Explaining De-Liberalisation in Developed Market Economies

Contemporary welfare and labour-market reforms are generally analysed in terms of liberalisation. However, recent findings of a newly constructed dataset (libref dataset; forthcoming) suggest a more complicated picture of institutional change: countries that engage in liberalisation also repeatedly introduce important de-liberalising reforms. How can we explain these de-liberalising reforms, given the wider dynamic of liberalisation? This paper argues that de-liberalisation cannot be analysed as a simple reversal of liberalisation, driven by changes in the relative strength of opponents of liberalisation (Mahoney and Thelen 2010). Rather than focusing on shifting balances of power to explain de-liberalisation, this paper proposes that liberalisation often generates its own political and institutional instabilities. Reforming institutions often has unintended consequences of creating an institutional mismatch with other institutions. Such mismatch spawns interests in restoring the functioning of the affected institution; this creates opportunities for further change, even if relative power remains constant. This argument is first corroborated by testing the relevant hypotheses using the libref dataset. In order to explore the political mechanism that links liberalisation and de-liberalisation, this quantitative analysis is complemented by an in-depth case-study of the anti-wage-dumping act introduced in Austria in 2011. This reform cannot be explained by relative increase in power of organised labour or electoral pressure. Instead, social partners aimed to protect their vocational education system against threats resulting from the high influx of foreign workers, an unintended consequence of earlier liberalisation efforts.