The creation of full-fledged welfare states was part of the massive reconstruction undertaken by war-torn European nations in the years after 1945. And during the decades of growth that followed, a commitment to the welfare state became the settled principle around which a lasting political consensus took shape. In the USA, New Deal institutions formed the basis for a parallel settlement that likewise endured until the 1970s and beyond.
In these post-war decades a new mode of government came into being. Its specific forms varied: Britain’s Welfare State, L’Etat Providence in France, the Dutch Verzorgingsstaat, Germany’s Sozialstaat, America’s New Deal, and Sweden’s Folkhemmet all had unique characteristics of their own. But these newly-emergent welfare states shared a distinctive set of features that marked them off from the old poor laws on the one side and from state socialism on the other. It is these defining features that I want to identify here.
The fledgling welfare states of the 1880s and 1900s had pioneered social insurance but their actual policies involved laws of limited reach and relatively modest expenditures. In the 1950s and 1960s, welfare states expanded in scope and ambition, becoming vast machines for economic growth and social governance, deploying a myriad of laws and regulations, and spending between 20 and 30 per cent of GDP. Let’s call this first full-fledged version ‘Welfare State 1.0’ (WS 1.0) and use it to describe how welfare states are structured and as a base line from which to measure subsequent developments.
Welfare states generally have five institutional sectors: (i) social insurance; (ii) social assistance; (iii) publicly funded social services; (iv) social work and personal social services; and (v) economic governance. I will describe these here in the WS 1.0 forms that predominated from the 1940s until the 1980s. In later chapters I discuss how they subsequently changed.
Social insurance against loss of earnings is the cornerstone of the welfare state. It addresses the central problem of capitalist labour markets—the insecurity of wage-workers and their families—by means of a collective risk pooling that indemnifies losses and generalizes security. Beveridge talked of state insurance as ‘a new type of human institution’ and its emergence does indeed constitute a breakthrough in social and economic governance.
Social insurance programmes are typically state-administered, legally compelled, more or less comprehensive schemes designed to protect workers and their families against loss of earnings due to injury, sickness, old age, disability, or unemployment. They emulate private insurance by requiring the insured to make contributions, specifying the contingencies that trigger benefits, and establishing contractual entitlements. But they differ from private insurance in that they de-link premium levels from risk levels and enrol everyone, regardless of risk profile. These departures are feasible because the insured population is large and diverse and because enrolment is compelled by the state. No private insurance scheme could provide guaranteed coverage of this kind.
In schemes such as National Insurance in the UK or Social Security in the USA, employees are obliged to make regular contributions (supplemented by employer contributions made on their behalf) on the basis of which they are entitled to sickness and disability benefits, unemployment payments, retirement pensions, and so on. The effect of these risk-pooling, forced-savings schemes is to smooth out fluctuations in earnings and consumption, thereby redistributing income across the life-course and across economic cycles. And although these schemes produce some cross-class redistribution—low-paid workers generally benefit more than they contribute—their primary effect is to provide security to everyone in employment, rich as well as poor.
Social insurance schemes are enduringly popular with the public, not least because they have proven effective in reducing hardship among the elderly and the short-term unemployed. The public also favours the benefit-in-exchange-for-contributions character of these schemes and the fact that recipients of insurance benefits are spared the intrusions and stigma that frequently accompany means-tested welfare.
Social assistance (or ‘welfare’ as it is known in the USA and, increasingly, in the UK) refers to the safety net of non-contributory, income-support programmes that relieve those whose income is insufficient for their basic needs. Welfare state founders such as William Beveridge assumed that the need for such assistance would disappear as the entire workforce came to be insured but subsequent events—particularly the collapse of full employment and the growth of single-parent families—ensured that these programmes have remained important. Many founders also intended assistance to take the form of social rights uniformly available to needy citizens but over time older ‘poor law’ patterns of discretionary provision have tended to reappear.
Social assistance benefits are typically selective and means-tested, provided only to those who demonstrate need. Examples would be the American programmes of General Assistance, food stamps, Earned Income Tax Credits, Child Tax Credits, Supplementary Security Income, Medicaid, and TANF; or British ones such as ‘Income Support’ (previously, ‘National Assistance’ and ‘Supplementary Benefits’ and currently transitioning to ‘Universal Credit’), housing benefits, council tax allowance, rent rebates, free school meals, and means-tested jobseeker’s allowance.
Social assistance is funded out of general taxation and is modestly redistributive. It tends to be strongly gendered, its primary recipients being women and children. Of all welfare state programmes, means-tested income support is the least popular with the public and frequently prompts moral panics about work-shy scroungers, irresponsible single parents, and ‘benefits tourists’. As historian Michael Katz remarks, ‘Nobody likes welfare’. Nevertheless, its programmes remain vital—even in the egalitarian, high-income Nordic countries where between 5 and 10 per cent of families receive such assistance in any year.
Publicly-funded social services provide free (or subsidized) access to goods such as education, healthcare, childcare, public transport, legal aid, and so on. And at the local level, residents enjoy parks, libraries, museums, sports and recreational facilities, affordable housing, and other public amenities, paid for out of local government revenues. Social rights and services thus provide ‘decommodified’ solutions to problems of urbanization and marketization.
These public services—which are generally the least stigmatizing, most egalitarian aspects of the welfare state—come closest to being the ‘social rights’ that T. H. Marshall described, being provided as of right and operating outside of the market. Their extent varies across nations but even in a market-oriented system such as the USA, services such as elementary and high school education are provided free of charge and as of right.
Employee rights—minimum wages, paid holidays, parental leave, employment protections, workplace dismissal and promotion procedures, etc.—are also social (or ‘economic’) rights, as are the right to join a union, the collective right to strike, and so on. The extent of these rights—together with employment services of various kinds—generally reflect the political strength of trade unions.
A fourth sector consists of social work and personal social services. In addition to insurance benefits, social assistance, and public services, welfare states provide personalized forms of support such as social work with families, children’s services, social care for the elderly, community care for the mentally ill, and probation and aftercare supervision for offenders. Some of these services are straightforward forms of public provision such as childcare or home-based care for the elderly or disabled. But in other instances, social work professionals engage with clients in ways that combine care and control, focusing on families and individuals who have come to the authorities’ notice because of some perceived dysfunction or because of claims they make upon the state. The personal social services are the welfare state’s response to the problem of failing or dysfunctional families that would otherwise lack community support.
These social work interventions aim to ‘normalize’ and discipline at the same time that they extend care and support. And they mostly target the same lower-class populations that receive social assistance, with women and children as their primary focus. The French sociologist Jacques Donzelot describes these as so many ways of ‘policing the family’—by which he means that families deemed problematic are inspected and pressed to adopt ‘normal’ patterns of child-rearing, better work habits, more responsible sexual behaviour, and so on. This state-sponsored effort to normalize individuals and families—often couched in the language of psychotherapy and backed by court order—is a modern development but it echoes the pastoral care and religious discipline that flourished after the Reformation and retains some of the moral authoritarianism of that religious heritage. Similarly, the casework methods that lie at the heart of modern social work were, as we saw, pioneered by scientific charities such as the COS.
Donzelot reminds us that welfare states regulate and secure families just as they regulate and secure economies. Indeed, in the early 20th century, many commentators viewed this ‘invasion of the home’ as the most radical and disturbing aspect of the new welfare state government. Over time, however, the character of social work has changed—not least because families and their presenting problems are constantly evolving—and rather than functioning primarily as a regulatory police, much caseworker time today is devoted to advocating for clients and guiding them through the maze of benefit applications processes.
Finally, there is what might be described as the government of the economy. Welfare state programmes depend upon the operation of large-scale government controls on economic life. Nationalization of industry; economic planning; allocation of property rights; tax laws; fiscal policy; monetary policy; consumer credit policy; labour market policies; corporatist agreements; prices and incomes policies; farming and food subsidies; industrial policy; training programmes; regional investment programmes; financial regulations; minimum wage laws—all of these are, or have been, instruments of economic management used in welfare states.
After 1945, governments assumed responsibility for assuring economic growth, curbing booms and slumps, and keeping unemployment and inflation within acceptable levels. And in the decades since, they have shaped the institutions of economic governance (corporatist agreements, associations, labour unions, etc.) and have variously used planning, direct controls, Keynesian, monetarist, supply-side, and neoliberal policy instruments in pursuit of these goals. Governing the economy is the welfare state’s answer to the economic problems associated with market capitalism: operating both at the microeconomic level of job training, employment services, and protections and at the macroeconomic level of demand management and money supply. This dimension of the welfare state was highly visible in the post-war era when governments undertook to ensure full employment, both as a right for workers and as an economic underpinning for spending programmes. It has become less explicit in the decades since the 1970s, when governments placed inflation control ahead of full employment and ceded control of interest rates to central banks.
Even in today’s neoliberal globalization era, economic governance remains an essential element of welfare states and annual public expenditure budgets still operate as basic tools of economic management. Government social spending has large-scale impacts on national economies, both as tax-funded expenditures and as benefit-fuelled private consumption. And of course welfare states are themselves major job-creators, employing millions of people, a majority of whom are women. In the USA, government jobs account for around 15 per cent of total employment, while the Swedish figure is twice as high. In Britain, the nation’s biggest employer is the NHS, which employs 1.7 million people.
There is one other feature of the welfare state landscape I want to highlight, lest it escape our attention. Sometimes called the ‘hidden welfare state’, it consists of welfare benefits that are channelled through the tax system or else through private employment contracts. The US home-mortgage tax allowance, for example, is a large-scale government welfare and stimulus programme the costs of which are greater than the cost of the nation’s public housing. Similarly, corporate welfare schemes (providing enhanced retirement, healthcare, and other ‘fringe benefits’ to certain employees) are subsidized and regulated by government but provided by employers as a form of tax-exempt compensation. These forms of social provision—the least egalitarian of all—are mostly buried in the tax code and are rarely the focus of political debate.
These, then, are the major sectors of the welfare state complex and the primary instruments of welfare state government. Simultaneously operating at the macro-level of the national economy and the population, and the micro-level of firms, families, and individuals, they function to modify the economic outcomes and social relations that capitalist markets would otherwise create; to secure a politically-defined minimum of social and economic security; and to ensure the socialization and well-being of children, young workers, and individuals.
To talk about the functions of the welfare state is not to suggest the absence of conflict or the routine attainment of success. In practice, the sectors operate within different bandwidths of success and failure and all of them ‘fail’ to some degree. National governments usually have it within their power to establish social insurance, social assistance, and public services with reasonable levels of efficiency. But not all states succeed in doing so. And the ability of states to govern national economies is much less certain, as are their abilities to police families or discipline wayward individuals.
Welfare policies are rarely carried out smoothly because while the relation between the welfare state and market capitalism is functionally necessary it is also structurally contradictory. In welfare state societies, privately-determined economic action and publicly-determined social protection are shackled together. The result is a contradictory hybrid in which each structure works to sustain but also to undermine the other. Within this arrangement, the welfare state is always the subordinate or ancillary institution rather than the primary one with welfare benefits and transfers being viewed as ‘secondary’ redistributions that modify a more fundamental, ‘primary’ distribution grounded in private property and market transactions. The result is that welfare state policies generally stop short of posing major challenges to private property. It also means that the fiscal viability of specific welfare states depends on the ability of their national economies to generate growth and prosperity.
Welfare state government is always a delicate balancing act—a matter of modifying economic outcomes without obstructing enterprise; protecting labour without reducing employment; taxing profits without harming growth or prompting investment strikes; mobilizing government power while checking state overreach and upholding individual liberty. It is also always a regulatory challenge. Welfare states seek to impose social and political controls on economic and family processes that often escape or respond perversely to these regulatory efforts. This fundamental contradiction—which we might describe as the problem of system-conflict—ensures that welfare states are often prone to functional difficulties.
A further corollary is the fact that welfare state programmes are generally ameliorative rather than curative. They aim to manage failure and dysfunction rather than offer radical cures—a limitation that exasperates advocates and critics alike. The reason for this is that while welfare programmes moderate insecurity and instability they do not abolish the structural sources of these problems. On the contrary: they sustain capitalist markets and private property, even as they seek to make them compatible with socially acceptable outcomes. The result is that problems associated with market failure and maldistribution continually reassert themselves.
Collective efforts to impose social regulation on economic action have been a feature of societies throughout the course of human history. But there are marked discontinuities in the means whereby this regulation is undertaken. In that long-term story, the emergence of welfare states marked an important new chapter.
When historians describe what was new about the 20th-century welfare state, they point to the abolition of poor laws and their harsh indignities. They point to the emergence of government schemes for organizing labour markets and securing workers’ income; and to the increased role of national agencies and the shift of responsibilities from local to national government. They describe how welfare provision became a mainstream process with a majority of citizens laying claim to rights and entitlements. And they note the expanded role that welfare law and social work came to play in the private lives of families and individuals. The welfare state was, they explain, a historic transformation from residualism to universalism, from emergency relief to routine prevention, and from private charity to public welfare.
But the most profound discontinuity marking the welfare state’s emergence was not so much these altered practices, important though they were, but instead a fundamental change in the underlying rationality of government. What marked the welfare state off from its predecessors was an altered conception of the nature and purpose of governing and of the character of the objects—above all the economy and the population—to which government action was addressed. Welfare state government was distinguished by a new style of thinking about, and acting upon, the problems of unemployment, insecurity, and uncertainty: an approach that—together with new technologies of social insurance, social provision, and economic regulation—affected the whole economy and population, and proceeded on quite new principles. Today, more than seventy years later, this distinctive style of governing continues to shape how advanced societies govern economic and social life, albeit in forms that continue to evolve and develop.
To explain this altered conception more concretely we can examine how it informed the new style of governing that emerged in Britain—a nation where the shift from laissez-faire liberalism to a welfare state mode of government was especially pronounced.
In the 19th century the teachings of classical political economy insisted that the relation between social protection and economic enterprise was, to speak anachronistically, a zero sum game. Money spent on poor relief was a drag on industry and a disincentive to work; every shilling given to a pauper was a shilling removed from the productive economy; public spending crowded out private spending. Charity and poor law provision should therefore be minimized lest they multiply the poor and worsen the ratio of population to resources.
At the start of the 20th century there was a shift in thinking about government’s capacity to manage the economy and about the benefits of so doing. The new economic thinking—subsequently associated with John Maynard Keynes, though he was by no means its only progenitor—regarded unemployment as a ‘problem of industry’ operating at the level of the labour market as a whole, not as a problem of work effort on the part of individuals. It pointed to the possibility—confirmed by real-world events but long denied in economic theory—that markets could reach equilibrium at low levels of employment and produce prolonged, destructive depressions. It pointed to the positive, multiplier effects that government interventions could create by injecting money into a depressed economy to create employment, buoy up demand, and boost investor confidence. And it pointed to the positive outcomes produced when workers were secured against the risk of economic misfortune. In the world of laissez-faire, raising workers’ wages and providing income transfers to the poor had been vices with detrimental economic and social consequences. In the new approach they became virtues that brought economic and social benefits in their wake.
The new welfare state government socialized processes of control and of provision, organized them on a national scale, and made them public responsibilities. Securing employment, sustaining household income, relieving poverty, providing social services, reducing uncertainty—all of these became functions to be undertaken at an aggregate level, harnessing the benefits of scale, the law of large numbers and what Churchill called ‘the miracle of averages’. The objects addressed by government came to be the labour market as a whole; the structure of industrial production; and the national economy—the last being understood as a set of macroeconomic relations between aggregates such as national revenue, total consumption, and the total volume of savings and investment. The welfare state was thus made possible by a new form of macroeconomic and macrosociological governance. It was a ‘statification’ and systematization of governing practices that were previously local, private, and piecemeal. And it was a professionalization and a routinization of interventions that were previously left to volunteers and amateurs.
Where laissez-faire insisted on individualism, competition, and private action, the welfare state stressed cooperation, coordination, and organized collective action—not just as an assertion of values, but as an adaptation to modern social and economic life. Where laissez-faire insisted on minimizing government and freeing up markets, the new approach saw government assume responsibility for managing labour markets and assuring economic outcomes (see Box 6). The use of comprehensive, compulsory, collective action—with the nation state acting upon the population and the economy, the family, and the firm—became the welfare state’s signature approach (see Box 7). The result was welfare states that were more comprehensive, more routine, and more systematic than any prior form of social provision, utilizing apparatuses of insurance, risk-management, and regulation that had no historical equivalents.
‘The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment.’
UK Employment Policy White Paper 1944
‘What is the economic function of the state, of any modern state? It is first, a relative redistribution of income; second, a subsidy in the form of the production of collective goods; and third, a regulation of economic processes ensuring full growth and full employment.’
French Finance Minister, Giscard D’Estaing, 1972
Welfare state programmes had a powerful appeal for western political parties and their electorates in the middle decades of the 20th century. In that era of growth and prosperity, these programmes were extended and improved, enabling governments to provide enhanced benefits to their constituents and supplying voters and union members with material returns for their support. Increased taxation was a cause for complaint, as was the inflationary effect of increased public spending, and new groups frequently emerged pressing new claims and seeking new benefits. But in the post-war decades of growth, these problems were offset by rising wages, rising profits, and rising productivity.
Key to its political strength was the fact that welfare state largesse reached far beyond the poor, bringing benefits to the middle classes and the well-to-do. Programmes such as healthcare, higher education, and the home mortgage tax allowance were a boon to wealthier households. Middle-class women were enabled to undertake higher education and pursue professional careers. Employers enjoyed the benefits of a trained, healthy workforce and worked with unions to secure wage and productivity deals that brought industrial peace, allowed for longer-term planning, and contributed to competitive outcomes. Trade unions in many nations became agents of integration rather than conflict and were rewarded with a seat at the table in matters of economic government. And working people enjoyed the improved security and standards of living delivered by full employment, rising real wages, and improved public provision.
Once established, welfare states generated their own constituencies—particularly among women, middle-class professionals, public employees, and liberal elites—and their own growth dynamic. New benefits became settled entitlements. Improved circumstances led to heightened expectations. Groups that were left out pressed to be included. New social problems were discovered requiring new forms of state action. And an increasingly affluent middle class demanded improved social services, better education, and higher levels of healthcare. For a time, welfare states came to be seen as the solution to every problem and the institutions to which demands for social rights and social justice would automatically be addressed. Governments would discover—when these self-reinforcing growth dynamics became less sustainable—that reversing these developments would be much more difficult.