To What Extent Did the Financial Crisis Intensify the Pressure to Reform the Welfare State?

Abstract

AbstractIf ever there was momentum to roll back the welfare state, it is the (aftermath) of the financial crisis of 2008–09. All theoretical perspectives within comparative welfare state research predict radical reform in this circumstance, but does it also happen? Our data indicate that – at least so far – it does not. Focusing on a selection of advanced welfare states (the UK, the USA, Germany, the Netherlands, Denmark and Sweden), we find that these countries face similar problems and that their initial response to these problems is also similar. The latter is surprising because, theoretically, we would expect varying responses across welfare state regime types. Rather than retrenchment, we observe a first phase of emergency capital injections in the banking sector and a second of Keynesian demand management and labour market protection, including the (temporary) expansion of social programmes. Continuing public support for the welfare state was a main precondition for this lack of immediate radical retrenchment. However, the contours of a third phase have become apparent now that budgetary constraints are forcing political actors to make tough choices and introduce austerity policies. As a result, the question of who pays what, when, and how will likely give rise to increasingly sharp distributional conflicts.