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The Corporate State and the Welfare State

by Stephan Leibfried Wednesday, Aug. 27, 2008 at 1:21 AM

The idea of a "minimal state" may be passe. The author's two theses are: Liberalism is inconceivable without a strong state and liberalism undermines its own conditions of success. The modern welfare state is a child of democracy and can't be drowned in the bathtub.


By Stephan Leibfried

[This article “Untertanenfabrik? Ach wo?” published in: ZeitOnline 21/ 2007 is translated from the German on the World Wide Web, http://images.zeit.de/text/2007/21/Untertanenfabrik_Ach_wo.]

As a student in the 1960s, I saw the state as a “corporate state.” Today in a very different turbulent time and as a spokesperson of a large research institute on state change, the state appears to me as a last fragile anchor of our freedoms that is worth preserving. This could also be true for businesspersons who notice that after the neoliberal reforms of their Rhine capitalism too much market threatens political order. The idea of a “minimal state” may be passé. Political discussions in Berlin focus on child care places, the German army in Afghanistan, legal frameworks for the domestic transatlantic market, not on “retreat of the state.”

Let us look back at history. With his Leviathan, Thomas Hobbes 356 years ago revolutionized the idea of the state and its subjects. The basis of the state was now the rational decision of individuals and was no longer established in natural law or as transcendent. The triumphant march of liberalism in politics began. Since then, all politics has been justified as free decisions of those subject o politics. Since Hobbes, the conflict between individual and state has been uppermost. “Freedom or socialism” is a German election campaign slogan. The central political principle is: as much freedom for the individual as possible, as few political incursions as necessary. Is the state the adversary of personal freedom and the enemy of liberalism? Can the state in the 21st century as a “discontinued model” secure personal freedom and market freedoms?

Four centuries of state history make certain conclusions inescapable.

My first thesis is: Liberalism is inconceivable without a strong state. Without a strong state, there can be no constitutional state, market economy, democracy or welfare state. Liberalism only had success in the last 400 years thanks to the state.

“Failed” or “crumbling” states in Africa show success can only be reached with strong stable state structures, not with weak state structures.

According to my second thesis, the victory of liberalism only possible through the state has undermined the basis of raison d’etre of the state in the past 30 years. Liberalism undermines its own conditions for success. The state does not undermine liberalism. Societies will need the state in the future to make the successes of liberalism long lasting. The state today no longer ends up as the nation state.

Hobbes’ idea of the free rational decision of the individual as the basis of political community was only realized gradually. When the Westphalia Peace finally ended the Thirty-Years War in 1648, this peace created “sovereign” states, non-intervention in internal affairs made possible the internal state monopoly of force subordinating all past social rulers to a central authority. The institutions and symbols of the new territorial order, standing army, across-the-board administration and territorial representation were so expensive that the past financing systems based on regal domains and goods were not sufficient any more. As a result, territorial states in mercantilism created supra-regional markets with uniform standards and currencies. Territorial states also started pre-industrialization and trade and levied taxes on the products.

To a great extent, domestic markets only function when supported by a constitutional state. Therefore the spreading territorial state with its monopoly on force offered a more successful alternative to political alliances like the Hanseatic League.

“No taxation without representation.” Starting from the Boston Tea Party in December 1773 to the French Revolution in 1789, the 18th century ended with the “bourgeoisie” only wanting to shoulder his tax burden when he as a citizen could join in the conversation about the use of “his” money. The industrial revolution brought the Fourth Estate and its demands for equality on the agenda. The 1933 New Deal in the US shows that the modern welfare state is really a child of democracy. In the age of the universal and equal franchise for the majority of the population, the state was the means for politically changing the unjust distribution of prosperity by the market through a state-managed “second” distribution.

This central role of the state is found in liberal theories. Law-and-order liberalism to which we ascribe a good part of the economic wonder in Germany up to today is inconceivable without the intervening state. Walter Eucken and Alfred Mueller Armack, the two intellectual fathers of law-and-order liberalism, saw a core problem of the weak economic development between the wars in restrictions on competition, cartels and monopolies. As a result, the state in their eyes had to look after competition and the free market.

Whoever urges more market and less state today has not understood this history. Without a strong state, there is no market. Without a state, there is no democracy, no concrete democracy in any case. Without a state, there is hardly legal security or welfare.

Since the 1990s, globalization has put pressure on the classical national democratic constitutional- and intervention-state.

At least two motors drive this development: technological change, the Internet, telecommunications and the computer as well as political decisions. These political decisions are made in the realm of the state. To speak in an exaggerated way, globalization is an essential part of the self-transformation of the world of states. Worldwide liberalization and privatization are based on political decisions. Their effects are also political, namely greater migration chances for capital arise out of national taxation, border-crossing market integration and sectoral multi-plane systems in the European Union and the World Trade Organization, the WTO. The latter overarch communities and states with additional political planes. These multi-plane systems neither replace the classical nation state nor make it superfluous. While the state can hardly do things alone, little happens without the state. Two areas show this: enforcement of law and democratic legislation.

In the new political topography, the classical nation state is integrated in a close-meshed network. This network covers diverse states, different social actors, above all multinational corporations, transnational interest groups and international organizations. Logical flaws or mistakes in reasoning of some liberal state criticism of the past years have been revealed. Grover Norquist, an intellectual father of the US tax cut movement, said he didn’t want to abolish the state but shrink it so it could be downed in the bath-tub. Two fallacies are striking here. Eliminating a single element, the nation state, hardly helps in a multi-plane system. With the state shriveled to a bathtub size, Norquist would weaken democracy and the rule of law and end liberalism.

The new political topography together with the classical nation state consists of the most different individual and corporate actors.

New conditions and challenges dominate now. Complexity increases massively. Two tasks devolve to politics: firstly integration of the political system in the centrality of the constitution and the law. Where and how integration occurred was rather clearly defined in the old nation state.

Multi-plane systems also face this “constitution” task. However they have no clear territorial or institutional foundation. The transfer of nation-state principles to such a system is very problematic since the “national container-state” is always implied in them.

Multi-plane systems function differently and cannot be easily compared to the classic nation state.

This can be illustrated in the example of the European Union. Comprised of 27 member states, 31 states including Liechtenstein, Norway, Iceland and Switzerland share in the freedom of goods-, services-, and capital-traffic of the domestic market… Four different functional structures “govern beyond the nation state.” These structures do not have much in common with the political system of a classical or federal national state. A new form of integration must be conceived and developed today that can function independent of the nation state.

Secondly, the question is raised: What is the democratic legitimation of these multi-plane systems? Such systems of governing need this legitimation because political decisions are made in them. Classical procedures of democratic legitimation – elections and referendums – quickly strike their limits. The “we-feeling” is mostly lacking in these mammoth systems. Some claim a pre-political origin. Political systems can only exist where the we-feeling existed before their founding. Market, democracy and nation are not pre-political. They are made and live with and in our political decisions.

In this new political topography, the wheels of the locomotive must be changed during the journey. Daily political problem solving inevitably goes hand in hand with building and developing “constitutionalization,” the legal composition of these multi-plane systems. For a long time the nation state was the obvious framework. The nation state protected the individual so successfully it could itself undermine the fundamentals of the democratic constitutional- and intervention-state.

If we want to safeguard liberal citizens and their freedom, solutions like “more market, less state” are out of place like the assertion politics only functions by using pre-political “natural” resources. The opposite is true.

Whoever wants more liberalization and privatization must explain how this additional freedom should be safeguarded. A globalized free market needs this safeguarding to remain a market and not become a battlefield over legal enforcement and welfare cushioning. Such means of enforcement must be democratically legitimated. However democracy must be first organized to become politically self-evident. As a “container” nation state, the state has long been a discontinued model. As a central part of the new topography of the political, the diverse functionally organized systems of multi-plane governance represent the future. This is true because we remain obliged to the liberal modern age. With the watchword “more market,” even entrepreneurs do not want to land beyond the state and an orderly economic system.

Stephan Leibfried is a spokesperson of the “State in Change” research institute at the University of Bremen financed by the German research community. In this research institute, there is stocktaking and explanation of state change in the West since the 1970s. This article is a revised version of a speech on March 25, 2007 at the 45th colloquium of the Walter Raymond foundation of the German employers’ association.
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