In what many have dubbed a “neo-liberal age,” the state remains surprisingly powerful, argue the contributors to an intriguing new anthology entitled The State After Statism.

Conventional wisdom holds that the government’s role in developed economies like the United States, the United Kingdom, France and Germany has diminished greatly, compared to what it was in the 1970s. Bill Clinton’s famous claim that “The Era of Big Government is over” turned out to be an exaggeration. Nonetheless, top tax rates have fallen significantly since the 1970s, and large-scale nationalizations of industry are, for the most part, no more. Rather, actively privatizing state-owned enterprises has become the modus operandi of center-left and center-right governments throughout OECD countries. And governments everywhere—certain left-of-center American presidential candidates notwithstanding—are doing what they can to reform and trim cumbersome entitlement programs.

That is the conventional view, and it is largely accurate. But behind this apparent gentle retreat in state action lurks a more complex story, one that includes ever-strengthening state action in other domains.

In what many have dubbed a “neo-liberal age,” the state remains surprisingly powerful.

Take the United Kingdom. Margaret Thatcher privatized numerous state-owned companies. In 1986, her “Big Bang” reforms abolished fixed commissions for stockbrokers, “[cementing] London's place at the centre of the world's money and capital markets.” Paradoxically, however, the 1980s saw a tremendous increase in British regulation of securities markets.  Old-fashioned, unwritten British “codes of conduct” for financial actors, which lent themselves to abuse by not penalizing—sometimes even informally encouraging—insider trading and other improper practices, were replaced by legal statutes which were unequivocal in demanding propriety of all actors involved. Michael Moran of the University of Manchester writes that in the years following the Big Bang reforms, “there were a sharp increase in state surveillance; a growth in the volume and complexity… of legally prescribed rules’ and the development of a comprehensive hierarchy of controls operated by a single, legally empowered regulator.” By codifying into law what was appropriate and what was inappropriate in financial transactions, argues Moran, the state in fact increased the health of financial markets. In his words, Thatcher’s Big Bang reforms of 1986 were “stunningly successful.”

The book devotes extensive attention to Western European welfare states. In Germany and the Netherlands, write Anton Hemerijck of the University of Rotterdam and Mark Vail of Tulane University, the state was the leading actor in a battle to force through free-market reforms, often dueling with unions, workers and employers. In the Netherlands in particular, the state effectively forced labor unions and employer federations to accept far-reaching free-market economic reforms: “at times, state authorities…used administrative and financial pressure to coerce the social partners into undertaking desired policy changes.”

Dutch labor unions, sharply resistant to any neo-liberal reforms, were threatened by the state with unilateral measures: weakened by recession, “unions were hardly in a position to engage in industrial conflict” and opted instead for a consensus that they could mold somewhat to suit their wishes. Employers, threatened by “a statutory uniform reduction of the working week” meant to reduce unemployment, also yielded to government pressure to compromise. As a result, parties agreed on wage moderation and measures to reduce working hours, without a great degree of societal conflict.

The contributors to The State after Statism argue that the U.K., the Netherlands, and Germany were not alone in seeing free-market reforms implemented by a vigorous central state, over the objection of labor unions and employers’ organizations. In France, argues Chris Howell of Oberlin, the state was indispensable and took the lead in making free-market reforms possible: “The emergence of labor market and workplace flexibility in France could not take place without the active role of the French state and a state-led restructuring of industrial relations institutions.”

“Paradoxical as it may sound,” writes Howell, “creating the institutional conditions for… economic restructuring has been a state-led process in France." Howell emphasizes that, in Western European countries where electorates are not as skeptical of the welfare state as in the United States, governments often found themselves isolated in pushing for free-market reforms. Employers were certainly not at the forefront of pushing for change: “In both Britain and France, employers were hesitant and often hostile to the reform process, concerned about disrupting established relationships with unions (in the British case) or creating opportunities for the development of independent worker-controlled institutions (in the French case.) In both countries, the state led, introducing industrial relations reforms, often over the objections of employers, and only later did employers come to endorse those reforms. The state, in other words, anticipated employer acquiescence."

Howell argues that certain free-market reforms in countries such as France could not have come about without the active driving support of the state: "The state has also been central to the reconstruction of industrial relations in both [the U.K. and France] simply because these were not changes that employers could bring about without the aid of the state, even had they been aware of their interest in reform…. In neither Britain nor France would existing systems of industrial relations have been transformed, had not the state taken the lead; and in the absence of these state projects of institutional reconstruction, post-Fordist restructuring would have been considerably more difficult and more socially conflictual."

In France in particular, modest de-regulation came at a heavy cost, as the political leadership under center-left and center-right governments created new entitlements to compensate for the effects of de-regulation, particularly in labor markets. This is a tactic the authors describe as “social anesthesia”: it is an approach that, argue Levy, Miura and Park, “for all its limitations and need for further reform… has enabled France to jettison dysfunctional… industrial policies… while limiting the social fallout.” One may certainly disagree about the wisdom of that approach, and the costs of it help explain why France’s government spending as a percentage of GDP was higher in 2003 than it was in the heyday of President Mitterrand’s Socialist experiment in 1983: 54.5% vs. 51.8%. The higher spending is a result of far more spending on social programs and entitlements, not because of more government control of industry through old-fashioned dirigisme.

Observers of Europe will note that partisanship does not always seem to have much effect on reform efforts, and authors of the book lend credence to this argument. Both left-of-center and right-of-center parties have openly pursued economic reforms in recent years, though at times, left-of-center parties are more neo-liberal than their more corporatist right-of-center counterparts. John Cioffi of the University of California notes that in Germany, Gerhard Schroeder’s SPD “outflanked the [right of center] CDU-CSU and cast the conservative alliance as the defender of managerial interests and Germany’s economic elite, committed to an economic model that had become outmoded and increasingly dysfunctional… In part,” he adds, free-market reformers within the SPD “prevailed because the corporate governance policy agenda appealed to the long-standing ideological antagonism of the German Left toward the insularity, hierarchy, and conservatism of Germany’s financial corporate elite.”

Behind this apparent gentle retreat in state action lurks a more complex story, one that includes ever strengthening state action in other domains.

Howell notes that in the cases of two countries, international differences in economic approaches countries are far more significant than intra-national partisan differences: “One of the striking aspects of the… comparison [between France and the UK] is that differences in the reconstruction of industrial relations between Britain and France are consistently greater than the difference between the industrial relations projects of rival governments in the same country. Thatcherite and Blairite industrial relations are both fundamentally decollectivist, whereas Socialist and Gaullist industrial relations are both fundamentally microcorporatist.”

How do advocates of free markets feel about the state being so powerful that it can push through far-reaching reforms over significant objections by labor unions, employers, and the public at large? It is questions such as these—not posed explicitly by the authors of this book but apparent to anyone with an interest in limited government and political economy who reads the book—that make The State After Statism thought-provoking.

And while the book devotes extensive attention to the evolving roles of European welfare states, it also touches on numerous topics related to the influence of the state, including women’s employment and information technology. John Zysman of the University of California-Berkeley Abraham Newman of Georgetown put forth the intriguing argument that “governments have played a critical part in the creation of the fictitious commodity of information… they have used public policy to build the infrastructure for and remove barriers to the new market. State initiatives have been instrumental in navigating the complex political fights that surround the digital transformation.”

It should come as no surprise that not all chapters will be of interest to all readers: as an edited volume with academic language, readers are encouraged to selectively choose what chapters to read. While not light reading,The State After Statism is highly recommended for those with a strong academic interest in limited government and the evolving role of government in what many have called a “neo-liberal age.”

Jurgen Reinhoudt is a research assistant at the American Enterprise Institute.