Welfare States in Trouble: Policy Reform in a Period of Crisis.

The ‘crisis’ of welfare state has often been announced. There was a crisis in the 1970s, when European economies were hit by the twin oil shocks, putting a dramatic end to the trente glorieuses. Crisis returned in the 1990s when many national budgets were constrained by the need to comply with EMU debt and deficit criteria. In the 2000s, the emergence of ‘new social risks’ (increasing poverty and social inequalities) called for a recalibration of social protection systems; and in 2008-10 the international financial crisis has pushed up government debt and threatened welfare spending. But much like the boy who cried ‘wolf!’, the word ‘crisis’ has been massively over-used (Castles 2004). Welfare states have continued to grow, and the biggest issue facing governments is making welfare budgets sustainable. ‘External shocks’ have contributed to the complex set of forces, including domestic factors and ideational changes that have gradually impacted the scale and orientation of social spending. But radical reforms– even in the present crisis – are limited by popular support for welfare and the reluctance of politicians to antagonise public opinion (Pierson 2001; Vis, van Kersbergen and Hylands 2010). Welfare reform tends to be slow and incremental; but even gradual change can produce a substantial transformation over time. This chapter examines social policy change in European countries over the last decade. Notwithstanding the structural distinctiveness of welfare systems, common adjustment features can be identified, especially in labour market policies and pension systems, the main focus of our analysis. In employment policy, the ‘activation’ paradigm - linking benefits to job search incentives and sanctions and in the best of cases training - has been strongly promoted by the European Commission and adopted widely in Europe. In pensions, which account for the largest part of European social spending (Figure 1), governments have promoted private funds and placed stricter rules on retirement age and contributions. Part 2 presents the major social and economic challenges confronting European welfare states; part 3 analyzes recent changes in employment and pensions policies; part 4 concludes by considering the consequences for efficiency and equity of a decade of welfare reform.