Politics for markets

Abstract

We argue that the welfare state operates very differently in the advanced sectors of modern economies and in the low skill sectors. Governments are concerned to promote the advanced sectors of their economies in which they have comparative advantage. This is a valence issue not a partisan one. Where companies and employees in advanced sectors co-invest heavily in company-specific skills, then governments will be concerned to maintain insurance infrastructures to underwrite these investments. Hence in advanced sectors, we see politics for markets in maintaining insurance-based welfare states. In low skill sectors, redistribution and active labor market policies are partisan issues for legislatures, so here our analysis is in line with Politics Against Markets. Effective welfare state policies depend on political coalitions in which the low skilled are represented. We suggest that those coalitions may be less available just as low-skilled workers are increasingly excluded from post-Fordist collective bargaining coverage.