Conditionality, austerity and welfare: Financial crisis and its impact on welfare in Italy and Korea

Abstract

What happens to welfare states when conditional financial aid is provided by an external financial actor? The conventional wisdom is that conditionality brings about welfare state retrenchment. The two cases analysed in this article – Korea during the financial crisis of 1997–1998 and Italy during the Eurozone crisis since 2011 – do not seem to confirm this received wisdom. This article tackles the puzzle of expansionary welfare reforms in the presence of economic conditionality, as transpired in Italy and Korea. We argue that conditionality and its contents interacted with, activated and had an impact on domestic political dynamics that led to progressive choices in welfare policy. Utilizing the Most Different Systems Design, we stress the importance of government ideology or partisanship and political contestation and competition – focusing on political actors that could threaten the government’s legitimacy when acquiescing to conditionality if not balancing neoliberal elements with expansion of social rights – and political agency underpinning government strategies in effectively introducing and implementing policy reforms.