WELFARE STATES
Traditionally, governments have been concerned with law and order, military affairs, and the protection of wealth and
privilege. But in recent past, a new philosophy of government has emerged. In welfare states, the government plays a
vital role in protecting and promoting economic and social well-being for citizens. Core principals in welfare states
include equality of opportunity, equitable distribution of wealth, and public responsibility to assist those who cannot
provide for themselves a minimal quality of life. Essentially, the government will provide at least for those in need, and
in some cases for all citizens through government programs that are generally funded through taxation.
The first welfare state was created by Otto von Bismarck, the first chancellor of Germany, who built upon traditional
welfare programs in Prussia as early as the 1840s. Under Bismarck, the government offered old-age pensions, accident
insurance, and medical care, all of which are still featured in European welfare states today. Bismarck’s programs won
support of German industrialists because they supported the working class, reducing the emigration of immigrants to
the United States where wages were higher but welfare was scarce.
The modern welfare state in the United Kingdom emerged under reforms of Prime Minister Herbert Asquith between
1906 and 1914. These included the Old-Age Pensions Act, free school meals beginning in 1909, the 1909 Labour
Exchanges Act, the Development Act 1909, and National Insurance Act 1911 which established national insurance
contribution for unemployment and health benefits from work.
Welfare policies took longer to emerge in the United States than in Europe. Sociologist Lester Frank Ward (1841-1913) is
credited as “the father of the modern welfare state” and produced the earliest comprehensive philosophical justification
for the welfare state despite opposition from conservative thinkers who asserted that providing assistance to the poor
would delay social progress and drain society. Ward argued that universal education was necessary to the functioning of
a democratic government. He also believed in the equality of women, races, and classes, although those ideas would
take longer to garner public support than the idea of universal education.
The welfare system in the United States began during the Great Depression in the 1930s. President Franklin D.
Roosevelt’s New Deal policies provided aid to the poor in the forms of work relief, unemployment programs, Social
Security, and specific relief programs for rural areas. After Great Society legislation of the 1960s, people who were not
elderly or disabled could receive need-based aid from the government like general welfare payments, health care
through Medicaid, food stamps, special payments for pregnant women and mothers, and housing benefits.
Today’s welfare programs can be categorized into 3 models:
Social Insurance Model / Corporatist Welfare Regime: These states are concerned with maintaining order and status and
to accomplish this, social insurance funds are established to reward work performance and status, including old age
pensions, healthcare, unemployment benefits, or accident insurance. The German model under Otto von Bismarck is an
example of this. Social insurance funds usually have varying levels of benefits based on contribution and status of the
labor association, whether the person be blue or white collar, a civil servant, etc. The advantages of Corporatist Welfare
States are that they enjoy high levels of public support, allow benefit recipients higher levels of income, allow for private
services too (like in healthcare), and benefits increase when contributions increase. Adversely, the negative aspects are
that they reinforce social cleavages, are sensitive to employment conditions, drive up payroll taxes and labor costs,
penalize those in part-time job situations, and often provide few benefits for people outside the traditional model, such
as those newly in poverty.
Liberal Welfare Regime: The liberal welfare regime is characterized by a means-tested programs and modest universal
benefits which are based on public services or insurance schemes. They cater to low-income, working class individuals
and the state generally encourages the free market to act as a co-provider of benefits. Benefits tend to be of poor
quality and carry a negative stigma with the public. The two major problems with this type of welfare system is it
excludes the majority of people from enjoying welfare programs, which makes them unpopular, and it tends to create a
divided society of those dependent on services for the poor and a more affluent middle and upper class that has access
to better services from the private market.
Social Democratic / Scandinavian Welfare Regime: It is within this system that the concept of social rights has most fully
been realized as enjoyment of benefits and services is least dependent on a person’s performance. The Scandinavian
system is also characterized by its extensive service orientation catering to even the most discriminating tastes of the
middle class in terms of day care, elder care, home help, and other services. Entitlements are usually the same across
the board, but benefits can be graduated to income. One negative consequence of this is that the state effectively
eliminates private competition in the free market; additionally, providing all of these services is incredibly expensive and
requires high taxation. But, in effect, the Scandinavian system increases employment in providing these services and
reduces disparities in social classes.
WELFARE STATES DATA ANALYSIS
The following is an excerpt from BBC News Magazine. Examine how tax rates change with income between different
countries. How high are the tax rates in European welfare states compared to the United States or developing
countries?
Salary of $400,000
Mortgage of $1.2 Million
Married
2 Children, 1 aged under 6
Take Home Pay:
50.59% Italy
54.90% India
57.28% United Kingdom
58.10% France
58.13% Canada
58.68% Japan
59.30% Australia
60.45% United States
60.61% Germany
61.78% South Africa
62.05% China
64.02% Argentina
64.64% Turkey
65.75% South Korea
69.78% Indonesia
70.60% Mexico
7332% Brazil
87% Russia
96.86% Saudi Arabia
Single People with no children
Average salary for their country
Married Couples with 2 Children
Average salary
Applicable Tax Rates:
42.80% Belgium
39.90% Germany
38.90% Denmark
35% Hungary
34% Austria
25.4% Greece
OECD average 25.10%
24.90% UK
22.70% USA
16.40% New Zealand
15.5% Israel
13% Korea
9.5% Mexico
7% Chile
Applicable Tax Rates:
34.8% Denmark
31.9% Austria
31.8% Belgium
29.4% Finland
28.7% Netherlands
26.7% Greece
24.9% UK
21.3% Germany
OECD Average 19.6%
10.4% USA
10.2% Korea
9.5% Mexico
7% Chile
5.6% Czech Republic
According to an article in Eutopia Magazine, spending differs across European nations.
You may be thinking now, why does the United States not have a welfare system as generous as those in Europe?
According to a Harvard Study, the differences lie not in pre-tax income distribution, volatility of income, or social costs of
taxation. Instead, the differences appear to be the result of racial heterogeneity in the United States. Yes, racial
animosity in the United States makes redistribution to the poor, who are disproportionately black, unappealing to many
voters. [See Why Doesn’t the US Have A European-Style Welfare State? by Alberto Alesina, Edward Glaeser, and Bruce
Sacerdote, November 2001.]
The same study also published comparisons of benefits distributed to families and individuals, including the following
based on 1999 estimates:
Family Benefits per
Child:
Regardless of income of
parents to age 18 in
Germany & age 16 in
Sweden
Healthcare:
Both Germany &
Sweden offer universal
coverage with unlimited
benefits, but some
costs are still borne by
patients
Full Cost on Patient for
medical treatment &
hospitalization
Sickness:
Benefits based on
percentage of monthly
earnings
Non-Contributory
Minimums, Monthly
Benefits:
Programs directed to
relieve poverty
Given as % of average
wage
18-63% based on 5
states
23.2% for TANF
USA
0
Germany
$136.30
$0
70%
39.3%
Sweden
$86.91
$10-14
80%
47.2%
It is also important to consider the alternative: private charitable welfare services. Americans engage in more private
provision of welfare than Europeans. It appears Americans give more of their time and money to the poor than do
Europeans. According to the World Values Survey (circa 2001) 11% of Americans responded that they participated in a
charitable group in the past year, whereas the average across European countries was just 4% with the highest in the
Netherlands at 8.6% and the lowest in Denmark with only 2%. From this, we can conclude that public provision of
services drives out charity, not necessarily that Europeans are more cold-hearted than Americans.