Small States in Big Trouble: State Reorganization in Australia, Denmark, New Zealand, and Sweden in the 1980s

In Australia, Denmark, New Zealand, and Sweden in the 1980s, coalitions of politicians, fiscal bureaucrats, and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society: the state, particularly the welfare state. They exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services. The impetus for change came from rising foreign public and private debt. Rising public debt levels and expensive welfare states interacted to create a tax wedge between employers' wage costs and workers' received wages. This undercut international competitiveness, worsening current account deficits and leading to more foreign debt accumulation. Two factors explain variation in the degree of reorganization in each country: differences in their electoral and constitutional regimes; and the willingness of left parties to risk splitting their core constituencies. Introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s, and both to institutionalize limits to welfare spending and to change the nature of statesociety relations, away from corporatist forms of interest intermediation. In short, not just less state, but a different state.