The future of the welfare state : reflections on Rogernomics

In this paper we recognize that reforms of the welfare state can be necessary from an economic point of view. We stress, however, that these reforms also have important social and political dimensions. The social dimensions are conceptualised by using Hofstede''s cultural characteristics. The scores on each of these characteristics can be related to desired characteristics of the welfare state. In a similar way different political views are related to a desired concept of the welfare state. Since consensus is a necessary condition for a successful reform of the welfare state, the reforms should be consistent with the culture of a society and its dominant political view. We apply these insights to the reforms in New Zealand, since these are very radical in nature and have attracted a lot of attention. Hofstede''s scores are used to measure the culture of New Zealand and the political views are derived from election results. Using these measures, we find that the reforms in New Zealand are inconsistent with the culture and the dominant political views of that country. Therefore we expect that a further implementation of the reforms will run into trouble. In order to provide some back-ground, we describe the economic situation in New Zealand and compare it with that of Australia. Since the economic situation of New Zealand does not outperform that of Australia, the favourable developments in New Zealand are not an obvious consequence of the reforms, as it is sometimes claimed. Moreover, we find that income inequalities have increased sharply in New Zealand and that the lower and middle-class incomes did not increase since 1980.