In Chapters 4–6, we argued that pro-Republican bias in nonsouthern congressional elections disappeared in the mid-1960s as a consequence of (1) a change in partisan control of state governments away from unified Republican control, (2) a change in the legal reversion to the redistricting process, and (3) the role of the largely Democratic federal judiciary in supervising the redistricting actions of the states. If our account is correct, redistricting during the 1960s should have affected Democratic and Republican incumbents differently.

Perhaps the simplest way to state our expectations is by contrasting them with Edward Tufte's well-known hypothesis that the wave of 1960s redistricting was mostly an exercise in incumbent protection – a position that fit well with then-emerging evidence that incumbents' margins of victory were increasing. Our thesis is that the wave of 1960s redistricting had a distinct anti-Republican cast to it, making most districting plans less Republican-friendly than their predecessors. In this chapter, we investigate whether the partisan differences we expect appear in the empirical record.

The first purpose of this chapter, then, is to provide further (albeit indirect) evidence for the main thesis of this part of the book. The second purpose is to reconsider some alternative hypotheses about the case of the disappearing bias. The final purpose is to begin to introduce the topic of the next part of the book: how redistricting affected the electoral performance of incumbents and the much-debated rise of the incumbency advantage.

We state our predictions regarding how redistricting should have affected district-level vote shares in the first section. We then test them in the second section, finding that redistricting had a systematically different impact on the two parties' electoral fortunes.

At first glance, the welfare states of the rich democracies appear to be alive and well. Governments in these nations devoted an average of 24 percent of national economic product to social protection in 1995; in 1980, the comparable figure was 20 percent. Indeed, most observers of social welfare policy agree with Paul Pierson (1994, 1996) that the systems of social protection created during the first half of the twentieth century, and dramatically expanded during the third quarter of the century, have not been dismantled during the current era. At the same time, it is equally clear that the welfare states of advanced capitalist democracies have come under serious pressure. During the 1980s and 1990s, conservative governments in Britain, the United States, and the other Anglo democracies have reduced the generosity of benefits, tightened program eligibility, implemented cost controls in service delivery, and encouraged privatization of some social insurance and many social services. Neoliberal policy changes have not been confined to these right-of-center governments; Swedish, German, and other Western European governments of all ideological complexions have on occasion reduced pension and other social insurance benefits, limited benefit indexation, and restricted eligibility for unemployment compensation and social assistance. They have also imposed budget caps, user co-payments, and other cost-control measures for health and social services. Moreover, these efforts to restrain the welfare state have occurred at a time of rising need for social protection (Clayton and Pontusson, 1998).

As a final step in this analysis, I present in Table B.1 the results from alterative estimations of the “baseline” model of preceding sections. To minimize the proliferation of results (and because results are very similar for any dimension of capital mobility), I focus on the liberalization of capital markets. The liberalization of capital markets is significantly related to other dimensions of capital mobility (e.g., 1960–92 correlations of lagged liberalization with total flows, direct investment, and capital market borrowing are statistically significant and substantively moderate or large). Also, in the case of every direct effect and interaction effect from Tables 3.2 to 3.5, two of the three alternative estimators confirm the findings; in the large majority of cases, all three alternative estimators produce the same result.

As discussed in the section on methodology in Chapter 3, I present (along with my “baseline” model) a “full” fixed effects model with a lagged endogenous variable and a generalized error correction model. To make the table manageable, I report complete model results (institutions and general controls) for the equations that estimate the linear effects of capital liberalization on social welfare effort. I present results for the individual interactions that are obtained from individual estimations of the complete model with the focal interaction and display significance levels, but not standard errors for the interactions.

As Table B.1 reveals, the primary findings about the welfare state effects of international capital mobility and its mediation by national political institutions are systematically confirmed.

In this chapter, I present a quantitative analysis of the central questions of this study. I initially provide a brief overview of the structure and recent development of the contemporary welfare state in advanced capitalist democracies. This exercise, significantly augmented in the country studies of subsequent chapters, brings into concrete relief the changing fortunes of the welfare state across the latter years of welfare expansion and the contemporary era of retrenchment initiatives and restructuring. Subsequently, I discuss my methodological approach to the quantitative analysis of internationalization and social policy change, addressing measurement issues, econometric model development, and statistical estimation techniques. In the main body of the chapter, I present assessments of the direct welfare state effects of international capital mobility, the impacts of internationalization on the dynamics of welfare state convergence and divergence, and the contingent and conjunctural policy effects of capital mobility (following the supplementary hypotheses outlined in the preceding chapter).

I also provide a series of analyses of the ways in which national institutions shape the domestic policy consequences of internationalization. I evaluate my arguments about the foundational role of democratic institutions by examining how capital mobility affects total social welfare effort in different institutional contexts across the entire sample of years and countries (i.e., 1965–93 in 15 developed democracies). To deepen the analysis, I then analyze the direct welfare state impacts of international capital mobility on three key dimensions of social welfare protection – income maintenance, the social wage, and government provision of health care – for the entire sample and within three clusters of welfare states defined by programmatic attributes (and, indirectly, by political institutional contexts).

In this chapter, I examine the international capital mobility thesis, namely, that notable post-1970 rises in transnational capital mobility have significantly diminished the capacity of democratically elected governments to pursue social welfare policies that depart from market-conforming principles. I initially provide an overview of the internationalization of markets, focusing especially on trends in the liberalization of capital controls, international capital flows, and financial market integration. Next, I offer an exegesis of the theory of diminished democracy, outlining the economic and political logics that link capital mobility to retrenchment and neoliberal restructuring of the welfare state. I also confront the theory with the counterclaim that, in reality, the postwar structure of embedded liberalism, or the combination of international liberalism with substantial state intervention and social compensation, continues to have relevance to the contemporary period. Finally, I devote the bulk of the chapter to the development of my alternative argument that the institutional structure of the polity and welfare state – national systems of group and electoral interest representation, the organization of policy-making authority within the polity, and programmatic structures of welfare states – determine the direction and magnitude of the social policy impacts of internationalization. I conclude with an empirical analysis of focal dimensions of national institutions, an exercise that sets the stage for the empirical assessments of theory in subsequent chapters.

International Capital Mobility: An Overview

Facilitated by national policy change, technological innovations, new financial institutions, and market forces, international flows of capital and the potential for such movements have increased notably since the early 1970s.

Despite the evidence against conventional globalization theory generated in the preceding chapters, it may still be the case that increases in international capital mobility and financial integration contribute indirectly to rollbacks in social protection and otherwise constrain democratically elected governments from pursuing their social policy goals. Specifically, international capital mobility may contribute to the retrenchment of the welfare state through its impacts on the funding basis of the welfare state, the strength of political institutions that support the welfare state – most notably social corporatism – and the efficacy of macroeconomic policy to control unemployment and promote economic growth (and hence prevent fiscal stress that can lead to retrenchment). In the pages that follow, I go beyond my treatment of these issues in early sections of the volume and provide more detailed assessments of each argument. In the case of taxation, I provide a relatively developed analysis of the widely debated relationship between globalization and revenue raising by extending arguments I have offered elsewhere about internationalization and tax policy (Swank 1998) and by providing new evidence on international capital mobility's effects on tax burdens on capital, labor, and consumption, as well as on the tax share of GDP. In the case of the linkage between internationalization and social corporatism, I review the arguments, weigh the best recent evidence, and provide some new analysis. Finally, I provide a succinct assessment – relying on the best recent treatments of the topic, as well as analytic summaries of my case-study evidence – of the view that the decline in the efficacy of monetary, exchange rate, and related policies associated with rises in capital mobility forces governments, through a deterioration in economic performance (most notably, escalating unemployment rates), to rollback social protection to restrain rising welfare state costs.

In this chapter, I explore the welfare state impacts of international capital mobility in the corporatist conservative welfare states of continental Europe. First, I consider Austria, Belgium, France, Germany, and Italy as a group and then provide analyses of internationalization and social policy change in Germany, France, and Italy. Germany is often regarded as an exemplar of the “corporatist conservative,” or Christian Democratic, welfare state and I supplement the analysis of secondary material with interview and other primary data. Given the relatively large size of the French and Italian welfare states and the centrality of the French and Italian economies, I also provide individual case studies of these countries.

I proceed with analysis of the conservative welfare states in the same fashion as I did for the Nordic cases. After an overview of basic features of welfare states, I examine, in turn, trends in international capital mobility and the politics of social welfare reform within individual countries. I conclude with a comparative analysis of the roles of internationalization in influencing social welfare policy change and an assessment of the ways in which national institutions shape the social policy impacts of globalization. As to key hypotheses, globalization theory predicts that we should observe clear evidence of retrenchment subsequent to rises in international capital mobility in the relatively generous and expensive corporatist conservative systems of social protection. On the other hand, my alternative theory argues that we should see differential effects of internationalization across varieties of national political and welfare state institutions.

This book finds its origins in my early 1990s work on the political economy of redistribution in the developed capitalist democracies. I have accumulated many debts since then and they ought now to be gratefully acknowledged. First, I wish to express my appreciation to the German Marshall Fund of the United States for providing a GMF Research Fellowship that made possible invaluable research, travel, and writing time during 1996 and 1997. In addition, the Marquette University Committee on Research provided generous financial support in the form of regular and summer faculty fellowships during 1996 and 1997. Second, I would like to thank the many individuals who provided helpful comments on my arguments and analyses. In particular, Keith Banting, Hans-Georg Betz, Markus Crepaz, Bernhard Ebbinghaus, John Freeman, Miriam Golden, Peter Hall, Torben Iversen, Desmond King, Anders Lindbom, Andrew Martin, Cathie Jo Martin, Kathleen McNamara, John Myles, Jonas Pontusson, Michael Shalev, and Sven Steinmo provided especially helpful suggestions and criticisms at one or more junctures (as have many other colleagues at the forums listed below). I am especially grateful to Francis Castles, Geoffrey Garrett, Paul Pierson, Dennis Quinn, John Stephens, and Michael Wallerstein for extensive discussions or written comments on material in the book. I have also learned a good deal about the political economy of advanced industrial societies by reading their work. Third, I wish to thank Lewis Bateman, Political Science Editor at Cambridge University Press, for sage advice and support of this manuscript, and to Cambridge's anonymous readers for very helpful comments on the first draft.

In this chapter and the next, I offer a largely qualitative analysis of globalization and the timing and character of social welfare policy change in the large social democratic and corporatist conservative welfare states. In the present chapter, I offer a case-oriented analysis of social policy reform in the Nordic political economies – Denmark, Finland, Norway, and Sweden. In comparative perspective, the Nordic welfare states are the most developed among the rich democracies, representing Esping-Andersen's (1990) social democratic welfare state regime and closely approximating what Titmuss (1974) has called the “institutional welfare state.” The Nordic welfare states are characterized by comprehensive, universal, and egalitarian income maintenance programs, as well as relatively high levels of universally and publically provided social services (e.g., Esping-Andersen [1990; 1996b]; Huber and Stephens [1996]). Traditionally, the Nordic welfare states have been supported by redistributive general taxation and strong work orientations (i.e., in program structure and in economic policy) and they have produced the highest levels of income and gender equality within the advanced market-oriented democracies (see analysis below).

I proceed with the case-oriented analysis of the Nordic welfare states as follows. First, I provide a comparative overview of the structure of the welfare state and recent social policy change. I then examine absolute and relative levels and trends in capital mobility. Next, I explore the character and timing of social policy change – retrenchments, restructurings, and extensions of social protection – in individual welfare states from the late 1970s through the mid-1990s.

The predominately liberal welfare states of Britain, North America, and Australasia are characterized by a mixture of moderate to low flat-rate, social insurance, and extensively means-tested benefits, as well as significant private social insurance and relatively small public commitments to government-provided social services. Comparative data presented in preceding chapters have highlighted these features of liberal welfare states, as well as their relatively modest impacts in ameliorating poverty and income inequalities. As I have also illustrated, programmatic features of some of these welfare states create significant departures from the liberal prototype. Most notably, Britain (especially prior to 1980) exhibits significant elements of universalism in program structure (especially through the National Health Service and flat-rate benefits based on citizenship). In addition, the Australian (and New Zealand) welfare state represents an interesting variation of the liberal model. Prior to the 1980s, low and heavily means-tested social benefits have been embedded in a state regulated system of relatively high minimum wages, protectionism for domestic industry, and progressive taxation (e.g., Castles [1996]; Castles and Mitchell [1993]). Although public social protection is modest, (pre-1980s) wage compression and full employment have combined with social welfare programs to create a “wage earners welfare state” (Castles, 1985).

In this chapter, I provide succinct case studies of contemporary social welfare policy change and the sources of that change in two liberal systems, the United States and Britain, and brief analyses of globalization, political institutions, and social welfare state reforms in Australia, Canada, and New Zealand.

In the preceding chapters, I have assessed the argument that internationalization, especially the dramatic increases in international capital mobility over the past 25 years or so, has contributed significantly to the retrenchment of the welfare state in the developed capitalist democracies. As I have discussed, the heart of the globalization thesis is an argument about “diminished democracy,” or the general diminution of the ability of democratically elected governments to pursue social policy goals that depart from market-oriented principles. I have also offered and assessed an alternative theory about the relationship between internationalization of markets and contemporary social welfare policy change. In this alternative view, the domestic policy impacts of internationalization vary notably across political contexts. The institutional structures of the polity and welfare state shape the structure of opportunities for representation of pro–welfare state interests (i.e., programmatic coalitions, collective actors, and national alliances). Institutions also have long-term structural effects on the relative political capacities of pro–welfare state interests and on the prevailing norms and values embedded in the policy process. Hence, configurations of national institutions play a large role in determining the ways in which national policy makers respond to the economic and political pressures associated with globalization. Overall, the evidence has been disproportionately in favor of this latter view.

In the subsequent pages, I state my principal conclusions about the relationships between international capital mobility and policy change in developed welfare states and about how national political institutions shape the social welfare impacts of globalization.