How did they do it? How could Sweden and Australia reform and modernize their economies and societies from the 1980s and onwards in such successful ways? How did they overcome the procrastination and policy mistakes of many other advanced democracies and welfare states?
Today many of these countries have severe problems, ranging from budget deficits and debt crisis to slow or non-existent growth and high unemployment levels. Many politicians seem to be good at spending, but incapable of providing the conditions needed for the creation of new jobs and resources. This may be one of the most important reasons for the rise of populism in recent years.
Most developed or advanced democracies can be regarded as welfare states . In a classic formulation, Marshall (1950) described the welfare state as a combination of democracy, welfare, and capitalism, indicating that in welfare states the government plays a role in the protection and promotion of the social and economic well-being of its citizens. Social expenditures, for example, amounts to around 20 percentage of GDP in most OECD countries, including the USA (OECD 2016c). However, these systems of welfare look very different in different countries. In particular, the role of the government differs.
Several distinct models of welfare can thus be identified. A famous distinction is Esping-Andersenâs (1990) between liberal, conservative-corporatist and social democratic welfare states. Australia is an example of the liberal version, while Sweden belongs to the social democratic category. Germany and many central European countries have conservative-corporatist welfare states.
The main purpose of this book is toâbased on a synthesis of previous research about institutional change and reform strategies , and the experiences of Sweden and Australiaâdevelop a general theory of reform in advanced democracies that incorporates what I shall call âmodern statecraft.â By statecraft I mean the art of governing a country well. Somehow, in some welfare states successful reforms have been implemented despite the challenges involved.
Statecraft , or statesmanship, is thus the skill of developing a country in a beneficial direction. As such, statecraft is distinguished from institutional changeâchange in a governmentâs policies, taxes , laws, and rulesâmore broadly, which may go in any direction. (âInstitutionâ in this context means the rules of the game in a society, rules that shape and constrain human interaction.) I have chosen to call it âmodernâ statecraft because the analysis is confined to advanced democracies and welfare states, where statecraft is likely to be quite different from the governing of less developed, more traditional or autocratic polities.
Sweden and Australia are both examples of what may be called âadvanced democracies â (OâNeil 2012). They are well-established pluralist democracies with a belief in civic and political liberties, political competition, and participation. Moreover they have a high level of economic development and prosperity. The institutions present in such advanced democracies are part of what makes these countries âmodern,â that is, secular, rational, technological, and individualistic. Advanced democracies include not just Western countries, but also Asian, East European, and Latin American countries that share these characteristics. They may differ significantly in other dimensions, for example, electoral systems, interpretations of fairness and equality, size of government, level of economic freedom, and so on.
In such advanced democracies and welfare states, as we shall see, welfare-enhancing reforms may be particularly difficult due to the bias toward keeping earlier institutional changes that led to the overexpansion of public spending and regulation, causing many of the current problems.
Welfare-enhancing institutional change, or for short just âreform ,â is thus distinguished from institutional changes that decrease welfare. Reform implies that the institutional changes make everyone better off (or at least could make everyone better off if the losers were compensated). Admittedly, in many situations this is nevertheless not easily determined due to different conceptions of what constitutes a good society, divergent causal beliefs about the world, fundamental measurement problems, and so on. I shall return to this problem on several occasions.
Since I am concerned with explaining the mechanisms behind successful political reformâwhy and how beneficial reform can come about in modern welfare statesâI have chosen two successful cases to develop a theory of reform. In both Sweden and Australia, the large number of reforms that have been carried out over the last two and three decades required overcoming tremendous barriers. By studying two cases in which reform would seem particularly difficult, and yet has been achieved in far-reaching, systemic ways, the causal processes by which reform can be achieved should become clear.
One may argue that these two countries are two of the least likely cases to have reformed. They both were welfare states with long traditions of interventionism, egalitarian welfare policies, and monopolistic production of welfare services. But for more than two decades both countries managed to push a large number of reforms through the political system during both social democratic or labor and liberal-conservative governments. Major structural institutional changes were implemented, making their economies more dynamic and their societies more flexible (even though major challenges remain in both countries). This makes them especially interesting cases. Their systems of welfare as well as their structures of government were also, as we shall see, different enough to make comparing them very fruitful.
As we shall see, modern statecraft in the context of todayâs advanced democracies and welfare states is often, if not always, equivalent to liberal statecraft , that is, policies or political developments that increase liberty and make society more free.1 The welfare-enhancing reforms in fact often involve, perhaps paradoxically to some readers, a reduction of the role of the (welfare) state in society. This is an empirical description that fits the developments in Sweden and Australia very well; even though there are instances where the reform processes involved elements that decreased liberty. My major concern is the overall direction of the process, which clearly was dominated by liberal reforms. I shall return to the possible tension between efficiency and liberty, between modern and liberal statecraft, at the end of the book.
To reform a country in a beneficial direction is not easy. It requires knowledge of, what I shall call, the reform cycle , based on a synthesis of earlier research about institutional change, as an analytical tool to interpret the logic in the process. The sustained reform processes in both countries started with the recognition by some actors that the existing welfare models did not work very well. Various policy failures were identified. This recognition triggered some policy entrepreneurs to search for new ideas . And these new ideasâeither completely new policy paradigms or new policy instruments or policy settingsâslowly became articulated, aggregated, and advocated by a variety of interests with power resources. That shifted the balance of power in a way that changed the institutions and policies of the two countries.
However, also advanced political skills are needed to enhance welfare in society and to promote liberty in advanced democracies. In the coming chapters, three distinct reform strategies, all central to statecraft, will be presented. The first strategy, which I shall label Popperian, is fact based and involves the use of research, rational argumentation, and pragmatism . The second, which I label Kuhnian, is idea based and involves the use of shifts of perspectives, narratives, framing, new authorities, and agenda setting. The third, which I label Machiavellian, is based on shrewdness and involves the use of obfuscating , blame avoidance, splitting, compensating, and scapegoating.
Modern statecraft âthat is, to govern a modern welfare state wellâinvolves the active use of all three types of reform strategies, including Machiavellian strategies , despite their negative standing. But political leaders, different interests, and policy entrepreneurs also need new policy ideas, ideas that actually work in the context they are in. In addition to knowing how, they also have to know what to do. Analytical skills needed to develop new policy ideas are also essential. Otherwise beneficial institutional change will not come about.
Moreover, sustained reform in advanced democracies is not limited to the activities of a single person or statesman, even though individuals do matter, sometimes decisively. In a democratic society, statecraft rather concerns the broader process of reforming a country in a welfare-enhancing direction, where different actors with different roles contribute to the process. Modern statecraft is a âpolycentricâ effort where experiential learning plays an important role.
I will use the method of the extended case study to understand in detail the processes that lead to successful political reform. The two reform countries Sweden and Australia will be used in a theoretically structured qualitative and comparative case study of reform in order to develop a general theory of reform in advanced democracies and welfare states. The focus will be on why and how reforms were developed and successfully implemented. How did the reform processes start, what made them persist, and why did they, as it seems, come to a halt?
This book has a long history. It is a synthesis of a large number of research projects, books, papers, and practical experiences in politics and management positions, all dealing with the interaction between politics, markets, and civil society within the context of the modern welfare state.
More than 20 years ago, I analyzed the emergence of modern welfare states in my doctoral thesis, The State of State: Invisible Hands in Politics and Civil Society (Karlson 1993, 2002). I showed that the influence of special interests and counterproductive interventions into markets and civil society had produced, more or less unintentionally, a highly inefficient situation where everyone would benefit from a reduction of the size of the government. Social order, prosperity, the position of the weak and unfortunate as well as democratic values could be strengthened.
However, due to rational adaptation and entrenched interests in the status quo, such a welfare state, I argued, was likely to be caught in a public goods trap where it would be irrational for any group to give up their subsidies or privileges. Such traps are examples of social dilemmas, such as the tragedy of the commons, where individual actions due to the structure of the decision situation lead to suboptimal outcomes. Free-riding behavior will be prevalent. Thus the public good, in this case the reduction of the size of the government, would be difficult, if not impossible, to produce.
The only possibility to escape this trap, I thought,
would be for a group of well-meaning and benevolent politicians and voters determined to restore civil society to cluster together. And some of these actors must be willing to do so even if they in the short term will lose from the desired changesâthey must be unconditional cooperators. To monitor the behavior of others they must also be able to use all their credibility to persuade and convince the general public that the changes are in their own long-term interest. A great deal of deliberate political action and leadership is necessary for this to be realized. There is no invisible-hand process available to handle such a change. The âwelfareâ state cannot be dismantled through incremental changes. (Karlson 1993, p. 208)
This puzzle on how to promote beneficial policy change has been with me ever since. I have published over 25 academic books on topics related to this question in different fields, dealing with everything from tax policies, property rights, industrial relations, growth policies, constitutional design, and federalism to educational policies, entrepreneurship, virtues, and institutional competition. Also, for a period I was involved in both formulating and implement...