Welfare Markets. Politics of Privatisation and Embedding Institutions

Over the last two decades we witnessed a marketisation of welfare programmes and social services in advanced welfare states. Mature welfare states incorporated market mechanisms and established private programmes were growing to unprecedented scale. In this context, little is known about the regulatory differences of these markets across welfare regimes and how these markets were implemented. This paper addresses both questions in a comparative study of pension and education markets in Germany, Sweden and the United States. Based on six comparative case studies, the evidence suggests that welfare markets are embedded in the existing welfare regime.

Drawing from theories of institutional change and actor-centred approaches (Fligstein 2001), I argue that previous institutional features of public welfare programmes such as access, administration, financing and choice serve as templates for welfare market regulation. However, powerful actors are able implement rules that favour their market position. Such persuasive actors can be partisan actors, organised labour, business interest groups or strong welfare user groups. Depending on the political power balance, superior actors are able to innovate and implement path alternating market features.

Despite the pivotal influence of actors on some regulatory features, overall highly embedded welfare markets suggest a strong path dependence and continuity of welfare regimes in the market sphere.

The paper not only scrutinises the introduction of welfare markets, it also studies subsequent market reforms. This long term horizon underscores the long shadow of critical junctures, though it also reveals constant political intervention into market regulation to mitigate unintended consequences. Usually, both naïve and subversive market behaviour are perceived as unintended and provoke rather pragmatic than partisan political intervention. In the conclusion, these findings are discussed in the wider context of regulatory policy, nudge theory and welfare reform.