This is the
pre-copy-editing text of the article appearing as: "Small States in Big
Trouble: The Politics of State Reorganization in Australia, Denmark, New
Zealand and Sweden in the 1980s," World Politics 46:4, July 1994,
pp. 527-555
If you do read this or print a copy, please send me an e-mail: hms2f@virginia.edu, telling me the title
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Small States in Big Trouble:
State Reorganization in Australia,
Denmark, New Zealand, and Sweden in the 1980s
Herman Schwartz
Government and Foreign Affairs
PO BOX 400787
University of Virginia
Charlottesville VA 22904-4787
434 924 7818 (x3359 fax)
hms2f@virginia.edu
http://www.people.virginia.edu/~hms2f
ABSTRACT
In Australia, Denmark, New Zealand and Sweden in the 1980s, coalitions of
politicians, fiscal bureaucrats, and capital and labor in sectors exposed to
international competition allied to transform the largest single non-tradables
sector in their society: the state, particularly the welfare state. They
exposed state personnel and agencies to market pressures and competition to
reduce the cost of welfare and other state services. The impetus for change
came rising foreign public and private debt. Rising public debt levels and
expensive welfare states interacted to create a tax wedge between employer's
wage costs and workers' received wages. This undercut international
competitiveness, worsening current account deficits and leading to more foreign
debt accumulation. Two factors explain variation in the degree of
reorganization in each country: differences in their electoral and
constitutional regimes; and left parties' willingness to risk splits between
their core constituencies. Introduction of market pressures is an effort to go
beyond the liberalization of the economy common in industrial countries during
the 1980s, and both to institutionalize limits to welfare spending and change
the nature of state-society relations away from corporatist forms of interest
intermediation. In short, not just less state, but a different state.
Author's Note:
I would like to thank Erik Alb‘k, Francis Castles, Hugh Compston, Glyn Davis, Brian Easton, John Echeverri-Gent, Christine Ingebritsen, Jytte Klausen, Paulette Kurzer, Matthew Palmer, Peter Swenson, John Uhr and the reviewers for comment and criticism. This research was partly funded by a National Endowment for the Humanities fellowship, a Fulbright fellowship at the Institut for Statskundskab at Aarhus University, and University of Virginia Summer Humanities fellowships. An earlier version was presented at the annual meeting of the American Political Science Association, Chicago, September 1992. All errors remain mine.
Increased internationalization of production and especially financial flows since 1973 has created pressures to change relations between state, society and economy in advanced industrial countries. This has been most evident in the erosion of states' ability to manage their economies, an erosion which states accelerated through market liberalization.(1) While liberalization accelerated erosion of states' control over the market it also partly freed them from political responsibility for some market outcomes. But aside from a few analyses of Britain -- which is usually seen as 'exceptional' -- few have argued that international market pressures are causing not simply a shift towards 'less state,' but also a shift towards a different kind of state or regime.(2) Put a different way, most analyses argue that changes in the global economy have affected only states' ability to govern the (domestic) economy. Few have made "second image reversed" arguments that these external changes are leading to changes in regime.(3)
This more profound shift towards a new kind of regime was most visible in the 1980s in Britain, where it is associated with Thatcher and 'thatcherism.' Thatcher embarked on an ambitious project to restructure British politics permanently by restructuring the institutional fabric of the state. Thatcherism is usually seen as an 'exceptional' case. But the association of changes going beyond economic liberalization with thatcherism has tended to obscure the fact that equally -- or more -- sweeping changes have occurred in four small market economies governed or influenced by left parties in the 1980s: Australia, Denmark, New Zealand, and Sweden.(4) 'Fellow traveling' by right dominated states would not be surprising in the 1980s. What is surprising is that these left dominated governments went farther, in many cases, than right wing governments, and that the very states thought to exemplify social democratic political hegemony, Sweden and Denmark, were the locus of far reaching changes. Similarly these states have reorganized major parts of their welfare state rather than simply retrenching or reducing transfer payments. The scale and significance of on-going change makes these four worthy of study.(5)
First, change has occurred in precisely that part of the state in which institutional reorganization is thought to be difficult, if not impossible: the welfare state. Public choice and collective action theories suggest that the dense networks of interest groups built up in and around discrete parts of the welfare state, along with the broad public support universal welfare provision generates, would make welfare state reorganization impossible. Analysts like Esping-Andersen advocated universal welfare provision precisely because of its seeming irreversibility.(6) And indeed, other analysts of changes in the 1980s found the welfare state to be the least affected.(7) Events in these four countries suggest that welfare state institutions can be reorganized in fundamental ways.
Second, the kind of change that is occurring in these four countries is interesting because of its theoretical and practical implications. While reorganizers in all four states encountered varying degrees of resistance and have had varying degrees of success, they all sought the same kinds of change. In each country reorganizers have decentralized operational authority and responsibility for outcomes to line agencies while centralizing control over the volume of spending. They have brought market and market-like pressures to bear on the administrators and personnel of state agencies so that competitive pressures will impel a search for efficiency. In other words rather than privatizing in the sense of 'selling off' national industries, reorganizers have privatized the welfare state by creating markets for the provision of welfare state goods and services.
Complementing this, reorganizers have tried to engage consumers of state services in the production of those services by offering them more freedom in the choice of services and service providers; they have also hit consumers with user fees. Rather than using 'simple' spending cuts and unwieldy regulation to control the behavior of state personnel and consumers, reorganizers are trying to control behavior by reconfiguring the structure of incentives confronting employees and managers inside agencies and consumers outside them. These organizational changes mirror the kind of reorganization occurring in the private sector during the 1980s (and continuing in the 1990s). This uniformity of intention and at least partly of outcome suggests that these changes are part of a more general trend in the advanced industrial countries.
In turn, these changes have a third interesting aspect. Reorganizers are engaged in a strategic kind of politics that attempts to change the rules of the game rather than just seeking their preferred outcome in the context of extant rules. These administrative changes are part of a broader effort to create more autonomy for the central state by breaking up the broad social base of support for the welfare state which characterized, for example, Scandinavian politics during the period of social democratic dominance.(8) Pace Woodrow Wilson's distinction between politics and administration, administrative changes are political exercises; in this case administrative changes have far reaching consequences.
Analysts as diverse as Poulantzas, Moe, and March and Olson argue that politics at its highest level is about building one's own interests into institutions while precluding institutional behaviors and structures that favor one's opponents.(9) Although these analysts come from profoundly different theoretical perspectives, all of them attack the (Mancur) Olsonian reduction of politics to autonomous individual utility calculations. Instead, they see institutional rules, norms and structures as binding individuals into groups and groups into coalitions, helping to overcome the barriers to collective action. Conversely, institutions can fragment groups by exacerbating barriers to collective action.
In our particular cases reorganizers pushed institutional changes which enhance central state autonomy. Decentralizing operational authority forces local agencies and localities to use their new operational autonomy to prioritize activities within a global budget constraint. This disperses political conflict away from central government and into localities, where small groups will fight over their particular interests.(10) It increases central state autonomy by removing pressures to increase spending on broad problems with broad constituencies, and by shifting responsibility for failure onto local government and specific service providers. Crudely, if the current system of quasi- monopoly provision of state services encouraged the use of voice by making exit difficult, the new system is intended to encourage consumers to exit from specific providers in order to prevent them from using voice on the central state.
Finally, these political consequences are interesting because the small size and relative vulnerability to world markets of these four countries makes them a kind of 'leading indicator' of changes likely to occur later in relatively more sheltered economies.(11) During the 1970s all four experienced declining international competitiveness and rising fiscal deficits which cumulated into substantial foreign and public debts by the early 1980s. As in Britain -- the weakest of the major economies -- reorganization of the state began in the 1980s. The larger economies' size cushioned them from the stresses of the 1980s, but their trade ratios are growing, and the structural component of their fiscal deficits has increased significantly in the last five years. As their situation comes more and more to resemble that of the smaller countries, it is probable that the same kind of political pressures for change will emerge.(12)
This paper has four sections. The first section discusses the motives of those seeking reorganization by looking at the origins and scale of the crises which brought reorganization minded governments to power. The second section briefly discusses the content of reorganization, focussing on the introduction of market mechanisms in their respective (welfare) states. The third section tries to explain differences in the relative success reorganizers had and, related to this, the emergence of conflicts inside the parties pushing reorganization. The conclusion advances some arguments about the intertwining of international and domestic politics, the potential for welfare state reorganization and the implications of reorganization for state autonomy and collective action in these countries. In other words: why, what, how and so what?
I: Crises and Change
In these four countries coalitions of politicians, fiscal bureaucrats, and capital and labor in sectors exposed to international competition allied to transform what they saw as a major factor contributing to declining international competitiveness: the state. The state, particularly the welfare state, was the largest single part of the non-tradables sector in their societies. Rising costs for non-tradable inputs and rising wages in the non-traded sector decreased the world market competitive position of tradables firms. The cost of non- tradable inputs had to be bundled into prices for export goods; the Australian Bureau of Industry Economics estimates that non- tradables comprise 30 percent of the final cost of Australian exports, for example. Given existing collective bargaining structures, increased wages in one sector tended to lead to increases in the other. Unlike many other seeming non-tradables, the state in the late 1970s was not subject to competitive pressures. In particular public sector workers could make wage demands without fear of decreasing their employment prospects. Finally, rising state spending translated into rising tax pressure on the tradables sector.
These efforts to transform the state did not uniformly succeed, and reorganizers had different motivations. But reorganizers shared a reasonably common picture of a 'new model' state as a means to their somewhat diverse ends. Fiscal bureaucrats sought more autonomy for the core state -- the state of the fisc, courts, and military -- in order to control fiscal deficits. They identified the new state -- the welfare state and its associated client groups -- as the source of rising deficits, and feared the fisc would be crippled by interest payments and dependent on foreign creditors. Politicians, entering government after a generation in opposition everywhere except Sweden, sought to consolidate their majority by attacking an 'inefficient' and unresponsive public sector; in Sweden they hoped to reconstitute their majority. Firms in the tradables sector were alarmed by the way public sector wage demands and rising public debt each boosted taxes and their direct costs, making them less competitive. Finally unions in the tradables sector sought to restore differentials between themselves and unskilled workers and public sector workers which had been compressed during the 1960s and 1970s. So reorganizers all sought to use more competition in the public sector to control costs there, while also delinking public sector wages from private sector wages.(13) The proximate political motives for change came from the failure of policy responses to the 1970s international economic shocks. Those failures manifested themselves in rising current account deficits and thence rising foreign debt. All four countries opted to ride out the 1970s with keynesian bridging strategies and incomes policies to control inflation.(14) These policies tried to decrease the impact of volatile international markets on the domestic economy and particularly to keep unemployment from growing. Although the specific policy mix differed, these bridging strategies caused growing fiscal and current account deficits in each country, which cumulated into unsustainable levels of public and foreign debt by the early 1980s. Tables 1 and 2 provide comparative data on foreign debt and current account deficit levels; Table 3 provides a snapshot for the year in which government changed.
Each country expanded employment in the non-tradables sector to sop up the growing number of unemployed, often by expanding the public sector. In Denmark and Sweden, in fact, social service employment grew so rapidly that it actually absorbed not only labor market entrants but also offset some private sector job losses. By the early 1980s public sector employment (excluding state owned commercial enterprises) peaked in each country, at 32.9 percent in Sweden, 30.2 percent in Denmark, 24.9 percent in New Zealand and 17.4 percent in Australia, versus an OECD average of 18 percent.(15) To the extent that public sector expansion did not sop up private sector job losses unemployment compensation payments rapidly grew, putting a further strain on fiscal resources.
In all four countries these sheltering strategies also abetted wage explosions that directly worsened relative unit labor costs and thence current account deficits.(16) Brief Labor governments in Australia and New Zealand (1973 to 1975) abetted significant real wage rises -- in Australia 12 percent 1974-1975; in New Zealand 5 percent 1974-75; 9 percent in Denmark in 1975; and 12 percent in Sweden 1975/76. These wage hikes originated in the raw materials export sectors of these countries, which benefited briefly from the 1970s commodity boom. But tightly centralized systems of collective bargaining spread those increases to other sectors, and in the three economies with small manufacturing sectors meant that the expansion of non-tradables employment and wages in the public sector rapidly flowed through into increased imports. After the 1980-82 recession unions in tradables began shifting towards wage restraint strategies in order to protect employment. But sheltered public sector unions, whose membership and organizational strength had grown during the 1970s, continued to press for increased wages.
By the early 1980s both fiscal and current account deficits were at unsustainable levels and had cumulated into dangerously high levels of public and foreign debt. Incumbent governments made late and limited efforts to attack these problems. From 1982 on, the opposition took power. Each of these incoming parties, with explicit or implicit backing from fiscal bureaucrats and from capital and labor in tradables, continued and expanded earlier hesitant efforts at liberalization of their economies. To this they added the introduction of market mechanisms into the welfare state. While the 'objective' indicators of fiscal and current account deficits indicated a problem existed, it was not clear what the sources of that problem were. The problem and its relevant policy solutions were defined politically by the coalitions of that emerged in the early 1980s.
The Swedish Social Democrats (SAP) emerged from the 1982 elections as the dominant party, and replaced the governing bourgeois coalition. In September 1982 the Danish Social Democratic Party resigned in favor of a four party, but minority, bourgeois coalition.(17) In 1983 the Australian Labor Party (ALP) won a narrow majority. In 1984, because a new right wing party stole urban votes from the National Party, the New Zealand Labour Party won an unusually large majority on the basis of a fairly small increase in its own vote. The last three parties saw their accession to government as a chance finally to institutionalize themselves as the natural party of government; the first to retain that role. In Australia and Sweden, the ALP and SAP both explicitly campaigned on public sector reform.(18) In New Zealand the Labour party implicitly did so by attacking the very interventionist policies of the incumbent government. And in Denmark the coalition Prime Minister's first parliamentary address made public sector reorganization the centerpiece of its policy initiatives, reiterating calls for deregulation made earlier by the incoming finance minister.
While as we will see fiscal bureaucrats and the two private sector actors may have proposed changes, politicians ultimately disposed. Two factors constrained politicians' efforts, pushing them in the direction of a more marketized welfare state rather than an American style rollback. First, the general public in each country for the most part supported the existing welfare state, even if they were ambivalent about its cost and antagonized by its bureaucracy. Much as Esping-Andersen expects welfare state institutions generated substantial and entrenched constituencies. So a rhetoric stressing the same and better services at a reduced cost was politically more viable than direct cuts. Furthermore, stressing efficiency was a way to preempt right-wing demands actually to shrink the state. Second, the electoral base of the left parties governing everywhere but Denmark combined both private and public sector workers, and these parties were hesitant to alienate the latter. Reorganization cum marketization seemed a way around these difficulties, because unlike direct cuts, its consequences for individuals could not be calculated easily. Some workers stood to benefit, while others might lose, and this made it difficult for unions to organize opposition to the creation of markets for public sector goods.
Politicians sought reorganization as a means to solidify their parties' grip on power. Politicians sought to use citizen dissatisfaction with public services and weakening voter identification brought on by the new social movements of the 1970s to create a new social base for their parties. To the extent that public sector workers served themselves and were in turn bound by tight and rigid webs of bureaucratic oversight, their inability to respond to public demands for service created enormous dissatisfaction with those public services and the state. The Swedish Social Democrats similarly feared the consequences of long term shifts in voters' partisan identification and discontent with public services.(19) In their case they sought to shore up an eroding base of support for both their party and its achievements since World War II. Their more defensive orientation delayed a full fledged effort at change until the 1985/86. Although public sector 'reform' sat at or near the center of parties' programs, fiscal bureaucrats largely supplied the content of this reorganization.
Fiscal bureaucrats in these four countries -- administrators of finance ministries and central banks -- were alarmed by the cumulation of fiscal and current account deficits into potentially unsustainable levels of public and foreign debt by the early 1980s.(20) For example, in a speech echoed in New Zealand, Australia's Treasurer declared his fear Australia would end up a 'banana republic.' Rightly or wrongly fiscal bureaucrats located the source of the deficits in rapid public sector expansion during the 1970s. Viewing welfare state expansion through the lens of 'rent-seeking activity' they saw no end to both growth and deficits. First, public sector employees themselves had become a potent rent-seeking force pushing for the further expansion of the public sector. Second, well-organized social groups pressured politicians to expand parts of the public sector and state regulation which favored them. If both continued, public debt would become uncontrollable and foreign creditors might impose discipline from the outside.
This expansion of welfare spending and debt service created two threats for the state. First, it reduced the ability of the fiscal bureaux to control spending along what they considered rational lines, and subjected local macro-economic policy to even more external constraints than before. Second, the fiscal bureaux feared a loss of state autonomy to incessant demands from society; they feared, in the parlance of the time, overload. From the point of view of the fiscal bureaux the only way to restore autonomy to the old state -- the state of the fisc, the courts and the military -- was to subject the new state -- the state of health, education and welfare -- to market pressures. This would contain rent-seeking groups. Like minded finance ministers such as John Dawkins, Henning Christophersen, Roger Douglas, Kjell-Olaf Feldt played a crucial mediating role, linking bureaucrats to the new cabinets.
Employers in export oriented and/or internationally exposed sectors -- tradables, in short -- feared the consequences of apparently uncontrollable growth in the largest non-tradable sector in their economies: the state. Their fear had several aspects. In general larger public sectors and cumulation of public debt meant larger tax burdens. The rising cost of public sector employment and the cumulation of fiscal deficits into growing public debts caused a growing tax wedge in each country. The 'tax wedge' is the difference between an employee's net after tax wages (including fringe benefits) and what it actually costs an employer to deliver that wage, including wage based social security or social insurance taxes which go directly to the state, and the income taxes that indirectly go to the state through the employee. As direct and income based taxes rise, the difference between the employee's after tax wage and the employer's gross wage payout increases. The employer's total wage cost is built into the price of the goods she sells. When these goods are not subject to international competition the tax wedge does not affect competition among different producers, because all are equally affected by the tax wedge - it is simply part of the cost of doing business. But for employers in tradables, a rising and/or large tax wedge hurts competitiveness by raising relative unit labor costs. In economists' terms, wage increases in excess of world price trends make exporting unprofitable at a given level of world prices, causing a shift of resources from the tradable sector to the non-tradable sector domestically.
Employers in the tradables sectors also found that disciplined skilled labor was a prerequisite for success in the changed international economic environment of the 1980s. But centralized systems for collective bargaining prevented them from attracting or developing a pool of skilled labor without simultaneously causing wage increases in the public sector.(21) The reverse was also true: as public sector workers sheltered from international market forces demanded increased wages, so too did unions in the tradables sector, undoing incomes policies designed to restrain wages across the board.(22) So these employers sought to dismantle corporatist, centralized bargaining, delinking public and private sector wages. Simultaneously they sought to expose non-tradables/the public sector to more market pressures as a way to increase that sector's competitiveness and to restrain wage growth. Reorganization was a means to greater competitiveness.
Higher taxes and tightly linked systems for public and private wage determination also threatened labor peace.(23) Unions representing skilled workers and workers in the tradables sector were dismayed by the erosion of wage differentials between themselves and unskilled and public sector workers, and the long term consequences of public sector growth for their own employment prospects. They sought to restore differentials by escaping from highly centralized, corporatist systems for collective bargaining linking private and public sector wages, and skilled and unskilled workers' wages. The shift in the international economy towards skill driven production gave them more market power. At the same time the fear of uncompetitiveness in world markets reinforced their desire to change bargaining systems in order to preserve competitiveness and thus employment levels. Along with changes in collective bargaining arrangements, unions in tradables sought reorganization to protect themselves from other workers.
All four groups sought state reorganization as one means to their different ends. All four sought to embed new rules of conduct in extant agencies via new organizational structures. They thought that minimally this would either put downward pressure on public sector wages or at least slow the growth of spending. What did they actually do?
II: Private Sector Models, Public Sector Subjects
Reorganizers, particularly fiscal bureaucrats in these four countries, consciously drew on private sector models for reorganization.(24) Both bureaucrats and tradables sector actors saw markets as a way to discipline the public sector. The adaptation of private sector models is somewhat unsurprising. First, intellectually, monetarism's ideological supremacy during the 1980s made it an easy step from the idea that the private sector was more efficient to the idea that private sector models for change must also be best. Private and semi-private think- tanks in the US and Britain propagated these ideas, helping to establish similar think tanks in the Australasian pair and influencing the debate in the Scandinavian pair. In Australasia private sector executives were imported into the public sector to direct and manage change. Finally the OECD published a number of studies calling for reorganization of social service delivery and public administration.(25)
Reorganization efforts centered on three essential features drawn from private sector models, to which reorganizers added a fourth feature, generally omnipresent in private markets but rarely in public ones. Naturally the discussion below will impose a common language on these efforts -- differences in rhetoric conceal substantive similarity. All tried to change the way managers supervised employees: rhetorically 'letting managers manage.' They introduced more flexible work practices, allowed more variation in individual wages, and decreased the number of job classifications to break the very rigid personnel use that characterized the public sector. They also tried to break the link between private sector and public sector wage increases. All tried to change the way that fiscal bureaucrats supervised managers: 'managing for results.' They freed managers from line item budgets and input oriented controls, granting managers operational discretion.
All tried simultaneously to change the way tasks were allocated to agencies and to centralize control over global budgets and prevent overruns: 'the holding company model.' They tried to flatten hierarchies, and separate the planning of state activities from its execution by centralizing strategic planning into a tight circle of fiscal bureaucrats. Finally all tried to introduce competitive pressures to force managers to use their new found freedom to seek productivity enhancing changes in work practices and to prevent the re-emergence of old bureaucratic norms.
All these changes aimed at creating a market for public services by segregating the roles of consumer, arranger, financer and provider of services into different people and organizations.(26) While 'god is in the details,' I will treat each briefly.(27)
Letting managers manage
Reorganizers sought to change the way managers controlled employees. Decentralized or enterprise based systems for wage determination replaced centralized bargaining. Fewer broad classifications replaced a plethora of minutely classified jobs. The ultimate control over public sector personnel generally shifted from dedicated public service boards to the finance ministries, which favored more flexibility and decentralization. These changes made it possible to reward/punish individuals on the basis of their productivity and to force workers be more responsive to customer/client needs. These changes extended to managers, too. Their own career prospects were tied to the productivity and efficiency of their newly autonomous units (see below), just as any entrepreneur's fate is tied up with her company.
New Zealand's Labour Party passed three acts in the late 1980s that made the legal regime governing public sector labor relations conform with the private sector regime established in 1987. This expanded opportunities for enterprise bargaining at the expense of centrally determined wages. The old State Service Commission evolved from a neutral supervisor of public sector work conditions into management's bargaining agent.
Australia's Labor Party decentralized control over internal personnel for the Commonwealth (i.e. federal) state with two mid- 1980s acts which reduced the number of job classifications and gave managers the power to redeploy, hire and fire labor at will. Control over staffing levels shifted from the Public Service Board to the Finance Ministry.(28)
Sweden's Social Democrats first centralized control over public sector workers into a new Ministry, the Civildepartment, but did so to undercut a set of powerful and particularist sector based boards blocking reorganization. The new ministry promised unions training and upgrading to get decentralized pay setting and more flexible personnel practices. The Finance Ministry limited public sector wages, delinked them from private sector wage talks, and devolved wage setting to local government.(29) Local managers were also given more autonomy to manage their agencies (selvforvaltning).
The Danish bourgeois coalition failed to introduce meaningful changes at this level. Initial efforts to permit a degree of subcontracting and a more flexible use of public sector labor (selvforvaltning) ran into united and well-orchestrated opposition led by some public sector unions. Unlike the other countries, many public servants retain tenure, homogenous pay scales and easy access to grievance procedures, while collective bargaining remains substantially unchanged.(30) Reorganization largely occurred within the central state apparatus and not within the local governments that deliver most services. Managing for results(31)
In a complementary step, reorganizers also wanted to change the constraints imposed on managers by central bureaucrats. Financial supervision of line agencies shifted away from detailed control over inputs (e.g. line item budgeting) to a focus on outputs/outcomes. Managers were freer to use these resources as they pleased in pursuit of their assigned outputs, but they now faced hard budget constraints. In New Zealand a series of administrative changes capped by the 1990 Public Finance Act accomplished this. In Australia it was done through the 1984 Financial Management Improvement Program and its associated Running Costs System. Sweden expanded its existing system of block budgeting and turned them into multi-year budgets. Denmark shifted from simple rebates for services provided by local government to block grants, and also introduced budget 'framing' (rammestyring or rammebudget) and net budgeting.(32)
In all four budgets went from cash basis to accrual basis. Accrual based budgets make it easier to account for agencies' future liabilities and thus head off overruns. New budgeting systems set global limits -- blocks or frames -- within which managers could freely spend, sometimes with separate frames for capital investment, personnel, and non-personnel expenses. Managers could spend money within the frame as they pleased, but could not exceed it. In all four managers were forced to pay market rates for new capital investment. So managers could now make rational trade-offs in their mix of capital and labor, as well as reward productive employees with productivity based wages. User-pays (brugerbetaling or brukerbetalning) regimes supplemented this new managerial freedom/pressure. In Sweden and New Zealand, agencies were moved to full cost recovery, while in Australia and Denmark user fees were broadened. Managers everywhere were permitted to retain user fee revenues to supplement to their budget or to allocate to future spending.
Holding company model
Fiscal ministries also tried to separate the planning and execution of state activities by changing the relationship between themselves and line agencies, public enterprises and local government. In effect, finance ministries tried to turn line agencies into black boxes; they no longer cared how the job was done -- or indeed sometimes who did it -- so long as it got done. These budgeting changes allowed finance ministries in to devolve operational authority and thus responsibility to line managers, while retaining control over total spending. Finance ministries supplemented this new medicine with more traditional across the board cuts: in Denmark through annual 2 percent reductions in the personnel frame after 1988 and through limits on local government taxes; in Australia annual 1.25 percent reductions in agency personnel budgets after 1987; in New Zealand by refusing to compensate agencies for a 5 percentage point increase in the VAT; in Sweden by freezing local government taxes and central government grants to localities.
The devolution of operational authority allowed fiscal bureaus to pit agencies against each other for budget resources. This again mirrored similar changes in the private sector. There, highly vertically integrated companies had begun to partly divest themselves of subsidiaries in order to act as central nervous systems controlling activities owned by other firms and temporarily hired by the corporation. Subsidiaries meanwhile were allowed to pursue their own corporate trajectories.
In both New Zealand and Australia a key committee took control over the budget process. In New Zealand clear organizational lines were drawn between small planning agencies, which set output targets for contracts, and the larger departments that actually contract to perform these tasks. Finance ministries in New Zealand and Australia began 'contracting' with ministries and agencies for outputs. Agency heads 'bid' for the right to produce outputs, competing against each other in Australia and against alternate public and private providers in New Zealand.
In Sweden and Denmark the clear division of responsibilities between central and local government made formal committees less necessary, but exacerbated conflict between central and local government. Despite failure to concentrate control over spending into one body in Denmark, central government eventually succeeded in controlling local government spending through a series of bruising battles with local government. The Swedish central state started to specify the outputs it wanted localities to generate while freeing them from rules in a series of 'framework laws' passed in the 1980s. Both states initiated an experiment in which localities were freed from all input oriented control. These "free cities" experiments in Scandinavia are a clear example of the process of operational decentralization and fiscal centralization. Towns are freed from regulation, given a block grant and in return held to output targets set by central government planners. The new conservative government in Sweden and the new Social Democrat-led coalition in Denmark are both committed to more decentralization.(33)
Competition
All these changes aimed at creating the preconditions for a market: self-interested producers facing hard budget constraints but with the freedom to structure production and respond to demand as they pleased. Leaving these reorganized agencies with product or territorial monopolies would have nullified the intended changes. So some degree of competition lay at the heart of all these efforts to replace bureaucratic controls for running the welfare state with self-motivated and market-disciplined controls. Again, with greatest effect in New Zealand and least in Denmark, fiscal ministries are trying to have public providers compete with each other and with private providers to get 'business.' Vouchers, user fees, and private providers have appeared even in core welfare state areas like health and (especially tertiary) education. All of these resemble the 'internal market' created in Britain for the National Health Service. The budgetary and legal changes listed above will only generate more efficiency if agencies, managers, and workers are motivated and/or pressured by competition to take advantage of the new opportunities.
Results
Despite large fiscal deficits at the beginning of the 1980s -- 9 percent of GDP for Denmark and New Zealand, 13 percent for Sweden -- all four countries experienced significant deficit reduction during the 1980s, as the share of government and welfare spending in GDP fell.(34) The current recession has pushed them all back into deficit again, but in New Zealand and Australia these are mostly cyclical deficits. Sweden aside, they now have large primary (i.e. net of interest payments) surpluses. So the reduction in the public sector's share of GDP is probably sustainable in the medium run, implying that public debt levels, interest payments and thus tax pressure will fall. However the importance of reorganization is shown clearly by Denmark's fiscal balance, which swung from a large surplus in 1988 to a large deficit by 1992. Unsuccessful at reorganizing, the central state's control over spending eroded as its ability to bludgeon spending cuts from local government eroded, and in turn this allowed spending to start rising again.
Aside from Denmark, they also saw a reduction in public sector employment, and public sector pay has lagged private sector pay growth. New Zealand had the sharpest drop in public sector employment, shedding about 29 percent of its personnel. Federal public employment in Australia fell 10 percent. In both cases this partly reflected the effects of privatization -- but this is not surprising as the whole point of reorganization is to make the public sector more like the private.
III: Explaining Differences
Two things demand explanation at this point. First, to the extent that reorganizers succeeded, how were they able to alter the workings of a whole range of state institutions, including the supposedly untouchable welfare state? Success here means institutional transformation that builds in long term spending restraints by changing actors' behavior, not just reversible budget reductions. Second, the overly concise discussion above conceals reorganizers' different degrees of success in implementing change. In fact, these changes were implemented most thoroughly in New Zealand, less so in Australia and Sweden, and least in Denmark. What explains differences in successful implementation, and some slight differences in content? These discussions can be combined.
Consistent with analyses of Britain and elsewhere, the greater the degree of autonomy or insulation that reorganization minded governments enjoyed, the greater the chances of success.(35) This autonomy derives from three mutually reinforcing factors related to the electoral and constitutional system: the degree to which the electoral system and constitution created governing majorities; the fiscal bureaux' willingness to articulate market based reorganization as a policy option and enact it administratively; the degree to which politicians were sheltered from short term political pressures. Put crudely, did they have the votes? did they have a plan? and did they have the time to carry out the plan? First past the post systems tended to create solid and durable majorities for parties which had opted to push reorganization. By creating two party systems, they limited the exit options for disaffected public sector workers, making it relatively easier for governing left parties to reorganize without high political costs. In turn, the more unitary the state, the larger the majority, and the more certain the tenure of government, the more fiscal bureaucrats were willing to help politicians craft preemptive, comprehensive proposals for change that were difficult to oppose. And finally the more electoral breathing room politicians had the easier it was for them to implement relatively comprehensive policies which would solidify their party's social base of support, albeit only in the medium or long term.
The degree of autonomy was crucial because three of the four governing parties received significant electoral and financial support from public sector workers and unions threatened by reorganization, and in Denmark the Social Democrat opposition passively supported reorganization. All four left parties experienced growing internal tensions along a fault line separating unions representing workers in the tradables sector from the non-tradables sector (with the public sector being the largest non-tradables producer), and sometimes skilled from non- skilled workers.(36) These tensions arose for obvious reasons. Reorganization was intended to reduce the bargaining power and thus wages of workers in the public sector. Second, and related, the three left governments all were trying to create cross-class alliances with employers in the tradables sector at the expense of unskilled and public sector workers. Slight differences in emphasis in the content of reorganization can be explained by politicians' efforts to retain support from specific social groups in their electoral coalition and party organizations while they waited for medium term effects to generate a new or stronger base of support. I will present the cases according to the relative degree of change, greatest to least. Note first that while Denmark is treated as a case of 'least change,' that is true relative to the other three but not to the mass of OECD countries.
New Zealand
In New Zealand state structures created considerable autonomy for the Labour Party, facilitating significant change. New Zealand has a unitary state in which a single house parliament is elected in single member districts, usually yielding real majorities in parliament.(37) The absence of a written constitution also gives great discretionary power to the governing party; like Britain, New Zealand has an 'elected dictatorship.'(38) Labour enjoyed an unqualified majority from 1984 through 1990, and consequently was able to ram legislation down the throats of the opposition both inside parliament and outside it.
Certain of Labour's tenure and majority, fiscal bureaucrats aggressively promoted the introduction of markets for public goods. The Treasury (i.e finance ministry) used its briefing papers to the Labour government in 1984 and 1987 to lay out specific steps for deregulating the economy and introducing market mechanisms into the public sector.(39) The Reserve (i.e. central) Bank was as aggressive with regard to exchange rate and fiscal policy; it eventually gained a new organic statute making it the OECD's most independent central bank. External events provided both motive and opportunity for fiscal bureaucrats to press their views on the new Labour government. Rating agencies downgraded New Zealand's public debt in early 1984 and the international financial community refused support during a run on the New Zealand dollar in July 1984. Roger Douglas, Finance Minister from 1984 to 1989, aggressively promoted Treasury's policy line.
With comprehensive if not always coherent plans in hand, Labour politicians proved adept at dividing up potential opposition to reorganization. Internally they used symbolic pay- offs to their core constituencies in labor and the intelligentsia to distract them from fundamental changes to economic and administrative structures. Polls show that Labour's anti-nuclear and similar policies kept the public sector intelligentsia loyal despite changes in collective bargaining law that worsened their economic position.(40) Labour also increased wages in the health and education sector at the same time that job security was undermined, diluting opposition. Significant internal opposition only emerged after unemployment doubled from 1987 to 1989 and it centered among those worst hit, mainly unskilled and public sector workers. They and their unions eventually hived off the Labour Party in 1989 and formed the NewLabour (sic) Party. Externally Labour crippled the opposition party by splitting it along its own internal fault line between tradable and non- tradables businesses. The 1984 election revealed that a considerable block of tradables firms and yuppie employees were disaffected with the National Party's heavy handed economic intervention and open to capture by Labour. Labour's aggressive economic liberalization and state reorganization policy was designed to capture this block. In 1987 it worked. In 1990, after three years of falling stock market values and recession it did not. None the less, the National Party remains seriously divided. In continuing Labour's reorganization policy it has caused some of its own MPs to defect to minor parties, and it too suffered a serious loss of vote share in 1993. In New Zealand, Labour had the votes, received a plan from the fiscal bureaucracy, and enjoyed six years in which to implement that plan.
Australia
Australia has a complex electoral system, with single member districts for the lower federal chamber, but quasi proportional representation in the upper house. It is also a federal system. Labor has controlled the federal government since 1983, but major state governments have been controlled by the opposition for part of this time. Unlike in New Zealand, the ALP could not simply legislate change everywhere. Instead, the ALP used its control over the federal government to lead by example and by using block grants to the states as bribes/threats. The ALP moved more cautiously than New Zealand Labour, coopting opponents of reorganization, but it moved just as systematically.
As in New Zealand the fiscal bureaux played a crucial enabling role, despite being somewhat divided against themselves. The Reserve (i.e. central) Bank's head in 1983 was a cautious keynesian who favored fixed exchange rates, and his successor was equally pragmatic. But both the Treasury, responsible for economic policy advice and exchange rate issues, and a separate Finance Department, responsible for the budget and, ultimately, public service personnel issues, had a reasonable consensus favoring marketization. Both also were led by ministers committed to economic liberalism and reorganization, respectively Paul Keating and, at first, John Dawkins. The Finance Ministry and the Department of Prime Minster and Cabinet, largely staffed with ex-Treasury and Finance personnel, originated plans for public sector reorganization only slightly less comprehensive than those the New Zealand Treasury drew up.(41)
The ALP also had to balance the competing interests of public sector/unskilled workers and private sector/skilled workers. The series of so-called "accords" between the Australian Council of Trade Unions and the ALP held basic pay hikes below inflation during the 1980s. But they contained provisions for second tier wage hikes based on productivity increases. These were more likely in manufacturing and particularly for skilled workers. So while the accords meant that everyone acquiesced in the erosion of real wages during the 1980s they also meant that public sector workers lost the most ground. But this process was somewhat opaque, smoothing over the potential split between the different groups of unions. At the same time, to the extent that public sector unions/workers cooperated with productivity enhancing reorganization plans emanating from the fiscal bureaux, they also could take advantage of second tier bargaining. The ALP also avoided a sharp New Zealand style rise in unemployment by moving more slowly in its reorganization of the state and liberalization of the economy. So while the ALP avoided a New Zealand style split, it did so partly by achieving less reorganization. In Australia, Labor had the votes at the federal level, a less extreme plan leveraged by more willing acceptance from the line bureaucracies, and as it turned out its less confrontational style bought it more time than New Zealand Labour had.
Sweden
Sweden has a unitary government and proportional representation with a rough fou9r percent threshold. This produces minority governments, but at least when the SAP governs, a single party minority government. So Sweden's SAP should have been better positioned than the ALP in terms of its ability to reorganize. But unlike both Australasian left parties, which suppressed internal conflicts through open political or covert economic side-payments, the SAP remained divided. This division was replicated in inter-ministerial conflicts for control of the reorganization program. Consequently the fiscal bureaux were unable to offer a counterweight to anti-reorganization or anti- market groups inside the SAP. The central bank is subordinated to the government and remained staffed by keynesians. The Finance Ministry, under K.-O. Feldt, followed a typical neo- liberal line, but the newly created Civildepartment, which actually controlled reorganization until 1988, was oriented toward user participation (brukermedverkan) rather than user- payments and markets.
Tensions about reorganization and liberalization of the economy thus led to conflicts between bureaux over control of reorganization, within the SAP, between the SAP and the union confederation LO, and between unions within LO. Initially the new Civildepartment was run by a minister more attuned to the interests of local government and the public sector unions. He stressed decentralization and participation at the expense of centralized fiscal control and efficiency. A set of bills -- not all of which passed -- presented in 1985 and 1986 reflected this orientation.
By the mid 1980s though, the private sector (mostly tradables) unions were in open conflict with the public sector unions, and some temporarily opted out of centralized bargaining.(42) After the 1988 election a deputy finance minister known for his hard line with public sector employees took over the Civildepartment. Efficiency replaced participation and consensus building, and decentralization was limited to operational responsibility and not financial resources. But by 1990 anti-reorganization elements of the SAP again were ascendant, and they forced K.-O. Feldt's resignation.
As in Australia reorganization came through a mix of legislative and administrative changes. Unlike Australia and even more so New Zealand, the fiscal bureaux initially had only a weak voice in reorganization. So while the SAP had the votes, its factions pulled in different directions according to their own plans. As in New Zealand, the SAP suffered electoral disaster when its base split, because unlike the ALP the SAP could not bridge the differences between public and private unions.
Denmark
In Denmark, in contrast to the other three, hardly anything facilitated change. Denmark's system of proportional representation with a two percent threshold creates a highly fragmented parliament with minority governments -- more than any other OECD nation. The strong functional division between central and local government, added to long standing historical antagonism between the two, creates a quasi-federal system. The bourgeois coalition governing in the 1980s inherited power when the Social Democrats resigned, and despite (or perhaps because of) four elections never accumulated an absolute majority. The coalition's weakness was clearly visible, particularly as the non-government parties had a habit of constituting themselves as an "alternative majority" to pass legislation over the coalition's head.(43)
In this context while fiscal bureaucrats had fairly defined visions for change, they were quite cautious about providing politicians with blueprints. The central bank bowed out of fights, having already attained price stability through EMS membership, and emerging European Community public procurement guidelines foreshadowed more competition in public sector activities.(44) Meanwhile the possibility of a quick return to a Social Democrat government inhibited bureaucrats in the Finance Ministry. They offered relatively invisible administrative measures like the change to frame budgeting, rather than the blueprint New Zealand's Treasury worked up. Without a comprehensive plan provided by bureaucrats, the parties in the bourgeois coalition each advanced mutually inconsistent and often incoherent proposals. Lacking the votes and a plan, and with elections occurring on average every two years in the 1980s, the bourgeois coalition achieved very little institutional change. Instead they bludgeoned welfare state producers located in local government to lower costs.
Denmark's Social Democratic Party faced the same tensions as the other left parties, but being in opposition made it easier to handle them. The Social Democrats hid behind the bourgeois coalition, throwing support to Conservative Party proposals for more business like management of the public sector while containing more right wing proposals by Venstre. The fact that many public sector workers already voted for the Socialist People's Party externalized much of the dissent which the left parties in the other three countries internalized. Passivity enabled the Danish Social Democrats to survive the 1980s more or less intact with their historical vote share, it also kept them out of government for a decade.
Despite this, the conflicts dividing Sweden's SAP were latent in the Danish Social Democratic party. Its right wing, oriented more towards skilled workers, argued that public sector inefficiency was the problem, suggesting competition among public sector service providers as the solution. Its left wing, oriented more towards unskilled and particularly unskilled public sector workers, argued that unresponsiveness and over- bureaucratization was the problem, suggesting self-management by public service employees as the solution. In 1992 the centrist party head was replaced by the more market oriented Paul Nyrup Raasmussen; when the Social Democrats regained power in 1993 they signalled that they would continue the old bourgeois government's policies. They are now exposed to the same tensions that affected the other left parties, and to the same lack of votes and plans that hindered the bourgeois coalition.
Events in all four countries suggest that at the extreme reorganization is self-limiting. While greater autonomy gave New Zealand Labour more opportunities to impose institutional change, it also permitted that party to undermine its own electoral base. In contrast, while the structural restraints federalism imposed on the ALP dictated a more incremental and cooperative approach, this allowed the ALP to keep its electoral base intact. In Sweden, the SAP's internal disunity prevented it from taking advantage of the opportunities available to it. Nonetheless even if negotiation can attain fiscal restraint, some autonomy is necessary in order to achieve institutional change, as events in Denmark show. Institutional change threatens people's and agencies' long term interests in a way that fiscal restraint does not.
IV: Conclusion
Most of these changes are comparatively recent, and it is difficult to assess their long term consequences. As the coalitions pushing for reorganization had different aims it is perhaps best to sort out the consequences in terms of those aims. Doing so will make it clear that the international economic pressures which motivated coalition members to seek reorganization have caused changes in the political regime and not just in bits and pieces of administrative practice. The effort to transform the institutional nature of the welfare state distinguishes these four countries. The changes described above all tend to increase state autonomy by changing the boundaries between state and society or changing actors' calculations of their interests. In this sense, the general pattern of change in these four countries mirrors that occurring in indebted developing countries under the auspices of the International Monetary Fund.(45)
From the point of view of the unions and capital in the tradables sector, reorganization has successfully removed part of the threat to their interests posed by the insulation of public sector unions and the public sector in general from market pressures. Incentive pay, greater wage differentiation, managerial freedom, and competition in service provision have all helped check public sector growth and weakened public sector workers' bargaining position. Cumulatively these changes have transformed non-tradables into tradables. For example, an American multinational successfully bid when Brisbane (Australia) contracted out garbage collection, just as French firms now manage several British public utilities. The internationalization of the management of services means that the providers of (publicly funded) services no longer are sheltered from international competition. International competition exists in this sector once a market exists and once management can be contracted out.(46) Letting relative costs get too far out of line invites a tender for the business. This makes it difficult for interests of workers and (where present) capital in the public sector and other former non-tradables to diverge much from those of capital and labor in tradables when it comes to the consequences of firms' or unions' pay demands for macro-economic policy. Conversely, it makes it easier for the state to resist these wage demands.
The politicians who promoted reorganization can be less sanguine. If general elections have tended to confirm the general policy line taken by the governments of the 1980s, they have not confirmed their hold on power. New governments elected in 1990 in New Zealand, 1992 in Sweden and 1993 in Denmark have maintained or accelerated the pace of change. Only in Australia did the original party favoring reorganization retain power. But this does not suggest that these administrative changes have had no political consequences. It suggests that these changes are creating a social base supporting reorganization and a reorganized state, much as the institutionalization of the old welfare state once helped maintain a broad cross-class alliance, and that no party can win without appealing to that alliance. Only this kind of calculation can explain why in both Denmark and New Zealand new governing parties have suppressed and in one case expelled internal anti-reorganization dissenters. The debate no longer pits the status quo against reorganization, but reorganization with a human face against reorganization with a harsh face.
On the whole, though, politicians in central government are all losers. As Alan Wolfe and others have noted, over time all problems in society became problems of the welfare state, and thus all welfare state failures became political failures.(47) This created opportunities for politicians to meddle with agencies on behalf of individual constituents and articulate demands on behalf of any organized group. Service failure in marketized states signals only the failure of a particular service producer who can be replaced via consumer exit in the short run and via competitive bidding in the long run. Competitive bidding also forces politicians to consider the visible costs of demanding additional services on behalf of particular groups. So politicians have lost part of their ability to meddle on behalf of constituents.
In contrast, fiscal bureaucrats -- and the core bureaucracies of the state -- thus appear to be the biggest winners. They have gained control over the total budget without having to bear responsibility for the problems which inevitably will occur in service provision.
These reorganizations have all increased the autonomy of the state in ways which are very similar to the kind of autonomy created by economic liberalization. Economic deregulation and liberalization during the 1980s freed the state from the political costs of policy failure in the economic arena and from the obligation to make micro-economic interventions which contradicted their macro-economic policies.(48) The effort to introduce market pressures into the welfare state parallels economic deregulation in this regard, aiming to extricate the state from the management of social problems. Decentralization and the introduction of market mechanisms creates two "circuit breakers" that increase autonomy: one between consumers and producers, as consumers can opt to change their producer; and one between producers and the state, for producers have no legitimate excuses for not producing 'competitively.'
These circuit breakers remedy two problems commonly noted in the literature on the welfare state.(49) These were the tendency towards agency capture by clients and its related overproduction of services; and the unresponsiveness of bureaucratic service producers to specific 'consumer' demands. The first made the welfare state expensive and expansive, the second decreased state autonomy and legitimacy.
The decentralization of service provision and the 'sale' of services constructs services as discrete demands capable of being provided to individual customers, rather than as diffuse benefits available to classes of people. This tends to limit demands by society for services. To the extent that individuals are capable of purchasing services from state agencies under the new user- pays regime, they have no need to join collective actors in order to press for services. Consequently the 'demand' for collective actors will diminish as individuals opt out in search of individual satisfactions. At the same time it makes agency capture more difficult, since agencies have no incentive to use services to create clients and support groups. Agencies (and firms) contractually bound to produce certain outputs at a bid cost have an incentive to create customers. Customers typically use exit, not voice, to signal dissatisfaction, and to the extent that they use voice to influence local public service providers political confrontations will occur outside the central state. So finance ministries have shifted the border between state and society. They have shifted the welfare state out into society by subjecting state agencies and local government to market disciplines. At the same time the separation between contracting agencies and service producers reinstates a border between the fisc and the welfare state. The decentralization of service provision shifts conflicts over (declining) resources out of the central state and into local governments.
All of the countries examined here are small economies and, Sweden aside, vulnerable to price swings in the commodities they export. The very extremity of their situation might suggest that the kind of state reorganization occurring here would be limited. That certainly was Peter Katzenstein's argument about small countries in the 1970s, where he suggested that political rigidity enabled a surprising degree of economic flexibility.(50) But in this case international pressures seem to have had a different effect: declining international competitiveness generated a coalition determined to change political arrangements and the state. The greater vulnerability of these economies states has caused change to occur earlier than in other countries, but competition in international markets is increasing, putting more pressure on the tradables sector everywhere to cut costs. Services related to the reproduction of the labor force remain the single largest 'non-tradable' everywhere. Most of these services are handled by the welfare state and financed through taxes, making it difficult to contain costs and produce services efficiently. The analysis in Section III suggests that relatively autonomous states are more likely sites of successful efforts to further increase their autonomy through the kinds of reorganization described above. But whether or not the terrain is suited to reorganization, the pressure to try it will be felt everywhere. Thermidor in Britain and Clinton's election in the US give a misleading impression about the future. Thatcher may be gone, but where constructed the institutions of thatcherism live on and will inspire imitation.
NOTES:
(1) See for example, Michael Loriaux, "States and Markets: French Financial Interventionism in the 1970s," Comparative Politics 20 (January 1988); John Ikenberry, "Market Solutions for State Problems: The International and Domestic Politics of American Oil Policy," International Organization 42 (Winter 1988; and Jeffry Frieden, "Invested Interests: The Politics of National Economic Policies in a World of Global Finance," International Organization 45 (Autumn 1991); Paul Pierson and Miriam Smith, "Bourgeois Revolutions? The Policy Consequences of Resurgent Conservatism," Comparative Political Studies 25 (January 1993). Geoffrey Garrett and Peter Lange, "Political Responses to Interdependence: What's 'Left' for the Left?" International Organization 45 (Autumn 1991), argue that reduced macro-economic policy autonomy has not hindered parties' ability to promote partisan policies in other areas.
(2) On British exceptionalism see Pierson and Smith (fn. 1), especially at 489, 510-513; and Joel Kreiger, Reagan, Thatcher, and the Politics of Decline (Oxford: Polity Press, 1986).
(3) Peter Gourevitch, "The Second Image Reversed: International Sources of Domestic Politics," International Organization 32 (Autumn 1978).
(4) Indeed some local observers noted similarities to thatcherism: Jonathan Boston, "Thatcherism and Rogernomics: Changing the Rules of the Game," Political Science 39 (December 1987); Neils Finn Christiansen, "Denmark: End of the Idyll," New Left Review #144 (March-April 1984).
(5) For example, in proportion to average 1988-1992 GDP, New Zealand's privatization receipts are over three times larger than Britain's. New Zealand's receipts were 3.55 percent of GDP, versus about 1 percent for Britain, 0.5 percent for Sweden and Australia, and less than 0.1 percent for Denmark. Economist, June 19, 1993, 112.
(6) G”sta Esping-Andersen, Politics Against Markets (Princeton: Princeton University Press, 1985); Three Worlds of Welfare Capitalism (Princeton: Princeton University Press, 1990); Mancur Olson, Logic of Collective Action (Cambridge: Harvard University Press, 1965); James Buchanan, Robert Tollison, and Gordon Tullock, eds., Towards a Theory of the Rent Seeking Society (College Station, Tex.: Texas A & M Press, 1980).
(7) Pierson and Smith (fn. 1), 489 and 513.
(8) Esping-Andersen (fn. 6, 1985) and Esping Andersen (fn. 6, 1990).
(9) Nicos Poulantzas, Political Power and Social Classes (London: Verso, 1978); James Marsh and Johan Olsen, "The New Institutionalism: Organizational Factors in Political Life," American Political Science Review 78 (September 1984); Terry Moe, "The Politics of Structural Choice: Towards a Theory of Bureaucracy," in Oliver Williamson, ed., Organization Theory (New York: Oxford University Press, 1990). The first two approach this problem primarily as one of hegemony/legitimacy; Moe approaches it using the new economics of organizations.
(10) See Leslie Eliason, "The Political Uses of Decentralization as a Policy Strategy: Education Reforms in Sweden, Denmark, and the United States" (Paper presented at "Sweden and the New Europe," University of Washington, Seattle, November 1992), for an interesting analysis.
(11) Francis Castles, Australian Public Policy and Economic Vulnerability (Sydney: Allen & Unwin, 1988); Peter Katzenstein, Small States in World Markets (Ithaca: Cornell University Press, 1985).
(12) OECD, Economic Outlook June 1993 (Paris: OECD, 1993); the unweighted average structural fiscal deficit of the G-7 countries in 1993 is 3.2 percent of GDP. Even in the US, the world's largest and least vulnerable economy, the (re-)organization of government and welfare spending understood broadly has become a political and competitiveness issue -- vide Vice President Albert Gore's recent campaign, referenda on school choice and popular books like David Osborne and Ted Gaebler, Reinventing Government (Reading MA: Addison Wesley, 1992).
(13) The complement to this -- efforts to change private sector collective bargaining -- obviously is important, but is beyond the scope of this paper. For instructive analyses see Jonas Pontusson and Peter Swenson, "Markets, Production Institutions and Politics" (Paper presented at the Eighth International Conference of Europeanists, Chicago, March 1992); Torben Iversen, "Trends Away from Corporatist Intermediation and the Logics of Consensual Wage Regulation" (Paper presented at the annual meeting of the American Political Science Association, Chicago, September 1992); and John Niland, "The Light on the Horizon: Essentials of an Enterprise Focus" (Sydney: University of New South Wales School of Industrial Relations and Organizational Behavior Working Paper # 80, June 1990).
(14) Torben Andersen, "Macro-economic Strategies towards Internal and External Balance in the Nordic Economies," (Aarhus University Economic Institute Memo 1989-5, 1989); Lars Mjoeset, "Nordic Economic Policies of the 1970s and 1980s," International Organization 41 (Summer 1987); John Gould, The Rake's Progress (Auckland: Hodder Stoughton, 1982), chs. 4, 5, and 8; and Castles (fn. 11). A broad comparison can be found in Gisli Blondal, Fiscal Policies in the Smaller Industrial Countries 1972-1982 (Washington DC: IMF, 1986).
(15) Peter Saunders, "Recent Trends in the Size and Growth of Government in OECD Countries" (University of New South Wales: Public Sector Research Centre Discussion Paper #20, September 1991), 5. Including state owned commercial enterprises would increase the share of public employment in Australia to about 26 percent. These peak levels reflected rapid expansion of the public sector's share of total employment. 1970 to 1979 this share grew in Sweden by 43 percent, in Denmark by 56 percent, in Australia by 37 percent, and in New Zealand by 31 percent.
(16) See OECD Economic Surveys (Paris: OECD, various dates) for the various countries, particularly 1986/87 for Australia, 1982/83 and 1986/87 for Denmark, 1984/85 for New Zealand and 1982 for Sweden.
(17) The "four leaf clover" coalition comprised the Conservative Peoples Party (14.5 percent of seats), Venstre (Agrarian) Party (11.3 percent), Christian Peoples Party (2.6 percent), and Center Democrats (3.2 percent). The two larger parties ejected the smaller parties in 1988 in favor of the mid-sized Det radikal Venstre (the Radical Left, which despite its name is rather like the German Free Democrats, and held 5.6 percent of seats in 1988), but after December 1990 those two parties governed as a minority coalition until March 1993.
(18) See for example Bob Hawke and Gareth Evans, Labor and the Quality of Government (Canberra: ALP, 1983) and John Dawkins, Reforming the Australian Public Service (Canberra: Australian Government Publishing Service, 1983).
(19) Jon Pierre, "Legitimacy, Institutional Change, and the Politics of Public Administration in Sweden," International Political Science Review 14 (1993).
(20) Herman M. Schwartz, "Public Choice Theory and Public Choices: Bureaucrats and State Reorganization in Australia, Denmark, New Zealand, and Sweden in the 1980s," Administration and Society 21 (1994).
(21) Scott Lash, "The End of Neo-corporatism? The Breakdown of Centralized Bargaining in Sweden," British Journal of Industrial Relations 23 (November 1985).
(22) David Plowman, Wages Indexation: A Study of Australian Wage Issues 1975-1980 (Sydney: George Allen & Unwin, 1981); Jonathan Boston, Incomes Policy in New Zealand 1968-84 (Wellington: Victoria University Press, 1984); Peter Nannestad, Danish Design or British Disease (Aarhus: Aarhus University Press, 1991);
(23) The best theoretical description of this process can be found in Peter Swenson, Fair Shares: Unions, Pay and Politics (Ithaca: Cornell University Press, 1989), who structures it as two 'trilemmas' confronting individual unions. In the first unions try to balance full employment, maximization of the wage share, and internal wage leveling in pursuit of intra-union solidarity. In the second unions try to balance full employment, internal wage leveling and external wage leveling (leveling across unions to preserve their own union's institutional existence). For individual discussions see the sources cited in fn. 22 above; Gwynneth Singleton, The Accord and the Australian Labour Movement (Melbourne: Melbourne University Press, 1990), 142-146; and Kristina Ahlen, "Swedish Collective Bargaining under Pressure: Inter-union Rivalry and Incomes Policy," British Journal of Industrial Relations 27 (November 1989).
(24) Information in this section draws on interviews conducted among union, business
organization, party, and finance ministry personnel in 1988, 1990, and 1991 in
New Zealand, Denmark and Australia. The secondary literature also indicates the
importance of private sector models. See Rune Premfors, "The 'Swedish
Model' and Public Sector Reform," West European Politics 14 (July 1991);
Brian Easton, "From Reaganomics to Rogernomics," in Alan Bollard,
ed., The Influence of United States Economics on New Zealand (Wellington: NZIER
Research Monograph #42, 1988); Michael Pusey, Economic Rationalism in Canberra
(Melbourne: Cambridge University Press, 1991).
On private sector changes see Rosabeth Kanter, When Giants Learn to Dance:
Mastering the Challenges of Strategy, Management, and Careers in the 1990s (New
York: Simon and Schuster, 1989); and Charles Sabel, "Moebius-strip
Organizations and Open Labor Markets," and Rosabeth Moss Kanter, "The
Future of Bureaucracy and Hierarchy in Organization Theory: A Report from the
Field," both in Pierre Bourdieu and James Coleman, eds., Social Theory for
a Changing Society (Boulder CO: Westview, 1991).
(25) See for example OECD, Employment in the Public Sector (Paris: OECD, 1979); OECD, Administration as Service, The Public as Client (Paris: OECD, 1987); OECD, Survey of Public Management Developments (Paris: OECD, 1988); OECD, Flexible Personnel Management in the Public Sector (Paris: OECD, 1990); OECD, Financing Public Expenditure through User Charges (Paris: OECD, 1990).
(26) E. S. Savas, Privatizing the Public Sector (Chatham, N.J.: Chatham House, 1982) and E. S. Savas, Privatization: The Key to Better Government (Chatham, N.J.: Chatham House, 1987).
(27) Schwartz (fn. 20) has a more detailed discussion.
(28) Colin Campbell and John Halligan, Political Leadership in an Age of Constraint (Pittsburgh, Penn.: University of Pittsburgh Press, 1992).
(29) Lennart Gustafsson, "Renewal of the Public Sector in Sweden," Public Administration 65 (Summer 1987), 190; Peter Swenson, "Labor and the Limits of the Welfare State," Comparative Politics (July 1991), 379-399; Lois Wise, "Decentralization of Wage Setting: The Impact of International and Domestic Forces on the Swedish Public Sector," (Paper presented at "Sweden in the New Europe," Seattle, November 1992).
(30) Joergen Groennegaard Christiansen, "Growth by Exception: or the Vain Attempt to Impose Resource Scarcity on the Danish Public Sector," Journal of Public Policy 2 (1982); Joergen Groennegaard Christiansen, "Interest Groups and Public Bureaucracy in Danish Regulatory Policy Making" (Unpublished paper, University of Aarhus, April 1990); Ole P. Kristensen, Vaeksten i den offentlige sektor: Institutioner og politik (Growth in the public sector: Institutions and politics) (Copenhagen: Jurist- og Oekonomforbundets Forlag, 1987).
(31) In Danish, maalstyring; Swedish, maalstyrning.
(32) An overview of budget changes in the OECD can be found in Alan Schick, "Micro-budgetary Adaptations to Fiscal Stress in Industrialized Democracies," Public Administration Review 48 (January 1988). Detailed surveys of change in Australia and New Zealand can be found in John Forster and John Wanna, eds., Budgetary Management and Control: The Public Sector in Australasia (South Melbourne: MacMillan Australia, 1990). On Denmark see Preben Melander, "Budgetreformen -- et paradoks mellem finanspolitisk sikkerhed og organisatorisk forandring," and Klaus Nielsen, "Den Borgelige regerings styring af den offentlige sektors oekonomi," in Karl Henrik Bentzon, ed., Fra V‘kst til Omstilling: Modernisering af den Offentlige Sektor (From Growth to standstill: Modernization of the public sector), (Copenhagen: Frederiksberg Bogtrykkeri, 1988). On Sweden see Lennart Gustafsson (fn. 29), 190; Gunnar Wallin, "Towards the Integrated and Fragmented State," West European Politics 14 (July 1991), 107-109; Jonas Pontusson, "Triumph of Pragmatism: Nationalisation and Privatisation in Sweden," West European Politics 11 (October 1988).
(33) Bent Schou, "Udgiftsstyring eller fornyelse," in Bentzon (fn. 32); Ingemar Elander and Stig Montin, "Decentralisation and Control: Central-Local Government Relations in Sweden," Politics and Policy 18:3 (1990); Pierre (fn. 19).
(34) Schwartz (fn. 20) has a more detailed discussion.
(35) Kreiger (fn. 2); Andrew Gamble, The Free Economy and the Strong State (Durham: Duke University Press, 1988); Pierson and Smith (fn. 1); Geoffrey Garrett, "The Politics of Structural Change," Comparative Political Studies 25 (January 1993).
(36) See Iversen (fn. 13) for a systematic analysis of Scandinavian unions.
(37) Referenda in 1992 and 1993 mandated a change to a German style mixed-member proportional system beginning with the next general election.
(38) Geoffrey Palmer, Unbridled Power: An Interpretation of New Zealand's Constitution and Government (Wellington: Oxford University Press, 1979).
(39) For views on the fiscal bureaux' role see Bruce Jesson, Behind the Mirror Glass (Auckland: Penguin, 1987), and Fragments of Labour; W. Hugh Oliver, "The Labour Caucus and Economic Policy Formation, 1981-1984," in Brian Easton, ed., The Making of Rogernomics (Auckland: Auckland University Press, 1989); and Roger Douglas and Louise Callen, Towards Prosperity (Auckland: David Bateman, 1987). Treasury's advice was published as Treasury Department, Economic Management: Brief to the Incoming Government 1984 (Wellington: Government Printer, 1984), and Treasury Department, Government Management: Brief to the Incoming Government 1987 (Wellington: Government Printer, 1987); for a critique see Brian Easton, "Government Management: a Review of Its Content," Political Science 42 (December 1990).
(40) Jack Vowles, "Nuclear-free New Zealand and Rogernomics -- the Survival of a Labour Government," Politics 25 (May 1990).
(41) Campbell and Halligan (fn. 28); Pusey (fn. 24).
(42) Swenson (fn. 29), 383; see also Swenson and Pontusson (fn. 13); and Gudmund Hernes, "Dilemmas of Social Democracies: the Case of Norway and Sweden," Acta Sociologica 34 (1991).
(43) Erik Damgaard, "Denmark: Experiments in Parliamentary Government," in Erik Damgaard, ed., Parliamentary Change in the Nordic Countries (Oslo: Scandinavian University Press, 1992).
(44) See for example Christine Ingebritsen, Scandinavia in Europe: Markets and Security (Unpublished dissertation, Cornell University, 1993).
(45) See Miles Kahler, "Orthodoxy and its Alternatives," in Joan Nelson, ed., Economic Crisis and Policy Choice (Princeton: Princeton University Press, 1990); and Herman Schwartz, "Can Orthodox Stabilization and Adjustment Work?" International Organization 45 (Spring 1991).
(46) This is particularly true in the post-1992 European Community, as public procurement must be open to firms from all EC members.
(47) Alan Wolfe, Whose Keeper? (Berkeley: University of California Press, 1989).
(48) Loriaux (fn. 1); Ikenberry (fn. 1).
(49) See Buchanan et al. (fn 6) and Claus Offe, "The Divergent Rationalities of Administrative Action," in Disorganized Capitalism (Cambridge: MIT Press, 1985) for general but diverging discussions of agency capture. See Michel Crozier, Samuel Huntington, and Joji Watanabe, Crisis of Democracy? (New York: New York University Press, 1975), for the classic elaboration of the 'overload' thesis. Each country has developed a parallel literature: Pusey (fn. 24); Geoff Bertram, "Middle Class Capture: a Brief Survey," in Royal Commission on Social Policy, Future Directions, vol. 3 part 2 (Wellington: Government Printer, 1988) and of course Treasury (fn. 39, 1984 and 1987); Erik Albaek and Peter Munk Christiansen, "Velbjaergsstaten?" GRUS #28 (October 1989); SAMAK, Fornya dent Offentliga Sektorn! (Stockholm, 1985).
(50) Katzenstein (fn. 11).