Can the Welfare State Survive?

Andrew Gamble

• Publisher: Polity
• Year: 2016
• ISBN:
  9780745698779
• Edition: 1
• Topic: Politica e relazioni internazionali
• Subtopic: Politica

After the most serious economic crash since the 1930s and the slowest recovery on record, austerity rules. Spending on the welfare state did not cause the crisis, but deep cuts in welfare budgets has become the default policy response. The welfare state is seen as a burden on wealth creation which can no longer be afforded in an ever more competitive global economy. There are calls for it to be dismantled altogether.

In this incisive book, leading political economist Andrew Gamble explains why western societies still need generous inclusive welfare states for all their citizens, and are rich enough to provide them. Welfare states can survive, he argues, but only if there is the political will to reform them and to fund them.

1
The Life and Times of the Welfare State

For more than one hundred years the welfare state has been an integral part of the most successful and advanced capitalist economies. It has commanded support from all parts of the political spectrum, and although in the twentieth century it became particularly identified with parties of the labour movement and the democratic Left, it was at first principally associated with politicians of the Right and Centre-Right, including Conservative aristocrats like Otto von Bismarck in Germany and Liberal industrialists like Joseph Chamberlain in England. Many representatives of the propertied classes in the nineteenth century backed the development of state-funded welfare programmes to provide greater security to the urban working class and shield them from some of the uncertainties of the market, principally through the provision of unemployment pay and pensions. Most working people had no property or assets, and were therefore always at risk of being plunged into dire poverty by losing their job, falling ill, growing old, or losing the main breadwinner in the family through death or desertion. Misfortunes could strike without warning, creating great uncertainty even during good times.

There was a steadily growing acceptance that something needed to be done for the working poor, particularly the deserving poor, those who worked hard and did the right thing, but suffered hardship and misfortune through no fault of their own. The Christian Churches played an important role in changing opinion. But if compassion played a role, fear was also a powerful motivation. Bismarck was concerned to stop the rise of the socialist movement in Germany by seeking to divide it and make workers dependent on the German state for their welfare. Chamberlain declared bluntly that property must pay a ransom if it wanted to keep its privileges. This view was widely shared across Europe. The dazzling display of Edwardian England and La Belle Époque in France reflected both the vast wealth which nineteenth-century capitalism had created and its very unequal distribution. Wealth was more concentrated than it has been at any time since, and the sharp contrast between the wealth of the propertied and the poverty and insecurity of the great majority of working people helped fuel radical anti-capitalist movements of the Left.

Providing welfare through the state was conceived as a means of protecting property and deflecting popular protest by giving the poor a greater stake in the political system, proving that the state could act for them and not only for the wealthy. Helping the poor in this way was deeply controversial, but it was justified both on grounds of paternalism – the poor deserved the help of the community – and on grounds of expediency – guaranteeing a minimum level of income and security, countering catastrophic declines in income for households, was a small cost if it helped avert social disorder and social revolution. Critics warned, as they have been warning ever since, that it was a slippery slope. Once the state took responsibility for providing economic security to the poor, it would remove the incentives to work and create an ever-growing number of dependants. Herbert Spencer spoke for many Liberals across Europe. If someone ended up in the gutter, it was their own fault, and the state should not step in to protect them from the consequences of their folly.

This view was widely held, but it did not ultimately prevail. The gaps in private and voluntary provision of welfare were too large, and using the fiscal and organizational power of the state to remedy them had many advantages. Coverage could be made comprehensive, and a set of common rules applied to all. Most of the early schemes were not particularly generous and were closely tied to an insurance principle. Workers paid in to the scheme and then were guaranteed payouts when they needed them. In this way, individual responsibility and self-reliance were preserved. And there was minimal interference with the market order. What the state ensured was that the funds would always be there when they were required, which helped reduce insecurity.

The first welfare states therefore emerged as a moral response to the plight of the working poor in the new industrial capitalism, as well as a pragmatic response to the political danger of the state turning its back on the working class, which was beginning to organize in its own self-defence. But there were also other powerful reasons for the rise of welfare states, apart from morality and expediency. Modern industrial economies needed healthier, better-educated, and better-paid workers if they were to reach their full potential. Markets were seen as too slow, too uncertain, too wasteful, too selective, to provide what was needed, and the gaps could only be partly filled by families. Expanding the state became the solution. The new collectivism on both right and left regarded the modern state as an enterprise, a command economy, a military operation, which could cut through the waste and inefficiency of laissez-faire capitalism and mobilize the full potential of each nation.

Welfare states were also about nation-building, the creation of a common citizenship. Modern citizens were all members of the same nation and as such had certain entitlements and expectations as well as obligations and responsibilities. Each nation was a community of fate. Citizens depended upon one another; their fate was inextricably bound up with that of all other citizens in the national community. This meant that the state, too, had both an obligation to maximize the potential of every citizen and an interest in doing so. Providing the best possible education, the best health care, the best opportunities for creativity and training – all these became both what modern citizens expected and modern governments strove to deliver. Nations were competing with other nations, so governments could not afford to neglect their most valuable resource, their own people.

The new nationalism in Europe and the pressure for the state to extend its role and its capacities were closely linked to the spread of democracy. At the end of the nineteenth century, political power in Europe was still in the hands of a narrow political class, its position protected by a restricted franchise. The labour movements of European social democracy were anti-state movements because the state was the monopoly of the propertied classes, both aristocratic and capitalist. Many of these movements established their own institutions outside the state to pool risk and protect their members. There were important strands of cooperative and labour movements which were both anti-capitalist and anti-state. They sought to create a protected sphere outside both the existing state and the market to provide for needs which the state would not recognize and to protect against the uncertainties and risks of a market economy. This was a form of collective self-reliance, to mitigate some of the effects of the capitalist market, but the power of those institutions was limited.

All this was to change as the vote was extended to all citizens, both men and women, across Europe following the end of the First World War. Parties of the democratic Left developed a new strategy to achieve their aims, which involved gaining political power through the institutions of representative democracy, by winning parliamentary majorities and taking control of the existing apparatus of the state bureaucracy to implement their programmes. After some intense struggles, agreement gradually emerged across the political spectrum not only that welfare programmes were desirable, but also that they should be either provided through the state or underpinned by it. Parties of the Centre-Right, influenced by Catholic social teaching, also emerged as champions of particular kinds of welfare state. The argument between parties of right and left was increasingly over how generous state welfare provision should be, and how much redistribution should be involved, not over the principle itself. Progress was still slow, however, in part because the fiscal base of the nineteenth-century tax state was geared to the interests of the propertied class and was far too narrow to provide the kind of funds necessary to support universal welfare programmes. But during the first half of the twentieth century, collectivist remedies and approaches were gradually adopted, and ways were found to enlarge the capacity of the state to impose and collect taxes. War was a great catalyst in this respect. The need to enlarge the state to secure national survival in an era of total war obliged governments to find new sources of revenue for weapons and armies. They simultaneously acquired new powers to control and plan many different aspects of modern society. Once the state had expanded, it was hard to shrink it back to its former size. The old liberal political economy, with its doctrines of individualism and laissez-faire and its suspicion of the state and the centralization and concentration of power, fell under a cloud for a time, even in its Anglo-American heartlands.

One of the reasons for this was the spectacular crash on Wall Street in 1929, which was followed by the fragmentation of the international economic order, the collapse of the gold standard, economic stagnation and depression in many countries, and the emergence of economic and military blocs. These events strengthened the argument that the reforms already achieved had not gone far enough. Capitalism had to be fundamentally reorganized to provide a basic minimum of income and security for every citizen. How this was to be done was at first unclear. Piecemeal incremental reform was the pattern in the 1930s. What transformed the situation and provided the opportunity for a much more general reconstruction of the domestic and international political economy was the outbreak once again of world war, this time on a new and terrifying scale. The intensity of the struggle for national survival brought with it the demand for a new domestic order as well as a new world order. If nations could organize themselves so effectively for war, they could also deliver a lasting and prosperous peace, based on welfare and security for all.

The new mood and purpose found expression in the Beveridge Report, published in the United Kingdom in December 1942, which characterized the problem facing Western societies in terms of the five giants of Want, Idleness, Disease, Ignorance, and Squalor.¹ The remedies proposed and adopted in more and more countries after 1945 were universal programmes of social security, health, education, and housing, funded through much higher levels of taxation. The insurance principle still lay at the heart of these welfare states. Redistribution was primarily between different generations and between people at different stages of their lives. But there was also much greater taxation of property, both income and wealth, as a result of the war and its dislocations, and so after the war the propertied classes throughout the Western economies were generally paying more towards state programmes than they had ever done in the past, and more than they were ever to do again.

All the European economies had a painful period of reconstruction after 1945, to overcome the huge destruction of physical and human capital during the war. But once this period of often dire poverty and hardship had been navigated, the Western economies, far from lapsing back into stagnation and slow growth, as many had feared, instead embarked on the most successful period of growth and prosperity in the history of capitalism. The new expanded welfare states played their part in this, although they were not the only cause. Defence and rearmament and the expansion of new technologies were also important. The economic success meant that welfare states were accepted as never before as a crucial component of a legitimate market order. Competition with the Soviet Union played a part too. Western states were determined to resist internal subversion and to show that their model of political economy was superior. Generous welfare states and high and rising living standards were crucial components of the Western model. Over time this model outperformed its rival. But it did more than that. The remarkable success of Western capitalist economies in the 1950s and 1960s led many to assume that the secret of stable and prosperous democratic capitalism had been discovered. There was a class compromise and social peace unimaginable to those who had experienced the deeply divided class societies of the past. The essence of the compromise was described by Seymour Martin Lipset.² Conservatives accepted that there should be a generous welfare state for all citizens, while socialists accepted that not all economic power should be concentrated in the hands of the state.

This period in which the welfare state was relatively uncontested was short-lived. It was a time of falling inequality, rising social mobility, and high levels of political participation, as well as high employment, low inflation, and rapid rises in productivity, output, and wages. For many on the democratic Left, the period appeared to show that democracy and capitalism could co-exist, and that if social democracy was strong and vigilant enough, capitalism could be tamed, and its energies channelled in ways which aided rather than undermined social cohesion. The expanded welfare programmes paid for by high and progressive taxes were one of the main signs of this. The Right, too, a...