Can the Welfare State Survive? - Andrew Gamble (2016)

Chapter 4. A Future for the Welfare State

Faced with all these challenges, can the welfare state survive? It has to change if it is to do so. That is nothing new. It has been changing throughout the last hundred years. Most of us could not imagine our societies without a welfare state. Few citizens would vote to dismantle it and give up their benefits. But its survival is not guaranteed. Like so many human constructions, if the political will and capacity to sustain it and adapt it disappear, the welfare state could wither away. The circumstances in which welfare states first arose and the circumstances in which they have to operate today are very different. An understandable response is to circle the wagons and defend the welfare state as it currently is. But that would make Paul Pierson’s fears of its approaching demise come true. Yet the opposite extreme must also be guarded against. Too much change or the wrong kind of change can be damaging. Many things of value can be heedlessly lost. The welfare state, with its complex networks, institutions, and cultures, is a rich inheritance to be enjoyed and celebrated, not thrown away.

The Nordic social democracies have managed to adapt their welfare states incrementally and with a reasonable amount of consensus. In other welfare states there is less consensus, and change has often been abrupt, adversarial, and subject to repeated reversals, as one set of institutional structures succeeds another. Major restructurings are sometimes required, but they only really work when as wide a consensus as possible has been achieved. That is difficult in societies which are fundamentally divided and very unequal, and in which the idea of the welfare state is under constant attack. A downward spiral of declining trust and declining support can easily be initiated.

There is nothing irreversible about the welfare state. The state has never had a monopoly and it is not desirable that it should. Welfare can be provided in many different ways. If the welfare state does not survive, that does not mean that welfare will not survive. But it will become much more patchy, with many gaps, and there would have to be much more reliance upon the voluntary sector and once again upon households. Some wonder whether in rich, post-industrial societies that is becoming a better way to organize things. A fashionable rhetoric now proclaims a high-wage, low-tax, low-welfare society as the way to go. As John Hills has pointed out, one of the biggest problems confronting the welfare state is the lack of understanding we have of it, and the equation of welfare with means-tested income support for the poorest in society.1 If the welfare state were to shrivel to this, the battle would be lost.

One of the main conditions for the survival of the welfare state is therefore a much wider understanding of the many different functions it performs. Far from undermining capitalism, welfare states have been an essential ingredient in capitalism’s success. Every capitalist economy when it has reached a certain stage of development has acquired a welfare state, and today’s rising powers are beginning to follow the same path. To counter over-saving in their population against the insecurities of the market economy, the Chinese are beginning to introduce a welfare safety net. Organizing welfare through the state serves many purposes – including legitimacy, nation-building, modernization, social peace, relief of poverty, social investment, pooling of risks, redistribution, and social justice. Welfare states appeal to social engineers as well as moralists. But they were never designed to replace capitalism. As Stein Ringen has observed, welfare states have in general been an attempt to change the circumstances individuals and families live under without basically changing society.2 Where they have succeeded, they have helped to reform capitalism in ways which have made it compatible with democracy. Welfare states depend upon the prosperity and continued profitability of the capitalist economy, while the capitalist economy has become dependent upon welfare states. There is a creative tension between them; each needs the other. Sometimes, as in the 1970s, and now again today, these tensions can grow, leading many on both right and left to argue that the relationship cannot work, and that sooner or later capitalism will want to be free of the burden it is carrying.

Welfare states have become such an integral part of mature capitalist democracies that it is reasonable to turn the question round and ask if capitalism can survive if welfare states are destroyed. Capitalism has often been viewed as a dynamic untamed economic system which constantly revolutionizes social and political arrangements, forcing change on societies and individuals whether they like it or not. It is both destructive and creative at the same time, but if the destructive side of capitalism becomes too dominant, everyone loses. Welfare states helped stabilize and correct some of the downsides of innovation and competition, and also increasingly have driven capitalism in new directions, for example by assisting the entry of women into the workforce, dramatically improving health and education, and creating demand for the goods and services the economy produces. Much conventional economic discourse still thinks of the public sector as unproductive and the private sector alone as the creator of wealth. But the role of the state is much more active than that. The interpenetration of states and markets means that neither can function without the other. Much public spending creates the conditions in which businesses can thrive. Capitalism is a dynamic economic system but only because there are institutions outside the capitalist market which perform functions which allow the conditions on which it depends to be reproduced.

The future prospects of the welfare state depend in part on whether welfare states can continue to perform these functions for capitalism, finding new ways to innovate that deepen human well-being, opening up new avenues for social investment and for social protection. The central aim of welfare states remains the abolition of poverty and dependency. Critics allege that established welfare states create dependency and have no interest in removing it. That danger exists if welfare states become too conservative and cease modernizing. Welfare states succeed the more they enable all citizens to become self-reliant and independent, but in order to accomplish that, welfare states have both to invest and to protect. Relying on only one of these strategies will not work. A modern welfare state has to overcome the perception that there is a sharp division between redistribution to help the poor, and investment in universal services for the majority.

How might this be done? There is no shortage of radical ideas for pushing forward the frontiers of the welfare state in the twenty-first century. Building the political support for them is much more difficult, just as building political support for dismantling the welfare state has proved challenging. In the new hard times, the temptation is simply to defend what already exists, but that will not be sufficient. If a new reform momentum cannot be established, welfare states risk succumbing to permanent deadlocks and inertia which may ultimately lead to their collapse.

One way to approach this question is to go back to the question posed at the beginning: at what point does the welfare state cease to be a welfare state? It is hard to imagine in the advanced capitalist democracies that the state would ever cease all involvement in providing welfare. But if the welfare state shrank so that all it was providing was a basic safety net of means-tested income support, that would no longer be a welfare state as it came to be understood in the course of the twentieth century. It would mean that state provision of welfare had become subordinate once more to the market, and in most areas the state would be replaced as a supplier of welfare by charities and families. For a welfare state to exist, a sphere beyond the market has to be created. Esping-Andersen’s insight is correct: there has to be a sphere which supports the market but is not governed by it, a sphere which allows labour and human needs to be ‘de-commodified’, and acknowledges the priority of individuals’ social rights over their market performance.3

The first requirement to revitalize this vision in today’s world is to develop a strategy to achieve basic income, guaranteeing to every citizen a minimum level of support, regardless of contribution or need, which would not be means-tested. Such an income could either be given unconditionally or be dependent upon evidence of participation in socially useful activities, such as child care or voluntary work. There are supporters of both, but the underlying premise is the creation of a society in which no individual is forced to depend for their basic needs on an income derived from paid employment.4 Determining that basic minimum is the crucial step. Above that minimum, individuals are free to earn more by participating in paid employment, but there is no compulsion to do so. The idea that individuals could be freed from the obligation to work meets deep cultural resistance, because of the fear that it would encourage idleness. But the counter-argument is that market economies will function much better if individuals have the security of knowing that at every stage of their lives they will receive basic protection. In households already asset-rich and income-rich, individuals work just as hard or even harder, but they have the time and space to take advantage of opportunities, make experiments. The safety net of a basic income helps to enlarge the range of their choices and their chances of finding work which engages them fully.

The way welfare states have developed can be seen as building towards the provision of a basic income. Negative income tax, tax credits, and minimum and living wages are all steps towards it. The cost is less than sometimes imagined, because many existing benefits would be rolled up in the basic income and those who also took paid jobs would pay tax on it. It would require a political culture which accepts the advantages of large transfers and therefore high taxation, but the Nordic welfare states have already demonstrated how that is compatible with an efficient and flourishing market economy. The gains in social cohesion, lower inequality, and high trust, overcoming many of the divisions which weaken the current welfare state and political support for it, make it an appealing arrangement. In societies where inequality has become much more entrenched, the welfare state is much more residual, and taxation is relatively low, the challenges for moving towards a basic income are much greater. But incremental change towards that objective is still possible, and the popularity of universal welfare schemes, once they are established, is indisputable, as the case of publicly funded health services and compulsory health insurance demonstrates. Building a political coalition around the idea of basic income would help end the resentment of those in work contributing to support those who are not able to work or cannot find jobs. Payment of a basic income to everyone would price workers into many more jobs which at present do not pay enough for people to live on.

A related idea is the proposal for capital grants, paid to every citizen on reaching a specified age, funded from an inheritance tax. In this way, a portion of capital would be recycled to every young adult, and would help to reduce the gross inequality in the ownership of assets, which are so important for life-chances. The same debate has existed over whether the use of grants should be conditional or unconditional and at what age they should be paid. But research has shown that the higher the amount of the initial grant, the greater the chance that it will be used wisely rather than recklessly.5 If the grants were made conditional, they would have to be spent in a number of approved ways – such as house purchase, small business start-up, or training and further education. The purpose of such grants is an old idea which goes back to Tom Paine in the eighteenth century, that everyone should have the means to be independent and to pursue the life-course that is best for them.

Basic income and capital grants are both designed to make individuals more self-reliant and independent, to enlarge choice and aspiration, and to limit forms of dependency, which are stigmatizing and demoralizing. The active labour market policies of the Nordic welfare states take for granted that full employment is a necessary underpinning of a universal welfare state, but they take the stigma away from being unemployed. The advantage of a basic income is that while most individuals will choose to take jobs in the private or public sectors which give them higher earnings, careers, opportunities, and status, some individuals may choose to pursue occupations which are unpaid because of their intrinsic attraction or satisfaction. A few individuals may choose to be idle, but in a free society, that is a legitimate choice. Because everyone would receive basic income as a social right, a broad-based political consensus could be developed in support of these arrangements. The biggest obstacles holding back the development of the welfare state are the divisions and resentments between citizens over who is entitled to benefits, who is deserving and who is undeserving. Going back to the original impetus behind the welfare state – the creation of a democratic citizenship based on equal civil, political, and social rights – will help renew the political coalition for its preservation and extension.

Basic income and capital grants can only take us so far. Some of their advocates think that if the welfare state provides the means for every citizen to be self-reliant and independent, that ends the responsibility of the state. Some market libertarians are drawn to the idea of basic income as a way of reducing ever-increasing discretionary intervention by the state. But although reducing such discretionary intervention is an important goal, not everything can be left to individuals. Societies do not work like that, and trying to make them do so ends up increasing inequality and conflict. There are still important roles for social investment and social protection. Welfare states cannot be indifferent to the quality of health or education or social care services. Providing the opportunities through education and training so that all individuals can develop their skills and aptitudes and discover their abilities is an essential complement to a basic income strategy. Not all services have to be delivered by the state, but the state has an important role to ensure that the right quality and quantity of services are available and responsive to the needs of those who use them. Much of this reflects the positive agenda of the Third Way experiments in Europe with a social investment state, with its emphasis on lifelong learning and investment in children, and much of the creative thinking which was developed at that time needs to be built on and extended.

Social investment needs to go hand in hand with social protection. Protecting individuals against old and new social risks requires not just helping citizens to look out for themselves, adapting to the circumstances and opportunities they encounter, but also, as Colin Crouch and Martin Keune have argued, actively shaping those circumstances and opportunities.6 This is a conception of the welfare state which emphasizes the need to preserve its separateness from the market economy, to foster the creative tension between them so that the welfare state does not substitute itself for the market, but also does not become dependent on it. The task of the state is not just to equip individuals to deal with the risks they face, but also to seek to shape the circumstances which give rise to those risks. The best way to do this is to support institutions and rules which provide buffers, and limit some of the uncertainties which are at the core of modern experience. Individuals need to be free to make their own choices as much as possible, but to be enabled to do so, they need some collective protections against the uncertainties created by the way markets, financial institutions, and large corporations operate. Areas for state involvement include: active regulation of the labour market, ensuring individuals have employment rights and can join trade unions; regulation of the financial markets, to prevent the many abuses witnessed in the run-up to the 2008 crash and the destabilizing effects of uncontrolled financial flows; regulation of the housing markets, to provide protection against soaring housing costs; and regulation of companies, finding ways to improve corporate governance and involve a wider range of stakeholders in how companies are run, as well as ensuring support for different forms of ownership and different types of organization.

Any strategy for rebuilding the broad social consensus which the survival of the welfare state requires has to be launched in unpropitious political and economic circumstances. Rising inequality threatens to undermine social cohesion and reduce social mobility. If nothing is done, inequality may return to levels not seen since before the advent of the democratic era. The growing divide between rich and poor has been charted by Thomas Piketty, Tony Atkinson, and others.7 Their datasets show how inequality reached a peak in the Belle Époque before the First World War. It then narrowed sharply as a result of the two world wars and the establishment of the extended welfare states of the post-war era. After the stagflation crisis of the 1970s, however, inequality began rising again. It was particularly marked in the Anglo-liberal welfare regimes, and more muted in the Nordic and corporatist welfare states. The welfare state is compatible with varying levels of inequality and it has never been part of its purpose to seek to eliminate inequality altogether. But it has been a central tenet of welfare regimes that one of the reasons for having a welfare state is to make life-chances more equal, to provide social minimums, and to create a common citizenship in which everyone enjoys civil, political, and social rights. The degree of inequality which is becoming common again in Western societies strikes at the compact which lies at the heart of the welfare state. As the rich have grown so much richer, they have become more detached from the societies in which they live, and many no longer contribute very much in terms of taxes, and do not use the services which are provided collectively for all citizens. They have their own hospitals, schools, shops, and gated communities.

Inequality poses another challenge to any renewal of the welfare state. This is the inequality between rich and poor countries. One manifestation of this is the rising tide of immigration. The number of economic migrants and asylum seekers trying to enter the rich countries has been sharply increasing. It has sparked sharp political reactions with the rise of populist anti-immigrant parties in many European countries, regardless of the type of welfare regime. These parties include the Swedish Democrats, the True Finns, the Party for Freedom in the Netherlands, the Front National in France, the UK Independence Party, the Northern League in Italy, and many more. Growing ethnic divisions in many of the rich democracies threaten the solidarity necessary to sustain an inclusive and universal welfare state. Ways are being sought to exclude immigrants from access to welfare state services and benefits which national citizens enjoy, and immigrants become a scapegoat for all the ills of the economy, particularly in times of recession.

The welfare state developed with nation-states, and the political consensus for it was constructed within national communities. It is hardly surprising that national governments are put under great pressure to defend their borders and the rights of their citizens, including the right to continue to enjoy high wages and a generous welfare state. The divisions which exist internationally put the divisions which exist within nation-states into perspective. The scale of the task can look hopeless. The European Union has made only small progress in arranging cross-national transfers within its borders. The task of organizing them across the whole world is still more daunting. But the world is changing and the need for common action to deal with common problems like climate change may help spur cooperation in other areas. The advantages to everyone in extending the protections which the rich countries enjoy are obvious, the means of doing so less so. A first step would be renewing the political consensus on the welfare state within nation-states. But if that leads to a defensive position to the rest of the world, it will be self-defeating. Only if it is treated as a step towards finding ways in which the best practices of the advanced welfare states can be extended to other countries, and a more equal world created, will national welfare states be secure in the long run.

Welfare states are part of the long project to extend citizenship rights to all. The struggle for basic fairness in areas like gender and generational equality is still far from over, but it now needs to be linked to the task of building a more sustainable economy in the face of rising inequality, austerity politics, and climate change. This requires the building of new coalitions and the development of new policies and new arguments. The moral case for trying to build more sustainable societies based on inclusive welfare arrangements which underpin strong cohesive democracies is a very strong one. The practical case for taking action to tackle all the ills which afflict us is also compelling. The obstacles are great, but so too is the prize.

Notes

1. Hills, Good Times, Bad Times, p. 13.2. Stein Ringen, What Democracy Is For: On Freedom and Moral Government (Princeton, NJ: Princeton University Press, 2007).3. Esping-Andersen, The Three Worlds of Welfare Capitalism.4. Philippe van Parijs, Real Freedom for All: What (If Anything) Can Justify Capitalism? (Oxford: Oxford University Press 1995); ‘Basic income and the two dilemmas of the welfare state’, Political Quarterly 67:1 (1996), 63–6.5. Julian Le Grand and David Nissan, A Capital Idea: Start-Up Grants for Young People (London: Fabian Society, 2000); Rajiv Prabhakhar, The Assets Agenda: Principles and Policy (London: Palgrave-Macmillan, 2008); Bruce Ackerman and Anne Alstott, The Stakeholder Society (New Haven, CT: Yale University Press, 2008).6. Colin Crouch and Martin Keune, ‘The governance of economic uncertainty’, in Giuliano Bonoli and David Natali (eds), The Politics of the New Welfare State (Oxford: Oxford University Press, 2012), 45–62.7. Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014); Antony B. Atkinson, Inequality (Cambridge, MA: Harvard University Press, 2015).