifichypotheses than the dominant 'grand theories'suggest. Apart from this rather general insight,the crude data on aggregate expenditure ratiosraise almost more questions than they answer.To understand the most recent developments,we first need to know whether the decliningincome elasticities of social spending were actu-ally related to a policy of curtailments, orwhether they merely mirror the fact that maturewelfare states are reaching natural limits ofgrowth as they provide almost complete cover-age and highly generous benefits. Secondly, weshould analyse which social programmes weremost likely to be affected by expenditurerestraints. Finally, we should examine how themarked national variations in policy responsesare to be explained.Towards an analysis of cross-national variationsInstitutional analyses tracing the developm ent ofsocial legislation are still in scarce supply. How-ever, the recently published results of theFlorence Welfare State Project provide a usefuldata base which traces the institutional changesin the social policies of eight European coun triesduring the last decades. The information on themost recent period of austerity is summarizedtogether with other informationin Table 4below.

Each of the eight countries actually enactedcurtailments of social benefits after 1975. This iseven true for Sweden, Denmark, and Italywhich were identified as expansionist countriesin the analysis of aggregate expenditure devel-opments. In Germany, Finland and Italy thecutback legislation already began during the late1970s, while the remaining countries enactedcurtailments only during the 1980s.In every single country health insurancebenefits have been a major target of curtail-
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19 0 IS THERE A CRISIS OFTHE WELFARE STATE?

T A B L E 3 Social expenditure ratios by type of programme

C o u n t r y

S W E D E ND E N M A R KF I N L A N DN O R W A YN E T H E R -L A N D SB E L G I U MI R E L A N DA U S T R I AS W I T Z E R -L A N DG E R M A N YUKF R A N C EITALYC A N A D AUSAJ A P A NM E A N

1965

18.6

17.715.823.021.413.919.710.322.416.2

20.113.612.39.4

(16.7

To t a l s o c i a le x p e n d i t u r e

1975

26.832.423.326.237 .134 .523.124 .519.132.622.424 .226.021.820.814.2

) 25.6

1981

33.233.36.36.17.18.06.93.85 .5


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EUROPEAN SOCIOLOGICAL REVIEW 1911975 and 1981. Only Sweden, Italy, and Irelandsaw sizeable further increases, around one per-centage point or mo re. The G DP share of healthspending continued to grow, despite legislativecutbacks, albeit at a much slower rate. Theaverage increase from 1975 to 1981 remainedlimited to 0-6 percentage points. Increasesexceeding half a percentage point occurred ineight countries (Ireland, Sweden, France, theNetherlands, Japan, Austria, Belgium, andSwitzerland). Declining or stagnant shares werereported by Canada, Germany, Denmark, andNorway, while the remaining four countries hadonly moderate increases. Pension outlays con-tinued to outpace the growth of GDP by widemargins. Declining or stagnant expenditureratios were only reported by Germany,Switzerland, and Norway. On average the GDPshare of pensions increased by more than onepercentage point. Other social expenditure,including unemployment compensation,increased its GDP share only marginally. Onaverage, the expenditure ratio grew by 0-3 per-centage points betw een 1975 and 1981. Six coun -tries even reduced the GDP share of this socialspending category.

In summ ary, we find a clear rank order in thedegree to which various social programmes havebeen susceptible to cutbacks. Pension expen-diture continued growing at a fairly unrestrainedrate. Health expenditure growth was curbed to agreater degree, but it also proved difficult tocontrol. Other social spending was effectivelyrestrained, despite the increases in unemploy-ment. Educational outlays, finally proved theleast resistant to retrench me nt.The different growth patterns of the variousprogrammes are partly the result of demo-graphic developments which are beyond thecontrol of policy makers. However, the degreeto which they are affected by restraints m ust alsobe related to their method of financing and tothe size of their clienteles. Schemes financed byearmarked contributions such as pensions areless vulnerable because entitlements may beperceived as earned or deserved. In contrast,schemes financed from general revenues arebased on need rather than merit, so thatrecipients cannot claim to have acquired entitle-ments in their own right. The chances of such

schemes becoming a target of curtailments areparticularly high if they are selectively targetedon low-income groups, excluding those whobear the burden of financing from the receipt ofbenefits.The group size of the beneficiaries representsa second crucial factor, since it has fiscal as wellas political implications. From a fiscal perspec-tive, the smaller the group size, the highercurtailments have to be in order to exert notice-able effects on the budget. In extended schemes,on the other hand, even relatively moderatecutbacks add up to sizeable aggregate savings.Politically, the group size of beneficiaries trans-lates into electoral power. Since pensionersrepresent a growing proportion of theelecto rate, it is not onlyfiscallyfeasible, but alsopolitically advisable to put smaller burdens ontheir shoulders than on those of the smallergroups. Since sickness is usually only a transitorystatus, health expenditure does not influence thestandard of living of large groups to the sameextent as pensions do, but it is protected byhighly organized interest groups on the supplyside. The other social benefits are primarilytargeted on marginal groups lacking electoralstrength or organizational power. Educationalspending, finally, primarily affects the school-age population which has no voice in thepolitical process w hile teachers are less pow erfulas a profession than the supplier groups in themedical sector.

The varying political strength of welfare stateclienteles also provides a clue for understandingthe marked cross-national variations in policyresponses to the economic crisis. Following theabove considerations, severe austerity measuresshould be primarily adopted in countries withless developed welfare states, where only smallproportions of the electorate rely on welfarebenefits as a major source of income, and wherebenefits are too selective or not generousenough to make the higher income groups awelfare state ally. Extended welfare states withlarge clienteles commanding a major share ofthe votes should prove more resistent tocutbacks or a dismantling. To test thishypothesis, Graph 1 examines the relationshipbetween the level of social transfer spendingattained in 1975 and subsequent changes in the
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cI8 >L

0-

- 1

UK*IR .y JA* DA

/"CA^ ^ n N O .

s ^ CHu s

N E ^IT BE ^ ^J^ALJ

G E .20 2510 15

1975 levelFIGURE 1 1975 level of social transfer ratio and subsequent changes

transfer expenditure ratio up to 1984.3Co untrie s with a high level of spending in 1975indeed continued to expand social transfer out-lays more sizeably than less developed welfarestates (r = 0-35; without Germany r = 0-60).Only Germany constitutes a conspicuously devi-ant case where severe curtailments wereadopted, despite the existence of relativelyextended social programmes. The other threecountries with restrained expenditure growththe U S, Sw itzerland, and Norwayall belong tothe less extended welfare states. France, theUnited Kingdom, and Japan stand out as devi-ant cases in the opposite direction, as theywitnessed overproportionate increases of socialtransfer paym ents during the period of austerity.Attempts at a further understanding ofnational variations in policy usually depart froman analysis of the impact of economic growthand the party composition of government. Aninspection of economic growth rates is usefulbecause it helps to identify whether discrepantexpenditure profiles are merely side effects ofchanging economic growth rates or an indication

of substantive changes in policy. Since expen-diture ratios are expressed as percentages ofGDP, even stagnant social spending must resultin growing expenditure ratios if the economicproduct goes down. The steeper the decline ineconomic growth rates, therefore, the harshercurtailments have to be in order to translate intoincome elasticities below one. On the otherhand, increasing social expenditure ratios do notnecessarily indicate lavish social policies, butmay simply be a reflection of declining economicgrowth rates.

There is indeed a negative statistical associa-tion between the extent of economic growth andthe changes in expenditure ratios.4 With theexception of Japan, the expansionist countriesdisplaying the steepest increases in expenditureratiosSweden, Denmark, Belgium, France,Italy, and Japanall had below averageeconomic growth rates in the period 1975 to1984. As the institutiona l da ta have show n, eventhese countries enacted curtailments, but intheir case these were not sizeable enough tomatch the decline in economic growth rates.
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EUROPEAN SOCIOLOGICAL REVIEW 193Japan is the only case where high income elas-ticities of social spending combined with rela-tively high economic growth.The developments in the austerity countriesmust also be related to changes in the economicenvironment. The slow growth of the expen-diture ratios in the Norwegian case occurred in acontext of relatively unrestrained economicgrowth. Therefore the growth rate of socialspending could be brought into close corre-spondence with the growth rates of the economyeven in the absence of severe curtailments. To alesser degree this is also true for the UnitedStates. In Germany and Switzerland, in con-trast, the income elasticities of social spendingwere lowered in a context of steeply decliningeconomic growth so that rather severe curtail-ments had to be enacted. The question to beasked, then, is not why Sweden, Denmark,Belgium, F ranc e, Italyand in the case of socialtransfers Britainpursued expansionist socialpolicies in a context of austerity, but why thesecountries did not succeed in matching thegrowth rates of social spending with the declin-ing growth of GDP to the same extent asGermany and S witzerland.

The party composition of government doesnot provide a satisfactory answer to this ques-tion. It is noteworthy, however, that the mostvisible ruptures in long-standing expansionisttrends occurred in countries under social demo-cratic rule. This applies to Germany and Norwaythrough out the second half of the 1970s, and to alesser degree also to Switzerland, where thesocial democrats were represented in govern-ment. In the US the expenditure ratios werecurbed during the late 1970s when the Demo-crats held office. On the other hand, the con-tinuous expansion in Belgium, Italy andDenmark occurred under coalition or minoritygovernments with leftist participation, whereasthe growth patterns in France and Swedenremained identical regardless of whether bour-geois or left parties were in office.

The only possible generalization with respectto the partisan control of government is thatduring the 1970s social democratic rather thanbourgeois or coalition governments enacted cur-tailments, whereas in the 1980s bourgeoiscabinets restrained expenditure growth.

Obviously, welfare state policies cannot beunderstood as a mere outgrowth of differencesin party ideology. To arrive at satisfactoryexplanations of cross-national variations inpolicy developments, it is necessary to movefrom a static analysis of factors to an actorperspective, which combines the examination ofinstitutional settings with a closer look at thecoalitions active in shaping policies. Such anapproach would be far beyond the scope of thiscontribution, however.5

In summary, the inspection of expendituretrends has shown that the great majority ofWestern countries curbed the growth of welfarespending by enacting several curtailments ofbenefits. Only in a few exceptional cases werethe cutbacks sufficient, however, to bring theincome elasticity of social spending down to on e.The more extended welfare states were particu-larly reluctant to curtail social transfers. Thisfinding is more in line with the conservativeinterpretation of the untamable character ofmodern welfare states than with liberal assump-tions about a legitimation crisis of extendedwelfare states. The next section examines moreclosely to what extent the austerity measureswere approved by the citizens of Western coun-tries, and if there are indications of a beginningwelfare backlash.SIDE EFFECTS OF WELFARE STATEDEVELOPMENTProblems of social integrationThe various welfare state critiques all agree thatthe welfare state does not merely serve inte-grative functions but also produces some dis-integrative effects. However, there is littleagreement about the exact nature of the disrup-tive features of modern welfare states. Whereasliberals see the further growth of social pro-grammes as a source for a legitimation crisis,Marxists perceive a dismantling as a source fordeclining m ass loyalty. C onservatives agree w ithMarxists that cutbacks are difficult to legitimizegiven the strong vested interests in social pro-grammes, but they come close to the liberals ininterpreting the welfare state as a new system ofstratification which provides a basis for theeme rgence of new social cleavages.
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TABLE 4 Welfarestate curtailments and popular reactions in Western European countries (summaries of country reports fromthe Florence project)

Conn try

SWEDEN

DENMARK

FINLAND

Alber 88 is There a Crisis of the WS

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