State in Advanced Industrial and Capitalist Economies

The state that governs the United States, Germany or Japan today is not the state that governed them in 1950, and the difference is not one of degree. It taxes about as heavily, but it produces far less. It regulates industries it no longer owns, shares authority with courts and commissions it cannot easily overrule, and finds its economic policy space bounded by capital that can leave overnight.

Yet it has also reacquired powers its post-war predecessor never had — over data, over supply chains, over who may sell software to whom. The analytical task is to describe what this state has become without falling into either easy story: that globalisation hollowed it out, or that nothing important changed.

Advanced industrial and capitalist are two different categories

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A great deal of confused writing on this topic comes from treating “advanced industrial” and “capitalist” as interchangeable labels. They overlap heavily but they classify on different criteria, and the states that fall outside the overlap are exactly the interesting cases.

• Advanced industrial states are classified by their mode of production — economies in which industry, rather than agriculture or extraction, dominates output and employment, and where the Industrial Revolution occurred first or earliest.
  • The core group is the United Kingdom, France, Germany, the United States, Canada and Japan, joined later by Italy, the Netherlands, the Nordic states and South Korea.
  • Russia and parts of Eastern Europe belong to this category on the industrial criterion. They industrialised heavily, in Russia’s case under a planned economy, and retain that industrial base today.
• Capitalist states are classified by their property and exchange regime — economies organised around private ownership of the means of production and market-driven exchange, with the state regulating rather than owning the commanding heights.
  • This excludes states that ran, or still run, on a socialist logic of ownership and planning — China most obviously, and the Soviet Union and its bloc historically.
• The practical consequence is that the two categories separated during the Cold War and have only partly re-fused since.
  • Until 1991 the advanced industrial world was split into a capitalist bloc and a socialist bloc, both industrial, governed on opposed principles.
  • When communism collapsed, most of the socialist bloc adopted the Western political and economic model but did not thereby become advanced capitalist states. Many are classified as developing or transition economies despite possessing a substantial industrial base — an unusual combination that the standard categories handle badly.

Several other names attach to the same group of countries, each carrying its own analytical freight:

• The core-periphery vocabulary is the most theoretically loaded of these, and deliberately so.
  • It comes from Wallerstein’s world-systems framework and the dependency tradition, and it denies that the wealth of the core and the poverty of the periphery are independent facts.
  • On this reading the advanced capitalist states are not simply countries that developed earlier; they are countries whose development required and continues to require the subordinate insertion of others into the world economy.
  • The drain of wealth did not end with formal decolonisation. It continues through unequal exchange, technology rents, debt service, terms of trade and the repatriation of profits — a claim that recent data on developing-country interest burdens gives real force to.
• These states were, almost without exception, the imperial powers, and their dominance survived the end of empire.
  • Formal decolonisation removed political control but left economic, technological, military, cultural and ideological dominance largely intact.
  • Their currencies price world trade, their universities set the research agenda, their firms own the intellectual property, and their militaries retain global reach.

The three phases of the capitalist state

The capitalist state has not had one form. It has moved through three distinguishable settlements, each ending in a crisis that the next was designed to answer. Getting these phases right is the foundation for everything that follows, because the “post-modern” and “regulatory” descriptions are claims about the third phase, not about capitalism as such.

The liberal or nightwatchman state, to the 1930s

• The classical liberal state confined itself to a short and explicitly enumerated list of functions, on the argument that anything more would corrupt the market’s self-regulating character.
  • Adam Smith allowed government exactly three duties: defence against foreign aggression, the exact administration of justice, and the erection and maintenance of public works whose profits would never repay a private investor.
  • Bentham, working from utility rather than natural rights, arrived at a similar destination — the chief function of the state is legislation, and the chief objective of legislation is to remove institutional restrictions on the free action of individuals.
  • Herbert Spencer put it most starkly, describing the state as a “joint-stock protection company for mutual assurance” that should assume no other function.
• The supporting institutional architecture was the gold standard, free trade, balanced budgets and laissez-faire in labour and product markets.
• This settlement collapsed in 1929 and did not recover. The Great Depression destroyed the empirical claim that unregulated markets clear, and mass unemployment destroyed the political claim that they should be left to.

The Keynesian welfare state, 1945-75

• The post-war state accepted responsibility for the level of economic activity itself — a responsibility the liberal state had explicitly disclaimed.
  • Demand management replaced balanced budgets as the organising fiscal principle, and full employment became a stated policy objective rather than a market outcome.
  • Nationalisation of key sectors — coal, steel, rail, utilities, in some countries banking — gave the state direct ownership of the commanding heights.
  • Social insurance on the Beveridge model converted relief into entitlement, covering sickness, unemployment, old age and, in most of Europe, health.
• The political basis was a class compromise, and stating it as such is what separates an analytical account from a descriptive one.
  • Capital accepted taxation, union recognition and collective bargaining; in exchange, labour accepted private ownership and abandoned expropriation as a political goal.
  • The compromise held for roughly three decades because growth was high enough to fund both sides of it — an unrepeatable condition.

The welfare state was never a moral achievement floating free of politics. It was the price capital paid for security of ownership at a moment when the alternative looked plausible.

• Esping-Andersen demonstrated that “the welfare state” is not one thing, and this three-fold classification is the standard analytical grid.

• Decommodification is the concept doing the work here: the extent to which a person can maintain a livelihood without depending on selling their labour. It is the single best measure of how far a welfare state actually alters the power relation between employer and employee, as against merely softening its consequences.
• The conservative-corporatist category also carries a feminist critique built into it: benefits tied to a male breadwinner’s contribution record reproduce the gendered division of household labour rather than disturbing it.

The neoliberal regulatory state, from the 1970s

• The Keynesian settlement broke on stagflation — the simultaneous inflation and unemployment that demand management was not designed to handle — compounded by the oil shocks of 1973 and 1979 and the collapse of Bretton Woods fixed exchange rates.
• O’Connor named the underlying structural problem the fiscal crisis of the state: the capitalist state must simultaneously fund accumulation (infrastructure, subsidies, research that keeps capital profitable) and legitimation (welfare, pensions, services that keep the population consenting), and the two demands grow faster than the tax base.
• The intellectual case against the welfare state came from three distinct directions, and treating them as one argument loses their force.
  • Hayek’s epistemic case: economic planning fails not because planners are malign but because the knowledge required to plan is dispersed and tacit, existing nowhere in aggregate. The market is a discovery procedure and a spontaneous order; the state’s proper role is maintaining the general rules within which that order operates.
  • Buchanan and Tullock’s public choice case: political actors are self-interested like everyone else. Bureaucrats maximise budgets, politicians maximise votes, and the result is an inexorable growth of government serving those inside it rather than the public — which is why the remedy must be constitutional constraint rather than better officials.
  • Nozick’s rights case: redistributive taxation violates self-ownership regardless of its consequences. Taxation of earnings from labour is, on his formulation, on a par with forced labour, because it appropriates the product of hours a person did not choose to work for others.
• The resulting programme was consistent across countries even where the politics differed: privatisation, deregulation, independent central banks, inflation targeting, a shift from universal provision to targeting, and new public management — the importation of private-sector performance metrics into public administration.
• The critical point is what the rolled-back state actually became. It did not shrink; it changed shape.
  • Majone’s regulatory state captures this precisely: the state does less directly and regulates more, and regulation requires its own large apparatus of agencies, commissions, inspectorates and courts.
  • Privatising a utility creates a regulator, and the regulator’s rulebook is often thicker than the ministry’s was. Deregulation and re-regulation are the same movement seen from different angles.
  • The citizen is correspondingly redefined as a consumer of public services rather than a bearer of entitlements — a change in the grammar of the relationship, not merely its funding.

The post-modern state in advanced capitalist economies

The post-modern state — the term is sometimes given as post-Westphalian — is a claim that a group of advanced capitalist states has moved beyond the organising logic of the modern state altogether. It is worth being exact about what that logic was, because the claim only makes sense against it.

• The modern state, in its classical form, was territorially sovereign, centrally authoritative, nationally identified, and sharply divided between a domestic sphere of law and an international sphere of anarchy.
  • Territoriality: the world divided into discrete units with clearly defined borders.
  • Sovereignty: supreme political and legal authority within that territory, subject to no higher power in domestic matters.
  • Autonomy: the right to conduct internal affairs without external interference — the principle of non-intervention in international law.
  • These are the principles of the Westphalian order, and they remain the formal legal foundation of international relations, including in the UN Charter.

Cooper’s three-fold scheme

Robert Cooper’s classification is the standard reference point, and its power lies in refusing a single trajectory of development.

• Pre-modern states have lost the monopoly of legitimate force within their territory. What state structures exist cannot establish it, producing endemic warlordism, criminality and social dislocation. This is the world of state failure and collapse.
• Modern states behave in the classical Westphalian manner — jealous of sovereignty, calculating balance of power, treating force as a normal instrument of policy between states.
• Post-modern states have moved beyond both. Cooper’s specific features are:
  • The breakdown of the distinction between domestic and foreign affairs — the two spheres are no longer separable in law or policy.
  • Mutual interference in each other’s domestic affairs, and mutual surveillance — accepted rather than resented.
  • The rejection of force for resolving disputes among themselves — war between them becomes not merely unlikely but practically unthinkable.
  • The growing irrelevance of borders, arising both from the dissolution of the state’s exclusive role and from technologies (missiles, satellites) that borders cannot stop.
  • Security based on transparency, mutual openness, interdependence and mutual vulnerability rather than on balance of power. This is the most distinctive claim in the scheme and the one most often dropped: post-modern states are safe from each other because they can see into each other, not because they are evenly matched.
• The European Union is the exemplar, and no other case fits as well.
  • Member states have pooled sovereignty in trade, monetary policy, competition, migration rules and digital regulation.
  • Mutual inspection under the acquis is routine and consented to; the single market removes the economic meaning of internal borders; a common court issues rulings binding on member states.
  • The practical unthinkability of war among members is the achievement, and it is a real one.

Features added by the wider literature

• The shift from government to governance. Authority is exercised through networks including private and transnational actors — standard-setting bodies, credit-rating agencies, certification schemes, platform operators — rather than solely through the hierarchical command of a public bureaucracy.
• The regulatory rather than the productive role, carried over from the third phase above and intensified.
• Multi-level governance. Authority moves upward to supranational bodies and downward to regions and cities simultaneously. The nation-state ceases to be the only meaningful level of political life without ceasing to be an important one.
• Identity displacing class as the organising cleavage. Advanced capitalist societies are no longer culturally homogeneous, and migration, multiculturalism, race, religion, gender and sexuality have become primary axes of political conflict — generating both progressive politics and a reaction against it.
• The digital-surveillance state. This is the feature that most complicates the “weak state” reading.
  • Digital identity, predictive policing, biometric borders, financial-transaction monitoring and cyber-security tooling give the state capacities of observation no twentieth-century government possessed.
  • The post-modern state is therefore not a weakened state but a differently powerful one — thinner in production, thicker in information, and more intrusive at the level of the individual than the mid-century welfare state ever was.

What the concept cannot carry

• The model is drawn almost entirely from Europe. It generalises a regional experiment into a stage of history.
• The United States remains recognisably modern in Cooper’s own terms — attached to sovereignty, unwilling to accept binding external adjudication, and comfortable with force. The largest advanced capitalist state is the one the model fits worst.
• Crisis restores the modern state very quickly. The 2008 financial crisis and the COVID-19 pandemic both produced sharp reassertions of border control, emergency powers, fiscal capacity and national procurement — and the reassertion came from the same European states the model is built on.
• The transformation is domestically contested. Brexit was a deliberate exit from pooled sovereignty, and sovereigntist parties across Europe campaign explicitly to reverse it.
• Cooper’s own caveat is the sharpest limitation. Post-modern states must still deal with modern and pre-modern ones. Among themselves they may act by law; abroad they may have to act by the older rules — and the concept offers no resolution of that double standard.

The post-modern state is best read not as a stage capitalism has reached but as an unstable condition it is passing through — less national in its economy, more nationalist in its politics.

Is the capitalist state neutral? Liberal democracy and class power

The advanced capitalist state presents itself as a liberal-democratic state: civil liberties protected, governments chosen in competitive elections, citizens legally equal, disputes settled by an independent judiciary under the rule of law. The description is not false. The question is whether it is complete.

• The historical point is worth making before the critical one. These arrangements were not conceded; they were won.
  • Universal suffrage, the legalisation of unions, the eight-hour day, the secret ballot and freedom of association were the product of sustained popular struggle, often violently resisted.
  • The result is a citizenry with unusually high awareness of its rights — but, as the critics immediately add, awareness of a right is not the same as its realisation.

The Marxist reading and its internal quarrel

• The classical instrumentalist position holds that the state is a weapon of the economically dominant class. Marx and Engels stated it without qualification: “Political power, properly so called, is merely the organised power of one class for oppressing another.”
• Miliband gave this its most rigorous modern form, arguing for the unity of state power and class power and demonstrating it empirically.
  • His method was to trace the social composition of the state elite — the interlocking of the capitalist class with the governmental, administrative, coercive and cultural apparatuses.
  • His central factual claim about advanced capitalist societies is that the most important political fact about them is the continued existence of private and ever more concentrated economic power.
  • He was careful, against the caricature, to note that dominant classes are not solid, congealed blocs — which is precisely why they need political formations to reconcile, coordinate and fuse their competing interests.
• Poulantzas rejected the unity thesis and produced the structuralist alternative, conceding the relative autonomy of the state.
  • Class domination is not automatically translated into state power, and the state cannot properly be regarded simply as a class instrument.
  • The state enhances its legitimacy by invoking the authority of “the people”, and the capitalist class enhances its own by dissociating itself from state repression.
  • Relative autonomy is functional, not accidental: it lets the state discipline individual capitalists in the long-run interest of capital as a whole, and manage crises that no single fraction of capital could.
  • Poulantzas therefore treats the state itself as an arena of class struggle rather than an instrument standing outside it.

• The intellectual lineage of relative autonomy runs further back than the debate itself.
  • Marx’s own analysis of Bonapartism described a regime able to exert great power precisely because no class had the confidence to establish its authority in its own name, allowing a leader who appeared to stand above the class struggle to seize the mantle. He judged this inherently unstable.
  • Engels generalised the insight: when warring classes balance each other so nearly, state power acquires a degree of independence.
  • Gramsci was the first to concede relative autonomy systematically, splitting the superstructure in two.
    • Political society rules by direct domination through juridical government.
    • Civil society secures hegemony through a web of beliefs, institutions and social relations.
    • Hegemony matters because it means the bourgeoisie rules largely by consent — and consent is manufactured in schools, churches, media and associations rather than commanded by police.
  • Althusser systematised the machinery of consent into two distinct apparatuses.
    • Repressive State Apparatuses — army, police, prisons — function primarily by force, and show themselves rarely.
    • Ideological State Apparatuses — schools, churches, the family, media — function primarily by ideology, and are commonly accepted features of society rather than visible instruments of rule.
    • His concept of interpellation describes how ideology hails individuals as subjects, offering an identity accepted as natural and obvious. It is power that needs no coercion, because it constitutes the person who would otherwise resist.
• Weber supplies the standing objection to all of it, and it is not a minor one.
  • Rejecting economic determinism, he argued that the state commands powerful resources of its own — exclusive control over the legitimate use of force, unavailable to any private interest.
  • It also maintains a bureaucracy able to formulate, implement and monitor policy independently of any class.
  • State power therefore cannot be reduced to an instrument of class interest, because it has an institutional interest of its own.

The elite reading

• C. Wright Mills argued that the United States is ruled by a power elite — a unified group spanning the corporate, military and political hierarchies, whose members circulate between them and share a common outlook. This is not a conspiracy theory but a structural claim about interlocking directorates and shared social formation.
• The military-industrial complex is the most durable specific instance of the argument, and it originated not with a radical but with a departing American president warning against it.
  • The claim is that a permanent armaments industry, a large standing military and the legislators whose districts depend on both form a self-reinforcing bloc with an institutional interest in threat.
  • Its mechanisms are procurement contracts distributed across the maximum number of constituencies, the revolving door between defence ministries and contractors, and think-tanks and media commentary funded by the industry.
  • The concept has widened over time to a military-industrial-congressional-academic complex, taking in university research funding and the intelligence contracting sector.
  • The current defence build-up gives the argument fresh material: world military expenditure reached $2,887 billion in 2025, the eleventh consecutive year of growth and the highest SIPRI has ever recorded, at 2.5% of global GDP — the highest share since 2009. European spending rose 14% in a single year.
  • The critical counter-position is worth stating: much of this increase is a response to a real security environment, and treating every defence budget as capture explains nothing. The concept is a claim about how threats get converted into procurement, not a denial that threats exist.

The pluralist reading and its retreat

• Dahl’s study of New Haven found that different elites prevailed in different issue areas and that no single group ruled.
  • He therefore called the system a polyarchy — rule by many minorities, in which any group that organises can obtain a hearing.
  • On this account the state is a neutral arena registering the balance of group pressure rather than imposing a direction of its own.
• The critiques are well developed, and a serious treatment needs at least three.
  • Bachrach and Baratz on non-decisions: Dahl studied only decisions actually taken, and therefore could not see the power to keep issues off the agenda entirely.
  • Olson on unequal organisability: groups do not form in proportion to interests. Small groups with concentrated interests organise easily; large diffuse groups do not — so pluralism systematically over-represents producers against consumers.
  • Lindblom’s neo-pluralism concedes the decisive point. Business occupies a privileged position because governments depend on investment decisions they do not control. Business therefore does not need to lobby to be obeyed; the anticipation of capital flight does the work.
• The structural power of capital in the era of mobile finance is the strongest version of this argument, and there is a clean historical illustration: the 1992 sterling crisis, in which speculative pressure forced the British government to devalue and exit the European exchange-rate mechanism against its stated policy.

The evidence on the ground

• Inequality data supply the empirical backbone of the critical case.
  • The World Inequality Report 2026 finds the top 10% own around 75% of global wealth while the bottom half hold about 2%, and that the wealthiest 0.001% — fewer than 60,000 people — control three times the wealth of half of humanity, their share having risen from roughly 4% in 1995 to over 6%.
  • Oxfam reports that billionaire wealth rose by $2.5 trillion in 2025 alone, and that there were more than 3,000 billionaires for the first time.
  • The political finding matters more than the economic one for this topic: billionaires are some 4,000 times more likely to hold political office than ordinary citizens, and in a World Values Survey across 66 countries almost half of respondents said the rich often buy elections.
• Movement backlash is the visible political expression.
  • Occupy Wall Street made economic inequality and the political power of finance a mass idiom, giving the “1% versus 99%” framing its currency.
  • Black Lives Matter turned to the coercive apparatus itself — the argument that formal legal equality coexists with radically unequal exposure to state violence.
  • The Yellow Vest movement in France began over a fuel-tax rise and became a revolt about who bears the cost of transition and who is consulted, drawn disproportionately from small towns and peri-urban areas outside the metropolitan economy.
• The honest conclusion is neither triumphalist nor dismissive. Capitalist democracies retain genuinely independent courts, competitive elections and a dense civil society — the recent record includes courts striking down major executive actions. What has weakened is not the machinery of democracy but democratic equality: the proposition that citizens have roughly comparable influence on outcomes.

The crisis since 2008 and the populist turn

The economic substrate

• Since the 2008 global financial crisis the advanced capitalist states have faced a compound crisis that is economic and political at once: stagnant productivity, job insecurity, wage compression for the less-skilled, migration pressure and rapidly ageing populations.
• The shift in the world’s economic centre of gravity is the background condition.
  • Western dominance was near-total from 1991 to roughly 2001. Since then the centre of gravity has moved from the Atlantic toward the Asia-Pacific, with BRICS economies challenging in one sector after another.
  • The most affected sector in the advanced economies has been manufacturing, and the most affected section, low-skilled workers — a distribution of loss that maps almost exactly onto the geography of the populist vote.
• Green and digital transitions add fiscal and distributional strain on top of this, and both have to be financed by states whose ageing populations are simultaneously increasing pension and health commitments.

The populist wave and what it actually did

• Populism in the advanced capitalist world is predominantly right-wing, and its drivers combine economic dislocation, migration, cultural anxiety and distrust of liberal elites in proportions that vary by country.
  • The specific combination that gave these parties a new lease of life was economic crisis, the migration crisis, transnational terrorism and Islamophobia arriving together within a single decade.
  • The geography of the turn began in Poland and Hungary and spread westward to France, Germany, the Netherlands and Sweden, with a parallel movement in the United States.
  • The sharpest version of the concern is that financial crisis has revived something closer to neo-fascism than to conventional conservatism — a claim worth stating carefully, since these parties mostly contest elections rather than abolish them, and the term’s analytical value declines as it is stretched.
• The wave is real and it is measurable.
  • In the 2024 European Parliament elections, the three right and radical-right groups together took 187 of 720 seats — just over a quarter of the chamber — though they fell short of projections and have not cohered into a single bloc.
  • In the German federal election of February 2025, the AfD took 20.8% and 152 seats, doubling its previous share to become the largest opposition party and second-largest party in the Bundestag — excluded from government only by the other parties’ refusal to coalesce with it.
  • In Portugal, Chega took 22.8% and 60 seats in May 2025 to become the second-largest party, a record far-right result.
  • In Austria, the FPÖ won the 2024 parliamentary election outright — and was then kept out of office when coalition talks collapsed.
  • In the United States, the 2024 presidential election returned a result of 312 electoral votes to 226, on a popular vote margin of 1.5 points and no popular majority.
• Left-populist and radical-left responses to the same crisis exist and are routinely under-weighted. The pattern in France, Greece, Spain and Britain has been the emergence of movements attacking austerity and financial power from the other direction — evidence that the crisis of the centrist consensus produces two exits, not one.

Democratic backsliding — and the 2026 counter-evidence

• Democratic backsliding means the gradual weakening of democracy by elected incumbents rather than by military coup.
  • The mechanism is legal and incremental — capture of courts, pressure on media ownership, restriction of civil-society funding, redrawing of electoral rules, harassment of opposition.
  • Each step is defensible in isolation; the cumulative effect is a system that no longer permits its own reversal.
• The aggregate indices record the worst readings in decades.
  • The V-Dem Democracy Report 2026 counts 92 autocracies against 87 democracies, with liberal democracies down to 31 from 45 in 2009 and closed autocracies up to 35.
    • 74% of the world’s population lives under autocracy; only 7% — around 600 million people — live in liberal democracies, the lowest share in over fifty years.
    • 44 countries are autocratising against 18 democratising.
  • Its most striking finding for this topic is that six of the ten newly autocratising countries are in Europe and North America, and that democracy in Western Europe and North America is at its lowest level in over fifty years.
  • Freedom House recorded 2025 as the twentieth consecutive year of global freedom decline, with 54 countries deteriorating against 35 improving, and only 21% of the world’s people living in Free countries against 46% two decades ago.
• The indices disagree, and the disagreement is itself informative.
  • The EIU Democracy Index for 2025 found the global average rising marginally to 5.19 from 5.17, calling this stabilisation after eight years of decline, with nearly three-quarters of countries improved or stable.
  • Composite indices weight components differently. A contested question of this kind does not have a single number.
• The 2026 electoral record cuts sharply against a simple linear-decline narrative, and any account that ignores it is out of date.
  • In Hungary, the archetypal case of consolidated competitive authoritarianism, Péter Magyar’s Tisza party won 53.6% and 138 of 199 seats in April 2026, ending sixteen years of Fidesz rule on a post-communist record turnout of over 77%. Orbán conceded and moved to opposition.
  • In the Netherlands, the PVV fell from around 25% to 17%, losing eleven seats, and a centrist coalition took office.
  • In Austria, the radical right won the election and was still kept from power by the other parties.
  • In the United States, the Supreme Court struck down both the tariffs imposed under emergency economic powers and the executive order on birthright citizenship — the latter on the reasoning that citizenship is “the right to have rights.”
• Holding both facts together is the analytically serious position. Aggregate indicators are at multi-decade lows; specific reversals through ordinary electoral and judicial channels have nonetheless occurred. What this suggests is that backsliding is neither irreversible nor self-correcting — it is reversible where electoral competition remains genuinely open, and consolidates where it does not.

The regulatory state now: intensifying and retreating at once

The single most important thing to see about the contemporary advanced capitalist state is that it is not simply deregulating. It is regulating far more intensively in some domains while dismantling regulation in others, and the pattern of which is which is not random.

Where regulation is intensifying — the digital economy

• The European Union has built the most developed regulatory apparatus for platforms and artificial intelligence anywhere, and is enforcing it.
  • The Digital Markets Act targets structural market power in platform “gatekeepers”, and enforcement has been real.
    • €500 million on Apple for anti-steering rules preventing developers from telling users about cheaper offers.
    • €200 million on Meta for its consent-or-pay model.
    • €890 million on Google in July 2026 — the largest to date — split between self-preferencing in search and steering restrictions on its app store.
  • The Digital Services Act targets systemic risk and transparency rather than market structure.
    • Its first non-compliance decision fined X €120 million for deceptive interface design, a non-functional advertising repository and blocked researcher access.
    • The largest to date is €200 million on Temu, for inadequate systemic-risk assessment on illegal products.
    • Preliminary findings have been issued against TikTok on addictive design and minors’ safety, and against Meta on under-13 users.
  • The AI Act entered into force in August 2024 and applies in phases: prohibitions on unacceptable-risk systems from February 2025, general-purpose AI model obligations from August 2025, transparency duties and enforcement powers from August 2026, with high-risk obligations now deferred to December 2027 and August 2028. Penalties reach 7% of global turnover.
• This is the regulatory state at full stretch — setting global standards through the size of its market, an effect that reaches firms with no European ownership at all.

Where regulation is retreating

• The European Union’s own sustainability regime has been substantially rolled back under an explicit competitiveness rationale.
  • The Corporate Sustainability Due Diligence Directive had its scope raised to firms of 5,000 employees and €1.5 billion turnover, shifted to a risk-based approach dispensing with comprehensive supply-chain mapping, had the climate transition plan obligation eliminated and the EU-wide civil liability regime removed, with transposition postponed to 2028.
  • The AI Act’s high-risk deadlines were deferred by the same simplification package.
• In the United States, the independence of the regulatory agencies has been ended.
  • The Supreme Court’s decision in Trump v. Slaughter in June 2026 overruled Humphrey’s Executor, the 1935 precedent that had protected the heads of independent commissions from removal at will.
  • The consequence is that the heads of the FTC, NLRB, SEC, FCC, FERC, NRC, EEOC and CPSC now serve at the President’s discretion — ending ninety-one years of insulation between technical regulation and electoral politics.
  • The Federal Reserve was carved out in a separate decision preserving its governors’ removal protections on the basis of its unique monetary-policy role — an exception that proves the rule about what the political system is willing to leave insulated.
• The pattern is legible. Regulation is intensifying where it disciplines foreign firms and manages information, and retreating where it imposes costs on domestic producers or constrains executive control. The regulatory state is not a neutral technique; it is an instrument, and the direction of its use is a political variable.

Welfare restructuring and the ageing state

• The welfare state has not been dismantled. Spending has been maintained or increased while its composition, conditionality and delivery have changed.
  • Social benefits expenditure in the European Union reached 27.3% of GDP in 2024, up 0.6 percentage points on the previous year — with Finland at 32.5%, France at 31.9% and Austria at 31.8% against Ireland at 12.4%.
  • Social protection is the largest single function of European government, accounting for 39.3% of total government expenditure, of which old-age pensions alone are 10.4% of GDP.
• What changed was the mode of provision, not the volume: more targeting and means-testing, more conditionality attached to benefits, more contracting-out to private and voluntary providers, more public-private partnership in infrastructure and health, and the substitution of market-linked pension schemes for defined-benefit ones.
• Demography is the binding constraint, and it is arithmetic rather than ideology.
  • 22.0% of the EU population is aged 65 or over and 6.2% aged 80 or over, with a median age of 44.9 years.
  • The old-age dependency ratio stands at 34.5% — just over three working-age people per person over 65 — and is projected to nearly double to 59.7% by 2100, with the over-80 share rising two-and-a-half-fold.
  • No welfare state designed on 1950s demography survives that transition without either higher contributions, later retirement or lower benefits — and each of those is a political fight.
• France is the case that shows what the fight looks like.
  • The 2023 reform raising the retirement age from 62 to 64 was passed without a parliamentary vote using the constitution’s emergency procedure, and triggered mass strikes.
  • In November 2025 the National Assembly voted 255-146 to suspend it until after the 2027 presidential election, freezing the age at 62 years and nine months and allowing around 3.5 million people to retire earlier.
  • The suspension was the price of avoiding a censure motion, and it substantially undermines deficit targets in a country running a deficit of 5.8% of GDP, the largest in the eurozone. France has had five prime ministers in two years.
• The general lesson is one the classical welfare-state literature anticipated: retrenchment is far harder than expansion, because welfare programmes create concentrated constituencies with an intense interest in their continuation while the benefits of reform are diffuse and deferred.

The return of state capacity

The most significant recent development in the advanced capitalist state is not further retreat but a selective and deliberate reassertion of capacity, organised around security rather than welfare.

• Industrial policy has returned openly, after four decades in which naming it was itself a policy failure.
  • The US CHIPS and Science Act and the EU Chips Act both target semiconductor capacity on explicitly strategic grounds; the European measure aims to double the EU’s global semiconductor market share to 20% by 2030 and has already approved state-aid decisions representing over €32 billion of public and private investment.
  • The EU Net-Zero Industry Act sets a benchmark that EU net-zero manufacturing capacity meet at least 40% of annual deployment needs by 2030, and makes non-price criteria mandatory for a share of procurement.
• The state has moved from subsidising to owning.
  • In August 2025 the United States government took a 9.9% equity stake in Intel — 433 million shares worth $8.9 billion — by converting unpaid grant awards into common stock, with a warrant for a further 5%.
  • A grant is a subsidy; an equity stake is ownership. The distinction matters.
• The scope of industrial policy has been re-cut from climate to security. The same period that saw the Intel equity conversion also saw the repeal of the major clean-energy tax credits enacted under the Inflation Reduction Act. State capacity is being rebuilt, but along geoeconomic rather than developmental lines.
• Defence has broken fiscal rules that survived everything else.
  • NATO members committed at the 2025 Hague summit to 5% of GDP by 2035, structured as at least 3.5% for core defence and up to 1.5% for defence-related infrastructure and resilience. European allies and Canada reached 2.3% of combined GDP in 2025, up from 1.4% in 2014.
  • Germany amended its Basic Law in March 2025 to exempt defence spending above 1% of GDP from the constitutional debt brake, and created a €500 billion infrastructure fund over twelve years. A country that had written fiscal discipline into its constitution amended the constitution rather than the policy.
• The intellectual framing has caught up.
  • The Draghi report on European competitiveness called for €750-800 billion in additional annual investment — up to 5% of EU GDP — around three priorities: closing the innovation gap, combining decarbonisation with competitiveness, and cutting supply-chain dependencies.
  • The IMF finds industrial-policy interventions accelerating sharply since 2009, with over 80% taking the form of subsidised financing and direct support rather than tariffs — while cautioning that success depends on conditions “difficult to determine in advance.”
• The convergence thesis remains weak, and this is the standing argument against reading any of the above as a single trajectory.
  • The varieties of capitalism literature associated with Hall and Soskice distinguishes two coordinating logics.
    • Liberal market economies coordinate through competitive markets and arm’s-length contracting.
    • Coordinated market economies coordinate through employer associations, bank finance, long-term employment and non-market relations.
  • Each has institutional complementarities that make wholesale imitation of the other unstable — which is why decades of common pressure have produced persistent divergence rather than a single model.

The Indian anchor

The advanced capitalist state is not India’s condition, but the comparison is what makes India’s own trajectory legible — and several of the transitions described above are visible here in compressed form.

• India’s post-1991 shift is the same movement from producer to regulator, telescoped into a shorter period and from a very different starting point.
  • The licence-permit system was a form of direct allocative control with no equivalent in the post-war Western state; dismantling it created, exactly as the regulatory-state literature predicts, a new architecture of regulators — TRAI, SEBI, CERC, IRDAI, the Competition Commission, and the appellate tribunals above them.
  • Disinvestment did not produce a smaller state. It produced a state that regulates telecom, power, insurance, capital markets and competition far more intensively than the pre-1991 state regulated anything, while the public sector retains commanding positions in banking, railways, coal and defence production.
• India built a digital state layer earlier and more comprehensively than most advanced economies, and the debates that follow are the same ones.
  • Aadhaar and the direct benefit transfer architecture deliver at a scale no Western system attempts, and generate the same tension between delivery efficiency and privacy that the surveillance-state literature identifies.
  • Justice K.S. Puttaswamy v. Union of India established the right to privacy as a fundamental right and imposed a proportionality test on state data collection — an Indian constitutional answer to a question European regulation answers by statute.
  • The Digital Personal Data Protection Act and its rules complete the statutory layer, though the breadth of the state exemptions for law enforcement and regulatory functions is precisely the point on which the comparison with the European regime is sharpest.
• India’s welfare state runs on the opposite logic to Esping-Andersen’s cases and is more interesting for it.
  • The advanced capitalist welfare states were built on contributory social insurance for a formally employed workforce. India’s is built on non-contributory transfers to a workforce that is overwhelmingly informal — food, cooking gas, housing, insurance, income support — because the contributory model has no base to sit on.
  • This is why decommodification as a concept travels poorly to India. The question in a European welfare state is whether a worker can survive without selling their labour; the question in India is whether a household outside the formal labour market has any claim on the state at all.
• The class-power critique of liberal democracy has an Indian literature of its own.
  • The Supreme Court struck down the electoral bonds scheme on the reasoning that anonymous corporate political funding violates the right to information under Article 19(1)(a).
  • It is the sharpest recent Indian instance of a court adjudicating exactly the relationship between concentrated economic power and democratic equality that Miliband, Lindblom and the contemporary inequality data all describe.
• India’s own populist and majoritarian politics are frequently analysed with concepts drawn from the advanced-capitalist literature — backsliding, executive aggrandisement, the capture of referee institutions.
  • The transfer is legitimate but not automatic. India’s cleavages run along caste, religion, region and language rather than the class-plus-migration axis of European populism.
  • A framework built for the latter will misread the former if applied mechanically.

Conclusion

The advanced capitalist state has changed its functions far more than its size. It produces less and regulates more; it has surrendered monetary and trade authority upward while acquiring informational authority over its own population; it spends as much on welfare as ever while delivering it on harsher terms; and it has rediscovered industrial policy, equity ownership and deficit-financed rearmament in the space of five years.

What has genuinely weakened is neither the state’s capacity nor its reach, but the post-war political settlement that made its authority feel legitimate — the compromise between capital and labour that funded the welfare state, and the liberal consensus that made elections feel like a real choice between programmes.

The populist wave, the backsliding indices and the movement backlash are symptoms of that settlement’s exhaustion rather than of the state’s decline. On the evidence of the last two years the advanced capitalist state is not fading; it is being fought over, and the outcome of that fight is genuinely open.