"Policy Adjustment Under International Constraints: Sequences of Challenges and Responses"

Since the early 1970s, the scope for national social and economic policy in advanced industrial societies has been constrained by three consecutive changes in the international political economy. These were: 1) the breakdown of the Bretton Woods currency regime of fixed exchange rates and the first oil price shock of 1973, resulting in the policy dilemma of stagflation; 2) the emergence of a rather restrictive international economic environment, with very high real interest rates, in the wake of the second oil crisis of 1979; leading to a massive surge in unemployment in the majority of the OECD countries, and finally, 3) the further liberalization of capital markets since the mid-1980s, and the creation of a single European market with a single currency ... The focus on this chapter is on the impact of the three challenges in the external economic environment on the advanced welfare states on social and economic policy adjustment pursued in the twelve countries in our sample.