Origin of the welfare state

Origin of the welfare state

• The welfare state emerged as a response to the problems generated by unfettered capitalism.
• It was the confluence of primarily two trends:
• The strong productive capacity of capitalism , resulting from the application of advanced technology.
• Advanced technology combined with capitalism creates big pies.
• Social and political struggles , especially the impact of universal suffrage.
• Social struggles ensured that a significant portion of the pie went to the people, something that capitalism does not achieve on its own.
• In addition, many other trends played an important role:
• Need for social stability, reformist socialism, religious ideas (Christianity), etc.
• As a result, the welfare state gradually replaced unfettered capitalism in advanced countries.
• In developed countries, the relative "monopoly" on the application of advanced technology allowed workers to achieve the welfare state, high wages, better working and living conditions, and so on. The cost was passed on to the products of these countries, but at that time, developed countries could not be displaced by competition from other countries because of their "monopoly" on advanced technology.
• But only in developed countries. Today, one- eighth of humanity lives with a welfare state. The rest have intermediate systems, but closer to unfettered capitalism.

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Background. Social policies

• Deliveries in Rome
• Jewish piety and Christian charity.
• Definition of neighbor.
• Poor Laws, 1601, Elizabeth I of England
• Poor disabled, capable, recalcitrant people.
• Land tax, collected by the parishes.
• https://www.parliament.uk/about/living-heritage/transformingsociety/livinglearning/coll-9-health1/
• Factory Acts , https://en.wikipedia.org/wiki/Factory_Acts​
• 1802 Apprentices' Health and Morals Act
• 1833 Factory Inspectors​
• 1847 10-hour law
• People's Act of 1867, extension of suffrage to workers urban
• Leo XIII, Rerum Novarum , 1891, https://www.vatican.va/content/leo-xiii/es/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum.html

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Clauss Offe: Contradictions in the Welfare State . Alianza, 1990.

Bismarck, cast; Beveridge, care

https://archivos.juridicas.unam.mx/www/bjv/libros/7/3120/4.pdf

Universal Declaration of Human Rights, Article 22, “Everyone, as a member of society, has the right to social security, …”

https://es.wikipedia.org/wiki/Modelo_Bismarck

https://es.wikipedia.org/wiki/Modelo_Beveridge

Bismarck, distribution system

• "Retention" policy against socialism, anti-socialist laws
• Lasalle, SPD, reformism, Bernstein. Nazism.
• 1883, Sickness Insurance
• 1884, Law on Work Accidents
• 1889, Compulsory retirement insurance
• 1891, Maximum working day of eleven and ten hours for women and children; prohibition of night work for both groups. Mandatory Sunday rest. Progressive income tax.
• https://archivos.juridicas.unam.mx/www/bjv/libros/7/3120/4.pdf

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Beveridge, care system

• Churchill.
• Letter to his wife on a trip to Germany about the glory of implementing social policies in the UK.
• In Parliament: “It is the chief glory of British conservatism, contrary to right-wing doctrines that have developed previously, that it adapts to changing circumstances. The Labour government’s reforms to the social security system have been generally accepted and even welcomed within our party.”
• Ernest Bevin , Churchill's minister of labour, requests the report.
• William Henry Beveridge, 1879-1963
• London School of Economics , Fabians.
• Report to the Parliament on Social Insurance and Allied Services , 1942, https://archive.org/details/in.ernet.dli.2015.275849
• Full Employment in a Free Society , 1944, https://archive.org/details/in.ernet.dli.2015.228995/

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The welfare state

The four pillars of the Welfare State

• Health
• Initially based on a universal and free system, it has evolved by incorporating mechanisms through which citizens partially contribute to the financing of these services.
• Pensions
• Contributory retirement pensions, and also provides coverage for other situations, such as widowhood, orphanhood or temporary disability.
• Education
• Universal and compulsory up to certain levels, it also receives subsidies at secondary and higher levels.
• Social services
• Assistance in cases where contributory benefits have not been achieved, or to provide support in situations such as dependency.

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Models of Welfare States

• Scandinavian Model:
• In this model, the government plays a very active role in providing social services and ensures a high degree of equality through wealth redistribution. Although taxes in these countries are high, citizens have access to a wide range of public services and a robust social security system.
• Examples: Denmark, Norway, Sweden, Iceland, Finland.
• Anglo-Saxon Model:
• Although some social programs exist, state intervention is more limited, and greater emphasis is placed on individual responsibility. Private markets play a more significant role in the provision of services such as health and education. Social policies in these countries tend to focus on alleviating poverty and reducing the most severe inequalities.
• Examples: United Kingdom, Ireland.
• Continental Model:
• This model is characterized by greater social protection based on principles of social security and social welfare. Unlike Scandinavian models, services are more closely linked to employment and contributions from both workers and employers. Although access to services such as healthcare and pensions is not entirely universal, it is based on principles of solidarity.
• Examples: Germany, Austria, France, Belgium, Netherlands, Luxembourg.
• Southern European Model:
• Social welfare in these countries has historically been more limited compared to Northern Europe. Although social security systems exist, resources are more restricted, and programs tend to focus on assisting the most vulnerable sectors during crises.
• Examples: Spain, Greece, Italy, Portugal.
• Other classifications (Esping-Andersen):
• Social Democrat: Sweden, Norway, Denmark.
• Liberal: USA, UK, Ireland, Australia.
• Conservative-corporate: Germany, France, Austria, Belgium, Italy.
• Subsequent extensions:
• Mediterranean / family-oriented : Spain, Italy, Greece, Portugal.
• Productivist / Confucian: Japan, South Korea, Taiwan.

Problems of capitalism alleviated by the �Welfare State

• Global objectives
• Inequality.
• It serves as a partial redistribution. It is a form of indirect salary.
• Inefficiency.
• Dole.
• Instability, economic cycles
• By dedicating part of the production to non-productive purposes, it reduces instability and crises.
• Dehumanization.
• By dedicating resources outside the logic of profit to social spending, it achieves a certain humanization of the allocation.

Consequences of the Welfare State

• Improved Quality of Life :
• Ensuring access to services such as health, education, and housing raises the well-being of the population, which, in turn, contributes to a more balanced and productive society.
• Reduction of Inequalities :
• By redistributing wealth and ensuring equitable access to essential services, the Welfare State helps to significantly mitigate economic and social disparities.
• Stability and social cohesion :
• By offering a safety net that protects citizens from common risks such as unemployment, illness or old age, the Welfare State promotes social stability, providing people with a sense of security and reducing their vulnerability to extreme poverty.
• The implementation of welfare policies fosters a sense of solidarity and unity, which strengthens social relationships and increases trust among community members.

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Social spending in the world

https://en.wikipedia.org/wiki/Welfare_state

https://elordenmundial.com/mapas-y-graficos/el-mapa-de-la-proteccion-social-en-el-mundo/

Evolution of public spending in the UK

• Thatcher governed between 1979 and 1990.

Spain

• Commission for Social Reforms, Institute of Social Reforms, 1883-, https://es.wikipedia.org/wiki/Comisi%C3%B3n_de_Reformas_Sociales
• Cánovas del Castillo, 1890.
• “For example, Alberto Bosch y Fustegueras , from the conservative faction of Francisco Romero Robledo, spoke out against limiting the working hours of women and children with the following argument:
• Limiting work is the most odious and strangest of tyrannies; limiting children's work hinders technological education and learning; limiting women's work... even prevents mothers from making the most beautiful of sacrifices... the sacrifice sometimes indispensable to maintain the family home.
• When, at the end of 1890, President Cánovas del Castillo spoke at the Ateneo of Madrid about the need for state intervention to resolve the social question, citing the inadequacy of moral attitudes—the charity of the rich and the resignation of the poor—the traditionalist Catholic thinker Juan Manuel Ortí y Lara accused him of “falling into the abyss of socialism, violating the principles of justice, which enshrine the right to property,” then praising “the profession of begging, [which] is not repugnant to religion; on the contrary, religion has sanctioned it… and ennobles it. […] The spectacle of begging… [fosters] the Christian spirit.”
• National Institute of Social Security, 1908, voluntary insurance
• Workers' Retirement, 1919, mandatory
• Basic Law on Social Security, 1967
• 1975 onwards, universalization of the Welfare State.
• Ernest Lluch, Minister of Health, General Health Law, 1986, universal healthcare, https://www.elplural.com/politica/espana/cumplen-34-ministro-socialista-ernest-lluch-puso-bases-sanidad-publica_238518102

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The crisis of the Welfare State

Defects due to not having been designed

• Advanced capitalist systems with welfare states are the most humane societies that humanity has ever known.
• Currently, it is enough to compare them with China, India, Africa or Latin America.
• If we look at other societies of the past, the situation is also clear, including those same welfare states decades ago.
• But under the current conditions they cannot be maintained because they have serious defects.
• Advanced capitalist systems with welfare states were not consciously designed .
• They are the result of a confluence of trends; they have not been the result of a prior plan, not even in the case of the United Kingdom.
• The productive force of capitalism, which has allowed the pie to get big.
• Social struggles have allowed the people to take a significant portion of that pie.
• This leads to serious structural failures.
• First, they apply to one-eighth of humanity; the rest could eventually compete without the cost and displace them.
• Second, they are still capitalist systems with many of their problems (crisis, inefficiency, particularism, dehumanization).
• Furthermore, the welfare state has a huge cost, and the budget deficit to maintain it is unsustainable in the medium term.

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Problems of welfare states

• These failures put welfare states in serious danger.
• Internal problems.
• 1. Inefficiencies in its operation, bureaucratization.
• Economic calculation, planning, administration.
• 2. Demography, family structures.
• Changes in family patterns.
• Integration of immigrants.
• External problems.
• 3. The cost of maintaining them makes the countries that enjoy them less competitive.

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1. Welfare state and internal inefficiency

Problems: economic calculation

• Welfare states face the difficulty of establishing effective economic calculations. They are once again confronted with the economic problem:
• How to set the goal.
• How to set restrictions.
• How to do the calculation.
• How to put the calculations into practice.
• In some ways, it's a situation somewhat similar to what happened in the USSR, although much less severe. Both systems involve a great deal of administrative allocation.
• For example, there's the problem of setting the objective, of properly weighing a particular action in order to compare it with its associated costs, and thus determine its advisability. Managers sometimes lack clear guidelines on which to base this determination.
• In public healthcare it is not obvious whether resources should be dedicated to lung diseases or heart diseases.
• This is nuanced by electoral systems, social pressure, freedom of the press, and political "alternation" (an aspect absent in the USSR), which push politicians to try for a certain efficiency in their policies in order to remain in power.
• Also, unlike in the USSR, many costs are set at market prices, for example, the necessary materials. It is the objectives that are more difficult to establish.
• In addition, there is the problem of the potential abuse of public services and goods by users if these have a zero or very cheap price.

Problems: lack of competition

• Many of the institutions in the welfare state are not subject to market competition; they do not have to maximize profit to survive in the market.
• Indeed, the great virtue and the great flaw of the welfare state is that it is not subject to competition.
• This is a great virtue, because the welfare state can allocate resources differently than profit maximization, allowing human needs to be met, something that private companies cannot do.
• It is a major flaw, because without the pressure of competition it is common for patterns of internal inefficiency to emerge, leading to considerable waste, the proliferation of bureaucracies, and in some cases, corruption.
• In private companies, inefficiency is punished with bankruptcy, except in the case of monopolies or oligopolies. This is not the case in a welfare state.
• For example, when professionals working in the healthcare system are consulted, many point to these inefficiencies.

Example: opinion of doctors in Madrid

Sara Tena, Economic crises, healthcare systems and health , https://hdl.handle.net/20.500.14352/10878

Problems: fragmentation of the labor market

• In Spain, public sector workers have greater bargaining power than those in the private sector, which sometimes leads to a fragmented labor market with very different conditions. Public sector workers enjoy significantly higher salaries and benefits than those in the private sector.
• This situation is perceived as a certain parasitism of public sector workers with respect to private sector workers.

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https://www.ine.es/prensa/epa_2021_d.pdf

2. Welfare state and demography

Gosta -Esping Andersen

• https://archive.org/details/globalizationwel0000unse/page/50/mode/2up
1. Impact of accelerated economic internationalization
2. Population aging
3. Family change and women's new economic role

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• Crisis. Gender equality , 2011, https://www.cccb.org/es/multimedia/videos/crisis-la-igualdad-de-genero/212195
• The participation of society in the welfare state of the 21st century , 2008, https://uom.uib.cat/digitalAssets/311/311236_ballester_lectura1.pdf

Welfare state, Demographics and family structure

Long-term population dynamics; stationary population

The stationary population is the population pyramid structure that corresponds to long-term evolution, if survival and reproduction rates remain constant.

• The pyramid shown in red represents the survival and reproduction rates of the Spanish population (women only) in 1963. This population has a growth factor of 1.047 per five-year period, which is equivalent to an annual growth rate of 0.92%. This population would double every 75 years.
• The population pyramid shown in green would show the population if reproduction rates were divided by 1,346. The population would remain in a steady state.
• The pyramid in blue shows what it would look like if reproduction rates were halved, resulting in a five-year factor of 0.941, which corresponds to an annual growth rate of -1.2%, meaning the population would be halved every 34 years.

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Real population pyramid. �Spain, 1950 to 2015

https://es.wikipedia.org/wiki/Demograf%C3%ADa_de_Espa%C3%B1a

Real population pyramid. �Spain 1963

https://datosmacro.expansion.com/demografia/estructura-poblacion/espana

Real population pyramid. �Spain 2022

To see the evolution in recent years, consult https://www.ine.es/covid/piramides.htm

At https://www.populationpyramid.net/spain/ you can consult the pyramids from 1950 onwards, with forecasts up to 2100

The pyramids from 1900 to 2012 can be found at https://www.youtube.com/watch?v=LAHQLoCdjgo .

3. Welfare state, internationalization and tax pressure

Welfare state, cost and prices

• The welfare state is enormously expensive, and its cost has increased over time.
• Bismarck's insurance policies were even sources of income for the state.
• The current age structure means that pension and healthcare costs are extremely high today.
• Countries with welfare states and better living conditions have to face the enormous costs involved, through high wages and high taxes.
• These high wages and taxes mean that the international prices of goods from those countries must also be high.
• The products of those high-priced countries would be unable to compete in the international market with those of countries that do not have to face high wages or welfare states, even if they could produce the same products. The only way for high wages, welfare states, and better living conditions to be maintained in the countries that enjoy them is for those countries not to face competition from countries that do not.
• Until now, countries with welfare states are the only ones that can produce with high technology, because for this it is necessary that their workers have a qualification that workers in other countries do not have.
• But if countries without a welfare state and with a low standard of living could ensure their workers had the necessary qualifications, they could also produce high-tech products, and thereby displace advanced countries due to their lower prices.

Tax burden in the world (2017)

Tax burden; tax breakdown (2021)

https://cincodias.elpais.com/cincodias/2022/11/30/economia/1669813506_779922.html

Evolution of Public Spending in Spain

https://datosmacro.expansion.com/estado/gasto/espana#:~:text=El%20gasto%20p%C3%BAblico%20en%20Espa%C3%B1a,50%2C6%25%20del%20PIB .

State and Social Security revenues and expenditures in Spain 2023

Go to https://dondevanmisimpuestos.es/resumen#year=2023

Deficit and public debt in the EU

https://www.europapress.es/economia/macroeconomia-00338/noticia-deficit-eurozona-cerro-2021-51-deuda-956-pib-20220422111229.html

Technology

• China is ahead of the US in 37 of the 44 key technologies for world domination: https://www.elconfidencial.com/tecnologia/2023-03-02/china-eeuu-hipersonicos-ia-inteligencia-artificial-procesadores_3585456/ . “Western democracies are losing the global competitive edge.”
• China's technological advances put the US Congress on alert, https://www.vozdeamerica.com/a/los-avances-tecnologicos-de-china-ponen-al-congreso-de-eeuu-en-guardia/7189289.html
• Made in China 2025: This is the ambitious Chinese technology plan that threatens US dominance, https://www.forbes.com.mx/made-in-china-2025-asi-es-el-ambicioso-plan-tecnologico-chino-que-amenaza-el-dominio-de-eu/

Productivity and quality of life. �The size of the pie is not guaranteed.

• A common misconception is that a country's productivity is determined by its technology and its workers' ability to apply it, and that a country's wealth depends on its productivity.
• But productivity is not a physical quantity but a value . Productivity, the size of the pie per person (or per hour of work), obviously depends on the size of the pie; but the pie is measured in price, not in physical quantities.
• Countries with high productivity are so because their products have a high price, not because they physically produce more.
• It is perfectly possible, then, that a country with a given physical production may be poor because the price of its products is low, and that the same country with that same physical production may become rich because the price of its products rises significantly.
• Example: Saudi Arabia, due to the increase in the price of oil; from a real GDP per capita of $2,800 in 1950 to $58,000 in 1980. Another example is Botswana, due to the rise in the price of diamonds.
• Similarly, it is possible for a country with a given physical production to be rich because the price of its products is high, and for that same country with that same physical production to become poor because the price of its products falls significantly.
• Example: Nauru, due to the decrease in the price of phosphates; from a real GDP per capita of $39,600 in 1970 to $6,091 in 2000. Another example is Venezuela, due to the decrease in the price of oil in the 1980s and 1990s.
• Consequently, the wealth of developed countries is not guaranteed . If their products fall in price due to competition from developing countries that have managed to produce them, rich countries will become poor.
• Even if physical production doesn't change, the pie may shrink in size in terms of price, which is what matters.
• And if the cake gets smaller, it will be very difficult for people not to take a smaller portion as well.

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Attempts to reform the welfare state

Welfare state reforms

• It is clear that problems of economic calculation, demographic issues, and the challenges arising from the globalization of the economy necessitate a reform of current welfare states if they are to be sustainable. A perestroika is essential for modern welfare states if they are to survive.
• In some countries, such as Sweden, some of these reforms have been implemented. They have attempted to improve efficiency through public-private partnerships, or to address the demographic problem with family support policies.
• But in other countries, resistance to change is enormous, and there even seems to be no awareness of its necessity.
• However, even assuming that these internal reforms could be carried out and be successful, they will not be able to overcome the difficulty generated by the difference between countries.
• Welfare states, even though they are a band-aid solution to capitalism, do manage to partially humanize the distribution of resources. But they will not be able to continue doing so in the medium term unless they are extended to other countries.

Example: New Swedish model

“Since the great crisis of the early 1990s, Sweden has undergone a significant series of reforms to modernize its aging welfare state, aiming to create welfare systems based on public-private partnerships and broad citizen choice. This has led to the creation of what could be called a “new Swedish model,” which is now a global pioneer and whose existence largely explains Sweden’s remarkable recent economic successes without sacrificing the foundation of fairness and equality that characterizes its social system.”

“The great crisis of the early 1990s was the starting point for a quest to rebuild the welfare state model, based on the understanding that to sustain a high level of social solidarity and public responsibility, it was necessary to rethink the very foundations upon which that state had been built. To this end, Sweden, with a strong underlying political consensus regarding the need for and direction of the reforms, undertook a profound reconstruction of its welfare state, which today makes it a true pioneer in Europe, particularly for its progress in integrating a very high level of public responsibility for the well-being of its people with broad citizen freedom of choice and the full incorporation of business, pluralism, and competition in the provision of public welfare services.”

The change made can be summarized in three rubrics:

From public management to public accountability

From monopoly to pluralism

From administrative allocation to freedom of choice

Sweden's old welfare state was characterized by providing citizens with a very broad range of benefits, but one over which they had very little direct influence and even less freedom of choice. This state directly managed the services it allocated to citizens, aiming to "give everyone the same." The new welfare state, which emerged from reforms initiated in the 1990s, affirms public accountability instead of public management, pluralism instead of monopoly, and freedom of choice instead of administrative allocation. These are the principles that, for example, have guided the extensive reforms of the public education and healthcare sectors, affirming a strong public responsibility to ensure that no one lacks access to quality education or healthcare, but not at the expense of a plurality of providers or citizens' freedom of choice. The understanding, therefore, is that guaranteeing access for all to certain services like education and healthcare is not the same as ensuring that the public sector is the sole provider.

https://es.wikipedia.org/wiki/Estado_de_bienestar_en_Suecia

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The need to act

Recapitulation

• Today, one billion people live in capitalist systems with welfare states, and seven billion live in less advanced capitalist systems.
• Advanced capitalist systems with welfare states are the most humane societies to date.
• But under current conditions they cannot be maintained because they have serious design flaws
• First, they apply to one-eighth of humanity; the rest can compete without their cost and displace them.
• Second, they are still capitalist systems with many of their problems (crisis, inefficiency, dehumanization)
• In addition, there are internal problems, such as the demographic one that makes it difficult to maintain the health and pension system.
• These failures put welfare states in serious danger.

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Conclusion

• Marx thought that the “contradictions” of capitalism (periodic crises, inequality, concentration of capital, etc.) would lead to the advent of socialism.
• But Darwin taught us that biological societies have not evolved towards socialism, but towards extreme productivism.
• Marx was wrong. The “natural” evolution of societies, both biological and human, points towards productivism.
• Darwin was right. More efficient societies tend to displace less efficient ones.
• The “natural” or “spontaneous” evolution of human societies points towards a Darwinian system, towards savage capitalism, not towards socialism.
• (We already saw that PM1 evolves into PM2.)

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Conclusion

• But we have intelligence and we can escape that fate.
• However, we will need profound reforms to avoid falling into a savage capitalism.
• And these reforms will have to encompass all of humanity. Welfare states cannot be sustained only in developed countries; extreme inequality between countries cannot be sustained.
• But we will need the market (and competition) to be able to allocate.
• We return to the dilemma of our time: how to use the market without falling into the dictatorship of profit?

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