Welfare States

The term welfare state is strongly associated with socioeconomic policies adopted in advanced capitalist economies particularly after 1945, which rested on the conviction that societies can be shaped by conscious policies designed by state institutions to eliminate abuses resulting from the market process within a capitalist economy. Nevertheless, both the idea and [Page 1027]various welfare practices existed before the postwar period. The oldest of these traces back to social insurance programs in Germany in the 1880s. While the French government set up similar pension plans in 1910, the British government introduced a national insurance system, old-age pensions, and health and compulsory unemployment insurance systems in 1911, and the Swedes initiated the first compulsory and universal pension system in 1913. The only national program in the United States was the old-age insurance program initiated by the Social Security Act in 1935, leaving implementation of other welfare plans to individual states. However, these early programs were limited in scope, and after World War II the government transformed them into more comprehensive programs of universal benefits.

A growing literature examines why welfare states expanded after 1945, and the most comprehensive variations of these studies begin with a theory of advanced capitalism. Prior to this period, the leading capitalist countries experienced high unemployment levels, severe inflation rates, government deficits, productivity declines, and increasing inequality. Although various combinations of public and private solutions attempted to prevent social unrest, broader developments irrevocably altered the economic, political, and social environment after World War II. Therefore, these countries reconsidered their idolization of the market and put greater emphasis on state intervention in the economy. On the one hand, the welfare state was to ensure the reproduction of all conditions of production. State regulation, then, emerged as an essential basis of economic process as well as the precondition for the maintenance of an adequate labor force for new patterns of production. On the other hand, the idea behind the welfare state depended heavily on a compromise between social actors in the face of a powerful material and ideological competitor, socialism, which threatened the very existence of the capitalist system. The state's role, then, would be to mitigate class conflict and to balance the asymmetric power relation between labor and capital. Labor unions were recognized as the legitimate economic and political representatives of working class both in collective bargaining process and public policy formulation.

Within this context, ideas of John Maynard Keynes (1883–1946) provided the ideological justification and theoretical basis of welfare states at a time when the Great Depression still had its hold on industrialized economies, and neoclassical economics offered no clear solutions. Keynes argued that public expenditures could maintain a certain demand level without affecting profits and smooth out the fluctuations of the market. Moreover, he claimed that monetary expansion, by controlling the level of interest rates, would result in investments that would create new jobs. With the widespread acceptance of Keynesian assumptions after 1945, government fiscal and monetary policies ensured an environment for a nonhostile labor force and favored the growth of mass markets and standardized patterns of consumption. Indeed, the period between 1945 and 1960s is generally referred to as the “Golden Age” of capitalism.

...