Social Choice Session 16

Carmen Pasca and John Hey

The Welfare State and The Welfare Society

• Definition of Welfare State: concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens.

• Fundamental features of the Welfare State are social insurance, national insurance (UK) and social security (US).

• The modern term was used in Great Britain in 1948.• From a Welfare State to a Welfare Society: a welfare state

provides a range of goods to its citizens through legal entitlements; the welfare society, provides welfare through private means (the social services should be decentralized and privatized to better serve diverse social needs).

Welfare Economics

• Welfare Economics is the normative branch of economics which tries to make prescriptions.

• The prescriptions are based on value judgements which are made explicit.

• The most important values judgements are consumer sovereignty:

• that is, individuals preferences are to be taken into account using the Pareto criterion: that is, if at least one is better off but no one worse off, the economy is better off.

• Direct judgements on distribution of well-being.

Equality and welfare

• I discussed, during the last lecture, the trade-off between equality and efficency inside the post-industrial societies in the context of distributive justice (Rawls).

• The concepts of equality and welfare have become almost synonymous, and both have become shorthand for post-war welfare capitalism.

• If post-industrial society is driven by a trade-off between equality and other goals it seem necessary to understand which concept of equality is involved.

Different types of ‘equality’

• There exist few concepts with such variegated meanings as equality.

• It can denote fairness and justice: that is, issues of equity.• The distribution of opportunities, resources, and capabilities:

which address equality of life chances.• The allocation of rewards and the differentiation of living

conditions or permanent social cleavages: a question of class formation.

• Equality is also invoked when, for example, social reformers or trade union organizers call for universalism and solidarity- issues of equality or rights and duty.

Equality in different social sciences

• In economics, the stress is on the distribution and utilisation of scarce resources;

• In political science more on power;• In sociology on social stratification;• The meaning of equality changes across historical epochs:• In the first part of twentieth century, the problem of equality was

an echo of marxist question of class: “la question sociale” in France; in Britain Disraeli spoke of “Two Nations”.

• The post-war embrace of Keynesianism and the welfare state appeared to have resolved the “social question” once and for all and, hence, equality became more individualised, a matter of mobility chances.

Welfare Capitalism

• The notion of welfare capitalism actually dates back to the 1920’s when the American Right sought to deflect the demand for European-style social insurance by encouraging voluntary, company-based welfare plans.

• The first and foremost was the welfare state with its promise of universal social citizenship, of a new social solidarity.

• The notion of the welfare state points immediately to the second, namely full democracy.

• Welfare states find stronger expression than in TH Marshall’s assertion that the civil and the political rights are only democratically meaningful if complemented with social rights.

Different models of welfare

• The idea of the "welfare state" means different things in different countries.

• An ideal model. The "welfare state" usually refers to an ideal model of provision, where the state accepts responsibility for the provision of comprehensive and universal welfare for its citizens.

• State welfare. Some commentators use it to mean "welfare provided by the state". This is the main use in the USA.

• Social protection. In many "welfare states", notably those in Western Europe and Scandinavia, social protection is not delivered only by the state, but by a combination of government, independent, voluntary, and autonomous public services. These countries are usually thought of as "welfare states".

Comparing welfare states

• The United Kingdom• Three principal elements of the Welfare State:• A guarantee of minimum standards, including a minimum

income; • Social protection in the event of insecurity;• The provision of services at the best level possible.• Germany: the Social Market• The post-war German settlement was based on the idea of a

'social state', sometimes rendered as a 'social market economy.'

The role of economic development

• The first central principle was that economic development was the best way to achieve social welfare.

• The structure of social services had to reflect this priority. • The principle is represented most clearly in the close

relationship of services to people's position in the labour market

• Social benefits are earnings-related, and those without work records may find they are not covered for important contingencies.

• Less clear, but probably even more important, is the general concern to ensure that public expenditure on welfare is directly compatible with the need for economic development and growth.

The Subsidiarity Principle in the German case

• The German economy, and the welfare system, developed through a corporatist structure.

• This principle was developed by Bismarck on the basis of existing mutual aid associations, and remained the basis for social protection subsequently.

• Social insurance, which covers the costs of health, some social care and much of the income maintenance system, is managed by a system of independent funds.

• There is a strong emphasis on the principle of "subsidiarity". This principle is taken in Germany to mean both that services should be decentralised or independently managed, and that the level of state intervention should be residual - that is, limited to circumstances which are not adequately covered in other ways.

The French case

• Higher earners are not covered by the main social insurance system, but are left to make their own arrangements.

• France: Solidarity and insertion• Social protection in France is based on the principle of solidarity.• The commitment is declared in the first article of the French Code

of Social Security• The principle is used in a number of different senses.• The idea seems, at first sight, to refer to co-operative mutual

support• Some writers apply the term in relation to 'mutualist' groups

(friendly societies) and emphasise that people insured within national schemes (les assurés sociaux) are called to contribute and benefit on an equal footing.

The Solidarity Principle

• Others stress that relationships of solidarity are based in interdependence.

• Solidarity is usually understood, in this context, in terms of common action, mutual responsibility and shared risks.

• The pursuit of 'national solidarity' was undertaken in the first place by attempting progressively to extend the scope of existing solidarities, most notably through the creation of a 'régime général' for health and social security, and subsequently through its progressive expansion.

• Since the 1970s this pattern of solidarities has been supplemented by additional measures designed to bring ‘excluded' people into the net.

The French way ....

• The most important of these measures is the Revenu Minimum d'Insertion (RMI), introduced in 1988, which combines a basic benefit with a personal contract for 'insertion' or social inclusion. In recent years, however,there has been a greater emphasis on "active solidarity", which puts more stress on the individual responsibility of unemployed people.

• The French system of welfare is a complex, patchwork quilt of services

• This kind of arrangement is relatively expensive, and much of the focus of social policy in recent years has fallen on the control of expenditure - filling 'the hole in the social', le trou de la Sécu.

The French, the Swedish and British models of Welfare

• The main areas of concern are not dependency or unemployment, but pensions, because of the special privileges accorded to particular occupational groups, and spending on health care, where the stress on independent, market-led services (la médicine libérale) presents considerable problems in cost control.

• Sweden: the Institutional-Redistributive model• The Swedish model can be seen as an ideal form of 'welfare

state', offering institutional care in the sense that it offers universal minima to its citizens

• It goes further than the British model in its commitment to social equality.

Social Protection

• Sweden has the highest level of spending on social protection in the OECD, and the lowest proportion of income left to independent households - less than half its national income.

• The institutional-redistributive model combines the principles of comprehensive social provision with egalitarianism.

• This is an "ideal type", rather than a description of reality.• Social protection is not necessarily associated with

equality; the French and German systems offer differential protection according to one's position in the labour market.

Two welfare regimes

• The Swedish system, looked at in greater detail, has many of the same characteristics: Ringen describes the system as "selective by occupational experience”.

• However, the importance of equality - sometimes identified with 'solidarity', in the sense of organised co-operation - is considerable. The model of this is the 'solidaristic wage policy' advocated by the labour movement, which emphasised improving standards, limited differentials, and redistribution.

• The United States: a 'liberal' regime? The United States is sometimes described as a “liberal” welfare regime, in the sense that it represents individualism, laissez-faire, residualism and a punitive view of poverty.

The U.S Welfare system

• These issues often seem to dominate US debates on welfare: examples are the introduction of 'workfare', the exclusion of long-term benefit dependents, and the criticism of the 'underclass'.

• The US does not, however, have a unified welfare system. Federalism has meant that many important functions are held by the States, including public assistance, social care and various health schemes (Hawaii has had mandatory health insurance and a state-funded health system since the 1970s.

• The current reforms of health care will reinforce that diversity

The U.S Welfare system

• By comparison with other developed countries, central government has had a limited role in social welfare provision: the main developments of federal provision were during the Roosevelt administration of the 1930s, which laid the foundations for the social security system, and the "War on Poverty" of the 1960s, which provided some important benefits (notably health care for people on low incomes) and engaged the federal government in a wide variety of projects and activities at local level.

The particularity of the U.S system

• In practice, the US is pluralistic, rather than liberal. • There are significant departures from the residual model – for

example, state schooling, social insurance, or services for military personnel, veterans and their families, which provide for more than 60 million people. In addition to federal and state activity, there are extensive private, mutualist and corporate interests in welfare provision.

• The resulting systems are complex (and expensive): the guiding principle is less one of consistent individualism than what Klass has called "decentralised social altruism.

• Diversity and complexity come at a price, and despite - or perhaps because of - political hostility to welfare provision, the US system is also unusually expensive.

The history of the Wefare State

• The origins of Welfare State:• From the end of 19th century , in every industrial country of

Europe, states have taken mesures of social protection, of variable importance.

• On 1938 , the propaganda of totalitarian governments of Italy, Germany and USSR alleged the largest choice of measures with some real effects.

• These effects are a major explanation of large adhesion of the population to the regimes.

Italy

• Italy: the origins of welfare state:• The fascist period.• The Italian fascist state received in inheritance one ambitious

social legislation.• 1919: compulsory insurance for industrial employees for

pensions, disability and unemployment.• 30 april 1927: The labor charter announces the

subordination of private interests to the national interest and makes the state the arbiter between employers and employees.

• 1943: the health insurance system is reorganised.

The Italian Case 1

• The Italian welfare today.• Italy stands out from Europe by the distribution of

its expenditure on social protection:• The management of old age: here there is more than

60% of the total expenditure on social protection, wellbeyond the EU average.

• In comparison, social expenditure on health is less than 30% of total social expenditure.

The Italian Case 2

• In addition, Italy has a distortion in its distributive policies.• For certain kinds of expenditure, including those concerning

pensions, there is a clear inequality of protection (both for access to benefits and their generosity) between different occupational categories.

• The Italian employees of large companies and the civil servants are among the "insiders“ - the most protected in the European Union.

• The millions of people who work in the underground economy (which produces between 20% and 30% of Italian GDP) get little benefit from any protection.

The Italian Case 3

• The dual distortion of social protection:• Italy is experiencing a growing problem in terms of efficiency,

effectiveness and equity, both within generations and between generations, as regards protection (for example, a permanent job, and a generous pension).

• The goal of social protection sometimes becomes forgotten by defenders of the status quo whose activities inevitably increase the barriers to institutional change and reforms.

Other European Countries

• In democratic countries, all populations attached to the traditional conception of liberal and no-interventionist state struggle against the emergence of a welfare state.

• Scandinavian nations succeed in adoption of comprehensive legislation.

• During the inter-wars period, British governement met difficulties in application of measures adopted before the first world war.

• In France, a populationist and nationalist drift is the reply to the menace of totalitarism.

The U.S and the U.K.

• The welfare state did not exist either in Europe or the United States in the early twentieth century.

• States have only gradually felt responsible for the institutional well-being of the population, and the idea of a massive government intervention in what was still considered the private sphere (employment, family, housing, medical care ) has been accepted at the expense of social and political liberalism, strongly installed in the U.S. and British governments for example, and based on non-state intervention.

Other European Countries

• Germany was the first country to adopt a comprehensive state health insurance.

• The law passed by Bismarck in 1883 may indeed be regarded as the birth of the welfare state. Medical care was free from that moment for workers first, and this privilege was then progressively extended to the whole population.

• In Germany, the State appears as the ultimate instrument of progress.

• Even today in Germany the reigning philosophies are those of Kant and Hegel. In the first of these philosophies, the State appears to be the cornerstone of civilization; in the second it is the motor of history.

The Birth of the Welfare State

• The birth of the welfare state marks a break with the liberal conception of the state as a state constable or night watchman - giving a minimal role in the state.

• The welfare state gives the state an important role in the social and economic life in the name of social imperatives. It was that which intervened to ensure the collective ownership of solidarity functions.

• It deals with the welfare of citizens. The birth of the welfare state means that the redistributive state takes the place of reciprocity and the market.

The Tradition of the Wefare State

• The creation of welfare states respond to both crises of effectiveness of primary solidarities but also to the secularisation of societies. The welfare state is a form of capitalism with a human face in which man receives income replacement when he finds himself out of the labour market or when his income does not allow him to meet his needs.

• The welfare state is the final stage of democratic development, and establishes a timeline that democracy has made century after century.

• In the seventeenth century civil rights were established.• In the eighteenth century it was universal civil rights and the rights

policies.• Finally social rights are guaranteed under the welfare state in the

twentieth century.

The French Tradition 1

• In France, as in other countries, the welfare state can reduce inequalities in income and wealth, which are now very important in our society.

• To do this, it organises the redistribution of income, that is to say, it takes a portion of the income of individuals for redistribution to those in need, according to an organisation very particular and specific to France based primarily on worker status.

The French Tradition 2

• While traditionally the sphere of family took over the solidarity between its members, the twentieth century saw the birth of the welfare state, because of the emergence of an industrial society based on values more individualistic than communitarian.

• Indeed, it is now the State organizes solidarity and thus tasked with reducing inequalities, including economic, taking a role previously left to families.

• In France, the body responsible for social protection, Social Security, was created at the end of the Second World War in 1945. It is a system based primarily on worker status.

The French Tradition 3

• According to the French theorist P. Rosanvallon, the Welfare State makes up the division between political equality and socio-economic inequalities.

• The crisis of the Welfare State.• Considering the economic and political situations of the past

twenty years, we find that the welfare state has "failed "and that the model it represents is now under reconsideration.

• From the 1980s with the arrival of Mrs Thatcher to power in Britain in 1979 and Ronald Reagan in the United States in 1980, there has been a general decline in the industrialized nations of the phenomenon of the welfare state.

The Aim of the Welfare State

• The welfare state is the welfare state for everyone.• In 1942 the Beveridge Plan, which laid the foundations of the

welfare state in the UK, aimed to "put man to be finally free from want”.

• In practice, Britain implemented the Welfare at the end of the Second World War (the country was battered), and upon the arrival of the Labour Party to power in 1945.

• It covered education, housing, health, old age pensions and introduced the policy of minimum wage.

• The aim of welfare is to ensure that each member of the community gets protection under the most advantageous terms possible.

The Major Role of the State in France

• The state is responsible for the welfare of the whole nation, through solidarity, social justice and a system of universal protection.

• This centralist and hierarchical approach results in increased state intervention in social and economic development and the birth of a true bureaucracy.

The Crisis of the Welfare Model today

• Since the early 1980s, the crisis of the welfare state is one of the recurring themes of political debate, each party trying to find solutions to rising unemployment and social exclusion despite increased government spending and taxes.

• To address the crisis of this model, another idea emerged in the 1990s, especially the U.S., the “The Welfare Society”.

• It relies on civil society initiatives and is part of a civic responsibility.

• The role of the state in managing social welfare is taken over by individuals, by the people.

Back to Rawls…

• The establishment of Social Security, taking into account the civic dimension of the welfare state, protection of individual rights is a debt structuring the social contract.

• Today, the "veil of ignorance" which was functioning under the welfare state is torn.

• The principle of insurance, which presupposes that individuals are equal before the various social risks that may affect the existence, no longer a fiction writing Rosanvallon.

The context of globalisation 1

• The impact of globalization on welfare state:• Globalization is not simply a market-driven phenomenon but

also a political and ideological one.• Globalization as the transnational ideology of neo-liberalism

and is strongest in those nations most strongly identified with this ideology, namely the Anglo-Saxon countries.

• Globalization, as reflected in greater economic openness and competition and the resultant increasing flexibilization and downward pressure on wages, has undermined full employment and traditional male, full-time well-paid employment which formed the first line of defence against poverty and dependence of the Keynesian welfare state.

The context of globalisation 2

• Social policy is in retreat in the Anglo-Saxon countries and the welfare state is being hollowed out.

• This is reflected in the downsizing of social expenditure, shrinkage of the tax base and the erosion of social citizenship resulting in increasing inequality and a growing social deficit in all the Anglo-Saxon countries with the UK, the US and New Zealand to the forefront.

• The absence of a clear alternative to the neoliberal management of the economy in conditions of globalization

• Organized labour could play an important role in opposing welfare state retrenchment but to be effective in the longer term an alternative strategy of employment and social protection is required.

The context of globalisation 3

• Is it necessary to reform welfare state in the context of globalization?

• Many reforms concern changes in the design of benefits, not changes in terms of social objectives.

• The IMF as well as several other organizations, such as the OECD, and the World Bank have, in recent years, identified many possible reforms that would permit the reduction in the cost of the welfare states without basically or fundamentally changing the role of government.

• These are reforms that would reinforce rather than destroy the welfare state, preserving its role as a guarantor of certain basic or minimum standards.

The context of globalisation 4

• Globalization and social cohesion• The welfare state and its constituent social policies hold a

somewhat paradoxical position in debates about globalisation.• On the one hand, the social policies that characterise modern

welfare states are perceived as luxuries which we can no longer afford in a world of intensely competitive markets.

• On the other, these same policies are equally claimed as the primary vehicle for governments to help people through the process of adjusting to economic change, thereby maintaining social cohesion.

The context of globalisation 5

• R. Mishra argues, in Globalization and the Welfare State, that globalization limits the capacity of nation-states to act for social protection. Global trends have been associated with a strong neo-liberal ideology, promoting inequality and representing social protection as the source of 'rigidity' in the labour market. International organisations like the World Bank and International Monetary Fund have been selling a particular brand of economic and social policy to developing countries, and the countries of Eastern Europe, focused on limited government expenditure, selective social services and private provision.

The context of globalisation 6

• Ramesh Mishra has observed, “it is not the economic factsabout globalisation but their political implications” that may have prevented explicit policy debates about the costs of globalisation and the social policy adjustments that might be required to smooth the transition into the global economy.

• In many OECD nations we are now witnessing a period where “new deals” are being struck to replace the post-war Keynesian consensus that shaped the social policy directions of these nations over the latter half of the 20th century.

Conclusion

• The Welfare State is in crisis throughout the world.• Part of the reason is that we have an international

economic crisis.• Fundamental concepts are being rethought and people

are considering de nuovo the role of the state and its appropriate social policies.