How to Conceptualize the Welfare State

In the social sciences, there have been different approaches to studying welfare states. One such approach, which was proposed by the Swedish scholar Gosta Esping-Andersen (1992; SEE BIBL), distinguishes a variety of welfare regimes. According to this conceptualization, welfare states can be classified and analyzed in terms of their regime characteristics.

Problems and Difficulties when Conceptualizing the Welfare State

The challenge for any scientific theory about the welfare state lies in trying to explain (a) how the modern welfare state came about, and (b) how it evolved to its current complexity. At one point, states were primarily concerned with law and order, military affairs and the protection of rank and privilege. Today the modern state is primarily concerned with the distribution of well-being. How can this be explained? Different approaches have been taken, but problems have remained.

Some suggest that the welfare state is a function of the logic of industrialism. As societies modernized in the wake of the industrial revolution, traditional modes of providing welfare (extended families, charitable organizations, the activities of the church and local communities, the paternalism of the local nobility etc.) were no longer effective. Modern societies created a substitute for those traditional forms of assistance by establishing the modern welfare system. Others even suggested that the welfare states had to be created to save modern capitalism from an uprising of the impoverished masses who were the main victims of early industrialization. However, explanations like these fail to explain why welfare states have continued to grow in size and complexity. They also do not account for the variety of welfare regimes in existence today.

Other explanations have taken an institutionalist approach: By expanding the institutions of democracy such as the extension of suffrage to the poorer classes, the pressure of the ballot forced politicians to respond by devising mechanism to improve the lives of ordinary citizens. There is, however, little empirical support for this hypothesis. Welfare states often originated in conservative authoritarian states, such as imperial Germany under Bismarck, while welfare state development tended to lag behind in the liberal democracies, such as the US or Switzerland. Moreover, there are few empirical cases where the industrial working class ever had the voting strength (usually more than 50%) to determine national policy making. Leftist governments nearly always required a coalition of various social groups to expand welfare policies. In terms of assessing the performance of welfare states, a meaningful conceptualization would also have to provide qualitative and quantitative measures of the social system's size and effectiveness. In short, welfare state spending alone may be a misleading indicator, especially if a large share of such expenditures goes to privileged groups in society.

The Corporatist Welfare Regime (Social Insurance Model)

In continental Europe where the influence of the Catholic church and of the authoritarian conservative state was strongest, so-called corporatist welfare states developed. Among these, the German welfare model of Chancellor Otto von Bismarck is the best known.

Conservative welfare states were concerned with maintaining order and status. In order to accomplish this goal, social insurance funds (old age pension, health, unemployment, accident insurance) were set up that reward work performance and status. Traditionally, a female spouse would gain access only through the male bread winner, thus insuring the stability of the traditional family. Such public insurance funds were established and operated either by the government or, as in Germany and Austria, run by labor associations (e.g., the miners' insurance fund), which descended from the medieval guild system and 19th century mutual aid societies (note: an ordered system of self-governing interest associations that fulfill quasi public roles is called corporatist, hence the term corporatism). While such associations are formally independent from the government, they enjoy public status, which means that contributions to these funds are mandatory and usually deducted from payroll. While the contributions of workers are usually matched by employers, the insurance funds are often augmented by government transfers from the budget. An inter-generational contract ensures that the benefit recipients are always supported by the people currently employed. However, while pay-as-you-go-systems allow for the expansion of benefits as long as wage-levels and payroll deductions (by default) increase, they are vulnerable to demographic changes. A shrinking work force and an aging population can deplete funds rapidly, thus requiring a balancing in payroll taxes, which drives up labor costs, low-wage unemployment and additional infusions of scarce budgetary resources.

Often, social insurance funds have provided varying levels of benefits, depending on the status of the labor associations (blue collar, white collars, civil servant, etc.). States have traditionally ensured that, in terms of social benefits, civil servants are the most privileged group and, as a result, social cleavages were maintained and the status of occupational groups were reenforced. After World War II, many of these social insurance models have been expanded and left-of-center governments have sought to adjust benefit levels between the different funds. Yet, the corporatist welfare state remains a system of considerable social stratification. Moreover, a changing economic environment, in which life-time employment in traditional sectors of the economy is no longer guaranteed, has allowed an increasing number of workers to fall through the mesh of the welfare safety net. Particularly affected are women and foreign laborers, who often lack the requisite number of contribution years, as well as workers in part time jobs and new occupations.

Original Condition of the Corporatist Welfare State:

  • conservative, strong states
  • weak, liberal tradition
  • status conscious, middle and artisan class
  • strong presence of the Catholic Church

Advantages (+) of the Corporatist Welfare Regime/State:

  • enjoys high level of public support
  • allows benefit recipients to maintain their level of income
  • allows for private service system without rationing (e.g., in health care)
  • benefits increase as contributions increase
  • intermediate tax burden

Disadvantages (-) of the Corporatist welfare regime/state:

  • maintains and reenforces social cleavages
  • sensitive to employment conditions and demographics
  • drives up labor cost (payroll taxes) and low wage unemployment (in/out groups)
  • tends to penalize those in unstable, non-traditional or part-time job situations
  • often provides few benefits for those outside the insurance model (new poverty)

The Liberal Welfare Regime and the Beveridge System

The liberal welfare regime is characterized by means tested programs (a test to demonstrate need) and modest universal benefits which are based on public services or insurance schemes. It usually caters to a clientele consisting of the low income working class. The state generally encourages the market to act as a co-provider of benefits, partly by providing a low levelof public services. Because these benefits are also of poor quality, and carry a negative public stigma. Those welfare recipients who can often choose to opt out of the system, instead seeking a market solution that will provide high quality and stigma-free -- albeit more expensive -- health care and pension benefits. Private insurance and savings schemes are frequently supported by complementary state policies (e.g., tax credits, tax shelters).

There are two major problems with the liberal welfare regime: (a) it excludes the majority of voters from the enjoyment of welfare benefits, which makes welfare programs politically unpopular and, in the long run, unsustainable (poor services to poor and politically marginalized population segments); (b) it tends to create a two-class society, those depending on poor public services and a more affluent middle class that enjoys much better services provided by the market. While the United States comes closer to the liberal welfare regime than any other western welfare state, it is not a perfect example, as it employs also social insurance schemes (such as social security). In the liberal welfare states (to which the US, Canada, Australia, and Switzerland correspond more than other western countries), the middle class was not wooed from the market to the state. The historical dominance of the liberal idea retained skepticism of a strong state long enough until the middle class was strong enough that it felt the market could better satisfy its needs. Since the remaining public welfare state catered to the lower working class and the poor, a further expansion was arrested.

While descended from liberal roots, Britain has developed a model in which universal benefits and services were substantially expanded by a paternalistic state once concerned about the health of its fighting men and work force beyond minimum levels. This model, named after Lord Beveridge, sets general standards of care to which everybody is entitled.

Original Condition of the liberal/minimal Welfare State:

  • politically powerful middle/commercial class
  • liberal/anti-state political tradition
  • dominant position of the market
  • immigrant society or society with high potential to advance socially
  • weak state
  • Protestant tradition

Advantages (+) of the liberal/minimal Welfare Regime/State:

  • least sensitive to demographic changes in the population
  • low taxes
  • differentiated services
  • stimulates job growth, especially in low-skills sector

Disadvantages (-) of the liberal/minimal Welfare Regime/State:

  • high inequality, great social cleavages (two class society)
  • low level services for poor people
  • welfare state is politically unpopular and not sustainable
  • negative stigma attached to benefit recipient

Advantages (+) of the Beveridge Welfare Regime/State:

  • sets general standards of care
  • popular and universal
  • few social cleavages
  • relatively cost effective to maintain
  • has public employment effects
  • intermediate taxes
  • less sensitive to labor market pressures

Disadvantages (-) of the Beveridge Welfare Regime/State:

  • relative low benefit level by comparison (specifically pension, unemployment)
  • little economic stimulation
  • dependence on public budget
  • rationing of services is required (bottle neck effects)
  • lack of available choices

The Social Democratic/Scandinavian Welfare Regime

As the name suggests, social democracy has been the dominate political force in developing this universalistic welfare state that pervades all aspects of people's lives. It is within this system that the concept of social rights has been most fully realized, because the enjoyment of benefits and services is least dependent on a person's performance in the market and is, instead, commensurate to need. The Scandinavian welfare state is also characterized by its extensive service orientation (day care, elder care, home help, etc.). catering to even the most discriminating tastes of the middle class. Entitlements are generally the same across the board but the system is, nevertheless, tailored to differentiated expectations (e.g., benefits are graduated to income). Since the level of public services is so advanced, the state has, de facto, crowded out all private competition. In addition, the Scandianian welfare state tends to reduce class and income differences, while ensuring the highest possible level of service. Critics of the social democratic state have pointed to its enormous cost, resulting in a very high tax burden, and to its all-encompassing bureaucracy. Yet, studies have shown that the social democratic welfare state (Sweden, Danmark, Norway) is less susceptible to job losses in the low-skill sector than the continental model because the former is less dependent on payroll taxes. The latter, by contrast, tends to be funded by progressive income and value-added taxes. The social democratic welfare state came about as a result of a class alliance between the industrial working class and the small holders (a red-green alliance in the interest of full employment and farm price subsidies). It was expanded by a dominant social democratic party (left power mobilization) to adjust the welfare state to the growing expectations of an increasingly prosperous populace. The individualistic Protestant tradition prepared the ground for both the universalism and individualism of this welfare regime - universal access regardless of contribution, yet individually targeted depending on need.

Original Condition of the liberal/minimal Welfare State:

  • Protestant, liberal tradition with great regard for individualism and equality
  • cooperation between working and peasant class
  • dominant role of leftist parties in politics

Advantages (+) of the Social Democratic/Scandinavian Welfare Regime:

  • universality encourages support of population
  • high benefits, differentiated services
  • employment effects (services)
  • reduces social cleavages

Disadvantages (-) of the Social Democratic/Scandinavian Welfare Regime:

  • very complex to administer
  • expensive and bureaucratic
  • high tax burden
  • strong government orientation
  • pressure on budget because of high cost