CAGE and WU Wien, Department of Socioeconomics Joint Conference 2018

14th & 15th September 2018, Vienna University of Business

Why Did The Welfare State Survive? The answer is obvious? Perhaps not

In the 1980s, left leaning social scientists predicted a decline in countries' ability to finance the welfare state. Globalization, so the expectation, would severely reduce governments' ability and willingness to fund the welfare state. Tax competition would lower corporate tax rates and revenues, thereby limiting the ability to redistribute income and finance the provision of public goods.

Yet, income and wealth have grown considerably since the invention of the welfare state. The dependence of large parts of the population on the welfare state has significantly declined. The share of voters that dominantly or exclusively vote based on parties' stance on the provision of public goods and on income redistribution has dropped.

Thus, supply and demand for the welfare state should have declined -- at least in European welfare states.

The puzzle the conference seeks to address is twofold:

First, despite fundamental socioeconomic changes - virtually no welfare state became a liberal market economy. Likewise, no liberal market economy became a European-style welfare state. Apparently, socioeconomic systems have a self-stabilizing tendency. Where does this come from?

Second, the welfare state has also emancipated itself from the forces that led to its implementation in the first place: social democracy and unions. In welfare states, redistribution and public good provision is supported by conservative parties and even liberal parties rarely wish to fully abandon welfare state policies. In contrast, In liberal market economies the support for the welfare state is limited to left parties.