Chapter 2

Before the welfare state

Welfare states are distinctive sets of socio-economic arrangements and styles of governing that emerged in western nations at the end of the 19th century and were fully established in the middle decades of the 20th. But collective social provision in one form or another has been characteristic of societies throughout human history. Viewed in the long term, the welfare state is the latest chapter in an ongoing relationship between economic action and social provision.

Libertarian critics of the welfare state look back nostalgically to the laissez-faire, free-market world of the 19th century and talk of these arrangements as if they were the natural condition of mankind. They view the ‘self-regulating market’ as the original state of nature and ‘government interference’ as largely illegitimate and counter-productive. But in the broad sweep of history, 19th-century laissez-faire capitalism was very much an exceptional case. And far from being natural or spontaneous, free-market economic arrangements had to be forcibly established by government action that overturned customary laws, set aside traditional safeguards, and abolished long-standing rights of common.

Pre-capitalist societies did not have distinct ‘economies’ that were set apart and organized according to a purely economic logic of profit and loss. They did not regard market exchanges as transactions that ought to be governed solely by the laws of supply and demand. Nor did they treat labour power as a marketable commodity distinct from the human being who labours or from the social context in which labour is undertaken. Production and exchange were instead embedded in and constrained by religious, moral, and social rules that limited exploitation and protected against starvation in times of dearth or famine.

To point to these protections and restraints is not to romanticize the pre-capitalist past as some Merrie England idyll of mutual care and support. Pre-modern social arrangements were neither equitable nor democratic and the coming of free trade, free markets, and free labour was, for the commercial classes and their allies, a liberating escape from a world dominated by narrow special interests. But for all their commitment to inherited privilege and status hierarchies, pre-capitalist societies always insisted that economic action be subject to social and moral restraint.

The coming of full-fledged market capitalism in 19th-century Britain was the first time in human history that economic actors shrugged off these social constraints and persuaded the nation’s rulers to entrust collective welfare to the logic of private accumulation. The creation of laissez-faire capitalism was, in that respect, an economic and social revolution—a radical departure from the long-term pattern of socially regulated production and exchange. And as the economic historian Karl Polanyi explained, it was the widespread reaction against this revolution—and against the dislocations and protests that followed in its wake—that led to the formation of welfare states.

The creation of welfare states in the 20th century was not the beginning of an era in which social protections overlaid and interrupted economic processes; nor a turning away from the natural order of untrammelled commerce. It was the resumption, albeit in a distinctively modern form, of a near-universal pattern that had been pulled apart by the shattering emergence of free-market capitalism.

The social roots of welfare

Why don’t human societies allow the poor to starve and the weak to go to the wall? The answer has less to do with altruism, religious belief, and human sympathy—though they certainly play a part—and more to do with the facts of human coexistence and the power relations to which they give rise. In any social organization, social groups are linked together by ties of interdependence. Masters and slaves, lords and vassals, landlords and tenants, employers and employees, states and subjects, men and women—are each interconnected and interdependent. These relations are unequal and exploitative, to be sure, but they tie group fates together in consequential ways. Powerful elites learn that it is in their interests to preserve those they dominate, if only to ensure the regular extraction of tax, labour, or military service; to limit the ravages of disease and the spread of epidemics; and to head off riots and insurrection. Close examination of the ongoing social arrangements of any social grouping generally reveals these complex exchanges and involvements.

Machiavelli advised that a prince who would maintain his state must keep the body politic in security and good health. But the same prudential rules apply within every community and every family. Powerless young children are dependent on their parents but these parents grow old and become dependent in their turn. Those who can work provide for others who cannot, trusting that they will be taken care of when their time comes. Reciprocity extends across generations. Positive emotions of love and affection, solidarity and fellow feeling, altruism and gratitude, are fostered within these interdependencies, translating social necessities into cultural mores and ethical norms. But intertwined with altruistic sentiment are the tougher bonds of mutual need.

These considerations explain why social provision always has multiple sources and is entangled with a variety of relationships. There is always a ‘mixed economy’ of welfare, with the needs of individuals and households being provided by some combination of kin and community; property and work; church and charity; and local and central state. Their relative importance varies across societies, but there is always a mix—and that continues to be true today, even in societies with extensive welfare states.

Anthropologists describe how tribal societies organized themselves around gift-giving and ‘prestation’: patterns of extended reciprocity in which gifts would be presented to other groups with whom trade or marital relations existed—often in lavish ceremonies of feasting and display. These acts of giving, receiving, and returning were economically important, distributing material goods to members of the groups involved. But gifts also functioned to build connections and solidarities, to establish relations of power and prestige, and to mark out the structure of social relations in ways that defined these groups and held them together.

Reciprocity is the rule that applies between equals, beneficence the rule connecting superiors and inferiors. To give in expectation of return—either immediately or at some future date—is a relatively simple transaction but the giving of gifts, alms, or largesse is more complex. In most cultures beneficence is the duty of those who can afford it: a social obligation reinforced by motives such as signalling superiority, displaying kingly style, obeying public opinion, affirming ideals, and observing religious duties. In every society the social relations formed by reciprocity and beneficence work to sustain social and economic life, reproduce hierarchy, and hold groups together.

These themes found clear expression in the very different worlds of classical antiquity and medieval Europe where wealthy individuals, notables, and political leaders gave gifts to their city, to their church, and to the common people. In ancient Rome, the institution of ‘eurgetism’ dictated that wealthy individuals should donate bread and circuses—as well as monuments, civic buildings, and public amenities—as marks of prestige, generosity, and patriotism. And even if the welfare of the poor was not especially valued in Roman culture, poor people benefited from this largesse along with other citizens.

Later, when the Christian church declared the poor ‘blessed’ and made charity a virtue, almsgiving became a broader social imperative and the practice of pious benevolence spread through the social ranks. Throughout the Middle Ages and the Early Modern period the church—and its network of monasteries, hospitals, and lay fraternities—served as a great engine of redistribution, amassing tithes, taxes, and collections and donating part of the proceeds to the poor. Here too, the non-reciprocal relation between donor and recipient was balanced by non-material returns—in this case gratitude, deference, and the promise of spiritual salvation. One sees similar patterns in Judaism and in the Islamic world.

The obligation to give succour, to assist others, and to be hospitable, was a very general one though it had its limits. The poor of other cities or other faiths, the marginal or unconnected, often found themselves outside the scope of beneficence. And being voluntary (to a degree), such arrangements were subject to the vicissitudes of personal inclination and could not easily cope with large-scale disasters. But mutual aid, charity, and social provision were nevertheless vital features of pre-industrial societies.

These ancient social themes still figure in our own societies today. Even in the most developed welfare states, care-giving is freely undertaken in families; friends and neighbours provide mutual aid; and voluntarism and philanthropy run alongside state welfare, supplementing it at every turn. Nowadays, however, aspects of these practices that were once overt—largesse as a sign of superiority, charity as a sacred duty, bread and circuses as a strategy of rule, welfare as a political quid pro quo—persist in less obvious ways, buried in the foundations of our institutions or emerging now and then in popular attitudes towards them.

The expanding role of the state

Social provision is a collective good, necessary to social integration and social order. So it falls to the group’s rulers—its elders, chiefs, religious authorities, or government officials—to ensure adequate arrangements are made. In the long process of state formation that began in the late Middle Ages and ultimately gave rise to modern nation-states, the building of institutions for security and welfare played a central role.

As early as the 14th century, the English state had begun to regulate economic life, introducing laws to stabilize employment and provision in the wake of the Black Death. The 16th-century process that historians term ‘the Tudor revolution in government’ largely consisted of statutes enacted to regulate apprenticeships and labour; control beggars and vagrants; establish rules of ‘settlement’ (determining the parish to which paupers belonged); set the poor on work; and organize local parishes into a more effective system of poor relief.

These laws, together with customs dating from medieval feudalism, formed the basis of a system of regulation and provision designed to ensure that workers did not starve and that the poor and sick of each parish were cared for. The use of land, the training and employment of labour, the borrowing of money, the formation of contracts, the conduct of markets—all were subject to constraints and limitations. Wages were regulated by guild rules and apprenticeship laws, and the ‘just price’ for bread and ale was set each year by local Justices of the Peace responsible for ensuring that necessities were available at affordable prices. Labourers and apprentices were lodged and fed in the household of their masters or employers. Grain supplies were monitored to prevent forestalling and hoarding. Land was held not as private property but in a form of stewardship that gave tenants rights of grazing and gleaning, access to common fields and other rights of common. Economic production, master–servant relations, and market exchange were folded into a social fabric of moral rules, religious duties, and customary obligations. And if these norms broke down, as they frequently did, riots and popular protests would often ensue.

As well as regulating the social obligations of economic actors, the early modern English state established a system of relief that came to be known as ‘the Poor Law’. Beginning in the late 16th century, Parliament enacted statutes designed to modify the system of religious doles and arrange it on a more uniform, secular basis. Alms previously provided by local churches, monasteries, and charitable hospitals were now distributed by local government officials—the ‘overseers of the poor’—and funded by taxes levied on parish householders. Responsibility for indigent individuals remained with families, but where kin could not meet their needs, the government charged the local parish with care of the destitute. In discharging these functions, officials distinguished deserving from undeserving and locals from strangers, providing aid to those incapable of work, refusing it to the ‘able bodied’, and returning vagrants to their parishes of settlement.

Poor relief in Britain remained the responsibility of local authorities until the early 20th century. But from the 16th century onwards the national government increased its involvement, overseeing the law’s administration, establishing a census to enumerate and categorize the indigent, and legislating to encourage the creation of institutions that put the poor to work. The relief and regulation of the poor was one of the paths along which the modern state was built: both in Great Britain and also in colonial America where similar poor law institutions were later established.

The end of the old Poor Laws

By the late 18th century, traditional protections were being eroded by market capitalism, urbanization, and industrialization, and by the new conceptions of political economy and possessive individualism that accompanied them. Proponents of the new economy challenged the old relations of protection and dependency, pressing for the commodification of land, labour, and money and for the abolition of laws and customs that stood in the way of market freedom.

Compared to older arrangements where production was primarily for use, where agrarian producers lived close to subsistence, and where the needs of the household set limits to production, the new capitalism was dynamic, expansive, and transformative. And as industrialization got underway and production became increasingly mechanized, merchants sought to sweep away barriers to trade and expand markets for their goods. Mercantilist controls, protectionist tariffs, guild privileges, apprenticeship laws, just prices, paternalistic provision—the whole political economy of pre-capitalist society—were attacked as unnecessary obstructions to production, commerce, and the expanding wealth of nations.

Market capitalism brought about the eclipse of ‘moral economy’. Instead of embedding economic processes within social and moral relations, the logic of capitalist development pressed to dis-embed economic activity, freeing it to compete in open markets untrammelled by moral or social constraint. Social regulation was to give way to economic regulation. Production and exchange were to be determined by demand and supply and not by social obligation or status privilege. Commerce was to be shaped not by customary rules and ancient corporate privileges but by individual calculations of utility and private gain. In the new socio-economic order, contract was more relevant than status, individualism displaced community, and the ‘economy’ was viewed as a self-contained domain that was to be set apart from the social.

As capitalist enterprise expanded its reach, the old institutions of social regulation and protection were abolished or allowed to pass into disuse, thereby stripping away the protective social layers that had encased production and exchange. Property became more fully ‘private’; contracts were to be whatever the contracting parties agreed; and labour, land, and money became freely exchangeable goods to be bought and sold at whatever price the market would bear. To capitalist entrepreneurs, commercial traders, and their middle class supporters, this was a liberating release from restrictive government and the power of special interests. To paternalist landlords, farmworkers, small tenants, and a growing class of wage labourers, it was the demoralization and dehumanization of economic life.

The final chapter in the passing of England’s paternalist society is encapsulated in the rise and fall of a poor relief system known as ‘Speenhamland’ (after the town in which it was originally devised). Introduced in 1795 by Berkshire magistrates during a period of dearth and food riots brought on by the Napoleonic wars, but persisting long after the emergency had passed, Speenhamland was a system of allowances and grants-in-aid of wages designed to enable labourers to feed their families when wages were low and bread expensive. (By 1795, food prices were no longer fixed and the annual assizes of bread and ale had passed into memory, so instead of regulating wages and prices to ensure subsistence as these traditional arrangements had done, Speenhamland sought to ensure subsistence without resorting to direct market controls.) The effect of the system—which soon spread to other rural areas—was, by general agreement, a disaster. The availability of allowances for employed labourers led employers to depress wages, thereby pauperizing their workers (who were put in constant need of poor relief) and threatening to bankrupt local householders whose property taxes funded the system.

Speenhamland was by no means typical and many of its worst effects were soon offset. But it became a by-word for the perversity of paternalistic provision in the new market age. The outrage it provoked fuelled calls for the abolition of the Poor Laws: a demand that claimed support from the ideas of Adam Smith, David Ricardo, and Thomas Malthus, though no political economist fully embraced such a radical position. A Royal Commission of Inquiry, appointed in 1832, produced its Report two years later, documenting the alarming extent of the new pauperism and the ineffectiveness of the system supposed to address it.

Despite the Report’s thoroughgoing critique, the old Poor Laws were not altogether abolished. No government could go that far. But the Poor Law Amendment Act of 1834 went a good way towards minimizing social protection and maximizing market freedom. Under the terms of the Act, relief was offered on much more restrictive terms. The new law swept away the poor man’s traditional right of parish relief. All ‘outdoor relief’ was abolished—not just wage supplements to the able bodied but doles to anyone, however infirm or unfit to work—and in its place was established the ‘workhouse test.’ Anyone wishing to claim relief had to be prepared to enter the workhouse—a closed, disciplinary institution with a regime designed to be ‘less eligible’ (less attractive) than the meanest conditions of life experienced by wage-earners outside (see Figure 1). The workhouse test became a self-acting measure of destitution since only the truly desperate would choose to enter (see Box 2).

The reaction against laissez-faire

The New Poor Law of 1834 was the embodiment of a newly liberalized market society, stripped of customary protections. The labour market was to be free from outside interference; wages and prices were to be set by market processes; property taxes and public responsibility for welfare were to be minimized; and poor relief was designed to deter all but the truly destitute.

1. The women’s dining room, St Pancras Workhouse, London (1897).

Box 2 The New Poor Law principles

‘The first and most essential of all conditions, a principle which we find universally admitted, even by those whose practice is at variance with it, is that [the pauper’s] situation on the whole shall not be made really or apparently so eligible as the situation of the independent labourer of the lowest class’ … and … ‘all relief whatever to able-bodied persons, or to their families, otherwise than in well-regulated workhouses … shall be declared unlawful, and shall cease …’

Report of the Poor Law Commissioners xxvii (1834) at pages 228 and 261

But this laissez-faire utopia quickly ran up against its human limitations and anti-social effects. When the Commission of Inquiry sent out questionnaires to local parish overseers, commissioners were appalled to discover the existence of a huge population of paupers. But this ought not to have surprised them. By the 1830s, two historic processes had long been transforming the condition of the poor: (i) the moral economy of the pre-capitalist world had collapsed and with it the old social protections upon which the poor relied, while (ii) the Industrial Revolution was dislocating the lives of millions of labourers and their families, creating a whole new class of paupers. Between 1750 and 1850, the shift to mechanized farming spurred a massive migration from the countryside to the towns, where the expansion of trade and industry promised work—albeit precarious, casual work—for displaced farm workers. And whereas access to land and community support had allowed the rural poor to eke out a living even in times of want, the new urban proletariat had few resources to help them survive the periodic unemployment characteristic of industrial capitalism.

The living conditions which workers endured in industrial cities were a threat to public health and a moral affront to a nation that considered itself civilized. Conditions in mines and factories were even worse, and affected women and young children as well as men. Parish workhouses in the larger towns and cities struggled to cope with masses of workers thrown out of work by market downturns and by events such as the Irish famine or the collapse of the Lancashire cotton industry. In the face of these pressures, local relief officers relaxed their rules and supplied outdoor relief and public works. Twenty years after the 1834 Act, more than four-fifths of paupers were receiving outdoor relief.

By the middle of the 19th century, the laissez-faire revolution was being challenged by a broad counter-movement of collectivist developments and new social protections. Craftsmen formed craft unions, friendly associations, and mutual aid societies. Voluntary action and private philanthropy expanded. And towards the end of the century, when the laws restricting ‘combinations’ had been relaxed, unskilled workers organized themselves into unions and used their new power to press for higher wages.

Even as they maintained their free-market creed, British governments recognized ‘exceptional circumstances’ where protective measures were necessary and laissez-faire principles should be set aside. The regulation of factories, mines, and railways; the provision of public education; the promotion of public health and much else besides were areas that justified central government intervention. City governments did even more: providing clean water, sewers, and sanitation; regulating housing; providing public washhouses, libraries, and parks; and creating a form of ‘municipal socialism’ that stood in stark contrast to free-market principles.

This historical dialectic is what Polanyi famously called the ‘double movement’. On one side, the triumphant forces of laissez-faire liberalism, building a new society based on market freedom, private interest, and a minimal state; on the other, a widespread, diffuse reaction prompted by the pragmatic collectivism of various authorities who took steps to cope with emergencies, repair market failures, and manage the social upheavals caused by the capitalist juggernaut. In the USA, a similar process unfolded: an ideological commitment to laissez-faire and market individualism being offset by public welfare laws at the local level and large-scale disaster relief periodically doled out by the federal authorities.

The paradoxical result was that the 19th-century heyday of individualism and laissez-faire also saw the emergence of a centralized administrative state and municipal socialism. By the end of the century, the question of social provision was caught up in a struggle between two opposing principles: the logic of free-market liberalism versus the logic of moral economy and social protection. More than 100 years later, these two competing principles still lie at the heart of our political debates.