Indebted Societies: The Politics Of Debt And Welfare States
Financial markets are now deeply woven into the fabric of our societies and play an enormously important role in peoples' daily lives, allowing many more people across the OECD world to access these markets to borrow money and to invest. In this book, I offer a new perspective on the different ways in which financial markets shape political economies, influence distributional struggles in labor markets and welfare states, and reach into people's daily lives. I develop a "social policy theory of everyday borrowing" about the ways in which the structure of the welfare state interacts with the structure of a country's credit regime to produce and reproduce patterns of indebtedness that reflect how people address financial shortfalls that arise as labor markets, life course trajectories, and welfare states change.
If and when households borrow money to address these shortfalls depends on the interaction of welfare state institutions and the structure of credit regimes, which captures the institutional and policy configurations that shape the degrees to which credit is allocated toward households or, alternatively, toward businesses. When individuals are well protected and supported by welfare states, financial shortfalls are small and, therefore, demand for credit is low. However, when welfare states offer only limited and weak protection and support for individuals, financial shortfalls larger and require a private coping mechanism such as savings, expenditure cuts, or borrowing whose availability is constrained by the structure of credit regimes. Permissive credit regimes combine open financial markets with large pools of capital that tend to be allocated disproportionately toward households, thus making it easier for households to borrow money to address financial shortfalls. Restrictive credit regimes, by contrast, are less open to global financial markets and have smaller pools of capital that tend to be allocated toward the business sector which, in turn, makes borrowing by households much harder.
Credit regimes are rarely seen as part of the welfare regime, nor does work on financial markets integrate social policies in their analyses. But to understand the rise of credit markets we have to see credit markets as integral parts of our political economy in general and of welfare regimes in particular. Drawing on full-population administrative records from Denmark and micro-level panel data from the U.S. and Germany, I show that the permissive credit regimes of the U.S. and Denmark grant households easy access to credit, but the distribution of debt across households differs because welfare states in both countries protect and support households differently. In Germany, the restrictive credit regime results in less borrowing even in light of social policy reforms.
The findings of this book have implications for how scholars and policymakers think about the role of financial markets and household debt in a world of changing labor markets and welfare states. Credit markets and welfare states appear to fulfill similar functions but follow different underlying logics, each with its own socio-economic and distributional consequences that shape and amplify insecurity and inequality.