Beyond the nation state?

Ironically, developed societies at century's end must confront the return of a problem that they seemed, under the pressure of system rivalry, to have just solved. It is a problem as old as capitalism itself: how to exploit the allocative functions of self‐regulating markets effectively without incurring unequal distribution and social costs that undermine the integration of liberal societies. In the West's mixed economies, the state—with much of the national product at its disposal—had gained a certain latitude for making transfer and subsidy payments and, on the whole, for establishing efficient policies for employment, infrastructure and social security. The state could influence the overall conditions of production and distribution, with the aim of achieving growth, price stability and full employment. In other words, the regulatory state could, through growth inducements on the one hand and social policy on the other hand, simultaneously stimulate the economy and guarantee social integration. To guarantee both economic efficiency on the one hand and political freedom and social security on the other hand—that is, to fit capitalism to democracy—a welfare state had to be constructed that ensured, at a high level of employment, a relatively high average living standard and widespread prosperity. Despite their differences, the social policy sectors of countries like the U.S., Japan and the Federal Republic of Germany all expanded until the 1980s. But now this trend is being reversed: benefits drop, while access to social security systems is toughened, and pressure on the unemployed increases. The welfare state's reduction has resulted from a supply‐side economic policy that seeks to deregulate markets, reduce subsidies and improve investment conditions. This approach has featured anti‐inflationary monetary and interest‐rate policies, a reduction of direct taxes, the transfer of state‐owned enterprise into private ownership, and other similar measures.