Herman Schwartz

Round Up the Usual Suspects!: Globalization, Domestic Politics, and Welfare State Change

W killed the growth of the welfare state? Its seemingly inexorable budgetary, programmatic, and personnel growth in the 1960s and 1970s ground to a halt in the 1980s, accompanied by the mutilation of programmes and rising unemployment. Was it an external intruder—globalization of one sort or another? Was it an inside job—domestic politics and demography? Or, as public choice theory suggests, was death self-inflicted by a combination of producer and client groups? As if this richness of suspects were not problem enough, the identity of the victim is also uncertain. In fact, the central mystery in the relationship between globalization and the welfare state is accurately identifying the victim; it is a mystery of concept formation in which, prosaically, no one is quite sure which dependent variable matters and how it is changing. Spending levels? Policies? Institutions? Wage equality? Employment levels? National autonomy? Two academic deformations of reality obscure the politics at the heart of this specific mystery. First, the richness of prior research on the formal or overt welfare state—systems of tax funded transfers and state provided or funded social services ameliorating life and economic risks for workers— provides a lamp-post around which enquiries naturally cluster, asking how ‘globalization’ has affected those programmes, but ignoring areas of darkness away from the lamp. Second, a profound normative bias favouring welfare in most welfare state research obscures the fact that not all welfare is for workers, that the welfare state was never simply an instrumental tool for advancing labour’s interests, and that ‘welfare’—understood much more broadly as ‘social protection’—was about sheltering all income streams,

Public Choice Theory and Public Choices Bureaucrats and State Reorganization in Australia, Denmark, New Zealand, and Sweden in the 1980s

Reorganizers of the state in Australia, New Zealand, Denmark, and Sweden during the 1980s tried to separate policy-making from the production of welfare and other services by introducing market disciplines and competition. Fiscal bureaucrats, afraid of rising fiscal deficits and public debt, sought to control what they saw as rent-seeking behavior and agent abuse of principals in the public sector They argued these changes would reduce incentives for collective rent-seeking behavior and prevent shirking. Fiscal bureaucrats thus sought to control future behavior in the public sector by changing the incentive structures workers and agency managers faced.

The Danish “Miracle” Luck, Pluck, or Stuck?

The 1980s and 1990s saw employment “miracles” in Denmark, Australia, and the Netherlands. This article analyzes the dynamics and substance of Danish policy responses to poor export, employment, and fiscal performance to see whether remediation should be attributed to pluck (intentional, strategic remediation of dysfunctional institutions to make them conform with the external environment), luck (environmental change that makes formerly dysfunctional institutions suddenly functional), or just being stuck (endogenous, not entirely strategic change that leaves institutions in conformity with the environment). It addresses these issues to remedy biases in the literature toward Sweden-as-model, toward pessimism about the welfare states survivability, and toward privileging intentional action. The analysis finds that stuck (endogenous dynamics) probably explains as much as pluck (strategic choice), suggesting only limited transferability for policy lessons from the miracles.

Housing, the welfare state, and the global financial crisis: what is the connection?

Analyses of the global financial crisis that assign causality to the erosion of parts of the welfare state that protected individuals miss the importance of macro level regulation that protected firms and the financial system from itself. Post-Depression macro level regulation of finance prevented the emergence of mismatched maturities where deposits lacked state guarantees, and thus prevented runs on banks or near-banks. A balance sheet approach shows that macro regulation linked long duration liabilities in housing finance (mortgages) to long duration assets (pensions). Deregulation permitted the reemergence of mismatched maturities, providing both a necessary and sufficient condition for the current financial crisis.

Reinvention and retrenchment: Lessons from the application of the New Zealand model to Alberta, Canada

Is New Zealand a model for “reinventing” government and cutting spending? The government of Alberta, Canada, consciously replicated significant elements of the New Zealand model to attain fiscal balance and public sector reorganization, including the core element of restructuring institutions to change individual behavior. Despite broad similarities in policy content and outcome, differences in the specific content of policy and the politics of policy implementation led to differences in the sustainability of reform and the location of budget cuts. Albertas Progressive Conservative party emphasized expenditure cuts where both the New Zealand Labour and National parties emphasized government reorganization and the introduction of market mechanisms. Contrasting these efforts to balance budgets and reinvent government suggests that there is considerable variation in the “model,” and that left governments in general are probably more likely to pursue and succeed at the reinvention of government, while stinting fiscal balance. Right governments, on the other hand, are more likely to achieve short-run fiscal balance at the expense of successful reinvention. In turn this suggests that while the partisan orientation of the reforming party matters, neither has an ideal policy mix for long-term fiscal stability. Alternation of governments may provide the best policy mix.

The political economy of failure: The euro as an international currency

ABSTRACT How do international currencies get established and consolidated? What domestic and international political foundations support an international currency? And what kinds of macro-economic flows enable an international currency? In this essay we consider these perennial questions of modern IPE scholarship in reverse order to ask whether the euro could ever have become, or seek to become, a true international currency rivalling the US dollar, used not only for passive foreign exchange reserves but also as a major commercial currency outside the EU. We argue that the EU lacks the will, the ideas and the capacity to promote the euro into the status of an international currency. In this article, we concentrate on this final issue of capacity, as the will and ideas issues have already been well explored. Capacity is an issue coeval with, if not prior to, the first two issues. The EUs current institutional arrangements and its economic geography create macro-economic consequences that diminish the euros capacity to operate as a top currency. These conflicts go beyond the well-recognized issue that the euro-zone is not an optimum currency area. Examining the euros debilities sheds light not only on the euros (in)capacity to rival the dollar as an international currency, but also on the future of both the euro and the dollar in the aftermath of the euro-zone crisis.

Can orthodox stabilization and adjustment work? Lessons from New Zealand, 1984–90

Most debate about the efficacy of orthodox stabilization programs, such as those of the International Monetary Fund, has been fruitless. First, rarely are these programs fully implemented or sustained for long periods. Second, defenders and critics of the programs hold differing premises about the nature of capitalist economies. The debate is therefore not about the appropriate balance of supply-and demand-side measures but, rather, about what sort of supply- and demand-side measures will address the supply- and demand-side problems that each group perceives. The results of an orthodox stabilization program which incorporated demand- and supply-side elements and which was fully implemented and sustained by the New Zealand government from 1984 to 1990 reveal the limits to orthodox programs. New Zealand, a primary product exporter, suffers from a structural imbalance of payments and from an external debt burden equal in scale to that of the Latin American and other highly indebted less developed countries (LDCs), but it does not have the serious supplyside constraints on growth that critics claim typify underdeveloped economies. This makes New Zealand an appropriate test of the typical orthodox stabilization program. Despite the fact that its administrative capacity, political will, domestic support, and access to external resources were far in excess of those of the typical would-be LDC stabilizer, New Zealand achieved only a precarious macroeconomic and international payments stability. Moreover, as the case of New Zealand demonstrates, inflation control and financial liberalization policy components of orthodox plans have contradictory consequences for payments balance. This suggests that long-term stabilization, in New Zealand and elsewhere, cannot be achieved solely by internal reforms.

Political Capitalism and the Rise of Sovereign Wealth Funds

Sovereign wealth funds are neither novel nor constitute any decisive shift towards state control. States and markets are co-constitutive, but states have power precisely because of their ability to define property rights and thus draw the boundary between public and private activity. The way they draw that boundary determines the nature of capitalism in any specific market. ‘Sovereign wealth fund’ is a nominal label covering three distinct types of organization that distribute property rights in different ways. The first acts to buffer states from the economic problems associated with large-scale resource exports. The second helps states simultaneously develop industry and an industrial bourgeoisie. The third is a vehicle for patrimonial rent extraction via political capitalism. The current spectacular increase in the number and holdings of sovereign wealth funds thus does not presage a distinct shift away from the (easily exaggerated) neoliberalism of the last two decades. Los fondos soberanos no son novedosos ni constituyen ningún cambio hacia el control del estado. Los estados y mercados son co-constitutivos, pero los estados tienen poder precisamente por su habilidad de definir los derechos de propiedad y por lo tanto establecer el límite entre la actividad pública y la privada. La forma como ellos establecen ese límite, determina el tipo de capitalismo en cualquier mercado específico. El ‘fondo soberano’ es una etiqueta nominal que cubre tres tipos distintos de organización que distribuyen derechos de propiedad en diferentes formas. La primera actúa para intermediar por los estados de los problemas económicos asociados con exportaciones de recursos a gran escala. La segunda ayuda a los estados simultáneamente a desarrollar industria y una burguesía industrial. La tercera es un vehículo para la extracción de renta patrimonial mediante el capitalismo político. Por lo tanto, el presente aumento espectacular en número y existencias de fondos soberanos, no presagia una ruptura distinta (exagerada fácilmente) del neoliberalismo de las últimas dos décadas. 主权财富基金既不新鲜也不构成朝向国家控制的任何决定性转变。国家与市场是共同构成的，但国家之有权力正是因为它们有能力定义财产权，因而在公共和私人活动之间划定了边界。它们划定边界的方式决定了任一特定市场资本主义的性质。“主权财富基金”是一个名义标签，涵盖了三种不同的组织，它们以不同方式分配财产权。第一种组织的行动使国家因与大规模资源出口相联系的经济问题得到缓冲。第二种组织帮助国家同时发展工业和工业资产阶级。第三种组织是经由政治资本主义进行世袭寻租的工具。因此，当前主权财富基金数量和资金的显著增长并不预示着明显远离过去二十年（极易被夸大）的新自由主义。 국부 펀드는 고상한 것도 아니고 결정적으로 국가통제로의 전환을 구성하는 것도 아니다. 국가와 시장은 상호 구성적이지만, 국가는 재산권을 정의할 수 있는 능력 때문에 권력을 가지고 있고, 공적인 활동과 사적인 활동의 경계를 그을 수 있다. 경계를 긋는 방식이 모든 구체적인 시장에서 자본주의의 성격을 결정한다. ‘국부 펀드’는 재산권을 각기 다른 방식으로 분배하는 세 가지 조직 유형을 포괄하는 명목적인 이름이다. 첫째는 대규모 자원 수출과 관련된 경제문제로부터 국가를 완충시킨다. 둘째는 국가가 산업과 산업부르주아지를 동시에 발전시키는 것을 돕는다. 세째는 정치적 자본주의를 통해서 지대 를 추출하는 수단이다. 그리하여 현재 국부 펀드 수와 규모의 엄청난 증가가 지난 20년 동안의 신자유주의로부터 뚜렷하게 이탈하는 전조는 아니다.

'Economic rationalism' in Canberra and Canada: Public sector reorganisation, politics, and power

Australian public sector institutions and public sector labour relations experienced intense change during the 1980s and 1990s. Proponents of restructuring sought to insert market-like pressures into areas formerly governed by bureaucratic mechanisms. This reversed a trend towards continual growth in state provision of non-market based social protection and social welfare, and continual growth in the public sectors share of the economy. The politics and content of Australian public sector restructuring under Labor and then the Liberals substantially resembled restructuring efforts in two Canadian provinces. In all three examples, political pacts between unions in the exposed and non-exposed sectors, and between organised labour and capital, determined the direction of change. But the level of institutional robustness of these various actors determined both the pace and effectiveness of change. Weak employer organisations and unions incapable of sustaining pacts in Canada produced wider oscillations in policy content that attained less substantive success than in Australia. Copyright Blackwell Publishers Ltd and the Economic History Society of Australia and New Zealand 2003.

Banking on the FED: QE1-2-3 and the Rebalancing of the Global Economy

Growing income inequality in most countries in the 1990s and 2000s led to a global shortfall between supply and demand. The US economy bridged this shortfall domestically and globally by blowing successive equity market and housing bubbles, but these produced ever more severe financial crises. Rebalancing after the 2008 crisis required trade surplus countries to expand their non-traded sectors, but rebalancing is never immaculate. Instead, the Federal Reserve Banks three rounds of Large-Scale Asset Purchases, or quantitative easing, shifted investment flows towards some developed and developing economies. As a matter of accounting, capital inflows led to shrinking trade surpluses in those countries. However, their relatively undeveloped securities markets mean that rebalancing largely occurred through rising housing prices, mirroring the same unsustainable phenomenon the USA experienced in the 2000s. In effect, the USA shifted part of its unsustainably large non-traded sector back to trade surplus countries by causing the real-estate part of the non-traded sector in surplus countries to expand. However, this is not a sustainable solution to global trade and financial imbalances in the long run, and risks producing the same kind of crises the USA experienced in 2008.