Why Do Social Democrats Retrench the Welfare State? A Simulation

Why do social democrats retrench the welfare state? Next to violating core social democratic principles, recent studies show that social democratic parties - and not so much other parties - are systematically punished after retrenchment by (severe) vote losses. We propose and show that the strategy a party employs - policy-seeking, office-seeking or vote-seeking - is crucial for explaining why and when social democrats retrench, because it influences how they respond to environmental incentives (economy, public opinion, activist opinion and opposition strategy). The intra-party balance of power determines which strategy a party employs. We simulate an agent-based model to examine the implications of the different party strategies for the behavior of social democrats regarding welfare state retrenchment. This model includes 1) agents (here: parties) with specific decision heuristics that operationalize the different strategies, 2) voters who use a proximity-rule and 3) a coalition formation model. To mimic reality as much as possible, we calibrate the model with real economic data, whereby these data affect voters' policy preferences. We find that social democrats with a vote-seeking strategy retrench when inflation pushes the mean voter to the right. Office-seeking social democrats behave similarly, but respond with a strong time lag to the economy and to public opinion. Policy-seeking social democrats do not retrench. Moreover, we find that when faced with a radical left-wing competitor, social democrats shift towards the centre - irrespective of their strategy -, increasing the likelihood that social democrats retrench. An empirical illustration of the behavior of five social democratic parties corroborates the simulations' results. To the welfare state literature, we offer a dynamic model that predicts under which conditions social democrats engage in welfare state retrenchment. To the literature on simulations, we offer an application of a model that makes predictions for a specific policy field, using real economic data and party decision rules.