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Across advanced industrial democracies, the financial crisis of 2008 ushered in not just deep economic adjustments but political ones. In many countries, dominant political parties lost voters while new populist parties gained them. Political economists responded to these shifts by asking how the crisis had changed – or failed to change – both what citizens want and politicians’ ability to respond to these wants. But what if the political responses to the crisis reflect not an idiosyncratic shock but instead a much longer term systematic slowdown of advanced economies that has more permanently reshaped the scope for political responsiveness?
In the past decades, two features of the American political economy have been at the heart of policy and political debates – growing income inequality and growing regional inequality. The period since the 1980s witnessed a dramatic reversal in the postwar fall in inequality, with a rising of share of income earned by the wealthiest Americans (Piketty and Saez 2003). Before taxes and transfers, the incomes of the top 1 percent of Americans now constitute over 20 percent of total income, with close to half of all income earned by the top 10 percent of earners.
This chapter examines the connection between mass expansion of education and skills and growing discontent with established parties and the functioning of democracy. We argue that the expansion of higher education since the 1980s has not fulfilled the aims of the proponents of “social investment” strategies, as many university graduates enter jobs mismatched with their skills. Furthermore, inequalities have grown across individuals with similar skills working in similar industries as certain firms have captured the lion’s share of economic rents. Accordingly, rising inequality among the university educated and the accompanying unmet expectations of many graduates is producing important new cleavages, splitting young from old, urban from suburban, and the globally competitive from the traditional professional class. We refer to this as “the end of human capital solidarity” as highly skilled individuals diverge from one another in political preferences and satisfaction.
This chapter ties together the findings from the previous substantive chapters, uses statistical techniques to unearth common patterns, and explores what the origins and governance of public services in the nineteenth century tell us about today’s welfare state.
This is the main theory chapter. It develops a new typology of public service reforms: vertical dimension of centralization and horizontal dimension of public versus mixed governance. The chapter analyzes the preferences of different political parties and the Church, and it sets out the methodology and chapter structure.