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When Wisconsin governor Tommy Thompson traveled to Germany in the mid-1990s, he hoped to tap new markets for his state’s cheese products. However, German chancellor Helmut Kohl was interested in another Badger State export: welfare reform policy. Thompson recalls that while he kept trying to turn the conversation to trade, the chancellor queried the governor relentlessly on how to secure bipartisan support for his legislative initiatives.

This exchange illustrates what political observers are beginning to refer to as global domestic policy. No longer are transatlantic conversations reserved for international security or world trade issues. Amid increasing globalization, international leaders are now convening to discuss matters of local concern, such as reducing crime, improving schools, and reforming the welfare state.

Although frustration over the increasing costs and diminishing returns of welfare spending has been mounting for years in the West, fundamental reform has been undertaken only in the past decade. The United States has led this movement, thanks to its 1996 welfare reform law that upended sixty years of entitlement welfare programs infamous for having increased dependency and decreased hope for poor families. The new law favors work requirements, places time limits on receiving welfare, and offers states greater flexibility in tailoring their own policies.

Epicenter of Reform

Leading up to that 1996 law, Wisconsin served as the epicenter of welfare reform as it sought to improve the system from the ground up. Relying on a long-neglected provision of the Social Security Act, then-Governor Thompson sought and received waivers from federal welfare regulations that enabled his state to fix key aspects of the now defunct Aid to Families with Dependent Children program (AFDC). The Wisconsin reform packages, numbering close to a dozen between 1988 and 1996, emphasized personal responsibility; strategies to move people from welfare to work; and a new role for government bureaucrats, transforming them from check-writers to job connectors.

It was never on Thompson’s “to do” list to inspire national and international leaders to replicate his success, but, like Helmut Kohl, other would-be welfare reformers were drawn to three critical features of the Wisconsin model:

1. A bold approach. Wisconsin became the first political entity in the world to completely replace the welfare state with a work-based safety net. In the Wisconsin Works (W-2) program, all welfare beneficiaries are expected to participate in work activities in exchange for receiving payment. To accommodate the participants’ uneven levels of job readiness, W-2 offers a “job ladder”—a range of assignments from work preparedness training to private sector employment.
2. Demonstrated success. Over the dozen years that Tommy Thompson was governor, Wisconsin’s welfare caseload plummeted more than 90 percent. In fact, Wisconsin’s welfare caseloads declined steadily even while the national caseload climbed to an all-time high in the early 1990s. American and foreign officials visited the state in droves to observe the reforms in progress.
3. Political leadership. Thompson was a relentless campaigner for his welfare reform agenda. This was manifest in each of his statewide election contests, his legislative negotiations, his national policymaking roles, and his extensive interaction with the media. His message was so consistent that aChicago Tribune Magazine cover story dubbed him “Governor Get-a-Job.”

Sister Act

The rest of the nation followed suit with a number of welfare reform initiatives in the mid-to-late 1990s, and Wisconsin’s tremendous influence on this mass movement was not lost on President Bush, who tapped Thompson to serve as his secretary of Health and Human Services and has assigned him the task of configuring welfare reform’s next phase. The 1996 welfare law must receive congressional reauthorization by October 1, 2002, to remain in effect, and Thompson is leading the way with a new set of reform proposals aimed at strengthening families. And in addition to that and shepherding ongoing state reform efforts, Thompson is again helping to shape international welfare policy. Thompson recently met with Roland Koch, prime minister of Hesse, Wisconsin’s sister state in Germany for the past quarter century. Mr. Koch was so impressed by the Wisconsin model that he dispatched his top policy advisers to Madison for a reconnaissance mission. The result was a Koch-sponsored blueprint for reform that is a virtual carbon copy of Wisconsin’s program: work requirements, a merger of the welfare agency with job centers, a binding agreement that stipulates the rights and responsibilities of recipients (the so-called Hesse Pact), sanctions for noncompliance with assigned activities, agency performance incentives, and waiver privileges to enable all sixteen German states to tailor their own initiatives.

Germany resembles much of Western Europe in its graying workforce and the consequent infeasibility of maintaining a pay-as-you-go social safety net. In Germany, that safety net has become more like a hammock. Due to the comforts derived from Germany’s very generous social benefits, recipients have no incentive to take entry-level pay. This has resulted in over 4 million unemployed—nearly 10 percent of the eligible workforce—and another 2.7 million on welfare. Social transfers represent roughly one-third of the gross domestic product (GDP), requiring payroll taxes in excess of 40 percent. There is a widening consensus regarding what the problem is (the inherent unaffordability of the Bismarkian welfare state), but no consensus idea about how to fix it. German chancellor Gerhard Schroeder has expressed the deep frustration of his countrymen by calling able-bodied welfare recipients “lazybones,” but he has yet to provide a solution.

In January of this year Roland Koch, a Christian Democrat, introduced his Wisconsin model of reform in the German Bundesrat, but it was voted down. However, welfare reform is featured prominently in the Christian Democratic Union’s (CDU) national election campaign this summer, and the plan is predicted to be re-introduced if the CDU prevails. Popular support for the initiative is mounting. In a recent Wall Street Journal Europe commentary entitled “Wisconsin am Rhein,” the editorialists wrote that the Koch plan shows promise and rightly takes on the dependency culture of welfare in Germany. Whether a majority of German voters share that view will be known this fall.

To Deutschland and Beyond

Germany is not the only nation to borrow its reform blueprint from Wisconsin. Their Dutch neighbors to the north have made even more visits to the state to mine for policy ideas. The interest of the Netherlands can be traced to a Hudson Institute welfare policy seminar held in Wisconsin during autumn 1997 and attended by both U.S. and European reformers. One participant was a Dutch academic who doubles as a key adviser to the mayor of Amsterdam. He called on the mayor to implement performance measures in the city’s welfare contracts, as Milwaukee had done with much success. The mayor agreed and their demonstration project is now being tested throughout the city. The Dutch national government has also undertaken the task of constructing job centers in every region in the country, and it is experimenting with community service jobs to build a work ethic among the poor and to leverage private sector participation. Anticipating political gains by the conservatives in upcoming elections, Dutch reformers are looking to take additional steps to create a work-based safety net next year.

But arguably the most robust imitator of the Wisconsin model is British prime minister Tony Blair. The prime minister and his most influential adviser, Chancellor of the Exchequer Gordon Brown, have both expressed admiration for the Wisconsin model and have used it in part as a blueprint for the Labor government’s New Deal reforms. Intent on moving 250,000 long-term unemployed young adults into work, the Blair administration designed a New Deal for Young Unemployed (NDYU) as a thinly veiled version of Wisconsin Works. Originally implemented in the spring of 1998, all unemployed young people aged 18 to 24 enter a mandatory “gateway” course in which they are assisted with job searching and if necessary, alternatives to unsubsidized employment. Likewise, the “options” phase closely resembles the Wisconsin Works job ladder. At the high end, a NDYU participant can be placed in a subsidized job. This is a private sector position, though the employer is rewarded with a subsidy. If not ready for the regular labor market, the young person can take a placement of up to six months in community service. And for those entirely “without qualifications,” the government allows full-time education for up to one year.

British government ministers have made quite some noise about the fact that there is “no other option,” meaning that the young person either must participate in the scheme or the government will refuse to pay their benefits. This is a marked departure from the passive (and generous) provisions of the former welfare system. Some in Britain argue that the same stringent reforms should be applied to other groups, such as single parents. A fair enough claim; however, it is indeed noteworthy that the Brits have now established in their welfare program the principle that with rights come responsibilities.

Other nations are following suit. Some, such as France, are merely acknowledging the need for reform, while others are well on their way to market-based reforms. Proving that the Wisconsin influence has not waned, a Dutch reformer was recently invited to speak at an Australian conference on the topic of how Europeans have adopted the Wisconsin model. Whether all this international activity translates into a wholesale repudiation of the welfare state in the West or a more temperate modernization of it remains to be seen. But whatever the final destination, the best route taken will be the one co-navigated by reformers on both sides of the Atlantic.

Wisconsin played a historic and inspirational role in setting a new course in social policy. And just as its reform model offered a useful blueprint, its record of achievement—reduced welfare rolls, increased employment rates, and reduced levels of poverty—offers a standard with which to judge the international reform movement’s ultimate success.