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This article provides information about the various conditions that led to the evolution of liberal state:
In the nineteenth century, commercial interests in England were specifically geared to limit the powers of the state and to establish parameters within which business activity could remain more or less untrammeled.
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The state proposed ‘cooperation’ and started controlling the movement of capital for the ‘public interest’. The liberal state at this stage was not a laissez-faire state but one in which interventionism was required to create or maintain the conditions for private accumulation of wealth.
It also demanded the involvement of the bourgeoisie in the public sphere. The extension of capitalism tended to reduce earlier mercantilist notions of state economic activity and the political control of trade. Instead, public action on economic matters consisted largely of the construction and management of legal, fiscal, monetary and financial frameworks for the autonomous self-regulating operations of the allocative mechanisms constituted by the markets of land, capital and labour.
The liberal state thus played an important role both in the economy and in social life. Wolfe suggests, “the accumulative state’s role during this period of expansion was to: define the broadest parameters of economic activity, preserve discipline in order to increase production, adjust macroeconomic conditions, provide direct subsidies to private industrialists, and to fight wars”. Moreover, the new bourgeoisie in Britain were quick to turn to Parliament to reform and unify the existing localised forms of social control which did not fit well with the requirements of an emerging capitalist society.
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Throughout the nineteenth century, the extension of formal liberal rights in conjunction with deepening social disparities broadened the debate on the question of equality. In several European countries the rights to association and trade unionism were extended to the working class in order to broaden the base of social justice, although amidst opposition from the proponents of laissez-faire.
The extension of citizenship to the lower classes was given the special meaning that as citizens the members of these classes were entitled to a certain standard of well-being in return for which they were only obliged to discharge the ordinary duties of citizenship. Such developments marked a move away from the radical individualism of the liberal state.
The development of the modern, increasingly powerful state during the latter part of the nineteenth century, however, had induced conflicting responses from businessmen over the extent to which the state should actively secure the basis of successful capital accumulation through increased economic interventionism in the market.
At the beginning of the twentieth century, the economy did not seem to be fully operating on the model enshrined in the paradigm of liberalism. Firms were larger, production was concentrated, liability was more limited, and the functions of corporate ownership and management became more distinctive, particularly as demands for protection of home and markets that were stimulated by foreign competition increased.
The First World War shaped capitalism in a way that differed considerably from the liberal design. In England, for example by the end of the war the state combined and controlled the railways, guaranteed profit margins and had assumed a major role for insurance. It was also the largest employer and produced the major part of national output. In the period between the two World Wars cooperation between the state and the business interests was the dominant guiding principle of social management. After the Second World War there was a clear shift, both in Europe and America, towards the welfare state.