Women in politics are sometimes accused of consciously exploiting their femininity to get ahead in a male-dominated world. Sociologist and workers’ advocate Frances Perkins did that, but in an unusual way. She tried to remind men of their mothers. She dressed in a plain three-cornered hat and refined the way she acted, drawing from careful observation of what seemed to be most effective in persuading men to accept her ideas.1
Perhaps it’s no coincidence that those ideas could reasonably be described as maternal—or, at least, parental. All parents want to shield their children from serious harm; and Perkins believed governments should do the same for their citizens. She became President Franklin Roosevelt’s secretary of labor in 1933. The Great Depression was ravaging America: a third of workers were unemployed; those in jobs saw their wages plunge. Perkins helped drive through Congress the reforms that became known as the New Deal, including a minimum wage, benefits for the unemployed, and pensions for the elderly.2
Historians will tell you that it wasn’t Frances Perkins who invented the welfare state. It was Otto von Bismarck, chancellor of the German Empire, half a century earlier. But it was largely during Frances Perkins’s era that various welfare states took their recognizably modern shape across the developed world. Details differ from country to country, measure to measure, and time to time. For some benefits, you have to have paid into state-run programs, such as Social Security in the United States or the state pension in the UK. Others are rights, based on residence or citizenship—for example, the Jobseeker’s Allowance paid to unemployed residents of the UK. Some benefits are universal, meaning that everyone can get them, regardless of income: rich and poor alike can send their children to school at the state’s expense. Many are means-tested: to access Medicaid or the food stamp program in the United States, you have to prove that you meet criteria of neediness.
But the same basic idea links every welfare state: that the ultimate responsibility for ensuring that people don’t starve on the street should lie not with family, or charity, or private insurers, but with government.
This idea is not without its enemies. It is possible, after all, to mother too much. Every parent tries to strike a balance: protect, but don’t mollycoddle; nurture resilience, not dependence. And if overprotective parenting stunts personal growth, might too-generous welfare states stunt economic growth?
It’s a plausible worry. Imagine a single mother with two children. Depending on where she lives, she might qualify for various payments: housing benefits; child benefits; unemployment benefits. Could she accumulate more from the welfare system than she could get by working at the minimum wage? In 2013, in no fewer than nine European countries, the answer to that question was “yes.” Now, it might still be attractive for this hypothetical woman to both work and draw benefits, but in three countries—Austria, Croatia, and Denmark—her marginal tax rate was nearly 100 percent. That means if she took a part-time job to earn some extra cash, she’d immediately lose it in reduced benefits. Many other countries have marginal tax rates for low-income people that are well over 50 percent, strongly discouraging them to work.3 Such a “welfare trap” hardly seems sensible.
But it’s also plausible to think that welfare states can improve economic productivity. If you lose your job, unemployment benefits mean you don’t have to rush into another one; the benefits give you time to find a new position that makes the best use of your skills. Entrepreneurs might take more risks when they know that a bankruptcy won’t be catastrophic. They could still send their children to school and get medical treatment when they’re sick. In general, healthy, educated workers tend to be more productive.
Sometimes handouts can help in unexpected ways. In South Africa, girls grew up healthier after their grandmothers started receiving state pensions: money became less of a family worry.4
So do welfare states boost economic growth or stunt it? That’s not an easy question to answer. Welfare systems have many moving parts, and each part could affect growth in many ways. But the weight of evidence suggests that it’s a wash—the positive and negative effects balance out.5 Welfare states don’t make the pie bigger or smaller. But they do change the size of each individual’s slice.6 And that helps keep a lid on inequality.
At least it used to. But in the last two decades, the data show that welfare states haven’t been doing that so well.7 In many countries inequality widened sharply during the 1980s and 1990s, and it may widen further.8
And welfare states are creaking under the weight of a rapidly changing world. There’s demographic change: people are living longer after retirement. There’s social change: entitlement programs often date from an era when most women relied on male breadwinners and most jobs were full-time and long-lasting.9 In the UK, more than half the new jobs created since the 2008 financial crisis are people employing themselves. Yet a builder who is employed will get “statutory sick pay” if he or she has an accident at work; a self-employed builder will not.10
And there’s globalization. Welfare states originated when employers were more geographically rooted than today’s footloose multinationals are: they couldn’t easily relocate to jurisdictions with less burdensome regulations and taxes. Mobility of labor creates headaches, too: the thought of immigrants claiming benefits helped set Britain on the path to Brexit.11
As politicians, experts, and voters ponder how—or even whether—to fix the welfare state, we shouldn’t forget that one of the biggest ways the welfare states shaped the modern economy was to take the heat out of demands for more radical change.
Otto von Bismarck was no social reformer in the Frances Perkins mold. His motives were defensive. He feared that the public would turn to the revolutionary ideas of Karl Marx and Friedrich Engels unless the German government intervened.12 Bismarck hoped his welfare provisions would be just generous enough to keep the public quiescent. That is a time-honored political tactic: when the Roman emperor Trajan distributed free grain, the poet Juvenal famously grumbled that citizens could be bought off by “bread and circuses.” You could tell much the same story about Italy’s welfare state, which took shape in the 1930s as the fascist Mussolini tried to undercut the popular appeal of his socialist opponents.13
In America, the New Deal was attacked as much from the left as it was from the right. The populist Louisiana governor Huey Long complained that Frances Perkins hadn’t gone far enough in her reforms; he prepared to run for president in 1936 on the slogan “Share Our Wealth” and a promise to confiscate fortunes from the rich. He was shot dead in 1935, so that policy was never tested. At the beginning of the twenty-first century, such political tumult felt very distant. But now raw populist politics is back in many parts of the Western world.
Perhaps we shouldn’t be surprised by that. As we’ve seen, technological change has always created winners and losers, and the losers may turn to politics if they’re unhappy with how life is working out for them. In many industries, digital technologies are acting like modern-day gramophones, widening the gap between the top 0.1 percent and the rest of us. Thanks to the power of search and seller feedback systems, new platforms are giving freelancers access to new markets. Or are they really freelancers? One of the pressing debates of the age is the extent to which Uber drivers or TaskRabbit taskers should be treated as employees—a status that in many countries unlocks access to parts of the welfare state.
The modern welfare state sits uneasily with large-scale international migration. People who instinctively feel that society should take care of its poorest members often feel very differently if those poorest members are migrants. These two massive government endeavors—the welfare state and passport control—go hand in hand, but often in a clunky way. We need to design our welfare states to fit snugly with our border controls, but we usually don’t.
And the biggest question mark of all is whether, at long last, robots and artificial intelligence really will make large numbers of people completely unemployable. If human labor is less needed in the future, that in principle is excellent news: a paradise of robotic servants awaits us. But our economies have always relied on the idea that people provide for themselves by selling their labor. If the robots make that impossible, then societies will simply come apart unless we reinvent the welfare state.
Not all economists think that’s worth worrying about just yet. But those who do are reviving an idea that dates back to Thomas More’s 1516 book Utopia: a universal basic income.14 The idea still seems utopian, in the sense of fantastically unrealistic. Could we really imagine a world in which everyone gets a regular cash handout, enough to meet their basic needs, no questions asked?
Some evidence suggests it’s worth considering. From 1974 to 1979, the idea was tried in a small Canadian town, Dauphin, in Manitoba. For five years, thousands of Dauphin’s poorest residents got monthly checks funded jointly by the provincial and federal governments. And it turns out that guaranteeing people an income had interesting effects. Fewer teenagers dropped out of school. Fewer people were hospitalized with mental health problems. And hardly anyone gave up work.15 New trials are under way to see if the same thing happens elsewhere.16
It would, of course, be enormously expensive. Suppose you gave every American adult $12,000 a year. That would cost 70 percent of the entire federal budget.17 It seems impossibly radical. But then, impossibly radical things do sometimes happen, and quickly. In the 1920s, not a single U.S. state offered old-age pensions; by 1935, Frances Perkins had rolled out Social Security across the nation.18