The state of state finances

Since the resurgence of Political Economy as an inter-disciplinary field of social sciences in the 1980s we have been instrumental in advancing our understanding of a range of social phenomena too wide to characterise usefully in this short piece. Suffice to note that a cross-cutting theme in this eclectic literature has been exploring the transformations in the role of the state and the ever-changing arsenal of policy tools deployed in the pursuit of said role. Historically, such debates have largely focused on the shift to ‘neoliberal’ modes of economic governance, implicit in which was a critique of the alleged abdication of the state’s role in pursuing ‘equality’ as a social goal in favour of other goals such as ‘efficiency’ and ‘competitiveness’, and a move away from the corresponding policy tools of fiscal redistribution and towards a creeping process of privatisation and commodification of welfare services.

More recently, the emphasis has moved beyond the fiscal retrenchment of the state to examine the wider array of policy tools states deploy in their pursuit of social and political goals. Such an example is captured by the concept of the regulatory welfare state: a re-interpretation of the role of the state suggesting that regulatory expansion could compensate for stagnating or declining fiscal expenditures. This framework has been useful in informing our analysis of various policy areas where the expansion of regulation of a growing number of private providers has allegedly compensated for fiscal retrenchment (e.g. utilities, housing, rent controls, parental leave, pensions, tax benefits, etc.)

A common concern shared by the contributions to this debate however, has been the scepticism over the extent to which regulatory expansion can compensate for fiscal retrenchment? In my current research in collaboration with Professor Pietro Maffettone of the University of Naples, we aim to contribute to this critique.

While recognising the intertwining nature of fiscal and regulatory policies state is a positive step, the literature on welfare reform is still limited by its commitment to evaluating the role of the state in relation to the pursuit of redistribution or ‘equality’. Arguably both fiscal and regulatory policy tools can and are deployed not just in the pursuit of equality but also other goals. We conceive of the welfare state, especially in its liberal minimalist form, as a collective (pooled) risk management strategy – an insurance scheme or a social safety net enabling society to cope with a range of risks (e.g. poor health, unemployment, old age etc.). Thus, the reform of the welfare state, through the expansion or retrenchment of fiscal transfers and / or of regulation, affects not just the distribution of resources but rather the allocation and transfer of risk and the availability of collective risk management tools.

Looking at the state as an institution devoted to the management of risk on a societal scale provides an alternative standpoint from which to analyse recent changes to welfare provision. Sadly, this perspective offers a sombre view of the welfare state and of the direction of travel that it has taken. While regulatory expansion has, for some time, partly allowed the state to counterbalance the ongoing phenomenon of fiscal retrenchment, the limits of this strategy are becoming more and more evident. Fiscal retrenchment is, in our view, increasingly paired with what we call regulatory retrenchment, which, in turn, naturally follows earlier attacks to public provision in the last three decades and deepen their underlying logic.

The individualisation of risk via fiscal and regulatory retrenchment is not simply undoing the post war compromise represented by the welfare state understood as the pursuit of equality, but rather it increasingly undermines the very social technologies that have themselves allowed for the progressive transformation of the liberal state in its various forms, bringing us back to a much more minimalist role for the state as arbiter between perfectly financially accountable monadic individuals and blocking or restricting access to such risk management technologies irrespective of whether these are public or private.