Three Worlds of Welfare Capitalism

What is Political Economy?

The study of how politics affects economic outcomes and, vice-versa, how economics affects political outcomes.


The Welfare State

A system through which the government provides for the most basic needs of its citizens.


Other Key Terms

  • Social policy–The range of policies that governments use to promote welfare
  • Social contract–Implicit agreement to give up individual rights in exchange for social rights
  • Social rights–Rights to basic services like education, health care and a minimal standard of living
  • Decommodification–The ability of a person to opt out of working
  • Universalism–Benefits provided in such a way that everyone has an equal ability to access them

Welfare State Regimes (“Three Worlds”)

  • Liberal—emphasize means tested social assistance
    • Anglo-American countries (e.g. U.S., UK, Australia)
  • Corporatist—ranked system of social insurance
    • Continental European countries (e.g. Austria, Germany, Switzerland)
  • Social Democratic—universalistic, emphasis on full employment and broad provisioning - Nordic countries (e.g. Denmark, Norway, Sweden)

Social Spending By Category

Means Tested Benefits

Pillars of Social Democracy

  • Swedish Prime Minister Stefan Löfven video

  • Three pillars of the Nordic model

    • Full Employment
    • Universal and Generous Welfare System
    • Organized Labor Market
  • Think about

    • How each pillar is important
    • How they work together to support the system

Retrenchment and Convergence

  • Race to the bottom hypothesis
    • Globalization induces states to drastically reduce publicly provided benefits and services
  • Embedded liberalism hypothesis
    • Globalization induces states to spend more on benefits and services to cushion workers from increased labor market risks
  • Convergence
    • Globalization forces states to provide similar levels and types of benefits and services

Education Spending in Three Worlds

Health Spending in Three Worlds

Reasons for Persistence

  • Trade openness—induces countries to spend more to cushion workers (embedded liberalism)
  • Partisan politics—Christian democratic and social Democratic parties favor welfare state (but different kinds)
  • Electoral politics (voters like programs)
  • Bureaucratic inertia (vested interests)
  • Economic coordination (next section)


  • Why do some countries have higher levels of redistribution?

    • Iversen and Soskice
  • Bernie Sanders Loves Denmark video

  • Can “democratic socialism” work in the United States

    • Is it the American dream “for real”?
    • Is it possible in a U.S. context