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.
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In a welfare state, government programs take primary responsibility for providing the economic security of unemployed, ill, or retired citizens.
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.
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?
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?
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 anti-government campaign to defeat the plan. The 1994 right-wing Republican election victories killed any future chance for comprehensive health care reform.
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).
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>
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?
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?
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?