The ECONOMICS and POLITICS
of WELFARE STATES
In a welfare state, government programs take primary responsibility for
providing the economic security of unemployed, ill, or retired citizens.
• Why were paternalistic poor relief schemes
replaced by more universalistic welfare
states in advanced capitalist nations?
• What explains cross-national variations of
state-provided services in combination with
voluntary, nonprofit, private-sector support?
• Should comprehensive, universal welfare be
considered a human right? Or is the state
obligated to provide only a minimal safety-net?
• Will inevitable fiscal crises necessitate severe
retrenchments of the modern welfare states?
European Social Insurance Programs
Modern welfare states, emerging gradually in late 19th century from
poor relief schemes, provided relatively universal coverage in the 20th.
To block socialism’s appeal, German Chancellor Otto
von Bismarck created first state-run social insurance
program paying retirement benefits (1889). System
was funded with payroll taxes paid by employees and
employers, with governmental contributions. It also
included disability benefits for injured workers.
Why did Bismarck set the age of retirement at 65
years? What problems does it create for today?
Nordic systems of 1930s based on mutualist benefit
provisions. UK’s 1942 Beveridge Report formed
basis for a pension fund to which workers made
compulsory contributions during working lives.
Universal coverage included income & assistance
to workers and their families in the event of injury or
illness; eventually a “socialized medicine” system.
From New Deal to Great Society
America’s individualist culture delayed the welfare state, but the Great
Depression (1929-41) made rudimentary welfare politically feasible.
FDR’s New Deal tried to rationalize market instabilities
by strong federal government intervention. It transferred
money to unemployed workers by Federal Emergency
Relief Administration (FERA), Civilian Conservation
Corps (CCC), and Civil Works Administration (CWA).
The Social Security Act of 1935 provided Old Age and
unemployment insurance, and welfare benefits for such
dependent groups as children and the handicapped.
High-water mark for U.S. welfare state was 1960s,
when Lyndon Johnson used his landslide political
capital to push through Great Society legislation:
Medicare/Medicaid, Job Corps, Head Start, Upward
Bound, Neighborhood Youth Corps, VISTA, Model
Cities. The U.S. poverty rate fell from 22% to 13%.
Yet the Great Society was never fully funded; why?
Conservative Backlash
By the 1980s, both Britain and America turned politically conservative,
electing leaders who cut the welfare state in favor of market solutions.
To promote a more entrepreneurial culture, Margaret
Thatcher reduced state controls over business. She
curtailed the trade unions’ power and fostered a more
flexible labour market to create jobs. Her policies
initially created very high unemployment and wealth
inequality, but by the mid-1980s sustained economic
growth led to improved U.K. economic performance.
Applying “supply-side” and “trickle-down” economic
theories, Ronald Reagan used slowed social welfare
spending, tight-money policies, & across-the-board tax
cuts to boost business investments. Following a sharp
recession, the U.S. economy dramatically expanded.
But, high Cold War military spending contributed to huge
federal budget deficits, tripling the national debt.
Was Reagan deficit a strategy to starve the welfare state?
Rolling Back the Welfare State?
Bill Clinton tried to expand the welfare state, putting Hillary in charge
of an ultimately failed effort to create a universal health care system.
Their proposal combined complex government and
market reform ideas that provoked opposition from
many interest groups. With Democrats in disarray,
Republicans effectively mobilized a grassroots antigovernment campaign to defeat the plan. The 1994
right-wing Republican election victories killed any
future chance for comprehensive health care reform.
Further evidence of a welfare-state rollback?:
- Employers are reducing their health care coverage.
By 2003, 45 million Americans (15.6%) were uninsured.
- Under the 1996 welfare reform bill, no person can
receive welfare payments for more than five years.
- George Bush wants to “strengthen Social Security” by
using some of its taxe$ for private investment accounts.
Three Welfare Worlds
Gøsta Esping-Anderson proposed an influential typology of welfare
regimes based on a Marxist concept of the decommodification of labor.
Decommodified welfare states treat economic security as an
entitlement, removing the recipients from compulsions and
risks of capitalist markets. Rules about pensions, sickness,
and unemployment benefits govern access and eligibility,
income replacement levels, and protections against societal
risks (1990 The Three Worlds of Welfare Capitalism).
1. Liberal (U.S.): labor commodification maximizes the market; much
private welfare, means-tested benefits, low wealth redistribution
2. Conservative (Germany): medium decommodification, state aids
families unable to succeed in market, to preserve status hierarchy
3. Social Democratic (Sweden): fully decommodified, state uses tax
transfers “to preemptively socialize the costs of familyhood”
Conservatism: number of major occupationally distinct pension schemes; expenditure on government-employee
pensions as a share of GDP
Liberalism: means-tested poor relief; private pensions; private health spending
Socialism: share of population age 16-64 eligible for sickness, unemployment, and pension benefits; ratio of
basic level of benefits to legal maximum benefits, average for sickness, unemployment, and pension programs.
Hicks & Kenworthy’s factor analysis of E-A’s data empirically identified only two
welfare-state dimensions: “Socialist-liberal” and “Traditional conservatism.”
Consequences of Welfare States
Does welfare expenditure affect national economic performance?
Liberals claim that high welfare spending sacrifices strong growth,
social democrats charge that it increases poverty and inequality.
E-A’s typology is related to
national income distribution:
Social democracies have less
inequality than conservative
and liberal welfare states, as
measured by the Gini ratio
(where 0 = perfect equality).
What is the likely impact of
recent Bush Admin’s tax cut
policies on U.S. inequality?
Hicks & Kenworthy’s multiple regressions found socialist-liberalism scale
decreased income inequality & poverty, raised women’s share of earnings.
Traditional conservatism increased unemployment & rate of unemployment.
Welfare Spending Slows Growth?
James Gwartney, Robert Lawson and Randall Holcombe. 1998. The Size and Functions of Government and Economic Growth.
Joint Economic Congressional Committee, Jim Saxton, chairman.<http://www.house.gov/jec/growth/function/function.htm>
Gendering Welfare State Theory
Dana Hill & Leann Tigges examined competing explanations of
working-class institutional effects on quality of women’s pensions.
Radical feminism: Male-dominated institutions
produce male-biased outcomes, disadvantaging
women’s average pensions relative to male pensions,
to average women’s wage, & to average societal wage
Socialist feminism: Working-class institutions
promote class-wide interests of equal gender benefit
Which nations have higher parity
between male & female pensions?
Which hypotheses better fit the data?
How do women’s access to economic
and political institutions affect their
security and retirement incomes?
The Politics of Welfare
John Myles & Jill Quadagno contrasted industrialism, class, & political
explanations of the historical variations among welfare state forms.
Recent research shows that “politics matters,” by
documenting “the importance of working-class
mobilization (in unions and parties) as a condition
for early (e.g., 1920s) welfare state consolidation
and for explaining national differences in their
subsequent expansion. …[and] distinctive role of
social Catholicism and Christian Democratic parties
in generating high levels of social spending…”
Since 1970s, how have welfare states “accommodated to austerity?” What
role are political institutions playing in welfare responses to globalization?
What are the welfare impacts from slower growth, aging populations, new
gender roles, changing family structures, shifts in social class composition?
Are advanced capitalist nations engaging in a “race to the bottom,” or are
reports of the welfare state’s demise greatly exaggerated?
What is the evidence for regime retrenchment or program restructuring?
How are “the new politics of welfare” creating resilient welfare states?
New Politics of Retrenchment
Walter Korpi disputed post-industrialist explanations of retrenchment,
where demographic & economic changes drive permanent austerity.
The European welfare-state regress reflects the return of
mass unemployment: “In the power-resources approach,
… conflicts concerning the determination of demand for
labor and levels of unemployment emerge as key issues.
Government budgetary pressures … is to a major extent
correlated with the rise in unemployment levels.”
Why is unemployment a key variable?
Who has interests in raising/lowering it?
What short-term benefit programs are
being curtailed in European Union?
What role has party politics played in
welfare retrenchment?
What will likely be Europe’s future implicit
social contract between groups?