The idea for this volume stems from the observation that, somewhere between the literatures of political science and social policy, there is an unexplored territory where federalism and the welfare state meet, a no man's land without even a conceptual map to guide us. Hic sunt leones! is the warning etched on the uncharted regions of ancient maps, but for us it serves as enticement, an invitation to explore the unknown.

In some OECD federal nations almost one-third of the GDP is tied up in the welfare state, but scholars of the state and federalism typically ignore the welfare constituent of this spending and focus their attention almost entirely on non-welfare public agendas. For these political scientists, the state is always spelled with a capital S, and welfare, if mentioned at all, with lower-case w. As the majority shareholder of public expenditures at the federal level, the welfare state is not just a passive recipient of federalism's multi-tiered policy-making, but a key player in shaping those policies and, indeed, in shaping the functioning of the federal structure itself. Its size, its indispensability, and the large segment of the voting population it affects make the welfare state a force to be reckoned with. In many instances, it also provides a mechanism for coping with problems the normal federal process has no means of dealing with, as was so clearly demonstrated in the process of German reunification.

We began by questioning the widely held premise of econometric research that federalism is generally inimical to the growth of the welfare state in all countries and in all eras. Employing a qualitative comparative approach that Peter Hall calls ‘systematic process analysis’, we derived our hypotheses concerning federalism's effects on welfare state development from theories of fiscal federalism and political institutionalism. According to theories of actor-centred institutionalism, institutions create opportunity structures for political action by shaping actor constellations, actor preferences and the modes of their interaction. Exploiting these institutionally pre-configured opportunities for public policy-making, then, depends on a number of contextual variables. We have used middle-range theories of the determinants of welfare state development to predict the power of these contextual factors to impede or enhance our eight hypothesized effects (table 1.8).

We have also argued that the time dependence of institutional effects should be taken into account. The reasons were several. First, as shown in the path dependency literature, iterative political decision-making involves a sequential process in which earlier decisions strongly influence the trajectory of subsequent policy development. Second, the impact of federalism on social policy is contingent upon the stage of welfare state development, that is, whether social policy is in the process of initiation and expansion, or whether it is undergoing retrenchment.

Introduction

Considerations of systematic coverage apart, there are a number of reasons why a comparative study of the impact of federalism on the development of the welfare state might wish to dwell on the Australian case. Perhaps the most important is that the Australian case seems to exemplify all of the key hypotheses identified in the theoretical literature linking these phenomena. If the basic hypothesis linking federalism to the ‘old politics’ of the welfare state is that federal institutions hinder welfare state expansion, Australia appears to fit the bill rather well. With the exception of a decade or so of radical experimentation immediately after federation, the story of the Australian welfare state in the first half of the twentieth century is one of the late adoption of schemes increasingly common elsewhere and, after World War Two, of levels of expenditure that are consistently towards the bottom of international league tables.

Since the early 1980s, however, things appear to have changed. In the ‘silver age’ of welfare state development, Australia has been hailed as one of the few OECD countries to combine measurable success in economic performance with a significant improvement in welfare provision. On the surface, this seems to fit with the ‘new politics’ notion of federal institutions exercising a ‘ratchet effect’ on expenditure development, making it difficult for political forces opposed to statist intervention to obtain the leverage required to reverse existing policies.

The ideal that all citizens share responsibility for the welfare of their fellows, and the impulse to unite in federations have, on occasions, been historically conjoined. The founding myth of Swiss federalism, as recounted in Schiller's Wilhelm Tell, literally makes solidarity ‘in danger or distress’ a proviso for membership in a budding thirteenth-century federation.

Federalism and social policy

Recent comparative welfare state research has acknowledged the importance of state structures in explaining cross-national variation in both the level and the dynamics of social policy formation.