The term welfare state is reasonably new, developed in the 1930s and 1940s. Some see it as the opposite of the concept of warfare of World War II—opposite due to the fact that warfare requires that money be spent on military and war, but, with welfare, on social policy, health care, and so forth. This book goes further back than the 1930s and 1940s, and aside from a few references to ancient times and the Poor Laws, the starting point for presenting and discussing what we today would label welfare state activities is Chancellor Otto von Bismarck’s reforms in Germany, starting in 1883. Similar reforms quickly followed in most European countries.
It is obvious that the concept has a relative meaning and will be interpreted differently throughout time and in different countries based on their economic, political, social, and cultural legacies and historical development. Definitions of the welfare state often focus on how and why a state intervenes in the economy and welfare of the individual citizen. A welfare state does not, however, have to mean state intervention; it may merely reflect the state’s restrictions and the demands of the labor market, families, and the rest of civil society.
Some welfare states are fairly universal in their approach, whereas others have chosen a more selectivist attitude. Different types of the welfare state exist as a result of the way different societies have chosen to develop their systems. Many welfare states came about in response to the Industrial Revolution, while others developed in response to changes in the demographic situation and structure, which gave rise to new demands for new protection. The initiatives were related to specific social areas, for instance, support for pensions, education, housing, and spouses. These developments were often in response to market failure and the market’s inability to provide the necessary support for the individual’s risk. This contrast between market and state has, to a large extent, also been part of the debate between, for example, the New Right and the New Left.
The systems in various countries are still quite different, and after the rapid expansion of the welfare state in the 1960s and 1970s, the legitimacy of the welfare state was increasingly questioned because of rising unemployment, increasing dependency on the state, ideological pressure for more individualism, state deficits, and state debt. The question related to legitimacy is often an issue dependent on the economic development, ideological preferences, and voter expectations for what the role of the state should be to develop a welfare society.
The economic consequences of the welfare state also often come into question, including how the financing would influence individuals’ behavior, as well as how different types of social security systems could have an impact on incentives to work and save. The state’s role was, and has been, widely debated by the New Right and public choice theorists, among others. The conflict between handling market failure and government intervention has yet to be resolved. Given this criticism, it is difficult to foresee how the welfare state will develop. It can be argued that the welfare state will continue to exist and evolve, but the form, shape, and structure will also continue to vary among countries.
The interactions and borderlines among state, market, and civil society will presumably shift as time progresses, and the roles of various actors in the development can and will change throughout time and among countries. Thus, there are constant conflicting perspectives on what the welfare states should look like, how to finance welfare states, and how to deal with welfare both in times of crisis and prosperity. The following is a short description of the historical development of the welfare state. More can be found in individual country descriptions, as well as those of relevant organizations. The goal here is to provide a broader overview presenting central themes and elements to grasp the welfare state’s development and core reasons and arguments behind this growth.
Welfare states are undergoing constant change for several reasons. In most countries, a change in demography implies movement toward spending more on health and elderly care, while at the same time reducing public-sector involvement and payment to pension, including later retirement from the labor market. The financial crisis, with the need to use money to avoid bankruptcy in the financial sector, increasing levels of unemployment and reducing income from taxes and duties, implied a high level of public-sector deficit. This has once again led to restructuring and retrenchment in public-sector spending. Thus, at least in some countries, this means a weaker role for the welfare state.
An external crisis like the financial crisis can, therefore, have a profound impact on welfare states. Whether this continues and permanently changes the preferences of voters is not an easy question to answer, as most people and countries with an increasing level of income have a greater demand for services, including more welfare services. As a result, it is safe to say that the welfare state is here to stay, although it can vary in different countries and welfare regimes, and there are certain instances where it is necessary to have a welfare state. Hence, there may be both economic efficiency as well as ideological arguments for the welfare state. The balance between these arguments, including the willingness to pay for welfare, will continue to have an effect on the welfare states in the years to come.
HISTORICAL DEVELOPMENT
It is difficult to briefly describe the historical development of welfare states in different countries, as the national strategies used when social policy and social security were initiated were highly nation specific. Nonetheless, it seems possible to identify some common features and also see the development of welfare states in a framework in which certain time periods have witnessed decisions that have had a stronger impact and influence on the developments of the welfare state than others. References are made here to certain key people in relation to the thinking about and development of welfare state activities, even though for many countries this means oversimplifying and neglecting the influences of national figures and national responses to changes in economic and social conditions.
When looking at different countries and the complexity of their economic and social development, it becomes obvious why it is not easy to say exactly why and how different welfare states developed. National differences in economic, political, social, and cultural conditions have existed (and still do), and these differences have had an effect on the way the systems developed. This is why so many variations of the welfare state exist, and why there are numerous interpretations of the why and how of welfare states.
The structure of the following discussion reflects the situation found in different historical periods of the development of the welfare state. The first period is ancient times and the development of the Poor Laws. Next comes the period of industrialization in the late 17th and early 19th centuries (1870–1913), followed by the period between World War I and World War II and immediately after World War II. The golden age of the welfare state (1950–1973) is described, trailed by a discussion of the welfare state crisis, retrenchment, and new orientation since 1973. Central thinkers of the various periods are included, and the prevailing ideology of each period is also presented.
The first elements of the welfare state derived from many countries’ support of specific groups that were seen as deserving. In ancient times, one particular deserving group was soldiers who had served their country. This implies that a core factor in public-sector involvement has been opinions about who deserves support and who does not. This also indirectly acknowledges that, to involve some people in higher-risk activities, some type of coverage is needed, for example, accident insurance for invalidity caused by work accidents. During ancient times, it was mainly men going to war who were covered, because the risk of not being able to support themselves after a war was high, and their war injuries were not their own fault.
Later on, more general approaches emerged, although they were weakly applied. The Poor Law Act of 1601, in the United Kingdom, seems to have been the first law implementing support for specific groups in society aside from soldiers. There had been some earlier laws—for example, the Poor Law Act of 1388—the main aim of which had been to cope with possible labor shortage in the years after the Black Death; however, the 1601 act was the first under which a specified group, paupers who were old or sick, would receive support. On the other hand, others needing support would have to be employed in a house of correction. This law worked—on a decentralized basis—for more than 200 years, but communities were economically pressed by growing populations and the beginning of industrialization, which began earlier in the United Kingdom than in most other countries. Due to growing pressure and changes in economic and philosophical thought, including laissez-faire attitudes and a belief in the need for incentives for the poor, a new Poor Law was implemented in 1834. Its main principle was less eligibility and inclusion of a strong test; it provided that most people should be discouraged from receiving poor relief—the beginnings of the stigmatizing effects of social policy. The influence of Adam Smith and the free-market mechanism was clear during this period. In other countries, other poor laws with the same ideological emphasis as those in the United Kingdom were gradually introduced.
The church also played a central role in coping with the legal and administrative problems of society in many countries; however, this impact was quite different from country to country, mainly because of variations in religion. The Catholic Church emphasized its responsibility and also (even if first written down in the Quadragesimo Anno, 1931) the principle of subsidiarity, which implied a higher responsibility for the individual and the family. This has been an important factor in the diversity of welfare states in Europe. The Protestant church, on the other hand, has been more inclined to argue for state intervention and a smaller role for the church in relation to welfare state development.
In most European countries, development of the welfare state in the 19th century was brought about by growing industrialization and changes in demographics and societal structure, including increasing pressure on the cities. The welfare-related developments included poor laws, the establishment of mutual societies, and growing voluntary action and private charities. The role of the public sector was still limited.
From 1820 onward, the world economy grew more dramatically than ever before, and a comparison of the gross domestic product growth rates from 1500–1820 with those from 1820–1992 clearly shows the difference. From 1500 to 1820, the growth rate was 0.04 percent, whereas from 1820 to 1992 it was, on average, 1.21 percent. Economic development also seems to have had an effect on the possibility of development of public support. Periods of rapid welfare state development correlate with periods of rapid economic development.
The most rapid economic expansion occurred from 1950–1973, the second most rapid from 1870–1913, and the third from 1973 onward. Excluding the period from 1973 onward, when the debate over retrenchment and crisis was prominent, the two remaining periods are central to understanding the evolution of the welfare state.
Between 1870–1913, many new types of legislation were passed addressing different and, especially new, social risks. Accident insurance, sickness, old-age pension, and invalidity were among the areas covered. Bismarck’s reforms in Germany in the 1880s emphasized social insurance. The first reform was a law concerning sickness in 1883, which was followed by industrial injury in 1884 and invalidity in 1889. These types of legislation were passed in many other Western European countries in the period leading up to 1913.
Bismarck’s social insurance reform was a response to the industrialization of Germany and fear of uprisings by the working class unless it was covered against new forms of risk. These new risks were caused not only by the new industries, but also by population movements, which indicated that the family’s responsibility was weakened. Without public-sector intervention, many families would have been left without support in cases of industrial injury, sickness, and old age.
Reforms in Germany were based on mutual aid and combined the use of state intervention with employer responsibility. In this way, reform continued along the path already traced, with individuals being covered either by employers’ liability, personal savings, and private insurance, or a combination of the three. Furthermore, this system used the capitalist production systems combined with state intervention. The tendency toward a more mixed economy was apparent.
In other European countries, in addition to personal savings and private insurance, mutual-aid societies were of central importance. When these types of remedies seemed to lose strength and social problems increased, social security reforms evolved, and the state became more involved. Thus, it can be said that changes in demographics and economic conditions (industrialization and growing class conflicts) were the catalysts for the rising tide of welfare state reforms.
From a more ideological point of view, the liberal mode of thinking influenced the development of reforms in many ways. Collectivist approaches and thinking, especially Marxism, had an impact on various systems in the sense that the development of better living and working conditions was part of the class conflict in many countries. This discord involved more than just struggles between the traditional classes, that is, the workers and the capitalists. Especially in Scandinavian countries, coalitions were formed between workers and farmers with the aim of promoting decisions favoring both groups. As compromises between different groups in society were reached that were not formed along the traditional lines between those owning the means of production and those without, it gradually became apparent in many political democracies that these “coalitions” were driving forces toward a welfare state; therefore, the ideology behind the welfare state is not one-sided, but has many different faces and often a mixture of attitudes. Even though the term welfare pluralism first emerged late in the development of the welfare state, traces of it can be found early on in many countries.
The period prior to World War I was influenced by and ran parallel to a gradual reduction of voluntary work as part of social policy. Later on, increased state intervention appeared in many welfare states. When World War I started, reforms naturally came to a halt in many countries. Economic and political resources had to be used to cope with the war. After the war, the possibilities of, and need for, reforms gradually surfaced again. The process of, and wish for, changes and reforms of social security and increasing coverage of different needs, combined with state intervention in the economies, still existed, even though it had been difficult to implement new initiatives during World War I.
Expenditure for social protection and other welfare state activities continued to grow after World War I, although the classical way of thinking about public finance was a hindrance to any active stimulus to the economies. John Maynard Keynes’s work first made clear that the public-sector economy could be used as an instrument for creating jobs and stimulating the economy. The economic rationality for growing pressure on the systems existed, partly due to the fact that ever more people were living in the cities in poverty and destitution without proper support.
Reforms were halted by the growing tensions in Europe and the outbreak of World War II in 1939. World War II and the preparations for what was going to happen after the war were important in the development of the postwar welfare state. The war seemed to inspire a more collectivist way of thinking, encompassing many who needed help through no fault of their own. In addition, there was a belief that the best way to reduce the possibility of another war would be to reduce tensions among countries, create jobs, and guarantee decent living standards.
Lord William Beveridge, especially in his 1942 report, Social Insurance and Allied Services, laid the foundation for many postwar welfare state systems. He proposed to reduce unemployment, provide a comprehensive health care system, and guarantee a minimum income. This more universal type of welfare system, which in T. H. Marshall’s understanding was implicitly built on citizens’ rights, laid the groundwork for the systemic development of the welfare state in many countries. In the United Kingdom, Beveridge’s ideas combined with a more Keynesian economic approach to foster a slow but steady expansion of the public sector after the war, thus emphasizing the impact of specific people in the development of the national welfare state, as well as future development.
The period from 1950–1973 can be labeled the golden age of welfare state development. It combined high economic growth with rapid expansion of the public sector. Welfare states throughout the world, with some exceptions and differences in pace, expanded rapidly during this time. Economies that developed more rapidly, for example, those in China, Russia, Brazil, India, and South Africa, later developed welfare states. All-encompassing systems and a greater reliance on public-sector provision than on the market and civil society were the cornerstones of development, especially in Europe, the northern United States, and Oceania. These systems included coverage of broader groups in society; better and higher levels of benefits; and new types of services for children, the elderly, and other vulnerable groups in society. Finally, health care systems were expanded in response to a growing need for treatment and new methods for taking care of different types of needs.
Aside from the possibility of expanding the public sector economically, a changed division of responsibility between family and society gradually took hold in many countries. This could be seen in the increasing number of women who entered the labor market, as well as the new types of care for which the public sector became responsible. The function of the family as a core unit for providing welfare diminished in many countries, although it still had an important role, and in some welfare states a very profound role, for example, in the Southern European welfare state.
The golden age of expansion thus experienced a higher level of state involvement and a reduction in the role of the market and civil society—including voluntary organizations. The other side of the coin of this rapid expansion was growing taxation. The higher level of taxes and duties, combined with the economic recession in most of the world after the first and second oil crises in the 1970s, which quadrupled oil prices, brought into question the survival of the welfare state. In combination with the increase in oil prices, unemployment rates grew, inequality increased, and public sector deficits started to rise in many countries. These factors led to a growing disbelief in the Keynesian fine-tuning of the economy and doubts about the welfare state’s ability to guarantee decent living standards with so much public-sector debt.
Furthermore, the legitimacy of the welfare state was questioned by both the New Right and the New Left. The New Left criticized the welfare state for not having honored its primary commitment to full employment and for not having brought about an equitable society. The state’s role had become too weak compared to the markets, and a reformulation of the state’s role in societal development was needed. The unfulfilled expectations increased the New Left’s criticism of the welfare state. The New Right criticized the welfare state from the other side. The economic burden on society of a growing public sector crowded out private investment, and generous unemployment benefits reduced the incentive to work, especially at low-income jobs, creating problems in the labor market. Finally, the New Right questioned the role of the bureaucracy and pressure groups, especially within the framework of public choice. The argument was that the bureaucracy and pressure groups were mainly considering their own interests instead of society’s, reducing society’s overall welfare.
The growing legitimacy crisis and, some argued, already a financial crisis, led to a new orientation of the welfare state in many countries, and the growth of the public sector came to a halt in many locations, the exception being latecomers. Perhaps surprisingly, only a few real cutbacks in benefits or services in the various welfare states were implemented. A continuously high state level of involvement in welfare prevailed, and convergence seemed to be on its way, at the least among the richer Western European countries. Thus, the states’ involvement in and financing of many activities can still be seen, although the focus seems to have shifted slightly toward health care and trying even more than in the golden age of the welfare state to target support to the vulnerable groups. Long-term consideration of demographic changes and the impact of globalization on the welfare state have opened new avenues for debate and discussion about the welfare state’s future development. Moreover, the historical distinction between the deserving and undeserving was resurrected as a central element in the way the welfare states provide benefits to their citizens.
A more profound method of mixing state, market, and civil society has simultaneously occurred in many countries. Voluntary groups and organizations also seem to have gained importance. In addition, the division of welfare into public, occupational, and fiscal welfare has changed, with many welfare states increasingly relying on occupational welfare, sometimes supported by fiscal welfare; in this way a different role for the state has emerged.
Marketization and privatization were buzzwords for many conservative governments in the 1980s and 1990s. They were combined with a more liberal approach to economic policy and greater reliance on the individual’s commitment to society. Market elements were incorporated into public-sector provisions, and the boundaries between state, market, and civil society underwent changes. Retrenchment of the welfare state could be witnessed during this period in several countries, although the real cutbacks were few and mainly hit the unemployed and those living on social assistance; therefore, there was a discrepancy between rhetoric and reality in relation to the welfare states’ development.
The welfare state still seems to be a foundation tone in many societies, and more countries are trying to develop societies in such a way that access to care and social benefits will be possible to ensure a decent living standard for those outside the labor market. It can therefore be argued that there is no real crisis of the welfare state, just an adjustment of present ideologies and a less collectivist attitude, made evident by the changes in many countries throughout the world.
THE WAY FORWARD
A single definition of the welfare state still does not exist. Different types of welfare states and suggestions for what a welfare state should be about. To some extent, this has to do with the differences among the nation states’ economic, cultural, and political developments. The interaction and mutual interdependence also creates pressure for convergence among the various countries’ systems, while trying to maintain respect for national traditions and differences in institutional structures. The welfare state emerged in response to new needs—and it continues to evolve as new needs arise and some of the old ones subside. The insecurity related to globalization and increased free movement of workers and capital also indicates a continued need for a welfare state.
Developments in many countries seem to underline that the citizens want welfare services—and they want more of them as countries become richer. At the same time, the distinction between public and private delivery is less important so long as the quality is good and access is not dependent on income.
Many voters still want increasing welfare benefits and services; however, in many countries, it has become even more difficult to finance the welfare state in the traditional way, with the state being the central actor, especially in the wake of the financial crisis that started in 2008. This emphasizes that the development of welfare states seems to be dependent on the general economic climate and an increase in wealth. Wealthier countries will find it easier to provide their citizens with more welfare than poorer societies. The increased impact of globalization also implies fewer differences among welfare states, although different perceptions of what welfare states can and should deliver have an effect on the welfare states’ development. Furthermore, there is a constant change in the boundaries between state, market, and civil society, with change seemingly being a constant challenge to the development in welfare states. The role of civil society and the question of how to deliver welfare have thus become more important than they were 10 or 15 years ago. In many welfare states, the high level of public-sector deficit and debt has also become a central issue given the restrictions that deficit and debt place on the welfare states’ future abilities to pursue a path with more spending on welfare.
The focus on the labor market and its importance in societies has also increased, dramatically so given the impact of the last financial crisis, with negative economic growth and only a slow economic recovery. Having a job has become an important factor related to integration into society, and in recent years, the active labor market policy has increasingly focused more on work and less on increases in human capital; therefore, the high level of unemployment in many countries has had a negative impact on welfare states’ performance. For example, in Southern Europe, the high level of youth unemployment can be seen as a specific and perhaps long-lasting challenge for the welfare states. Individuals who remain outside the labor market for a lengthy span of time run the risk of only marginally entering the labor market at a later date. These individuals have a more limited earning potential, and they thereby become, to a larger degree, more dependent on welfare benefits than those having stable and permanent jobs.
A central issue in the years to come will be how to cope with the growing inequality, as well as the need for higher economic growth and sustainable public-sector finances in the welfare states, which will aid in job creation and the ability to main the welfare state. Citizens continue to expect more welfare, as it increases their well-being and happiness. Although many welfare states have similarities, there are still differences based on the historical features and traditions. Hence, some countries have a more corporatist approach, some have a more liberal approach, and others have a more universal approach to welfare. For the time being, there is a crisis; however, the crisis may prove short-lived if the welfare state can return to a period of growth and development, making it possible to finance welfare. This also depends on whether citizens look at the welfare state as a burden or a social investment.
Despite the high level of unemployment, many countries are expecting a reduction in labor supply and risk of insufficient labor within the next 20 to 25 years due to the aging of the population. Consequently, many countries have been making changes to their labor market policy to increase the prospect of a continuation of a high labor supply. Demographic changes are thus becoming even more important and have been part of the reason for a number of reforms in pension systems worldwide, with the aim of getting workers to retire later and save more money for pension purposes. These changes have resulted in a shift away from state pay-as-you-go systems toward a higher reliance on occupational welfare and labor market-based pension funds. A lower level of state-financed pensions may put those in the labor market in a more precarious position. Pension reforms, with lower state pensions and a later retirement age, are another way welfare states are reducing pressure on public-sector spending, and thereby the ability to finance welfare now and in the future.
Pension reforms started before the financial crisis, but they have intensified in the wake of the crunch. In addition, in several countries, there have been severe cuts in public-sector spending to reduce the public-sector deficit. There has also been an increase in taxes and duties as a way to try to make the public-sector financing more sustainable with a view to the future. The aforementioned boundaries between state, market, and civil society have therefore been moving toward a market-based approach and an expectation of a growing role for civil society.
In recent years, there has been a tendency to look into not only the economic perspectives of the development of the welfare state, but also how to ensure social cohesion, well-being, and a broader interpretation of what welfare is. This can be seen in the growing interest in happiness for people in different societies and the impact of this focus. It seems that a high level of social security and other related types of security are important measures related to the good life, thus the welfare state will presumably have a central role in this historical development.
By Bent Greve in "Historical Dictionary of the Welfare State", Rowman & Litlefield, USA, 2014. Adapted and illustrated to be posted by Leopoldo Costa.