It is by now a widely accepted view that the sea changes in advanced capitalist economies of the past two decades, above all the increasing internationalization of these economies, have constricted the policy options of the governments of these societies (e.g., see Scharpf 1991). Economic internationalization is assumed strongly to favor market solutions and thus to be particularly unfavorable to policies traditionally promoted by social democracy and organized labor. In the case of social policy, trade unions and social democratic parties expressed fears that steps to further economic integration, such as the Europe 1992 initiative or North American Free Trade Agreement (NAFTA), would result in pressures to reduce welfare state provisions to the lowest common denominator. Indeed, significant rollbacks in provisions in countries as different as Denmark and New Zealand have been linked to the impact of changes in the international economy and these countries' integration into it (Marklund 1988; Castles 1996). By contrast, Garrett and Lange (1991) have argued that the constriction of political choice has been overstated and that in expenditure policies in particular there are still significant differences between governments of the left and right. Similarly, Moene and Wallerstein (1993a) argue that, although many aspects of the Norwegian and Swedish social democratic models have suffered in the new economic environment, the social policy provisions appear to be highly resistant to change.

In this chapter, we examine the politics of social policy in the contemporary era. We focus on two questions.