Redefining the State: Privatization and Welfare Reform in Industrial and Transitional Economies

By Brand, Horst | Monthly Labor Review, September 1999 | Go to article overview

Redefining the State: Privatization and Welfare Reform in Industrial and Transitional Economies


Brand, Horst, Monthly Labor Review


Redefining the State: Privatization and Welfare Reform in Industrial and Transitional Economies. By Nicholas Spulber. New York, Cambridge University Press, 1997, 254 pp. $39.95.

The size and the scope of the state's functions have been increasingly questioned over the past two decades. As if to put a cap on such questioning, President Clinton has asserted that the time of Big Government had passed. Yet, the downsizing of government, be it by means of spending limits, deficit elimination or tax cuts; by outsourcing to private contractors; by the sale of public properties to private firms; or by deregulation, has remained high on the political agenda. Shrinking of, or where feasible, dispensing with welfare assistance to needy households, has additionally narrowed the state's reach and obligations. These trends are the subject of Spulber's book, as are some of the obstacles to their consumation.

The book's title does not fully cover its ambit. In the advanced industrial countries--Spulber's discussion centers upon the United States, the United Kingdom, France, and Germany--the redefinition of the state occurs within, even presumes, a firmly established framework of legal and economic institutions. Such presumptions cannot be maintained with respect to the countries of the former Soviet Union (the "transitional" economies) where the very foundations of the state have crumbled and must be reconstructed. Absent such reconstruction--and Spulber is skeptical that it will occur--economic growth there will be thwarted, unemployment will persist, and poverty deepen.

In both Western industrial nations as well as the former Soviet Union, the state's role is being transformed by privatization. In the United States of course, few industrial firms have been publicly owned, and often but transiently, as during the two world wars. The most common form of public enterprise here has been the public authority (that is, the Port of New York Authority), which has corporate status, raises its funds in the capital markets, and cannot levy taxes. Such government agencies as the Reconstruction Finance Corporation, the Commodity Credit Corporation, the Federal Housing Authority, and others, have had far-reaching autonomy, and acted to facilitate and regulate financing and markets. They also blur any differentiation between public and private sectors.

A weakness of Spulber's book is that he fails to deal with the subject of deregulation as an aspect of the government's withdrawal from regulating and policing markets. Yet, if, as he writes, "a privatization program involves a broad redefinition of the role of the state and of its relation to the market and to society ... [aiming to shift] the prevailing balance between the public sector and the private economy," then this holds with equal force for programs of deregulation. Be it noted that deregulation has in large measure driven global economic and financial policy of the leading industrial nations; and (as Spulber notes) privatization of state enterprises in developing countries has involved hundreds of billions of dollars, following the privatization model set, for example, in the United Kingdom. The rationale for privatization has been increased efficiency in comparison with the state-owned enterprise, but a more important underlying reason has been to extend the realm of the market and the investment opportunities thus opening up.

The political agenda for the reduction in the size and scope of the state's role was perhaps most candidly expressed by Margaret Thatcher, the former prime minister of Great Britain, when she announced the ending of the "era of the postwar settlement." That "settlement" involved agreement between the Labour Party and the Conservative Party to pursue Keynesian policies ensuring full employment and economic growth, thereby providing the fiscal bases for such welfare-state institutions as national health services. Thatcher curbed the trade unions, sold homes hitherto owned publicly to their tenants, and greatly expanded the privatization of industries whose nationalization in earlier periods by the Labour Party (and to a lesser extent by the Conservative Party) was to secure control over the economy's "commanding heights" so as to make them directly accountable to society at large. …

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