World Politics

Research Article

The Causes of Welfare State Expansion: Deindustrialization or Globalization?

Torben Iversen and Thomas R. Cusacka1*

a1 Harvard University

Abstract

An influential line of argument holds that globalization causes economic uncertainty and spurs popular demands for compensatory welfare state spending. This article argues that the relationship between globalization and welfare state expansion is spurious and that the engine of welfare state expansion since the 1960s has been deindustrialization. Based on cross-sectional-time-series data for fifteen OECD countries, the authors show that there is no relationship between globalization and the level of labor-market risks (in terms of employment and wages), whereas the uncertainty and dislocations caused by deindustrialization have spurred electoral demands for welfare state compensation and risk sharing. Yet, while differential rates of deindustri-alization explain differences in the overall size of the welfare state, its particular character—in terms of the share of direct government provision and the equality of transfer payments—is shaped by government partisanship. The argument has implications for the study and the future of the welfare state that are very different from those suggested in the globalization literature.

Torben Iversen is Associate Professor of Government at Harvard University. He is the author of Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining (1999) and coeditor of Unions, Employers and Central Bankers: Macroeconomic Coordination and Institutional Change in Social Market Economies (2000), and he is working on a book exploring the intersection between social protection and the nature of skills.

Thomas R. Cusack is Senior Research Fellow at the Wissen schaftszentrum Berlin für Sozialforschung. He is the coauthor of Exploring Realpolitik (1990) and coeditor of The Process of War (1995), and he is completing a book on institutions, political culture, and local government performance in Germany.

* An earlier version of this paper was presented at the 94th American Political Science Association Meeting in Boston, September 3–6, 1998. For many helpful comments and suggestions on this and a related paper we wish to thank Keith Banting, John Freeman, Geoffrey Garrett, Peter Hall, Bob Hancke, Peter Lange, Paul Pierson, Jonas Pontusson, Dani Rodrik, Michael Shalev, David Soskice, John Stephens, and three anonymous readers. We also thank Geoffrey Garrett for providing us with some of the data used in our analyses. Both authors express their appreciation to the Science Center Berlin and the Center for European Studies at Harvard University for their support.