The Dynamics of Policy Innovation and Paradigmatic Change
Edited by Hideko Magara
Chapter 2: Choices and echoes: stability and change of policy regimes
As one observes democratic governments in Western Europe since World War I, and elsewhere more recently, one notes periods when most governments, regardless of their partisan stripes, pursued similar economic policies, followed by sudden policy innovations, and again by periods when policies converged across partisan lines. Between the end of World War I and the 1930s, governments followed golden principles of the balanced budget, deflationary anti-crisis policies, gold standard and so on. Since everyone believed that capitalist economies obey natural laws, there was nothing anyone could do to counteract economic fluctuations. Socialists did want to nationalize industry but could not, since they held office only as minority governments or members of coalitions. And because for the bourgeois parties nationalization was an anathema, there were no nationalizations. The major innovation of social democrats was the idea that capitalist economies can be controlled by an active state. With the rise of Keynesianism, governments, regardless of partisan orientations, learned that they could counteract fluctuations of the capitalist economy by managing demand. They also found that by providing public goods and infrastructural investments, correcting for externalities and regulating natural monopolies, they could compensate for market inefficiencies. Finally, they came to believe that by subsidizing some investments and protecting some industries governments could promote growth. The major innovation of neoliberals was the claim that markets spontaneously maximize the welfare of society, or at least 'efficiency,' with only minimal regulation.
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