Welfare State or Economic Democracy? 

Takis Fotopoulos



AbstractThe three aims of this article is to show first, through a historical analysis of the rise and the present decline of the welfare state, that  such a system is no longer feasible in the framework of the internationalised market economy. The second aim is to show that the current discourse of ‘empowering’ the citizen through ending the ‘dependency culture’  functions as part of the ideology of marketization, if it does not involve proposals for ending the citizen’s dependence not just on the state but also on the market. This leads to the proposal for a new conception of social welfare—the third aim of the paper- which is based on a conception of economic democracy, as an integral part of an inclusive democracy.



1. Marketization and welfare state


A fruitful way to interpret the post-war rise and decline of the welfare state, as well as its significance with respect to the project of creating a liberatory democratic society, is, to my mind, to go back in History and explore its origins. The two crucial facts that could explain its origins are the emergence of the nation-state and the system of the market economy,  which  both played a significant role in this process.


However, before we embark on a brief outline of this process it is necessary to  clarify the terms we shall use. I am using the term “market economy”  to define the concrete system that emerged in a specific place (Europe) and at a particular time (two centuries ago) and not as a general historical category of an approach aiming to show the evolution of the economic system throughout History, as  the Marxist concept of the mode of production supposedly does. I will define the market economy as the self-regulating system in which the fundamental economic problems (what, how, and for whom to produce) are solved `automatically', through the price mechanism, rather than through conscious social decisions.


The market economy, as I defined it, is a broader term than capitalism and the two should not be confused with each other. The market economy refers to the way resources are allocated, whereas capitalism refers to property relations. Although, historically, the market economy has been associated with capitalism, namely, private ownership and control of the means of production, a market allocation of resources is not inconceivable within a system of social ownership and control of economic resources. This distinction between capitalism and the market economy is particularly useful today when many in the self-styled “Left”, after the failure of the planned  economy, rediscover the merits of a ‘socialist’ market  economy. At the same time, several “communist” parties in the South (China, Vietnam etc.) have embarked on a strategy to build a “socialist” market economy and are in the process of achieving a synthesis of the worst elements of both the market economy (unemployment, inequality, poverty) and ‘socialist‘ statism (authoritarianism, lack of any political freedom etc.).


The fact that in a market economy scarce resources are allocated ‘automatically’ does not mean that there are no social controls at all. Here, we should introduce an important distinction between the various types of social controls which will help us to interpret the rise and fall of the welfare state.


There are three main types of possible social controls on the market economy:

  1. regulatory controls, which have usually been  introduced by the capitalists in control of the market economy in order to “regulate” the market. The aim of regulatory controls is to create a stable framework for the smooth functioning of the market economy without affecting its essential self- regulating nature. Such controls have always been necessary for the functioning of the system of the market economy. Examples of such controls are the various controls introduced at present by World Trade Organisation, or by the Maastricht/Amsterdam treaties, which aim at regulating the world and the European markets respectively in the interest mainly of those controlling the respective markets (multinationals etc.)

  2. social controls in the broad sense which, although they have as their primary aim the protection of those controlling the market economy against foreign competition, still, they may have some indirect effects that could be beneficial to the rest of society as well. A primary example of such controls is the various protectionist measures aiming at protecting domestic commodities and capital markets (tariffs, import controls, exchange controls etc.).

  3. social controls in the narrow sense which aim at the  protection of humans and nature against the effects of marketization. Such controls are usually introduced as a result of social struggles undertaken by those who are adversely affected by the market economy’s effects on them, or on their environment. Typical examples of such controls are social security legislation, welfare benefits, macro-economic controls to secure full employment, environmental controls etc. It is therefore obvious that the welfare state’s point of reference is this particular type of social controls.

State and welfare before the welfare state 


Although the welfare state in the proper sense of the word was born  in the post second world war period, the state has begun imposing social controls with the aim to protect, but also to control,  labour long before that. In fact, we may trace some rudimentary state provision of welfare in Britain and other European countries back to the time of the emergence of the nation-state at the end of the Middle Ages (relief of the poor, building of workhouses etc).[1] But, there is a significant difference between the state provision of welfare before the emergence of the market economy and after it. Before the rise of the market economy, the state provision of welfare was not related to any direct pressure ‘from below’. The ruling elites were, of course, concerned about the possibility of social unrest, following the carnage and wars characterising the consolidation of nation states and their fight against the free cities and the village communities in the late fifteen and sixteen centuries.[2] Nevertheless, the introduction of welfare services was mainly left to the ‘benevolence’ of the ruling elites. On the other hand, the emergence of the market economy system marked the development of a strong labour movement; it was in direct response to the constant pressure from this that the ruling elites were forced to introduce various welfare schemes culminatiing in the creation of full- blown welfare states during the 20th century.


If we go back to the pre-marketization period,  the state played a crucial role in the creation of the system of the market economy by both creating the conditions for the `nationalisation' of the market (mercantilist phase) and by freeing the market from effective social control (liberal phase of marketization).[3] As regards the role of the state in the mercantilist phase, it should be noted that before the commercial revolution, trade was not national but municipal or inter-community in character, bringing towns and villages together in regional networks and local markets but not in national ones. The newly emerging nations were merely political units consisting, economically, of innumerable self-sufficient households and insignificant local markets in the villages. The formation of a national or internal market was resisted by the fiercely protectionist towns and municipalities. Only wholesalers and rich merchants were pressing for it. No wonder that it was only by virtue of deliberate state action in the fifteenth and sixteenth centuries that the `nationalisation' of the market and the creation of internal trade were achieved[4]. The ‘nationalisation’ of the market was followed in the sixteenth and seventeenth centuries by further state action, the outcome of which was to undermine to an even greater extent the political and economic independence of the cities and to ruin village communes. This action involved the confiscation, or `enclosure' of communal lands—a process that was completed in Western Europe by the 1850s[5]. The effect was not only to destroy community links in towns and villages but also to create the foundations for the marketization of the economy, as both labour and land were now being released, in plentiful quantities, to be bought and sold in the emerging labour and land markets.


Still, mercantilism, with all its tendency towards commercialisation, never attacked the institutional safeguards which protected labour and land from being marketized. The social controls on labour and land, which, under feudalism, had taken the form of custom and tradition, were simply replaced, under mercantilism, by statutes and ordinances. Therefore, the `freeing' of trade performed by mercantilism merely liberated trade from localism; markets were still an accessory feature of an institutional set-up regulated more than ever by society. Up until the Industrial Revolution, there was no attempt to establish a market economy in the form of a big, self-regulating market. In fact, it was at the end of the eighteenth century that the transition from regulated markets to a system of self-regulated ones marked the `great transformation' of society, that is, the move to a market economy. Up until that time, industrial production in Western Europe, and particularly in England where the market economy was born, was a mere accessory to commerce. The use of machines in production and the development of the factory system reversed this relationship. The marketization of land, labour and money, which were crucial elements in the industrial process, was therefore, as Polanyi described it, ‘the inevitable consequence of the introduction of the factory system in a commercial society’.[6]


The marketization of labour was particularly significant with respect to the emergence of the welfare state. Under the guild system, working conditions as well as the wages of the workers were regulated by society, that is, by the custom and rule of the guild and the town. The same applied to land: the status and function of land was determined by legal and customary rules (whether its possession was transferable or not and if so under what restrictions, for what uses, etc.). The removal of labour and land from social control has led to the creation of new forms of domination and, at the same time, has destroyed the traditional fabric of the guild workers' communities, village communities, the old form of land tenure and so on. For instance, the principle of freedom from want was equally acknowledged in every type of social organisation up until the beginning of the sixteenth century:[7] the individual in a primitive society was not threatened by starvation unless the whole community starved. Hunger, which was a necessary element of a self-regulating market, presupposed the liquidation of organic society. In fact, some argue that, contrary to popular and economic wisdom, people are relatively less well off now than they were in the Middle Ages![8]

One could therefore speculate that only a drastic change in the economic structure of Western European society at the time of the Industrial Revolution could have averted the marketization of society—a change that would have made the use of machines, in conditions of large-scale production, compatible with the social control of production. But such a change would have required a social revolution toward economic democracy to accompany the Industrial Revolution. As such a revolution did not materialise at the time, what followed was inevitable. Factories could not secure continued production unless the supply of means of production (especially, labour and land) was organised. But in a commercial society, the only way to organise their supply was to transform human activity and natural resources into commodities, whose supply did not depend on the needs of human beings and of the ecosystem respectively, but on market prices. Therefore, the introduction of new systems of production to a commercial society, where the means of production were under private ownership and control, inevitably led (with the crucial support of the nation-state) to the transformation of the socially controlled economies of the past, in which the market played a marginal role in the economic process, into the present market economies.

Private control of production required that those controlling the means of production would have to be economically “efficient” in order to survive competition, i.e. they had to ensure:

  • the free flow of labour and land at a minimal cost. However, under conditions of private control of production, this flow has an inverse relationship to the social controls (in the narrow sense) on the market. Thus, the more effective the social controls on the market, and in particular on the markets for the means of production (labour, capital, land), the more difficult it is to ensure their free flow at a minimal cost. For instance, legislation to protect labour made the labour market less flexible and, consequently, the flow of labour less smooth or more expensive. Therefore, historically, those having private control of the means of production have always directed their efforts towards further marketizing the economy, that is, minimising the social controls on the market.

  • the continual flow of investments into new techniques, methods of production and products, in an effort to improve competitiveness and the sales figures (--a logic aptly expressed by the motto `grow or die').[9] The outcome of this process is economic growth. Therefore, it is not a coincidence that “the modern idea of growth was formulated about four centuries ago in Europe when the economy and the society began to separate”,[10] although the growth economy[11] itself  emerged much later,  after the market economy was initiated at the beginning of the nineteenth century, and only flourished in the post World-War II period.

Therefore, in a market economy we have two sets of needs which, in effect, are in direct conflict with each other and push in opposite directions. On the one hand, we have the “private” needs of those controlling the means of production to improve efficiency and competitiveness, which inevitably lead to marketization and growth and, on the other, we have the social needs to protect labour,  or the environment, which, also inevitably, lead to the expansion of social controls over the markets, i.e. to the ‘socialisation’ of the markets. Of course, such a conflict arises only in a system of social organisation where society is  separate from the economy,  as it is in a market economy. This is why, as soon as a market economy was established,  a ceaseless social struggle began. Schematically, this is the struggle between those controlling the market economy, i.e. the capitalist elite controlling production and distribution, and the rest of society. Those controlling the market economy aimed at minimising social controls on markets, particularly the labour market , so that the free flow of commodities could be secured. On the other hand, those at the other end, particularly the growing working class, aimed at maximising social controls on the markets, that is, their objective was to maximise society's self-protection against the perils of the market economy, especially unemployment and poverty.

The rise and fall of the welfare state could be seen in terms of this conflict which at the theoretical and political level was expressed by the clash between economic liberalism and socialism (in both its statist and libertarian versions). Economic liberalism sought to establish a self-regulating market system, using as its main methods laissez-faire, free trade and regulatory controls. On the other hand, socialism sought to conserve humans,  as well as productive organisation, using as its main methods social controls on the markets. This struggle constituted the central element of Western history, from the Industrial Revolution to date. It should be noted however that whereas the fundamental components of the market economy were  two, marketization and growth, still it was only one of them, marketization, which, historically, has divided the intelligentsia of the industrial era and led to the two large theoretical and political movements, liberalism and socialism. No similar divide had arisen with respect to the second component, that is, economic growth, until we entered the post-industrial era.  This is because in both the capitalist and the ‘socialist’ versions of the growth economy economic growth was a central element of what I will call the dominant social paradigm (i.e. the system of beliefs, ideas and the corresponding values, which is associated with the political, economic and social institutions), as a result of the post-Enlightenment identification of Progress with the development of productive forces that was adopted by socialists, Marxists in particular.

Historically, we may distinguish three main  phases in the process of marketization:

  1. the liberal phase, from the 1830’s to the 1870’s, which after a transitional  period of protectionism, led to

  2. the statist phase, from the 1930’s to the 1970s, which was succeeded by

  3. the present neoliberal phase.

The above periodisation is directly relevant to the history of the welfare state. Its origins could be traced back to the protectionist period and its peak to the statist phase, while the present neoliberal phase marks its gradual collapse.  Furthermore, as it is obvious from the above periodisation, the long-term trend since the rise of the market economy has always been one of minimising social controls on the markets and, what is important from our point of view, of a parallel concentration of economic power. It could easily be shown, both theoretically and empirically, that there is a direct relationship between marketization and concentration of economic power: the higher the degree of marketization (i.e. the lower the social controls on markets, particularly social controls in the narrow sense) the higher the degree of concentration of power. Historically, it was only during the relative brief statist phase that this long term trend towards marketization was reversed, although even then it was social controls to protect labour, rather than the environment, that were introduced. This was mainly the result of the intensification of the social struggle against the economic elites, a struggle  which was favoured by a series of contingent political and economic factors that we cannot consider here.

Thus, once the transition from the socially controlled markets of mercantilism to the system of self-regulated ones  at the end of the eighteenth century was completed (the institutioning of the physical mobility of labour in England in 1795 was a crucial step in this transition) then the conflict between those controlling the market economy and the rest of society started in earnest. Thus, almost immediately, a political and industrial working class movement emerged and, as a result of its pressure, factory laws and social legislation were introduced. In 1824, for instance, the British Combination Acts of 1799 and 1800, which ruled that unions were a conspiracy against the public because they restricted trade, were repealed. However, all these institutional arrangements were incompatible with the self-regulation of the markets and the market economy itself. This incompatibility led to a counter-movement by those controlling the market economy in England, which ended up with the taking of legal steps to establish a competitive labour market (1834), the extension of freedom of contract to the land (between 1830 and 1860) and the abolition of export duties and reduction of import duties in the 1840s. In fact, the 1830s and the 1840s (not unlike the 1980s and the 1990s) were characterised by an explosion of legislation repealing restrictive regulations and an attempt to establish the foundations of a self-regulating market, that is, free trade, a competitive labour market and the Gold Standard—namely, the system of fixed exchange rates where the value of a currency was fixed to the value of gold.

The movement towards free trade reached its peak in the 1870s, marking the end of the system of privileged trading blocks and restricted commerce which characterised the growth of the colonial empires in the pre-1800 period. Although universal free trade was not attained during this time since, at the end, only Britain and Holland adopted policies of complete free trade, for a brief period in the 1860s and the 1870s the world came close to a self-regulating system, as envisaged by classical economic theory.[12] However, the attempt to establish a purely liberal internationalised market economy, in the sense of free trade, a competitive labour market and the Gold Standard, did not last more than 40 years, and by the 1870s and 1880s protectionist legislation was back. Thus, the aim to liberalise the markets in the first phase of the marketization process had the paradoxical effect of leading to more protection: either because of pressure by those controlling production to be protected from foreign competition, or because of pressure by the rest of society to be protected against the market mechanism itself.

As regards, in particular, protectionism in the form of social controls (narrow sense) on the market,  it was  significant that not just England, but France and Prussia as well passed through a similar process: a period of laissez-faire, followed by a period of anti-liberal legislation with respect to public health, factory conditions, social insurance, public utilities and so on. Thus, “at the end of the nineteenth century, across Europe and the US, governments legislated to limit the workings of laissez-faire—first by inspecting factories and offering minimal standards of education and later by providing subsistence income for the old and out of work”[13] As a result, by the beginning of the twentieth century, social legislation of some sort was in place in almost every advanced market economy.[14] If, therefore, at the beginning of the nineteenth century  the ruling philosophy was internationalist, in the form of liberal nationalism (free trade, etc.), by the 1870s liberal nationalism started turning into national (or nationalistic) liberalism, with an emphasis on protectionism and imperialism abroad. The consequence of such protectionist pressures was that by the end of the Depression of 1873-86, which marked the end of the first experiment with pure economic liberalism, Germany had already established an all-round social insurance system.

By the same token, both types of protectionism (i.e. tariffs and social controls), contributed to the rise of nationalism--a movement that was very much in ascendance during the second part of the last century, especially among the `latecomers' to nationhood, Germans and Italians. The demand for nation-states did not just express the needs of those controlling the economy to get rid of the variety of commercial and industrial laws which had become an intolerable obstacle to their developing industry and expanding trade. In fact, the nation-state, after its historic victory over the alternative confederal forms of organisation, was seen as the only social form that could provide effective protection not only for domestic capital against foreign competition, but also for labour and land against the detrimental effects of the domestic market.

The rise of the welfare state 

Protectionism, in both its forms considered above, undermined the market economy that had been established in the nineteenth century and, in fact, led to its near collapse in the twentieth. It undermined, first, the domestic market economy by distorting the price mechanism and obstructing the self-regulation of markets. It undermined, secondly, the world market economy by leading to colonial rivalry and competition for markets still unprotected. As a result of protectionist policies, the world economy, on which the nineteenth century balance-of-power system had rested, started disintegrating. This inevitably led to the near collapse of the system itself because, as Polanyi has persuasively shown[15], the “100 years' peace” (1815-1914) crucially depended on two freedoms: the freedom of trade and the freedom of capital. Therefore, once colonial rivalry started having its effect on both freedoms, the first world war became inevitable.

Following the war, serious obstacles to the self-regulating function of the market mechanism were created[16], not just on strict economic grounds (mainly, to protect the value of currencies) but also on political grounds, and in particular to reduce social tension in the aftermath of the 1917 Russian revolution. Wages became “too rigid". In Britain, for instance, as D. Moggridge points out, "the General Strike (1926) removed the possibility of widespread reductions in money wages and costs, if only because attempts at reductions were too expensive socially and economically.”[17] But, to the extent that society's self-protection against the market economy was successful, the market economy itself was devitalised and eventually almost collapsed in the 1930s, during the Great Depression. Therefore, as Polanyi also stresses, it was the collapse of pure liberalism which set the foundations for the near collapse of the market economy itself in the 1930s and opened the way for the rise of statism.[18]

The outcome of the disintegration of the world economy and of the collapse of the Gold Standard was that all major countries entered a period of active state interference to control the economy; in other words, they entered the period of statism—an event that marked a new phase in the marketization process which was, one may argue, the logical conclusion of protectionism which flourished during and after the first world war[19] and reached its peak in the 1930s with the adoption of many direct restrictions on trade, such as import and export licensing, quotas and exchange controls. The extreme example of statism was of course Stalinist Russia, where, for the first time since the establishment of the market economy in the nineteenth century, a ‘systemic’ attempt was made to reverse the marketization process. However, it was not just Russia (to be followed after the second world war by several other countries on the periphery and semi-periphery of the capitalist system) that introduced statism. In the period between the mid-1930s and the mid-1970s, active state interference to control the market mechanism was the norm all over the capitalist world. Although the forms of statism in the West were not as comprehensive as in the East, and, of course, did not take the form of a ‘systemic’ change, still the aim, especially in the post-World War II period, was similar. In other words, the aim was not just to help the private sector flourish under some minimal social controls (as, for example, is the case with Clintonomics, or the economics of the ‘new’ British Labour party under Tony Blair today) but rather to supplant the private sector itself, especially in the areas where the private sector has failed to cover the needs of the whole population—mainly, with respect to the provision of social services (health, education, social insurance, public utilities).

The foundation for statism was set in the interwar period during the Great Depression, which, following the 1929 crash, pushed the market economy into a general crisis. During this period, several countries introduced various degrees of statism to recover from the Great Depression. The most drastic form, within the market economy framework, was introduced in Nazi Germany. Well before the German economy was converted to a war footing, there was “considerable supersession of the free market”[20], which took the form of budget deficit policies financed by the creation of new money (in fact, such policies were in place ten years before the rise of Hitler and had led to the German hyper-inflation) , price and wage controls, state direction of private investment and so on. Even in the bastion of free enterprise, the United States, Roosevelt's New Deal involved actively promoting the devaluation of the dollar, state interference in determining prices and wages, large construction projects, as well as increased employers' contributions to the social security fund. The same pattern of drastic state intervention and interference with the pricing mechanism (in place of the relatively neutral state role in the economy—typified by balanced budget policies—that liberal orthodoxy required) was repeated in several other countries at the time (France, Sweden, etc.).

But, it was Britain which set the foundation for the welfare state, that is, the form of statism that was to mark post-war history, up to the middle of the seventies. The starting point in the establishment of the post-war welfare state was the Beveridge Report, whose explicit aim was “to establish social security for all, from the cradle to the grave”[21]. It was published in 1942 and represented a conscious effort to check the side effects of the market economy, as far as covering basic needs (health, education, social security) was concerned. Two years later, a coalition government dominated by the Conservatives inaugurated what has been called the social-democratic consensus and published a White Paper on Employment Policy, which committed the government (a commitment observed by governments of all persuasions up to the rise of neoliberalism) to full employment policies through aggregate demand management, that is, through manipulation of the market. In effect, what this commitment meant was the formal recognition of the fact that the market was not capable of self-regulation, at least as far as the level of production and employment was concerned. Similarly, `maximum employment' was recognised as the main policy objective by the US Employment Act of 1946. Comparable institutional changes took place all over the advanced capitalist world in the late 1940s, so that one may conclude that this period marks the beginning of the social-democratic consensus, which was to last into the ‘70s.

However, the social-democratic consensus that emerged in the post-war period was not just a conjunctural phenomenon, as sometimes argued, but a structural change with significant implications at the economic, social, political and ideological/theoretical levels as well as at the cultural  level. Thus, at the political level, the social-democratic consensus was actively supported by social-democratic parties and trade unions and enjoyed the tolerance of capital and its political representatives. Conservative parties were succeeding social-democratic ones, without changing in its essentials the new socio-economic role of the state with respect to the market. Despite some spasmodic privatisations of nationalised industries, particularly in Britain, governments all over the advanced capitalist world were following full employment policies and were expanding continually the welfare state and the public sector in general. 

At the economic level, the social-democratic consensus was founded on modern industrial society, which, at its post-war peak, was characterised by mass production, big production units, bureaucratic organisation and mass consumption. The state's economic role was crucial in a process of intensive accumulation that relied mainly on the enlargement of the domestic market. This involved not just an indirect role in influencing the level of economic activity through fiscal policy and the welfare state, but also direct action on the production side of the economy through nationalised enterprises and public investment. As the degree of internationalisation of the economy during this period was relatively small and therefore the state's `degrees of freedom' in implementing a national economic policy were much more significant than today, the new state role was both feasible and desirable. To the extent, therefore, that the post-war investment boom was continuing, the budget deficits, which inevitably followed, did not create any further problems in the accumulation process. In fact, the period of the social-democratic consensus was associated with an unprecedented  boom. The social consensus relied on the explicit or implicit agreement between capital and trade unions, and/or the political parties representing their interests, aiming at the reproduction of the mixed economy, that is, of the economic system that expressed the social-democratic consensus. The consensus involved a state commitment to secure high levels of employment and a `social wage' (in terms of the services offered by the welfare state), in exchange for a trade union commitment to check workers' demands, so that the increase in real wages (increase in wages minus the rate of inflation), did not exceed the rise in productivity.

At the ideological/theoretical level, following the glorious post-war victory of Keynesianism (i.e., the social-democratic reformist trend within the orthodox economics profession) over the conservative neo-classical trend (i.e., the dominant economics paradigm during the earlier phase of the marketization process up to the war), the social-democratic consensus was firmly established among social scientists as well. The basis of the new orthodoxy, which covered both economic theory and economic policy, was state (macro-economic) control over the market in order to achieve the objectives of full employment, maximum economic growth and, to a certain extent, the redistribution of income in favour of weaker income groups.

The decline of the welfare state 

Although the welfare state reached its peak during the statist phase, the seeds of its decline were also sown during the same period. Thus, despite the expansion of statism at the national economic level, the marketization process at the international level (in the sense of gradual lifting of controls on the movement of commodities and later of capital), which was interrupted after the Great Depression and the explosion of protectionism that followed, was resumed. Thus, commercial rivalries between major capitalist nations and the consequent old nationalist rivalries, which characterised the first half of the twentieth century and led to two world wars, were swiftly overcome and replaced by a rapid expansion of trade (mainly between themselves). The post-war internationalisation of the market economy was actively encouraged by the advanced capitalist countries  in view in particular of the expansion of `actually existing socialism' and of the national liberation movements in the Third World. However, the internationalisation was basically the outcome of `objective' factors related to the dynamics of the market economy and, in particular, to the expansion of multinational corporations’ activity and the parallel growth of the Euro-dollar market.

So, the institutional arrangements adopted in the post-war period to liberalise the markets for commodities and capital, at the planetary level (GATT rounds of tariff reductions), at the regional level (the European Economic Community [EEC], European Free Trade Association [EFTA]) and at the national level (abolition of capital and exchange controls in the US and Britain in the 1970s etc.) mostly institutionalised rather than created the internationalised market economy. It was the market economy’s grow-or-die dynamic that created it. Growing internationalisation implied that the growth of the market economy relied increasingly on the expansion of the world market rather than on that of the domestic market, as before—a fact that had very significant implications with regard to the state's economic role. During the period of social-democratic consensus, economic growth rested mainly on the growth of domestic demand which accounted for almost 90 percent of total demand in advanced capitalist countries. In this framework, the state sector played an important part in controlling the size of the market through the manipulation of aggregate demand. The means used for this purpose were government spending and public investment, as well as the economic activity of nationalised enterprises. The necessary condition, however, for the economic system's efficient functioning was the relatively low degree of internationalisation, that is, a degree which was compatible with an institutional framework relatively protective of the domestic market for commodities, capital and labour. It was precisely the negation of this condition, as internationalisation of the market economy grew, that made the continuation of the social-democratic consensus impossible.

Under conditions of growing internationalisation, the size of the growth economy increasingly depends on supply conditions, which in turn determine trade performance, rather than on direct expansion of domestic demand. Supply conditions  play a growing role with respect to accumulation and economic growth, since it is international trade that determines the size of each national  growth economy, either positively (through an exports-led growth) or negatively (through an imports-led de-industrialisation). In other words, competitiveness, under conditions of free trade, becomes even more crucial, not only with respect to an increasingly export-led growth, but also with respect to import penetration that ultimately leads to domestic business closures and unemployment. To put it schematically, the market economy, as internationalisation grows, moves from a "domestic market-led" growth economy to a "trade-led"  one. In the framework of a trade-led growth, the prevailing conditions on the production side of the economy, in particular those relating to the cost of production, become crucial. Squeezing the cost of production, both in terms of labour cost and in terms of employers' taxes and insurance contributions, becomes very important. But squeezing the cost of production necessitated a drastic reduction in statism, since statism was responsible for a significant rise in the cost of production during the period of the social-democratic consensus, both directly and indirectly. Directly, because the expansion of the welfare state meant a growing burden on employers' contributions and taxes. Indirectly, because, under the conditions of near-full employment which prevailed during the statist phase of the marketization process, organised labour could press successfully for wage rises that exceeded significantly the increase in productivity. This became a particularly painful problem (for those controlling the market economy) in the period 1968-73, when a massive strike movement, effectively autonomous from the trade union bureaucratic leadership, led to a fast rise in wages and a corresponding encroachment of profits.

The cumulative effect of not letting the labour market-- free of state intervention-- determine the levels of wages and employment, as a market economy requires, was the crisis of the early 1970s. In other words, the crisis, contrary to the usually advanced view, was not mainly due to the oil crisis but to the fact that the degree of internationalisation of the market economy achieved by then was not compatible anymore with statism. This was  because

  1. the nation-state's effective control of the economy had become almost impossible in the framework of an  increasingly free movement of capital (and commodities) across borders. Although international trade openness increased significantly in the post-war period, the lack of financial openness allowed governments to follow independent economic policies. However, as soon as the development of euro-currency markets significantly reduced the effectiveness of controls on financial markets, multinational corporations saw their power to undermine those national economic policies which were incompatible with their own objectives effectively enhanced;

  2. the expansion of statism itself had certain built-in elements leading to inflation and/or a profitability squeeze, which, both, were particularly troublesome within the competitive framework that the internationalised market economy has created. Such an element was the rapid rise of state spending—to finance the expansion of the state's social and economic role—which in some cases was faster than the rise of state revenue leading to an inflationary financing of the resulting budget deficits.[22] An even more significant element was the fact that employers, in order to minimise the impact on profits due to ‘excessive' wage rises (i.e., wage rises exceeding the rises in productivity), successfully passed a significant part of the increased labour cost on to the consumers under the pretext of the oil crisis. However, the growing internationalisation of the economy and the intensified competition which followed it made the passing of ‘excessive’ wage rises on prices increasingly difficult. The result was that the profits squeeze mentioned above became even worse in the late 1970s.[23]

Therefore, the collapse of statism and the rise of neoliberalism we are going to discuss next have to be seen within the context of the growing internationalisation of the market economy, which has made statism increasingly incompatible with it. The economic crisis of the 1970s, which was exacerbated by the collapse of the Bretton Woods system and the return to the uncertainties of flexible currencies, led to the rise of the neoliberal movement.  In contrast to the Liberal Old Right that was founded on tradition, hierarchy and political philosophy, the Neo-Liberal New Right’s credo was based on blind belief in the market forces, individualism and economic "science"[24]. Individualism has taken on a new meaning, since its aim has now become the citizen's liberation from `dependence' on the welfare state. Thus, the liberatory demands of the 1960s for a society of self-determination were distorted by neoliberals and reformulated as a demand for self-determination through the market!

The neoliberal movement, which first emerged among the economists in academia (the Chicago School, resurrection of Hayek and so on) and later on spilled over among professional politicians, especially in the United Kingdom and the United States, represented a powerful attack against social-democratic statism. However, what is interesting is the fact that neoliberal theorists attacked not just statism but “excessive” democracy itself as the cause of the economic crisis, a sure indication of the incompatibility of the capitalist growth economy and democracy.[25] Thus, several neoliberal critics of the social-democratic consensus, including Samuel Huntington, Daniel Bell and J. M. Buchanan, blamed "excessive" democratic participation (i.e. the increasing influence of social controls over the market in the  early post-war period and the consequent rise of the welfare state), as  the main factor which has seriously undermined capitalist development[26]. For Huntigdon, the masses' mobilisation and the uncontrollable democratic participation has led to a huge increase in state expenditure and the chronic fiscal crisis which undermines economic development. For Daniel Bell, the welfare state has led to the expansion of an uncontrollable hedonistic consumerism which downgrades the protestant ethic of austerity, saving and hard work, on which the development of western capitalism was founded. Finally, for J. M. Buchanan, the political and state-bureaucratic elites, following a cost-benefit logic, keep expanding state provision  as this expansion implies higher rewards with respect to the more corrupt parts of these elites and more political influence  for the rest. No wonder that in a report to the Trilateral Commission (which had members from the three main economic regions, North America, Western Europe and Japan) Huntingdon et al argued that the “democratic surge” of the 1960s created an “excess of democracy” which had increased demands on government for services, weakened its authority and generated inflation.[27]

It is therefore obvious that the target of the neoliberal movement was the social controls on the market that had been introduced during the statist phase of the marketization process. Social-democratic statism, in the form of nationalisations, full employment policies and the welfare state, was always seen by the economic elites as undermining private capital's hegemony, through the creation of a tripartite system of economic power (the state, trade unions and capital).  Once therefore a combination of economic and political factors made it possible, the attack against the social-democratic consensus became inevitable. The main economic factor was, as we have seen above, the internationalisation of the economy which became incompatible with social-democratic statism. The political factors point to the decline of the Left, as a result of the expansion of the middle classes at the expense of the manual working class which marks the post-industrial era and the parallel collapse of "actually existing socialism”.

Thus, the internationalisation of the economy and the neoliberal policies  coincided with significant technological changes (information revolution) marking the move of the market economy to a post-industrial phase. The combined effect was a drastic change in the employment structure which reduced massively the size of the manual working class. For instance, in the `Group of 7' (minus Canada), the proportion of the active population employed in manufacturing fell by over a third between 1972-73 and 1992-93 (from an average of 31% in 1972-73 to 20% in 1992-93).[28] This fact had significant implications on the strength and significance of trade unions and social-democratic parties. Thus, in the US, trade unions have been decimated in just two decades, their membership falling from about 35 million to 15 million.[29] In Britain, 14 years of Thatcherism were enough to bring down trade union membership from 13.3 million in 1979 to under 9 million in 1993 and the proportion of union members (31 percent) to the lowest level  since 1946.[30] At the same time, in Britain again, the proportion of the active population in non-manual work increased from 12.8% in 1951 to 31.9% in 1978.[31] As a result of these trends, the structure of the British electorate changed drastically, with the proportion of the manual working class falling from a half to a third of the electorate within just 20 years (1964-83). [32]

As a result of these changes, a new class structure has emerged in advanced market economies.[33] The social groups constituting the new privileged minority are, basically, hostile to any expansion of statism and the welfare state and are increasingly attracted by the ideology of the private provision of services like health, education and pensions—although a significant part of this ‘attraction’ is forced by the neoliberal undermining of the state provision of these services. Their attitude towards statism and the welfare state is determined by the fact that public services and their financing by taxation have a disparate effect on the privileged minority and the underclass. In other words, it is the privileged minority which has to finance, through taxation, public services in which they are not interested anymore (because of the deterioration in their quality as a result of neoliberal policies). As the privileged minority is also the electoral majority (because they take an active part in the electoral process, whereas the underclass mostly do not bother to vote, frustrated by the inability of political parties to solve their problems), the electoral outcome in advanced capitalist countries is determined by the attitudes of the privileged minority/electoral majority.

The inevitable result of the above changes in the class structure and composition of the electorate has been the rapid decline of traditional social-democratic parties and, consequently,  their attempt to capture a significant part of the vote of the privileged minority by `modernising' themselves, according to the guidelines of the  neoliberal agenda.  So, in the last 15 years or so, all major social-democratic parties,  (Britain, Germany, France, Sweden, Spain, Greece) or in opposition (Germany, Britain)  have abandoned traditional social-democratic policies like the commitment to full employment and the welfare state  and  adopted, with minor variations, the essence of the neoliberal program (privatisations, liberation of markets and so on), in the name of  liberating the `civil society' from statism! To all this, they usually try to add a `social dimension'. The upshot of these changes at the political level has been the `Americanisation' of the political process all over the advanced capitalist world. In place of the traditional contest between, on the one hand, social-democratic parties supporting the case for further expansion of the state's role and, on the other, conservative parties praising the advantages of the market economy and attempting to slow down statism, electoral contests have now become beauty contests between the leaders of bureaucratic parties, characterised by minimal programmatic differences and a common objective: state-craft, that is, the management of power. A neoliberal consensus has swept over the advanced capitalist world and has replaced the social-democratic consensus of the early post-war period.

 Apart from the political implications, the neoliberal consensus has very important implications at the social, ideological, cultural and, of course, the economic level. The main economic policies proposed by neoliberals and subsequently implemented first by the Thatcher/Reagan administrations and later by governments all over the world have been the liberalisation of markets (particularly the labour market), the privatisation of state enterprises, the redistribution of taxes in favour of high income groups and, last but not least, the reduction of the welfare state into a safety net and the parallel encouragement of the private sector's expansion into social services (health, education, pension schemes and so on). The effect of the latter has been not only the marketization of sectors of the economy that used to be under state control, but also a further reduction of the `social wage' –a fact, which makes labour even more `flexible' to market conditions. No wonder that as a result of these policies, profitability, which had slumped at the end of the statist period, has been almost restored to the levels achieved at the peak of the post-war boom.[34]

So,  the new consensus does not imply that the state has no more economic role to play. One should not confuse liberalism/neoliberalism with laissez-faire. As I mentioned above, it was the state itself that created the system of self-regulating markets. Furthermore, some form of state intervention has always been necessary for the smooth functioning of the market economy system. The state is called today to play a crucial role with respect to the supply-side of the economy and, in particular, to take measures to improve competitiveness, to train the working force to the requirements of the new technology, even to subsidise export industries.

Similarly, at the ideological level, the neoliberal consensus is dominant. The conservative liberal tradition in the social sciences, particularly in economics, has now become the orthodoxy again—after a brief historical interval when the Keynesian statist ideas were prevalent. Social scientists have adopted en masse the liberal `market paradigm' whereas most ex-Marxists, after the collapse of actually existing socialism, have adopted various forms of `social-liberalism', which are fully compatible with the neoliberal consensus. Equally compatible with the neoliberal consensus is the post-modernist movement which, by assigning equal value to all traditions of social organisation, ends up with a general retreat to conformism and an implicit (if not explicit) acceptance of the marketization of society.

With hindsight, it is therefore obvious that Polanyi was wrong in thinking that the rise of statism in the thirties was evidence of the utopian character of the self-regulating market and of the existence of an “underlying social process”[35] which leads societies to take control of their market economies. In fact, statism proved to be a relatively brief interlude in the marketization process. In this sense, statism was a transitional phenomenon related to the failure of the first attempt to create a system based on an internationalised self-regulating  market economy. This failure  was due not to the supposedly utopian character of the marketization of society, as Polanyi thought, but rather to the fact that the objective conditions for the completion of this process had not as yet been created during the first phase of marketization, in the nineteenth century.

But, today, the four institutions on which, according to Polanyi, the first attempt for a social system based on a self-regulating market relied, are being restored. Thus,

  • the self-regulating market, which at the beginning of the century disintegrated (for the reasons we examined above), leading to the collapse of the first attempt for a system based on an internationalised market economy, is today more advanced than ever before in History. This is because of the present degree of freedom that capital and commodity markets enjoy, the retreat of statism everywhere and the universal enhancement of flexible markets for commodities, labour and capital. In other words, this is the outcome of the present degree of marketization of the economy, in the sense of phasing out all those social controls over markets which are not compatible with the interests of those controlling the economy;

  • the balance-of-power system, which collapsed during the statist phase, is today being re-established, within the framework of a United Nations controlled by the major capitalist countries and the Latin Americanisation of Russia which gave the USA an exclusive superpower status;

  •  the liberal state, a creation of the self-regulating market, which, during the statist phase of marketization, also collapsed in many parts of the world, both in the North and in the South, is presently omnipresent; and, finally,

  • the international Gold Standard, which could not survive the undermining of the self-regulated market, is today in the process of being restored and a version of it might reasonably be expected to be in place early in the next century. Thus, the projected establishment, within the next few years, of a kind of European gold standard mechanism, in the form of a common currency, the Euro, might be expected to induce, initially, movements for the establishment of some kind of fixed parities between the three major international currencies (Euro, US dollar and yen), which, at the end, would logically result in some sort of an international version of the Gold Standard system, i.e. a global monetary system and possibly a single currency in a new interlinked economic space which would unify the advanced market economies of the world.

In concluding, it is obvious that the rise of neoliberalism is not a conjunctural phenomenon, as social democrats present it, but that it represents the completion of the marketization process that was interrupted by the rise of statism. Furthermore, the breakdown of `actually existing socialism' in the East and the collapse of social democracy in the West—as a result, mainly, of the shrinking of its electoral clientele—have created the political conditions for the completion of the marketization process. So, the fact that neoliberal policies are supported today by both conservative and social-democratic parties, in government or in opposition, and that the basic elements of neoliberalism have been incorporated into the strategies of the international institutions which control the world economy (IMF, World Bank),as well as in the treaties that have recently reformed the EU (Single Market Act,  Maastricht Treaty, Treaty of Amsterdam), makes it plainly evident that we are faced with a new consensus founded on the neoliberal phase of marketization. This is a consensus that has replaced the defunct social-democratic consensus and which reflects the radical structural changes brought about by the development of the internationalised market economy.

Is there a future for the welfare state? 

A common view supported by socialdemocrat intellectuals today is that  there is no neoliberal consensus, that the present policies implemented by all social democratic parties in power do not represent the outcome of structural changes, like the ones described above, and that globalisation itself is nonexistent. Paul Hirst and Grahame Thompson,[36] for instance, competently put the  case for the continuing significance of the nation-state in the framework of the neoliberal internationalised market economy. Although the authors’ explicit aim is to attack the globalisation thesis, usually put forward by the nationalist Right, their study represents in effect an argument in favour of the sort of strategy and policies suggested today by the ‘civil societarian Left’.

The study by Hirst and Thompson, starting from an a-historical analysis of the present world economy, assumes that the present neoliberal internationalised economy is a conjunctural phenomenon rather than a structural change[37] and attempts to discard the thesis of “globalisers” that the market economy today is not governable. However, the fact that the market economy is governable, in the narrow sense of regulation, is  obvious to everybody --apart perhaps from some extreme “globalisers”. The marketization thesis advanced in this article, anyway, does not imply the elimination of the regulatory role of the state, let alone its physical disappearance at the political level. What it does imply is the loss of the state’s economic sovereignty in the past quarter of a century or so. In fact, the authors themselves admit this when they christen as ‘radical’ even the objective of full employment in the advanced countries[38], despite the fact that this used to be the main objective of social democracy throughout the period of the social-democratic consensus. It is therefore clear that when the authors argue that “far from the nation-state being undermined by the processes of internationalisation, these processes strengthen the importance of the nation state in many ways”,[39] what they have in mind is not the social controls in a narrow sense, not even the social controls in the broad sense, but, mainly, what we called regulatory controls[40] .

So, the real issue is whether nation-states are still capable, in an internationalised market economy, of imposing effective social controls to protect man and nature, or whether instead  such controls are not feasible anymore either at the level of the nation-state or even at the level of the economic block (EU or NAFTA). If one accepts the non-feasibility thesis, then the possibility for such controls exists only at the global level. But, this is just a theoretical possibility which ignores the historical dynamic of the market economy and the resulting political and economic power structures. It is noteworthy that even when the authors refer to the possibility of a “new polycentric version of the mixed economy” for the achievement of “ambitious” goals (like “promoting employment”) the only condition they mention for this is “a highly co-ordinated policy on the part of the members of the Triad” (European Union, NAFTA, Japan).[41] However, what the authors do not explain is why the elites controlling the Triad will embark on policies to create a new global mixed economy. In fact, the only argument they produce to support this case is the old underconsumptionist thesis, namely, that the reproduction of the growth economy is not viable in the framework of high inequality, which inevitably leads to low demand.[42] Thus, the fact that as long as the privileged social strata expand their consumption, there is no problem for the growth economy to reproduce itself—as it has done in the past—is obviously ignored by the authors . Furthermore, the issue of whether a mixed economy is possible at all today is ignored by the authors who presumably feel that all is a matter of persuading the elites of the Triad (through some form of pressure ‘from below’) to adopt it!

At this point, it would be useful to distinguish between internationalisation and globalisation. Internationalisation refers to the case where markets become internationalised and, as a result, the economic policies of national governments and  the reproduction of the growth economy itself are conditioned by the movement of commodities and capital across frontiers. On the other hand, globalisation refers to the case where production itself becomes internationalised, in the sense that production units become stateless bodies operating in a borderless world with activities not primarily aiming at the country which is their national base and involving an integrated internal division of labour spanning many countries. Our thesis is  that although globalisation in the above sense is limited this does not contradict the argument that the accelerating internationalisation, in combination with the end of statism, does represent a structural change -as it was argued above- rather than just a conjunctural phenomenon.

It should therefore be clear that  internationalisation, as interpreted in this article, does not presuppose a “genuine” global economy, nor the absence of the Triad. Instead, the economic significance of the Triad is explicitly acknowledged and the present degree of openness implies that social controls on the market economies of the Triad itself have to be homogenised. Since this homogenisation, in a competitive framework, is based on the principle of the  ‘least common denominator” and given the present disparity of social controls in the Triad countries, any idea that the introduction of effective social controls (initiated by the state or the “civil society”) is still feasible becomes nonsensical.

The main objective of the elites which control today’s market economy is, at it has always been, to maximise the role of the market and minimise social controls over it, so that maximum `efficiency' and growth may be secured. Therefore, social controls in the narrow sense are universally phased out. The same applies to some significant social controls (broad sense) like import controls, tariffs etc. which are also ruled out as hampering the expansion of the present internationalised market economy. Still, this does not mean the elimination of all controls over the markets. Not only “regulatory” controls remain in place and in some cases are expanded but even some social controls are not eliminated. Examples of social controls (broad sense) over today’s markets  are the various “new protectionist” non-tariff barriers (NTBs), such as export restraints and orderly marketing arrangements, especially in steel, textiles and automobiles, which are implemented by many industrial sectors in advanced capitalist countries.[43] In fact, the various financial measures taken by the advanced capitalist countries (usually to subsidise their exports), have deprived the South of half a trillion US dollars a year, according to UN data.[44] Also, as regards social controls in the narrow sense, although the welfare state is left to basically decay, various “safety nets” are kept in place  in advanced capitalist countries, to check massive social unrest. However, the safety nets, which target specific categories of people (very poor etc), not only imply the elimination of the basic characteristic of the welfare state, its universality,  but, also, the institutionalisation of poverty.

So, the present neoliberal form of the internationalised market economy may be seen as completing the cycle which started in the last century when a liberal version of it was attempted. Thus, after the collapse of the first attempt to introduce a self-regulating economic system, a new synthesis is attempted today. The new synthesis aims to avoid the extremes of pure liberalism, by combining essentially self-regulating markets with various types of safety nets and  controls, which secure the position of the privileged social groups, as well as the mere survival of the “under-class”, without affecting the self-regulation process in its essentials. Therefore, the nation-state still has a significant role to play not only in securing, through its monopoly of violence, the market economy framework but also in maintaining the infra-structure for the smooth functioning of the neoliberal economy. 

The abandonment of the state’s commitment to full employment and the subsequent rise in unemployment and poverty, as well as the crippling of the welfare state, have led to the present, sometimes called ‘two-thirds’ society’, which has taken the place of the `single-nation’ society. Today’s social-democratic parties, rather than attempting to bring about drastic changes in the neoliberal market economy presently being established, changed their ideology instead. As these parties therefore bear almost no relation at all to the traditional social-democratic parties of the 1950-1975 period, they should more accurately be called `social liberal’ rather than  social-democratic parties. In fact, the  collapse of social democracy in the last decade or so has taken such dimensions that an old member of the “New” Left in  desperation asked:

Once, in the founding years of the Second International, it was dedicated to the overthrow of capitalism. Then, it pursued partial reforms as gradual steps towards socialism. Finally, it settled for welfare and full employment within capitalism. If it now accepts a scaling down of one and giving up of the other, what kind of movement will it change into?[45] 

So, under the structural constraints that the present internationalisation of the market economy imposes and the electoral considerations prescribed by the change in class structure we saw above, the policies of social liberals are now hardly discernible from those of pure neoliberals. The same story repeats itself everywhere. From Australia, where the Labour party had earnestly implemented privatisation policies and taken drastic steps to cut budget deficits, to Sweden, where the social democrats, even before losing power in 1991, had embarked on a policy leading to the effective dismantlement of the employment system and the welfare state, which were the envy of social democrats around the world. Similarly in Norway “the single most important goal of Labour’s strategy, full employment, has been abandoned.”[46]

The theoretical case in favour of social liberalism rests on an assortment of arguments according to which the present internationalised market economy is not necessarily incompatible with a ‘re-defined’ social democracy.  Some[47] argue that the nation-state may still play an important role, not only in controlling the activities of nationally-based multinational corporations, but also—in co-operation with other governments in the Triad—in controlling international markets. Others,[48] having abandoned the outdated Marxist class analysis, throw away the baby with the bath water and claim that today we live in a society of equality no longer characterised by vertical structures –a society in which the government itself constitutes just one more organised social group, pursuing its own narrowly partisan interests! Still others, taking for granted the institutional framework set up by neoliberalism in the past decade (that is, the drastic enhancement of the market forces and competition, at the expense of social control on the economy), advance positions that hardly differ, in their essence, from the pure neoliberal positions. For instance, they reject the need to socialise the means of production  (the British Labour party in 1995 erased from its constitution the long standing commitment for the socialisation of the means of production), despite the fact that socialisation has historically constituted a fundamental of socialism. Thus, a social democrat sociology professor at the London School of Economics argues that “what is of primary importance, is not the form of ownership, but the quality of control exercised by the state ... that could ensure both quality of services and low prices.”[49] In this way, an obvious attempt is being made to evade the basic fact that no form of state control is possible today, no matter how `sophisticated’, if it is in conflict with the fundamental principles of the market economy and the dynamics of competition.

Finally, social liberals repudiate the universal character of the welfare state, blaming universality (the principle that social services are offered to every citizen irrespective of income and need) for the system’s crisis.[50] Indeed, in their effort to support the case against universality, they do not even hesitate to invoke social justice, arguing that the universal system accentuates social inequalities because the middle classes are in a better position than the financially weaker—who are in real need—to benefit from social services (in education, health, insurance, etcetera). According to the same view, the inequality of the system is further enhanced by the fact that the more affluent have many means at their disposal in order to evade direct taxation, through which these services are, mainly, financed.

However, though it is true that tax evasion flourishes among the affluent, this does not mean that there are no ways to tax them, on the basis not so much of their income—which is indeed easily concealed—but of their luxury consumption and property. Also, in regard to the argument that the middle classes can better claim social benefits, this constitutes the precise reason for which the abolition of the welfare state’s universality would lead to a kind of charity `safety net’ for the destitute—exactly as was the case in turn of the century Europe. Thus, the various indirect ways proposed to abolish universality, (which, typically, would force the affluent classes to return—usually through taxation—the value of the social services rendered them by the state), would merely provide an additional incentive for the privileged “contended electoral majority” to withdraw from the social coverage of their basic needs, in favour of private coverage and to push professional politicians into further downgrading the quality of social services. It is therefore obvious that a system, such as the one proposed by the European social liberals, would easily end up resembling the American health and education system, which, with its extreme polarisation between the high quality services provided by the private sector as compared to the misery of the state sector’s services, must be the most socially unjust system in the Western world. The only way in which the abolition of universality would not lead to such an outcome would be the parallel elimination of the private sector in the provision of social services—which is, of course, inconceivable in today’s neoliberal market economy.

It is, therefore, obvious that the myth of the explosion in social expenditures is nurtured for other reasons and not because of the supposed financial crisis of the system, due to demographic or similar reasons. In Denmark, many hospitals have already established an age limit for admission (the present limit is 70), not because the proportion of elderly people in the population has increased, but because, in the framework of the neoliberal consensus, the number of hospital beds has been reduced by 25 percent in the past 10 years.[51] Similarly, in Britain, it was recently revealed[52] that many hospitals have reduced the age limit for treatment of several diseases to 65! Therefore, the real reason for the savage cut in social expenditure is that, in the framework of an internationalised market economy, the higher a country’s `social wage’ the lower its competitiveness. For EU countries in particular, in which the social wage has traditionally been—and still is—considerably higher than in the competitor  countries of North America, the Far East, the problem has already become critical.

Universality, of course, does not eliminate inequalities, which are the main by-product of the market economy itself. However, within the present institutional framework (which is taken for granted by social liberals), universality helps to prevent the creation of a dual system, that is, a system in which the needs of a large portion (if not the majority) of the population are under-covered by a `safety net’, whereas the needs of the rest are over-covered by the private sector.

Still, from a radical perspective, the real choice is not between a neoliberal system that directly abolishes universality and a social liberal system that indirectly achieves the same aim: both systems enhance the citizens’ dependence on the state and/or the market in covering their basic needs. The real choice is between a system of social services that enhances this dependence and an alternative system that would strengthen the citizen’s self-reliance and assign the system’s control to the citizens themselves, through their communities .

In concluding this section, the fate of the welfare state was sealed once the growing internationalisation and openness of the market economy became incompatible with a proper welfare state. The rise of the neo(social) liberal consensus simply institutionalised this systemic change. But, if the welfare state is not feasible anymore and, for several reasons, not desirable either,[53] the question that arises today is what are the alternatives? This is the issue we will try to address in the next section.

2. Welfare State or Economic Democracy? 

In the last section I attempted to show that within the present institutional framework of the internationalised market economy any form of statism involving effective social controls (in the narrow sense) on markets, in order to protect labour or the environment, are not feasible anymore. As long as markets are liberated and deregulated, so that the international movement of capital and commodities is not hampered, any idea about imposing such controls in a single country, or even an entire continent (e.g. Europe), is ruled out. This is what is dictated to the ruling elites by the requirements of competition and the need to secure better competitiveness over competitor elites, who might have fewer scruples about the matter, due, for instance, to a lower pressure from below as a result of a weaker socialist tradition (USA, Japan). Furthermore, any attempt to introduce such controls at the international level would be fruitless as it would be in complete violation of the logic and the dynamic of the internationalised market economy—a fact which is made obvious by the policies of such institutions as the World Trade Organisation.

In the light of this, proposals for the creation of a ‘post-modern’ welfare state which will transcend the dependency culture, like those made by mainstream Greens,[54] are, to my mind, utopian. However, even if we assume that the institutional arrangements proposed by such schemes were feasible, the question still remains whether they would be desirable.

Welfare, social liberals and mainstream Greens   

James Robertson, writing in the heyday of neoliberalism in Britain (1980), asked the question ‘what comes after the welfare state?’ while,at the same time, he stressed that raising the question itself ‘implies that we cannot develop the Welfare State further on lines envisaged by the hyper expansionists, and equally that we cannot go back to the old pre-welfare days of early industrial society’.[55] He then went on to suggest that what is required is to seek ways forward into a truly post-industrial future in which people will be better able, and better enabled, to create welfare for themselves and one another through the revitalisation of the informal sector and of local control over economic, social as well as political, affairs, and through the enhancement of self-reliance at the community and the individual level.

The fact that similar proposals, derived out of the  same rationale (i.e. to end the ‘dependency culture’, namely the culture of dependence on the state for the provision of welfare) were later made by such diverse quarters as social-liberals (Tony Blair’s ‘new’ Labour party) and anarchists[56]  is not accidental. As we have seen in the last section, the collapse of statism meant that the dominant social paradigm in advanced market economies is presently one that propagates the need for the effective dismantlement of the welfare state and its replacement by the empowerment of the individual. However, as long as the objective to end the culture of dependence is proposed to be achieved within the market framework, (through the parallel enhancement of the market economy, which implies the creation of ‘genuinely free’ markets), it inevitably functions as part of the ideology of marketization. Therefore, what characterises the objective of empowering the citizen, through the end of the dependency culture, as a genuine or a phoney objective is the underlying assumption about the institutional framework. If the underlying assumption is one of enhancing the market economy, as social liberals do, then it is a phoney objective. If on the other hand, the empowerment objective is proposed to be achieved in the framework of a comprehensive political program aiming at the gradual phasing out of the market economy, through the creation of a new economic sphere that grows in tension and ultimately in a decisive conflict with the market economy, then it is a genuine objective for a liberatory society and real citizen empowerment.

In this context, it should be noted that whereas libertarians, who criticise the dependency culture enhanced by the welfare state, are clear about the fact that the attempt to free welfare from the State cannot be left to the free market,[57] unfortunately, this is not the case with mainstream Greens, who not only do not raise the issue of eventually replacing the market economy by one truly controlled by citizens but adopt the social liberal argument for enhancing the market. James Robertson, for instance, argues in favour of ‘genuinely’ free markets for land, labour and capital:[58]

But once the exceptional war-time and post-war ‘40s and ‘50s were over, it became clear that the Keynesian approach kept up employment only at the expense of inflation. Monopolistic inflexibility in the labour market is now understood as having been part of the problem…Unfortunately, failure to remove similar conditions in the markets for land and capital has meant that the land and capital  needed to put the available supply of labour to productive use has not been forthcoming…There must be genuinely free markets for all three. And to create genuinely free markets for them—which will also be socially fair and environmentally efficient (for example conserving) –requires a framework of public regulation and finance, including tax and benefit systems designed to liberate the work  and enterprise of which all citizens are capable, to make available to them an equal share of the values created by nature and society as a whole, and to allow them access to the capital their work and enterprise can attract in financial markets not distorted by monopolistic power. Only in such genuinely free markets in land, labour and capital will it be possible to harness the private gain of each to the common good of all.    

It is obvious from the analysis in the last section that  mainstream Greens and social liberals are right in arguing that market inflexibilities are the main cause of several economic problems (‘inefficiency’, stagflation e.t.c.). In other words, as it was argued above, it is true that –within the institutional framework of the market economy--maximisation of ‘efficiency’ and profitability does require maximum marketization, i.e. minimisation of social controls on markets so that they are as flexible as possible. But, this does not mean that free markets can secure any effective protection to labour or the environment. They never did, even when they were less ‘inflexible’ than in the 1950s and the 1960s, as for instance during the liberal phase of marketization we considered in the last section. Nor does it mean that a regulation system securing such protection is feasible. In fact, social democracy was exactly an attempt to regulate markets in order to protect labour. The ‘inflexibilities’ of the labour market, which are blamed today by social liberals and mainstream Greens alike for the economic problems they created, are, in fact, the outcome of the social democratic attempts to secure a high level of employment and a decent ‘social wage’. But, if sucht attempts were relatively successful for a brief period of time, this was only because of the fact that the degree of internationalisation of the market economy during that period was such that the dynamic of expansion of the market economy was compatible with those social democratic aims. Today, such aims are completely incompatible with the present internationalised market economy and its dynamic.

Furthermore, I would not agree with the argument of mainstream Greens that it is just the ‘enclosure’, in the sense of the monopolisation of profits by a privileged minority of people/ businesses/nations ‘of the profits and incomes generated out of the natural values of land, energy, and other common resources’ which  has shaped local, national and global economic development. Nor would I agree with a similar argument put forward by Chomsky that what is wrong with the system of the market economy is its corporatization. Enclosure alone cannot explain the present huge concentration of income and wealth. In other words, enclosure was only the necessary condition for inequality and exploitation. The sufficient condition was surely the establishment of  the market system, as was  described by Polanyi. It was the emergence of the system of the market economy which allowed enclosure to lead to a self-feeding process of continuous expansion and concentration of economic power, the outcome of which has been the present economic and ecological crisis.

Similarly, as I pointed out elsewhere[59] the problem is not the corporatization of the market economy which, supposedly, represents ‘an attack on markets and democracy’.[60] Corporatization and concentration of oligopolistic power was unavoidable,  given the grow-or-die dynamic of the market economy -- as it can be shown by both orthodox and Marxist theory. In other words, the problem is not corporate market economy/capitalism, as if some other kind of market economy/capitalism was feasible or desirable, but the market economy/capitalism itself. The shift from proprietary (or entrepreneurial) capitalism to the present internationalised market economy, where a few giant corporations control the world economy, was not an act of God but the outcome of market competition, which creates the constant need for expansion, so that the best (from the point of view of profits) technologies and methods of organising production (economies of scale etc) are used. It is the same market competition, which has led to the present explosion of mergers and take-overs in the advanced capitalist countries, as well as to the various ‘strategic alliances’

Furthermore, as we have seen in the last section, the present internationalisation of the market economy is not just the result of state action to liberalise financial and commodity markets. In fact, the states were following the de facto internationalisation of the market economy, which was intensified by the activities of multinationals, when, (in the late seventies), under pressure from the latter, started the process of liberalising the financial markets and further deregulating the commodity markets (through the GATT rounds). Therefore, the present internationalisation is in fact the outcome of the dynamics of the market economy, a dynamics that is initiated by competition. It is also the same internationalisation of the market economy, which became incompatible with the degree of state control of the economy achieved by the mid seventies, that made necessary the present neoliberal consensus. Therefore, strategic alliances, mergers and take-overs do not represent a movement away from the market economy, as it is wrongly suggested,  but a movement towards a new form of it. Away from a market economy, which was geared by the internal market and towards a market economy, which is geared by the world market. This means further and further concentration of economic power not only in terms of incomes and wealth but also in terms of concentration of the power to control world output, trade and investment in fewer and fewer hands

So, a transitional strategy like the one adopted by mainstream Greens is dif]>  Le Monde (8 Feb. 1994).
BBC, April 1994.
[53] See, for instance, Steve Millett, ‘Neither State nor Market: An Anarchist Perspective on Social Welfare’ in Twenty-First Century Anarchism, ed. By Jon Purkis and James Bowen, (London: Cassell, 1997), pp.24-40
[54] See e.g. James Robertson, Beyond the dependency culture: People, Power and Responsibility, (Twickenham, 1998) ;see also, ‘Institutional Restructuring and the Liberatory Transition:Taxation and Welfare as a Case Study’, Democracy & Nature, vol 3 no 3, pp. 1-20
[55]James Robertson, Beyond the dependency culture, p. 75
[56] Steve Millett, ‘Neither State nor Market’, p.38
[57] Steve Millett, ‘Neither State nor Market’, p. 38
[58] James Robertson,  ‘Institutional Restructuring and the Liberatory Transition:Taxation and Welfare as a Case Study’, Democracy & Nature, pp. 17-18
[59] See T. Fotopoulos, ‘Mass Media, Culture and Democracy’, Democracy & Nature, vol 5 no 1 (March 1999) pp. 37-43
[60] Noam Chomsky,‘Domestic Constituencies’, Z Magazine, May 1998
[61] See, for example, James Robertson,  ‘Institutional Restructuring and the Liberatory Transition’ and P. Ekins, ‘The future of the World Trade Organisation: Proposals for Fair and Environmentally Sustainable Trade’ in Democracy & Nature, vol 3 no 3 (1997)
Karl Marx, Critique of the Gotha Programme (Moscow: Progress Publishers, 1966), p. 16.
Karl Hess, “Rights and Reality” in Renewing the Earth: The Promise of Social Ecology, John Clark, ed. (London: Greenprint, 1990), pp. 130-33.
[64]  See Will Hutton, The State We’re In (London: Jonathan Cape, 1995).
[65] See Takis Fotopoulos, Towards An Inclusive Democracy, ch 6
Janet Biehl, Rethinking Ecofeminist Politics (Boston: South End Press, 1991), p. 140.
Ted Trainer, Abandon Affluence! (London: Zed Books, 1985).
Pat Brewer, Feminism and Socialism: Putting the Pieces Together (Sydney: New Course, 1992).
[69] Val Plumwood, "Feminism, Privacy and Radical Democracy", Anarchist Studies, Vol. 3, No. 2. (Autumn 1995), p. 107.
[70] Val Plumwood, "Feminism, Privacy and Radical Democracy", p. 111.
[71] See Takis Fotopoulos, Towards An Inclusive Democracy, ch 6
[72] Steve Millett, ‘Neither State nor Market’, p. 37
Peter Marshall, Nature's Web, an Exploration of Ecological Thinking (London: Simon & Schuster, 1992).
[74] See M. Bookchin, Social Anarchism or Lifestyle anarchism, AK Press, 1995
See, for instance, David Pepper, Eco-Socialism: From Deep Ecology to Social Justice (London: Routledge, 1993), p. 199.
[76] For a graphic description of the recruitment of private guards from the underclass to “deal” with the green activists protesting against the partial destruction of a forest so that  the Newbury bypass could be constructed in Britain, see John Vidal, The Guardian (25 Jan. 1996).
[77] See Takis Fotopoulos, Towards An Inclusive Democracy, ch 7; see, also, ‘Mass Media, Culture and Democracy’ pp.62-64