The term welfare state is strongly associated with socioeconomic policies adopted in advanced capitalist economies particularly after 1945, which rested on the conviction that societies can be shaped by conscious policies designed by state institutions to eliminate abuses resulting from the market process within a capitalist economy. Nevertheless, both the idea and various welfare practices existed before the postwar period. The oldest of these traces back to social insurance programs in Germany in the 1880s. While the French government set up similar pension plans in 1910, the British government introduced a national insurance system, old-age pensions, and health and compulsory unemployment insurance systems in 1911, and the Swedes initiated the first compulsory and universal pension system in 1913. The only national program in the United States was the old-age insurance program initiated by the Social Security Act in 1935, leaving implementation of other welfare plans to individual states. However, these early programs were limited in scope, and after World War II the government transformed them into more comprehensive programs of universal benefits.
A growing literature examines why welfare states expanded after 1945, and the most comprehensive variations of these studies begin with a theory of advanced capitalism. Prior to this period, the leading capitalist countries experienced high unemployment levels, severe inflation rates, government deficits, productivity declines, and increasing inequality. Although various combinations of public and private solutions attempted to prevent social unrest, broader developments irrevocably altered the economic, political, and social environment after World War II. Therefore, these countries reconsidered their idolization of the market and put greater emphasis on state intervention in the economy. On the one hand, the welfare state was to ensure the reproduction of all conditions of production. State regulation, then, emerged as an essential basis of economic process as well as the precondition for the maintenance of an adequate labor force for new patterns of production. On the other hand, the idea behind the welfare state depended heavily on a compromise between social actors in the face of a powerful material and ideological competitor, socialism, which threatened the very existence of the capitalist system. The state’s role, then, would be to mitigate class conflict and to balance the asymmetric power relation between labor and capital. Labor unions were recognized as the legitimate economic and political representatives of working class both in collective bargaining process and public policy formulation.
Within this context, ideas of John Maynard Keynes (1883-1946) provided the ideological justification and theoretical basis of welfare states at a time when the Great Depression still had its hold on industrialized economies, and neoclassical economics offered no clear solutions. Keynes argued that public expenditures could maintain a certain demand level without affecting profits and smooth out the fluctuations of the market. Moreover, he claimed that monetary expansion, by controlling the level of interest rates, would result in investments that would create new jobs. With the widespread acceptance of Keynesian assumptions after 1945, government fiscal and monetary policies ensured an environment for a nonhostile labor force and favored the growth of mass markets and standardized patterns of consumption. Indeed, the period between 1945 and 1960s is generally referred to as the “Golden Age” of capitalism.
Welfare expenditures in Western democracies included various practices such as labor protection legislation, minimum wages, unemploymentbenefits, and other comprehensive compulsory insurance programs. The growth of the welfare state also contributed to increases in other public expenditures such as education, health, state-subsidized housing, and so on. The public sector undertook necessary infrastructure investments; that is, railways, telecommunications, water, coal, gas, and electricity supply. Moreover, because the idea of the welfare state rested on the principles of equal opportunity, adequate distribution of wealth, and public responsibility, it also aimed at constituting a broader safety net that would protect its subjects from risks such as lifelong disability following a workplace accident and/or risk of loss of spouse or parent and being left without support.
Although most modern industrial societies instituted at least some of these measures, countries developed their own national versions. This led analysts to distinguish these variations. Most influential and widely used is Gosta Esping-Andersen’s threefold categorization: the social democratic model (Scandinavian countries); the liberal model (United States, Canada, Australia, and United Kingdom); and the conservative model (Germany, France, Austria, and Italy). The main criteria behind these different welfare regimes were their degree of de-commodification; that is, the relative independence of the system from the compulsion and risks of the market. These differences emerged from the nature of class mobilization, class-political coalition structures, and regime institutionalization in each country and decisively affected the articulation of political demands, class cohesion, and the scope for labor-party action. Recently, a fourth, “familialistic” type evolved for late-developing; peripheral southern European or Mediterranean economies, since similar social-demographic trends, economic constraints, and patterns of public policy exist among these countries, such as large agrarian sectors, traditional social structures, and family capitalism.
However, after the 1970s, the world economy experienced serious challenges: Productivity slowed down, inflation rates rose, the international monetary system broke down, competition among national economies increased, and foreign debt ratios exploded. Although debate continues, some experts called the welfare state a major drain on economic growth and competitiveness. Critics contended that the high involvement of government with welfare expenditures was a misallocation of resources that might otherwise have gone into more productive investments. These arguments found their intellectual culmination in neoliberal and monetarist doctrines and their political support from New Right governments, such as those of Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. Since then, governments in many countries have implemented significant reductions in welfare state expenditures. Nevertheless, their pace and degree depend heavily upon which of the three welfare regimes existed in the previous period.
- Esping-Andersen, Gosta. 1999. Social Foundations of Postindustrial Economies. New York: Oxford University Press.
- Goodwin, Robert B. and Deborah Mitchell, eds. 2000. The Foundations of the Welfare State. 3 vols. Northampton, MA: Edward Elgar.
- Heidenheimer, Arnold J. and Peter Flora, eds. 1995. The Development of Welfare States in Europe and America. New Brunswick, NJ: Transaction.
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