Introduction

It has been a quarter-century since the election of Margaret Thatcher ushered in an era of conservative assault on big government and the welfare state. This quarter-century has seen a wave of enthusiasm for cutting taxes and transfers, privatizing state industry, and trimming union power. It has produced at least fifteen English-language books with “crisis of the welfare state” or “welfare state in crisis” or “waning of the welfare state” in their titles. The Anglo-American press has repeatedly written off the welfare state as an obsolescing failure.

Hence the title of this chapter. Did the 1990s, and the start of this century, reveal that the welfare state is in retreat? How is it coping with the inexorable rise in the elderly share of every nation's population? The tentative findings are these.

1. The welfare state is not an endangered species among the industrialized OECD countries. While its growth clearly slackened after 1980, social transfers continue to take a slowly rising share of GDP. Ireland and the Netherlands are the main exceptions that have cut social transfers as a share of GDP.

2. We can use experience from the 1980s and 1990s to judge how population aging and the pension crisis will affect government budgets in this century. The countries with the very oldest populations have already begun to cut the relative generosity of their transfers to the elderly per elderly person. They did not, however, cut the average shares of public pensions or other transfers in GDP. Using behavioral regression patterns to project the same behavior up to the point where each country has 20 percent of its population over sixty-five, and noting current retirement policies, suggests how OECD countries will respond to the rise of the elderly population.

3. […]